HCA Reports Second Quarter 2005 Results of $0.90 per Diluted Share

NASHVILLE, Tenn., July 27 /PRNewswire-FirstCall/ -- HCA today announced results for its second quarter ended June 30, 2005. Net income for the second quarter of 2005 was $405 million, or $0.90 per diluted share, compared to $352 million, or $0.72 per diluted share, in the previous year's second quarter. The Company's results for the second quarter include the following:

- favorable tax settlement related to the Company's divestiture of certain non-core business units in 1998 and 2001 of $48 million, or $0.11 per diluted share; - recognition of a previously deferred gain on the Company's sale of certain medical office buildings (the MedCap properties) of $29 million pretax, or $0.04 per diluted share; and - additional depreciation expense of $30 million, or $0.04 per diluted share, to correct accumulated depreciation and assure a consistent application of the Company's accounting policy relative to certain short-lived medical equipment.

Also, the Company recognized a reduction in its estimated professional liability insurance reserves of $36 million pretax, or $0.05 per diluted share, during the second quarter of 2005. Results for the second quarter of 2004 included a reduction in estimated professional liability reserves of $59 million pretax, or $0.07 per diluted share. The adjustments to insurance reserves reduce "other operating expenses" in the Company's consolidated income statement.

Same facility admissions in the second quarter of 2005 decreased 0.3 percent and same facility equivalent admissions, which take into account outpatient volume, increased 1.2 percent compared to the second quarter of 2004.

Same facility revenues rose 4.3 percent to $6.0 billion in the second quarter of 2005 and same facility revenue per equivalent admission increased 3.1 percent compared to the prior year's second quarter. Adjusting for discounts provided to uninsured patients of $183 million, same facility revenues increased 7.5 percent and same facility revenue per equivalent admission increased 6.2 percent in the second quarter of 2005 compared to the second quarter of 2004. The Company also provided $275 million in charity care in the second quarter of 2005 compared to $232 million in last year's second quarter.

"Although the second quarter of 2005 results include the previously mentioned items that affected several lines of our income statement, I believe the results reflect a solid quarter with soft inpatient volume in some markets, exceptional expense management, reasonable pricing growth and a slight increase in bad debt expense," stated Jack O. Bovender, HCA's Chairman and CEO.

The provision for doubtful accounts in the second quarter of 2005 was $541 million, or 8.9 percent of revenues, compared to $661 million, or 11.3 percent of revenues, in the second quarter of 2004. Adjusting for the effect of the uninsured discounts provided to the uninsured during the quarter, the provision for doubtful accounts for the second quarter of 2005 would be $725 million, or 11.6 percent of revenues. The Company's uninsured discount policy lowers revenues and the provision for doubtful accounts by generally corresponding amounts. Uninsured patient admissions increased 5.1 percent in the second quarter of 2005 compared to the prior year period.

Same facility emergency room visits increased 3.4 percent in the second quarter of 2005, compared to the same period of 2004. The same facility outpatient surgeries increase of 1.2 percent was comprised of hospital based outpatient surgical procedures which increased 1.0 percent and free-standing outpatient surgical procedures which increased 1.7 percent, on a same facility basis.

Revenues for the six months ended June 30, 2005 were $12.3 billion compared to $11.8 billion in the same period of 2004. Net income totaled $819 million, or $1.84 per diluted share, for the six months ended June 30, 2005 compared to $697 million, or $1.41 per diluted share, for the six months ended June 30, 2004.

Cash Flow and Balance Sheet

HCA's cash flow from operations increased 11.9 percent to $763 million in the second quarter of 2005 compared to $682 million in the second quarter of 2004.

As of June 30, 2005, the Company's balance sheet reflected total debt of $9.4 billion, stockholders' equity (including common and minority equity) of $6.9 billion and total assets of $21.7 billion. HCA's ratio of debt to debt plus common and minority equity was 57.5 percent at June 30, 2005, compared to 61.7 percent at March 31, 2005 and 66.9 percent at December 31, 2004.

The Company had 452.0 million common shares outstanding at June 30, 2005, compared to 441.2 million shares at March 31, 2005 and 422.6 million shares at December 31, 2004.

Status of Asset Sales

A definitive agreement was signed with LifePoint Hospitals, Inc. for their purchase of five hospitals located in Virginia and West Virginia for $285 million, plus other adjustments and working capital valued at approximately $45 million at March 31, 2005. A definitive agreement was also signed with Capella Healthcare, a newly formed company headed by former executives of Province Healthcare, for their purchase of five hospitals located in Tennessee, Oklahoma, Louisiana and Washington for approximately $260 million, inclusive of working capital. The divestitures are subject to customary regulatory approvals and are expected to be completed in the fourth quarter of 2005.

Earnings Guidance for 2005

With today's announcement, the Company is reaffirming its earnings guidance for 2005 of $3.05 to $3.20 per diluted share, excluding gains on sales of assets, impairments and tax settlements.

Facilities at Quarter End

At June 30, 2005, the Company operated 190 hospitals and 92 freestanding surgery centers (including seven hospitals and eight freestanding surgery centers operated through equity method joint ventures) located in 23 states, London, England and Geneva, Switzerland compared to 190 hospitals and 91 freestanding surgery centers (including seven hospitals and nine freestanding surgery centers operated through equity method joint ventures) at June 30, 2004.

Earnings Conference Call

HCA will host a conference call for investors to discuss second quarter results at 8:30 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 and through the next year. The webcast can be accessed via the following link: http://phx.corporate-ir.net/phoenix.zhtml?p=irol- eventDetails&c=63489&eventID=1098761 or on the Investor Relations page at http://www.hcahealthcare.com/.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements based on current management expectations. Those forward-looking statements include all statements regarding our estimated results of operations for future periods and 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, (i) increases in the amount and risk of collectability of uninsured accounts and deductibles and co-pay amounts for insured accounts, (ii) the ability to achieve operating and financial targets, achieve expected levels of patient volumes and control the costs of providing services, (iii) the highly competitive nature of the health care business, (iv) the efforts of insurers, health care providers and others to contain health care costs, (v) possible changes in the Medicare, Medicaid and other state programs that may impact reimbursements to health care providers and insurers, (vi) the ability to attract and retain qualified management and other personnel, including affiliated physicians, nurses and medical support personnel, (vii) potential liabilities and other claims that may be asserted against the Company, (viii) fluctuations in the market value of the Company's common stock, (ix) the impact of the Company's charity care and uninsured discounting policy changes, (x) changes in accounting practices, (xi) changes in general economic conditions, (xii) the ability to consummate the divestitures of the ten hospitals on the terms set forth in the definitive agreements (xiii) future divestitures which may result in charges, (xiv) changes in revenue mix and the ability to enter into and renew managed care provider arrangements on acceptable terms, (xv) the availability and terms of capital to fund the expansion of the Company's business, (xvi) changes in business strategy or development plans, (xvii) delays in receiving payments for services provided, (xviii) the possible enactment of Federal or state health care reform, (xix) the outcome of pending and any future tax audits, appeals and litigation associated with the Company's tax positions, (xx) the outcome of the Company's continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures and the Company's corporate integrity agreement with the government, (xxi) changes in Federal, state or local regulations affecting the health care industry, (xxii) the ability to develop and implement the payroll and human resources information systems within the expected time and cost projections and, upon implementation, to realize the expected benefits and efficiencies, (xxiii) maintaining the increased quarterly cash dividend rate for the entire fiscal year, and (xxiv) other risk factors detailed in the Company's filings with the SEC. Many of the factors that will determine the Company's future results are beyond the ability of the Company 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. The Company undertakes 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 document refer to HCA Inc. and its affiliates.

HCA Inc. Consolidated Income Statements Second Quarter (Dollars in millions, except per share amounts) 2005 2004 Amount Ratio Amount Ratio Revenues $6,070 100.0 % $5,833 100.0 % Salaries and benefits 2,463 40.6 2,334 40.0 Supplies 1,042 17.2 967 16.6 Other operating expenses 981 16.2 891 15.3 Provision for doubtful accounts 541 8.9 661 11.3 Gains on investments (22) (0.4) (18) (0.3) Equity in earnings of affiliates (53) (0.9) (53) (0.9) Depreciation and amortization 364 6.0 315 5.4 Interest expense 165 2.7 136 2.3 Gains on sales of facilities (29) (0.5) - - 5,452 89.8 5,233 89.7 Income before minority interests and income taxes 618 10.2 600 10.3 Minority interests in earnings of consolidated entities 49 0.8 35 0.6 Income before income taxes 569 9.4 565 9.7 Provision for income taxes 164 2.7 213 3.7 Net income $405 6.7 $352 6.0 Diluted earnings per share $0.90 $0.72 Shares used in computing diluted earnings per share (000) 451,731 490,261 Consolidated Income Statements For the Six Months Ended June 30, 2005 and 2004 (Dollars in millions, except per share amounts) 2005 2004 Amount Ratio Amount Ratio Revenues $12,252 100.0 % $11,770 100.0 % Salaries and benefits 4,906 40.0 4,667 39.7 Supplies 2,093 17.1 1,947 16.5 Other operating expenses 1,953 15.9 1,842 15.6 Provision for doubtful accounts 1,115 9.1 1,355 11.5 Gains on investments (31) (0.2) (28) (0.2) Equity in earnings of affiliates (106) (0.9) (99) (0.8) Depreciation and amortization 701 5.7 618 5.2 Interest expense 329 2.7 271 2.3 Gains on sales of facilities (29) (0.2) - - 10,931 89.2 10,573 89.8 Income before minority interests and income taxes 1,321 10.8 1,197 10.2 Minority interests in earnings of consolidated entities 89 0.7 73 0.7 Income before income taxes 1,232 10.1 1,124 9.5 Provision for income taxes 413 3.4 427 3.6 Net income $819 6.7 $697 5.9 Diluted earnings per share $1.84 $1.41 Shares used in computing diluted earnings per share (000) 443,739 493,941 HCA Inc. Supplemental Operating Results Summary (Dollars in millions, except per share amounts) For the Six Months Ended June 30, Second Quarter 2005 2005 2004 2005 2004 Revenues $6,070 $5,833 $12,252 $11,770 Net income $405 $352 $819 $697 Gains on sales of facilities (net of tax) (18) - (18) - Tax settlement (48) - (48) - Net income, excluding gains on sales of facilities and tax settlement(a) 339 352 753 697 Depreciation and amortization 364 315 701 618 Interest expense 165 136 329 271 Minority interests in earnings of consolidated entities 49 35 89 73 Provision for income taxes 201 213 450 427 Adjusted EBITDA (a) $1,118 $1,051 $2,322 $2,086 Diluted earnings per share: Net income $0.90 $0.72 $1.84 $1.41 Gains on sales of facilities (0.04) - (0.04) - Tax settlement (0.11) - (0.11) - Net income, excluding gains on sales of facilities and tax settlement (a) $0.75 $0.72 $1.69 $1.41 Shares used in computing diluted earnings per share (000) 451,731 490,261 443,739 493,941 (a) Net income, excluding gains on sales of facilities and tax settlement and adjusted EBITDA are non-GAAP financial measures. The Company believes that net income excluding, gains on sales of facilities and tax settlement and adjusted EBITDA are important measures that supplement discussions and analysis of the Company's results of operations. The Company believes that it is useful to investors to provide disclosures of its results of operations on the same basis as that used by management. HCA's management relies upon net income, excluding gains on sales of facilities and tax settlement 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 Company's overall performance (including net income, excluding gains on sales of facilities and tax settlement, GAAP net income and GAAP EPS) and operating performance of the Company's health care facilities (adjusted EBITDA). Adjusted EBITDA and the adjusted EBITDA margin (adjusted EBITDA divided by revenues) are utilized by management and investors to compare the Company's current operating results with the corresponding periods during the previous year and to compare the Company's operating results with other companies in the health care industry. The Company recorded gains on sales of facilities and a tax settlement during the second quarter of 2005. It is reasonable to expect that gains on sales of facilities and tax settlements will occur in future periods, but the amounts recognized for these items can vary significantly from quarter to quarter, do not directly relate to the ongoing operations of the Company's health care facilities and complicate quarterly comparisons of the Company's results of operations and operations comparisons with other health care companies. Net income, excluding gains on sales of facilities and tax settlement and adjusted EBITDA are not measures of financial performance under accounting principles generally accepted in the United States, and should not be considered as alternatives to net income as a measure of operating performance or to cash flows from operating, investing and financing activities as a measure of liquidity. Because net income, excluding gains on sales of facilities and tax settlement and adjusted EBITDA are not measurements determined in accordance with generally accepted accounting principles and are susceptible to varying calculations, net income, excluding gains on sales of facilities and tax settlement and adjusted EBITDA, as presented, may not be comparable to other similarly titled measures presented by other companies. HCA Inc. Supplemental Non-GAAP Disclosures Operating Measures Adjusted For the Impact of Discounts for the Uninsured Second Quarter 2005 (Dollars in millions, except revenue per equivalent admission) Reported Uninsured Non-GAAP GAAP % Non-GAAP % GAAP Discount Adjusted of Adjusted Amounts Adjustment(a) Amounts(b) Revenues Revenues Reported: 2005 2004 2005 Revenues $6,070 $184 $6,254 100.0% 100.0% 100.0% Salaries and benefits 2,463 - 2,463 40.6% 40.0% 39.4% Supplies 1,042 - 1,042 17.2% 16.6% 16.7% Other operating expenses 981 - 981 16.2% 15.3% 15.5% Provision for doubtful accounts 541 184 725 8.9% 11.3% 11.6% Admissions 407,600 407,600 Equivalent admissions 619,700 619,700 Revenue per equivalent admission $9,795 $10,092 % change from prior year 2.6% 5.7% Same Facility: Revenues $6,010 $183 $6,193 Admissions 406,300 406,300 Equivalent admissions 613,900 613,900 Revenue per equivalent admission $9,790 $10,087 % change from prior year 3.1% 6.2% (a) Represents the impact of the discounts for the uninsured for the period. On January 1, 2005, HCA modified its policies to provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans. In implementing the discount policy HCA first attempts to qualify uninsured patients for Medicaid, other Federal or state assistance or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied. (b) Revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission have been adjusted to exclude the discounts under HCA's uninsured discount policy (non-GAAP financial measures). The Company believes that these non-GAAP financial measures are useful to investors to provide dis- closures of its results of operations on the same basis as that used by management. Management uses this information to compare revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission for periods prior and subsequent to the January 1, 2005 implementation of the uninsured discount policy. Management finds this information to be useful to enable the evaluation of revenue and certain expense category trends that are influenced by patient volumes and are generally analyzed as a percentage of net revenues. These non-GAAP financial measures should not be considered an alternative to GAAP financial measures. The Company believes this supplemental information provides it and the users of its financial statements with useful information for period-to-period comparisons. Investors are encouraged to use GAAP measures when evaluating the Company's overall financial performance. HCA Inc. Supplemental Non-GAAP Disclosures Operating Measures Adjusted For the Impact of Discounts for the Uninsured Six Months Ended June 30, 2005 (Dollars in millions, except revenue per equivalent admission) Reported Uninsured Non-GAAP GAAP % Non-GAAP % GAAP Discount Adjusted of Adjusted Amounts Adjustment(a) Amounts(b) Revenues Revenues Reported: 2005 2004 2005 Revenues $12,252 $293 $12,545 100.0% 100.0% 100.0% Salaries and benefits 4,906 - 4,906 40.0% 39.7% 39.1% Supplies 2,093 - 2,093 17.1% 16.5% 16.7% Other operating expenses 1,953 - 1,953 15.9% 15.6% 15.5% Provision for doubtful accounts 1,115 293 1,408 9.1% 11.5% 11.2% Admissions 840,200 840,200 Equivalent admissions 1,256,100 1,256,100 Revenue per equivalent admission $9,754 $9,987 % change from prior year 2.4% 4.9% Same Facility: Revenues $12,143 $291 $12,434 Admissions 837,500 837,500 Equivalent admissions 1,248,800 1,248,800 Revenue per equivalent admission $9,724 $9,957 % change from prior year 2.7% 5.2% (a) Represents the impact of the discounts for the uninsured for the period. On January 1, 2005, HCA modified its policies to provide discounts to uninsured patients who do not qualify for Medicaid or charity care. These discounts are similar to those provided to many local managed care plans. In implementing the discount policy HCA first attempts to qualify uninsured patients for Medicaid, other Federal or state assistance or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied. (b) Revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission have been adjusted to exclude the discounts under HCA's uninsured discount policy (non-GAAP financial measures). The Company believes that these non-GAAP financial measures are useful to investors to provide dis- closures of its results of operations on the same basis as that used by management. Management uses this information to compare revenues, the provision for doubtful accounts, certain operating expense categories as a percentage of revenues and revenue per equivalent admission for periods prior and subsequent to the January 1, 2005 implementation of the uninsured discount policy. Management finds this information to be useful to enable the evaluation of revenue and certain expense category trends that are influenced by patient volumes and are generally analyzed as a percentage of net revenues. These non-GAAP financial measures should not be considered an alternative to GAAP financial measures. The Company believes this supplemental information provides it and the users of its financial statements with useful information for period-to-period comparisons. Investors are encouraged to use GAAP measures when evaluating the Company's overall financial performance. HCA Inc. Condensed Consolidated Balance Sheets (Dollars in millions) June 30, March 31, December 31, ASSETS 2005 2005 2004 Current assets: Cash and cash equivalents $463 $144 $129 Accounts receivable, less allowance for doubtful accounts 3,214 3,254 3,083 Inventories 580 577 577 Deferred income taxes 464 458 467 Other 370 484 427 5,091 4,917 4,683 Property and equipment, at cost 20,344 20,216 19,970 Accumulated depreciation (9,160) (8,888) (8,574) 11,184 11,328 11,396 Investments of insurance subsidiary 1,997 1,953 2,047 Investments in and advances to affiliates 556 611 486 Goodwill 2,622 2,579 2,540 Deferred loan costs 92 96 99 Other 176 205 214 $21,718 $21,689 $21,465 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $832 $842 $855 Accrued salaries 578 581 579 Other accrued expenses 1,255 1,298 1,254 Long-term debt due within one year 560 486 486 3,225 3,207 3,174 Long-term debt 8,800 9,372 10,044 Professional liability risks 1,303 1,326 1,283 Deferred taxes and other liabilities 1,472 1,664 1,748 Minority interests in equity of consolidated entities 801 789 809 Stockholders' equity 6,117 5,331 4,407 $21,718 $21,689 $21,465 Current ratio 1.58 1.53 1.48 Ratio of debt to debt plus common and minority equity 57.5% 61.7% 66.9% Shares outstanding (thousands) 451,963 441,167 422,642 HCA Inc. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (Dollars in millions) 2005 2004 Cash flows from operating activities: Net income $819 $697 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 1,115 1,355 Depreciation and amortization 701 618 Income taxes 222 254 Change in operating assets and liabilities (1,341) (1,533) Other 70 63 Net cash provided by operating activities 1,586 1,454 Cash flows from investing activities: Purchase of property and equipment (625) (787) Acquisition of hospitals and health care entities (84) (30) Disposal of hospitals and health care entities 36 28 Change in investments (110) (71) Other 25 1 Net cash used in investing activities (758) (859) Cash flows from financing activities: Issuance of long-term debt - 501 Net change in revolving bank credit facility (700) (160) Repayment of long-term debt (480) (383) Repurchase of common stock - (592) Issuance of common stock 922 127 Payment of cash dividends (123) (72) Other (113) (11) Net cash used in financing activities (494) (590) Change in cash and cash equivalents 334 5 Cash and cash equivalents at beginning of period 129 115 Cash and cash equivalents at end of period $463 $120 Interest payments $308 $258 Income tax payments, net of refunds $191 $173 HCA Inc. Operating Statistics For the Six Months Second Quarter Ended June 30, 2005 2005 2004 2005 2004 Consolidated Hospitals: Number of Hospitals 183 183 183 183 Weighted Average Licensed Beds 41,948 41,962 41,903 41,948 Licensed Beds at End of Period 42,013 41,930 42,013 41,930 Reported: Admissions 407,600 410,500 840,200 840,800 % Change -0.7% -0.1% Equivalent Admissions 619,700 610,800 1,256,100 1,236,000 % Change 1.5% 1.6% Revenue per Equivalent Admission $9,795 $9,550 $9,754 $9,523 % Change 2.6% 2.4% Inpatient Revenue per Admission $9,163 $8,807 $9,115 $8,748 % Change 4.0% 4.2% Patient Days 2,009,100 2,033,400 4,168,300 4,207,000 Equivalent Patient Days 3,055,400 3,026,100 6,231,600 6,184,300 Inpatient Surgery Cases 136,400 135,500 271,900 270,900 % Change 0.6% 0.3% Outpatient Surgery Cases 216,200 213,000 427,200 420,500 % Change 1.5% 1.6% Emergency Room Visits 1,345,600 1,309,600 2,737,400 2,606,500 % Change 2.7% 5.0% Outpatient Revenues as a Percentage of Patient Revenues 37.5% 37.1% 36.5% 36.6% Average Length of Stay 4.9 5.0 5.0 5.0 Occupancy 52.6% 53.3% 55.0% 55.1% Equivalent Occupancy 79.9% 79.3% 82.2% 81.0% Same Facility: Admissions 406,300 407,600 837,500 834,800 % Change -0.3% 0.3% Equivalent Admissions 613,900 606,900 1,248,800 1,228,000 % Change 1.2% 1.7% Revenue per Equivalent Admission $9,790 $9,494 $9,724 $9,467 % Change 3.1% 2.7% Inpatient Revenue per Admission $9,211 $8,787 $9,116 $8,722 % Change 4.8% 4.5% Inpatient Surgery Cases 136,500 134,300 271,300 269,000 % Change 1.7% 0.8% Outpatient Surgery Cases 212,400 209,800 420,100 414,200 % Change 1.2% 1.4% Emergency Room Visits 1,338,900 1,294,300 2,724,200 2,578,200 % Change 3.4% 5.7% Number of Consolidated and Non-Consolidated (50/50 Equity Joint Ventures) Hospitals: Consolidated 183 183 183 183 Non-Consolidated (50/50 Equity Joint Ventures) 7 7 7 7 Total Number of Hospitals 190 190 190 190