PART I
Item 1. Business
The Company
Healthtrust, Inc. - The Hospital Company ("Healthtrust"
or the "Company") is one of the largest providers of
health care services in the United States, delivering a
full range of inpatient, outpatient and other health
care services principally through its affiliated
hospitals. At October 31, 1994, the Company operated
116 acute care hospitals, all of which are owned or
leased by the Company through its subsidiaries or joint
venture arrangements. The Company is also an investor,
through joint ventures, in four other acute care
hospitals. The Company's affiliated hospitals are
located in rural, suburban and urban communities in 22
southern and western states. The Company's affiliated
hospitals generally provide a full range of inpatient
and outpatient health care services, including
medical/surgical, diagnostic, obstetric, pediatric and
emergency services. Many of the Company's affiliated
hospitals also offer certain specialty programs and
services, including occupational medicine programs,
home health care services, skilled nursing services,
physical therapy programs, rehabilitation services,
alcohol and drug dependency programs and selected
mental health services. The health care services
provided by each hospital are based upon the local
demand for such services and the ability to provide
such services on a competitive basis.
The Company was incorporated in 1985 as a subsidiary of
Hospital Corporation of America (together with its
subsidiaries, "HCA", a predecessor of Columbia/HCA
Healthcare Corporation) and had no significant assets,
liabilities or operations prior to its formation in
September 1987 through the acquisition of a group of
hospitals and related assets from HCA. In February
1994, HCA merged with Columbia Hospital Corporation to
form Columbia/HCA Healthcare Corporation ("Columbia").
Recent Events
On October 4, 1994, the Company, Columbia and COL
Acquisition Corporation, a wholly-owned subsidiary of
Columbia ("Merger Sub"), entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to
which Merger Sub will merge with and into the Company
and the Company will survive as a wholly-owned
subsidiary of Columbia (the "Merger"). Upon the
effectiveness of the Merger, each outstanding share of
Healthtrust common stock will be converted into the
right to receive 0.88 of a share of Columbia common
stock. Consummation of the Merger is subject to
certain conditions, including, among others, approval
by the shareholders of the Company and Columbia and the
expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Shareholders meetings to
vote on the proposed merger transaction are anticipated
during the first quarter of 1995.
After the merger, Columbia will own and operate 311
hospitals with approximately 60,000 licensed beds and
125 outpatient centers in 37 states and 2 foreign
countries. The combined companies will have
approximately 170,000 employees and total assets and
annual revenues of over $15 billion. It is anticipated
that by leveraging the economies of scale and
collective strengths and efficiencies resulting from
the combination, the Merger will enhance each Company's
strategy of controlling healthcare costs while
maintaining quality patient care.
Strategy
The Company's principal objective is to be a
significant and growing provider of low cost, high
quality health care services in the markets in which it
operates. Although the means of achieving this
objective will vary depending upon the local market and
the relative position of the Company's affiliated
hospitals and other health care businesses in that
market, the strategies employed generally include (i)
expanding market share through improvements in quality
and reductions in cost for existing services and
through the provision of new or expanded services to
meet underserved needs, (ii) participating in quality
health care delivery networks through affiliations,
joint ventures, partnerships and other arrangements
with physicians, other hospitals and providers of other
health care related services, (iii) continuously
improving operating and financial performance, and (iv)
developing the resources needed by management to
operate more effectively in the changing health care
environment. In addition, the Company has pursued and
will continue to pursue other opportunities to grow
through the acquisition, construction or development of
hospital facilities or other health care related
businesses that are or can be positioned competitively
in their markets.
Consistent with the Company's strategy, in May 1994
Healthtrust acquired EPIC Holdings, Inc. ("EPIC
Holdings" and, together with its subsidiaries,
"EPIC")(the "EPIC Acquisition"). EPIC is a health care
services provider that owns and operates 32 general
acute care hospitals providing inpatient, outpatient
and other specialty services in 10 southern and western
states. During fiscal 1994, the Company also acquired
Nashville Memorial Hospital in Madison, Tennessee, Holy
Cross-Jordan Valley Hospital in Jordan Valley, Utah and
St. Benedict's Hospital in Ogden, Utah. These
acquisitions enhance the Company's presence in
geographic areas it presently serves and provide access
to new markets. In addition, the acquisitions will
allow the Company to expand its health care delivery
capabilities in such areas as home health care,
geropsychiatric care, rehabilitation services and
physical therapy services, thereby enhancing the
Company's development of integrated health care
delivery networks designed to provide a full range of
health care services to managed care plans, self-
insured employers and government payors.
In connection with the EPIC Acquisition, the Company
completed (i) the public offering of $200 million
aggregate principal amount of 10 1/4% Subordinated Notes
due 2004 and 5,980,000 shares of Common Stock (par
value $.001 per share) and (ii) the refinancing of the
Company's bank credit facility to provide for aggregate
commitments of up to $1.2 billion.
The Company operates its affiliated hospitals and other
health care businesses in three general types of market
settings: (i) small rural areas where the Company's
hospital is the only hospital in its community, (ii)
other generally rural areas where the Company's
hospital is one of two or three hospitals in its
community, and (iii) urban and suburban areas where the
Company's facility or facilities compete with a larger
number of other providers in the market. Approximately
37% of the Company's affiliated hospitals are located
in small rural communities, approximately 22% are
located in communities with two or three hospital
providers and approximately 41% of the Company's
hospitals are located in urban and suburban areas.
To meet the Company's objectives in the smaller rural
areas, the Company's affiliated hospitals generally
work in cooperation with local physicians and the
community to identify underserved needs and to meet
those needs in a cost effective manner. Examples
include the establishment of rural health clinics and
home health agencies, the introduction of new clinical
technologies and the recruitment of physicians to these
communities. In addition, such hospitals, together
with their local physicians, network with larger
tertiary care facilities to provide easy access to
specialized services which cannot be efficiently
provided in the rural community. In areas where the
Company's affiliated hospital has one or two hospital
competitors in the community, the Company's affiliated
hospitals work closely with their physicians to
position themselves as the lower cost, higher quality
provider in the community. Such facilities expand or
add services to gain market share and network with
larger tertiary hospitals and other providers to give
patients access to a broad continuum of care including
those services not provided by the local Healthtrust
affiliated facility. In urban and suburban areas, the
Company's affiliated hospitals have formed or jointed
physician hospital organizations ("PHOs") medical
service organizations ("MSOs") and other networks of
quality health care providers in order to offer one
package, to the buyers of care, a full range of health
care services over a broader geographic area. In some
markets, such networks may also develop programs for
sharing the financial risk of health care delivery.
Each of the Company's affiliated hospitals has also
implemented, and will continue to implement, programs
to maintain and enhance the range and quality of its
health care services. The Company uses patient and
physician surveys, employee training and education
programs relating to continuous quality improvement
methods and incentive compensation programs to enhance
the quality of care in its hospitals. The Company's
hospitals continue to focus on new or expanded programs
and cooperative relationships, affiliations and
agreements with its physicians to assist the hospitals
staff physicians in developing their practices based on
the physicians' needs and the needs of the community.
Such programs and cooperative relationships, like PHOs
and MSOs, also assist the hospitals and their staff
physicians in responding to the expected increased
significance of managed care purchasers in their
markets. Each hospital also has implemented physician
recruitment programs to increase and improve the
availability of physician services in the local market
and many now offer a variety of practice management
services to assist physicians in establishing and
managing their practices.
As part of the Company's strategy to increase its
market share by expanding its health care service
delivery capabilities, the Company has focused
principally on the expansion and improvement of
outpatient facilities and services to take advantage of
improved technologies and treatments, and on the
expansion of service delivery capability in such areas
as home health care services, skilled nursing care,
rehabilitation services, emergency care, women's health
services, cardiology, less invasive surgery,
diagnostics, occupational medicine programs, physical
therapy programs, preventative care services, wellness
services and other areas of specialized care for which
there is a defined need in the local community. In
implementing such programs, the Company works with
members of the local communities in which its hospitals
are located, especially local physicians and employers,
to be sure that these new services meet the communities
needs.
To further the Company's objectives, the Company's
affiliated hospitals continue to develop their ability
to efficiently deliver services to patients covered by
managed care contracts or by government payors
providing a fixed reimbursement for services. In order
to increase net revenue from these managed care and
government payors, many of the Company's affiliated
hospitals have developed (i) improved negotiation and
tracking methods for managed care contracts, (ii)
improved patient management and reporting procedures,
(iii) programs for the collection and sharing of
utilization and patient-mix data with physicians, other
providers, employers and payors and (iv) strategic
networking relationships with physicians, other
providers, employers and/or managed care programs
serving the local communities in which the Company's
hospitals are located.
Each of the Company's affiliated hospitals also
continue to implement a variety of cost reduction
programs. Such programs have included and are expected
to continue to include (i) more careful control of
staffing levels and expense, (ii) the renegotiation of
purchasing contracts and revision of purchasing
practices to take better advantage of volume purchasing
and low cost, quality products, (iii) more controlled
use of contract nursing, (iv) more efficient billing
and collection procedures, (v) more effective
management of the Company's own medical benefit costs
and (vi) the reduction or elimination of certain
services that no longer efficiently meet the needs of
the community. In addition, the Company's cost
reduction programs are increasingly focused on better
management of resource consumption. Since physicians
control what services or supplies are ordered for a
particular patient, the Company has made available to
its physicians better clinical and other information to
help improve the efficiency and cost-effectiveness of
their practices. Similarly, the Company's facilities
are focused on the use of more generic pharmaceutical
and surgical supplies and the general simplification of
supplies to only a limited variety of low cost, quality
products. With respect to labor expense, many of the
Company's hospitals are redesigning the manner in which
clinical and administrative work is performed, changing
the mix of skills required for various tasks and
consolidating traditionally fragmented departments
within the hospital.
The Company believes these and other programs along
with price increases have contributed, in part, to the
growth of the Company's net operating revenue, which
increased from $1,856.9 million in fiscal 1990 to
$2,970.0 million in fiscal 1994, and the improvement in
the operating margin from 19.9% for fiscal 1990 to
20.5% for fiscal 1994.
The Company believes that the success of each of its
hospitals is directly related to the quality of its
local management teams and other hospital employees.
The initiative, responsibility and accountability of
the local management teams have been emphasized through
significant incentive compensation programs based
primarily on the financial performance of, and the
quality of care delivered by, each hospital.
Similarly, the Company promotes the concept of
employee-ownership through its retirement program to
improve employee responsiveness and efficiency in
delivering services to patients and physicians and in
implementing the hospitals' programs. The Company's
retirement program owns approximately 28% of the Common
Stock outstanding.
In addition, the Company believes that it must continue
to develop and have access to the tools local
management needs to operate effectively in the changing
health care environment. The Company has invested, and
expects to continue to invest, in new or improved
information systems designed to provide better
information concerning clinical outcomes, resource
consumption and the cost of services provided.
Similarly, the Company has developed or is developing
the resources and expertise both within the Company and
with preferred outside vendors to manage its existing
and new services more efficiently.
Hospital Operations
The Company's hospitals generally operate in different
geographical markets and, consequently, under differing
market conditions. Approximately 28% of the Company's
hospitals are located in Texas and approximately 34%
are located in Florida, Louisiana, Tennessee and Utah.
Each Company hospital is managed on a day-to-day basis
by a hospital chief executive officer. The medical,
professional and ethical practices (including the
performance of medical and surgical procedures) of each
of the Company's hospitals generally are supervised and
regulated by the hospital's Board of Trustees, (which
includes practicing physicians, members of the
community and representatives of Company management),
and by the hospital's medical staff. The Company
provides a variety of management services to its
hospitals, the most significant of which include
information systems support, national purchasing
contracts, physician recruitment assistance, government
reimbursement assistance, strategic planning and
central financial and other systems.
The following table sets forth certain operating
statistics of the Company's hospitals for each of the
periods indicated.
Year Ended August 31,
1994 1993 1992 1991 1990
(Dollars in millions)
Historical Operating Data:
Number of hospitals (at year end) 116 81 81 85 86
Bed capacity (1) 12,466 11,233 11,374 11,607 12,022
Gross revenue: (2)
Inpatient 3,154.9 $ 2,594.2 $2,439.3 $2,148.6 $1,994.4
Outpatient 1,625.8 $ 1,181.6 $1,021.9 $814.2 $642.6
Net operating revenue (3) 2,970.0 $ 2,394.6 $2,265.3 $2,025.7 $1,856.9
Patient days 1,732,610 1,541,536 1,616,340 1,658,061 1,792,461
Adjusted patient days (4) 2,625,426 2,243,677 2,293,453 2,286,357 2,369,995
Average length of stay (days) 5.2 5.4 5.5 5.7 5.8
Admissions 333,200 284,606 291,599 293,344 307,758
Adjusted admissions (5) 504,898 414,239 413,755 404,502 406,918
Occupancy rate 38% 38% 39% 39% 41%
Operating margin (6) 20.5% 21.1% 20.7% 20.2% 19.9%
Same Hospitals Operating Data: (7)
Gross revenue: (2)
Inpatient 2,622.8 $ 2,458.5 $2,240.9 $1,938.7 $1,706.3
Outpatient 1,310.2 $ 1,128.2 $ 948.5 $741.1 $558.1
Net operating revenue (3) 2,432.9 $ 2,271.5 $2,092.0 $1,835.3 $1,599.3
Patient days 1,436,797 1,470,713 1,517,226 1,531,693 1,565,793
Adjusted patient days (4) 2,154,520 2,145,598 2,159,393 2,115,382 2,077,163
Average length of stay (days) 5.1 5.4 5.5 5.6 5.7
Admissions 281,908 272,970 275,085 273,326 274,834
Adjusted admissions (5) 422,729 398,231 391,515 377,192 364,340
Occupancy rate 37% 38% 39% 40% 41%
Operating margin (6) 22.4% 21.8% 21.2% 20.7% 20.4%
(1)Average number of licensed beds during the period. Licensed beds
are those beds for which a facility has been granted approval to
operate from the appropriate state licensing agency.
(2)Gross revenue represents the hospitals' standard charges for
services performed prior to any contractual adjustments and policy
discounts.
(3)Net operating revenue represents gross revenue less any
contractual adjustments and policy discounts.
(4)Represents actual patient days adjusted to include outpatient and
emergency room services by multiplying actual patient days by the
sum of gross inpatient and patient revenue and dividing the result
by gross inpatient revenue.
(5)Represents actual admissions adjusted to include outpatient and
emergency room services by multiplying actual admissions by the sum
of gross inpatient revenue and gross outpatient revenue and dividing
the result by gross inpatient revenue.
(6)Operating margin for each period presented refers to the result
obtained by dividing (i) net operating revenue less hospital service
costs by (ii) net operating revenue.
(7)Same hospitals operating data represents the operations of the 77
hospitals owned for all periods presented, and excludes the
operations of acquired and divested hospitals.
Consistent with industry trends, the Company's
hospitals have experienced a significant shift from
inpatient to outpatient care. Outpatient utilization
has increased significantly over the past three years.
Inpatient volume utilization has declined nationwide
over the same period. Healthtrust's growth in
outpatient gross revenue and more intensive utilization
of ancillary services, along with inpatient price
increases, have resulted in net revenue growth despite
decreases in inpatient volume. The Company is unable
to predict whether such trends will continue.
Health Care Industry Overview
According to industry sources, there are approximately
5,300 general acute care hospitals in the United
States. Investor-owned hospitals account for
approximately 720 or 14% of these hospitals. The
remaining hospitals are operated as not-for-profit
institutions or are government sponsored. According to
Commerce Department projections, health care
expenditures are expected to grow at a 10% to 14%
annual rate through 1995, despite industry-wide cost
containment pressures. These Commerce Department
health care spending projections assume that continued
cost containment measures will be more than offset by
demands resulting from current demographic trends, such
as the aging of the population, growth in income,
general inflation, new technology and diseases such as
AIDS.
Over the past decade, many hospitals have closed due to
cost containment pressures, changing technology,
changes in regulations and reimbursement, changes in
physician practice patterns and other factors. Another
result of these changes has been a significant shift
from inpatient to outpatient care. Outpatient
utilization, as reflected in outpatient gross revenue
and adjusted admissions, has increased significantly
over the past several years. The Company is unable to
predict whether such trends will continue. See
"Hospital Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations."
During the past several years, the major third-party
payors of hospital services (Medicare, Medicaid and
private health care insurance companies) have
undertaken substantial revisions in their payment
methodologies and monitoring of health care
expenditures in order to contain health care costs.
Instead of reimbursing health care providers for
retrospectively determined actual costs, Medicare now
reimburses for inpatient services based on fixed
prospectively determined payments keyed to regional and
national rates under a system of specific diagnosis
related groups of services ("DRGs") determined by a
patient's principal diagnosis. Consequently, hospitals
bear the risk of providing care in that they receive a
specific, fixed reimbursement for each treatment
regardless of actual cost. This payment system was
established to control costs and reward hospitals for
efficient treatment of Medicare patients (which
patients, on an industry-wide basis, currently
represent approximately 50% of an average for-profit
hospital's gross revenue). The introduction of these
Medicare cost containment incentives, combined with
closer monitoring of health care expenditures by both
private health insurers and employers, has resulted
over the past several years in increased contractual
adjustments and policy discounts to hospitals' standard
charges for services performed, significant declines in
inpatient hospital utilization and increases in
outpatient hospital utilization. In addition, due in
part to these initiatives, managed care organizations,
such as health maintenance organizations ("HMOs") and
preferred provider organizations ("PPOs"), represent an
increasing segment of health care payors. For a more
complete discussion see "Reimbursement".
Sources of Revenue
The sources of the Company's hospital revenue are
charges related to the medical support activities
performed by the hospitals such as x-rays,
physiotherapy and laboratory procedures, and basic
charges for the hospital room and related services such
as general nursing care and meals.
The Company's hospitals receive payments for health
care services (i) from the federal Medicare program for
certain elderly and disabled patients, (ii) the federal
and state funded Medicaid programs, administered by the
states for certain indigent patients, (iii) private
insurance carriers such as Blue Cross Insurance
Companies ("Blue Cross") or other private insurance
plans for their insureds, (iv) employers, (v) managed
care programs and (vi) patients directly. The single
largest patient group is Medicare beneficiaries. The
following table sets forth the approximate percentages
of total net operating revenue of the Company's
hospitals from the sources and for the periods
indicated:
Year Ended August 31,
1994 1993 1992
Medicare........................ 36% 33% 33%
Medicaid........................ 9 9 9
Private Insurance and Patients.. 55 58 58
Total........................... 100% 100% 100%
Amounts received under Medicare, Medicaid and cost-
based Blue Cross and from managed care organizations
such as HMOs and PPOs, generally are less than the
hospitals' charges for the services provided. Patients
are generally not responsible for any difference
between hospital charges and amounts reimbursed under
these programs for such services, but are responsible
to the extent of any exclusions, deductibles or co-
insurance features of their coverage. The Company's
hospitals continue to experience an increase in the
amount of such exclusions, deductibles and co-
insurance. See "Reimbursement."
As with the hospital industry in general, the primary
component of the Company's working capital is accounts
receivable arising from services provided to its
patients. Payments on accounts receivable are made by
third-party payors (Medicare, Medicaid, Blue Cross, and
other private insurance carriers and insurance plans)
and directly by patients. The Company believes that
its average collection period is consistent with
industry experience.
Following the initiative taken by the federal
government to control health care costs, other major
purchasers of health care, including states, insurance
companies and employers, are increasingly negotiating
the amounts they will pay for services performed rather
than simply paying health care providers the amounts
billed. Managed care organizations such as HMOs and
PPOs, which offer prepaid and discounted medical
service packages, represent an increasing segment of
health care payors, thereby tending to reduce the
historical rate of growth of hospital revenues.
Medical Staffs and Employees
At August 31, 1994, approximately 8,380 active licensed
physicians were members of the medical staffs of the
Company's hospitals. A patient is usually admitted to
a hospital only at the request of a member of the
medical staff. Medical staff members are generally
independent contractors and not employees of a
hospital. Medical staff members may also serve on the
medical staffs of hospitals not owned by the Company,
and each may terminate his or her connection with a
Company-owned hospital at any time.
Wages and employee benefits constitute a significant
portion of the Company's hospital service costs. As of
August 31, 1994, the Company and its subsidiaries
employed approximately 41,000 persons full-time and
approximately 14,000 persons part-time. One of the
Company's hospitals is a party to a labor contract with
a union covering approximately 100 employees and
another of the Company's hospitals is a party to a
labor contract with a union representing approximately
85 employees. The Company experiences union
organizational efforts in its hospitals and other
facilities from time to time, but does not expect such
efforts to materially affect its future operations.
The Company considers its labor relations with its
employees to be good. The Company generally has not
experienced material difficulty in recruiting and
retaining employees, including nurses and professional
staff members.
Directors and Executive Officers
Set forth below are the names, ages, positions and
certain other information concerning the current
directors and executive officers of the Company.
Name Age Position
R. Clayton McWhorter 61 Chairman of the Board,
Chief Executive Officer and
President; Director
W. Hudson Connery, Jr. 45 Senior Vice President and
Chief Operating Officer;
Director
Michael A. Koban,Jr. 43 Senior Vice President;
Director
Harry N. Beaty, M.D. 62 Director
Alethea O. Caldwell 53 Director
Robert F. Dee 70 Director
Richard W. Hanselman 67 Director
William T. Hjorth 57 Director
Donald S. MacNaughton 77 Director
Kenneth C. Donahey 44 Senior Vice President and Controller
Richard E. Francis, Jr. 40 Senior Vice President
Philip D. Wheeler 38 Senior Vice President, General
Counsel and Secretary
Clifford G. Adlerz 40 Vice President
O. Ernest Bacon 57 Vice President
Yolanda D. Chesley 44 Vice President
Edward J. Driesse 47 Vice President
James M. Fleetwood, Jr. 47 Vice President
William L. Hough 43 Vice President
Jone Law Koford 38 Vice President
Robert M. Martin 45 Vice President
Dana C. McLendon, Jr. 52 Vice President
R. Parker Sherrill 50 Vice President
David L. Smith 39 Vice President
Robert A. Vraciu 47 Vice President
Kent H. Wallace 39 Vice President
Mr. McWhorter has been Chairman and Chief Executive
Officer of Healthtrust since its formation in 1987 and
was elected to the additional office of President of the
Company in 1991. Mr. McWhorter served as President and
Chief Operating Officer of HCA from 1985 to 1987, and as
a Director of HCA from 1983 to 1987. Mr. McWhorter
joined HCA in 1970 as Administrator of Palmyra Park
Hospital in Albany, Georgia. He was named Division Vice
President--Eastern Region in 1973, Senior Vice President
in 1976, Executive Vice President--Domestic Operations in
1980 and Executive Vice President--Operations in 1983.
Mr. McWhorter is a director of Third National Bank in
Nashville and Ingram Industries, Inc. and is a member of
the Board of the Foundation for State Legislatures. He
is also past Chairman of the Federation of American
Health Systems, a past member of the Board of Trustees of
the American Hospital Association, a Fellow of the
American College of Healthcare Executives and a Trustee
of the Committee for Economic Development.
Mr. Connery was elected a Director of the Company in
1992. He became a Vice President of the Company in 1989
and Senior Vice President and Chief Operating Officer of
the Company in 1991. Mr. Connery was Director of
Development for the Company from 1987 to 1989 and
Director, Acquisitions and Development, for HCA from 1983
to 1987. From 1981 to 1983, he was Administrator of
Margate General Hospital in Margate, Florida. He joined
HCA in 1981.
Mr. Koban was elected a Director of the Company in 1993.
Mr. Koban became Vice President and Treasurer of the
Company in 1987 and Senior Vice President for finance in
1992. He was Treasurer of HCA from 1985 to 1987 and
Assistant Treasurer from 1980 to 1985. Mr. Koban joined
HCA in 1976.
Dr. Beaty was elected a Director of the Company in 1993.
Dr. Beaty has been a Professor of Medicine and Dean of
the Northwestern University Medical School since 1983.
He is on the attending medical staff of Northwestern
Memorial Hospital and on the consulting staff of Veterans
Administration Lakeside Medical Center and is also
President of Northwestern Medical Faculty Foundation, an
academic multiple group practice with over 400
physicians. Dr. Beaty is a diplomat of the American
Board of Internal Medicine and a Fellow of the American
College of Physicians. Dr. Beaty is a member of the
American Federation of Clinical Research, the American
Medical Association, the American Society for Clinical
Investigation, the American Society for Microbiology and
the American Society of Internal Medicine. Dr. Beaty is
past Chairman of the Association of American Medical
Colleges' Council of Deans and Executive Council and
served on its Administrative Board before his election to
Chairman. He is also a member of the Board of Directors
of Becton, Dickinson and Company.
Ms. Caldwell was elected a Director of the Company in
1992. Ms. Caldwell is currently President and COO of
Managed Health Network, Inc. Prior thereto she was
Executive Vice President for Blue Cross of California;
Director of the Arizona Department of Health Services
from 1991 to 1993; President and Chief Executive Officer
of Ancilla Systems Incorporation in Chicago, Illinois
from 1987 to 1991; Chief Executive Officer of University
Medical Center Corporation of Tucson, Arizona from 1984
to 1987; and Executive Assistant Director and Chief
Operating Officer of University of California, Irvine
Medical Center from 1980 to 1984. She serves on the
Board of Managed Health Network; The National Board of
Advisors for the College of Business and Public
Administration at he University of Arizona and is a
Fellow in the American College of Health Care Executives.
Mr. Dee was elected a Director of the Company in 1992.
Mr. Dee retired in 1987 from SmithKline Beckman
Corporation (a predecessor of SmithKline Beecham
Corporation) having served as its Chairman of the Board
from 1976 to 1987 and as its Chief Executive Officer and
President from 1972 to 1982. Mr. Dee is a director of
United Technologies Corporation, Air Products and
Chemicals, Inc., Kabi Pharmacia and Volvo North America
Corporation. He also serves on the Board of Directors of
the U.S. Council for International Business and the
Committee for Economic Development and is a member of the
Business Council, The Conference Board and the Management
Executive's Society.
Mr. Hanselman was elected a Director of the Company in
1987. Mr. Hanselman is currently a private investor.
From 1981 to 1986, he was Chairman, President and Chief
Executive Officer of Genesco, Inc., a diversified
footwear and apparel business. Prior thereto, he held
senior management positions with Beatrice Companies,
Inc., Samsonite Corporation and RCA Corporation.
Mr. Hanselman is a director of Becton, Dickinson and
Company, Arvin Industries, Inc., The Bradford Funds, IMCO
Recycling, Inc., Foundation Health Corporation, Benson
Eye Corp. and Daisy Manufacturing. Mr. Hanselman is also
a Trustee of the Committee for Economic Development.
Mr. Hjorth was elected a Director of the Company in 1990.
Mr. Hjorth is currently a private investor. He was
Chairman, Chief Executive Officer and President of
Equicor-Equitable HCA Corporation from 1988 to 1990 when
Equicor was acquired by another company. From 1987 to
1988, he held various senior executive positions with
Equicor including Chief Financial Officer and Chief
Operating Officer. Prior thereto, he served in various
management capacities with Clark Equipment Company from
1980 to 1986 (including Senior Vice President, Chief
Financial Officer and Director) and with Chrysler
Corporation from 1964 to 1980. Mr. Hjorth is a member of
the Board of Directors of Coventry Corporation and
Managed Health Network, Inc.
Mr. MacNaughton has served as Chairman of the Executive
Committee of Healthtrust since its formation in 1987. He
retired as an employee of Healthtrust in 1991.
Mr. MacNaughton joined HCA in 1978 as Chairman and Chief
Executive Officer. He continued to serve as Chief
Executive Officer of HCA until 1982, Chairman of the
Board until 1985 and as Chairman of the Executive
Committee until 1987. Prior to 1978, Mr. MacNaughton was
Chairman and Chief Executive Officer of The Prudential
Insurance Company of America, where he served in various
management capacities for 23 years, including nine years
as Chairman and Chief Executive Officer. Mr. MacNaughton
is a member of The Business Council, a member of the
Board of Trustees of Vanderbilt University and a member
of the Board of Directors of Financial Securities
Advisers, Inc.
Mr. Donahey became Vice President and Controller of the
Company in 1987 and a Senior Vice President in April
1993. He was Vice President--Operations and Controller
of HCA from 1986 to 1987. Mr. Donahey joined HCA in
1977, became Director--Financial Support in 1981, and
Assistant Vice President and Controller--Business
Development in 1985. Prior to joining HCA, Mr. Donahey
was a senior auditor with Genesco, Inc.
Mr. Francis became a Vice President of the Company in
1990 and Senior Vice President for development in 1992.
Mr. Francis was a Director of Development of the Company
from 1987 to 1990 and a Director, Acquisition and
Development, for HCA from 1983 to 1987. Prior to joining
HCA, he was Vice President of MedAmerican Health System
and Miami Valley Hospital in Dayton, Ohio.
Mr. Wheeler became a Vice President of the Company in
1990 and a Senior Vice President in 1993. Mr. Wheeler
joined the Company in 1988 as General Counsel and
Secretary. Prior thereto, he was Senior Counsel with HCA
from 1984 to 1988 and associated with the predecessor of
the law firm of Chadbourne & Parke from 1981 to 1984.
Mr. Adlerz became a Vice President of the Company in
1992. Mr. Adlerz served as Chief Executive Officer of
the Company's South Bay Hospital in Sun City Center,
Florida from 1987 to 1992 and Associate Administrator at
Bayonet Point/Hudson Medical Center in Hudson, Florida
from 1985 to 1987. Prior thereto, Mr. Adlerz was
Assistant Administrator at North Beach Medical Center in
Fort Lauderdale, Florida.
Mr. Bacon became a Vice President of the Company in 1992.
Mr. Bacon served as Chief Executive Officer of the
Company's Lanier Park Regional Hospital from 1990 to
1992. Mr. Bacon previously served as Chief Executive
Officer of Hamilton Medical Center in Dalton, Georgia
from 1988 to 1990, Chief Executive Officer of Park View
Medical Center in Nashville, Tennessee from 1986 to 1988
and Chief Executive Officer of West Paces Ferry Hospital
in Atlanta, Georgia from 1979 to 1986.
Ms. Chesley became a Vice President of the Company in
1992. She was Director of Compensation and Benefits from
1991 to 1992 and Director of Compensation from 1987 to
1991. Ms. Chesley served as Director of Salary
Administration for HCA from 1985 to 1987, Manager of
Salary Administration from 1983 to 1985 and Senior
Compensation Analyst from 1982 to 1983. Prior to joining
HCA, Ms. Chesley was Manager of Compensation for
Provident Life Insurance Company.
Mr. Driesse became a Vice President of the Company in
1993. He served as senior partner in IBM's worldwide
consulting practice in Dallas, Texas from 1991 to 1993.
Prior thereto, Mr. Driesse was the Site Information
Systems Manager for IBM in Dallas, Texas from 1989 to
1991 and Manager of Information Systems planning and
strategy from 1984 to 1989.
Mr. Fleetwood became a Vice President of the Company in
1992. Mr. Fleetwood served as Chief Executive Officer of
the Company's Plantation General Hospital from 1989 to
1992. Prior thereto, Mr. Fleetwood served as Chief
Executive Officer at Coral Reef Hospital in Miami,
Florida from 1987 to 1989, Chief Executive Officer at
Larkin General Hospital in South Miami, Florida from 1980
to 1987 and prior thereto as Assistant Administrator of
Coral Gables Hospital in Coral Gables, Florida from 1978
to 1980.
Mr. Hough became a Vice President of the Company in 1990.
Mr. Hough was the Chief Executive Officer of the
Company's Bayshore Medical Center in Pasadena, Texas from
1987 to 1990 and Administrator of Gulf Coast Hospital in
Baytown, Texas from 1985 to 1987. Prior thereto, he was
Chief Financial Officer for Pasadena Bayshore Medical
Center and Park West Hospital in Knoxville, Tennessee and
a certified public accountant at the predecessor of Ernst
& Young LLP.
Ms. Koford became a Vice President of the Company in
1992. Ms. Koford was Chief Executive Officer of the
Company's Pioneer Valley Hospital in West Valley, Utah
from 1991 to 1992, Chief Executive Officer of the
Company's Brigham City Community Hospital in Brigham
City, Utah from 1989 to 1991 and Assistant Administrator
of Pioneer Valley Hospital from 1987 to 1989. Prior
thereto, Ms. Koford served as Senior Vice President for
Development at St. Benedict Health Systems, President of
St. Benedict's Management Company, and a Director of
Planning at Intermountain Health Care, Inc.
Mr. Martin became a Vice President of the Company in
1990. Mr. Martin was Chief Executive Officer of the
Company's Northeast Community Hospital in Bedford, Texas
from 1985 to 1990 and Chief Operating Officer of that
hospital from 1981 to 1985. Prior thereto, he was
associate administrator and Chief Financial Officer of
Cherry Hill Medical Center in Cherry Hill, New Jersey
from 1979 to 1981.
Mr. McLendon became a Vice President of the Company in
1993. Mr. McLendon was Director, Delivery System
Integration of Healthtrust from 1992 to 1993 and
Director, Development from 1991 to 1992. Prior thereto
he was President and Chief Executive Officer of First
American National Bank in Nashville, Tennessee from 1988
to 1990 and served in various management capacities with
First Union Corp. from 1977 to 1988.
Mr. Sherrill became a Vice President of the Company in
1993. Mr. Sherrill was Director of Government Affairs of
Healthtrust from 1990 to 1993 and Vice President for
Government Affairs for HCA from 1986 to 1990. Prior to
joining HCA, Mr. Sherrill served as Executive Director of
the State Health Planning and Resources Development
Authority in Tennessee.
Mr. Smith became a Vice President of the Company in 1990.
Mr. Smith was Director, Internal Audit of Healthtrust
from 1987 to 1990, Manager, Internal Audit for HCA from
1981 to 1987 and Supervisor, Internal Audit for HCA from
1979 to 1981. Prior to joining HCA, Mr. Smith was with
the predecessor of Ernst & Young LLP.
Mr. Vraciu became Vice President of the Company in 1987.
He was President of the Center for Health Studies at HCA
from 1986 to 1987. Mr. Vraciu joined HCA in 1980 as Vice
President--Strategic Planning. Prior thereto, he was an
Assistant Professor of Hospital Administration and
Medical Care Organization at the University of Michigan.
Mr. Wallace became a Vice President of the Company in
1991. Mr. Wallace was a Regional Assistant Vice
President of the Company from 1987 to 1991. Prior
thereto, he was the Chief Financial Officer of various
HCA hospitals from 1981 to 1987.
In general, officers are elected by the Board of
Directors annually and serve at the discretion of the
Board of Directors. There are no family relationships
between any of the directors or executive officers.
Properties
At October 31, 1994, the Company, through its
subsidiaries or joint venture arrangements, operated 116
hospitals. All such hospitals are wholly-owned by
subsidiaries of the Company, except that, as noted in the
following table, certain of the Company's hospitals have
minority interests held by physicians at such hospitals,
certain hospitals are held pursuant to leases and one
hospital is operated pursuant to a management contract.
The Company also owns (i) a 50% interest in a general
partnership with Orlando Regional Medical Center, Inc.
which partnership owns South Seminole Community Hospital
(126 beds) and West Lake Psychiatric Hospital (80 beds)
in Longwood, Florida; (ii) a 50% interest in a general
partnership with Presbyterian Hospital of Charlotte which
partnership owns Orthopaedic Hospital of Charlotte (166
beds) in Charlotte, North Carolina; and (iii) a 25%
interest in a general partnership with American Medical
International, Inc., which partnership owns Encino
Hospital (188 beds) in Encino, California and Tarzana
Medical Center (177 beds) in Tarzana, California. The
Company has also formed a joint venture with Austin
Diagnostic Clinic, P.A. for the purpose of constructing
and operating an integrated healthcare facility in
Austin, Texas. This facility, currently under
construction, will consist of a 180-bed hospital, a
diagnostic and treatment center and a medical office
building. Following completion of construction the
Company will manage the hospital.
In August 1994, the Company completed its acquisition of
three hospitals in Utah from Holy Cross Healthcare
Systems. However, pursuant to a consent decree and
settlement agreement with the Federal Trade Commission
("FTC") the Company has agreed to hold separate and
divest Holy Cross Hospital of Salt Lake City.
In addition, the Company, through its subsidiaries or
joint venture arrangements, owns, leases or manages
approximately 240 medical office buildings with
physicians' office space and various parcels of
undeveloped land, substantially all of which are adjacent
to its hospitals. See "Competition" and "Regulation."
In addition, the Company occupies approximately 70,000
square feet of corporate office space in Nashville,
Tennessee. The Company believes its headquarters,
hospitals and other facilities are suitable for their
respective uses and are, in general, adequate for the
Company's current needs.
The following table sets forth certain information
relating to each of the hospitals operated by the
Company, grouped by state, at November 1, 1994. The
Company is engaged from time to time in discussions
relating to proposed sales of certain of its hospitals
and of minority interests in, or joint ventures with
medical staff physicians or others with respect to,
certain other facilities. However, except as noted
below, as of November 1, 1994, no definitive arrangements
with respect to any sales or joint ventures have been
agreed upon and the facilities involved at the present
time are not, in the aggregate, material to the Company's
business. For a discussion concerning certain
regulations relating to joint venture and other financial
arrangements between health care providers and
physicians, see "Reimbursement."
Number of
Licensed
State Name Location Beds
Alabama Andalusia Hospital Andalusia 77
Crestwood Hospital Huntsville 120
Four Rivers Medical Center Selma 214
Arizona El Dorado Hospital & Medical Center Tucson 166
Northwest Hospital Tucson 150
Arkansas DeQueen Regional Medical Center DeQueen 122
Medical Park Hospital Hope 91
California Chino Community Hospital Chino 118
Healdsburg General Hospital Healdsburg 49
Mission Bay Memorial Hospital San Diego 150
Palm Drive Hospital Sebastopol 56
Westside Hospital(1) Los Angeles 87
Florida Clearwater Community Hospital(2) Clearwater 133
East Pointe Hospital Lehigh Acres 88
Edward White Hospital St. Petersburg 167
Lake City Medical Center Lake City 75
North Okaloosa Medical Center Crestview 110
Palm Beach Regional Hospital Lake Worth 200
Palms West Hospital Loxahatchee 117
Plantation General Hospital(3) Plantation 264
Santa Rosa Medical Center(4) Milton 129
South Bay Hospital Sun City Center 112
Georgia Barrow Medical Center Winder 60
Doctors Hospital(5) Columbus 248
Lanier Park Regional Hospital Gainesville 124
Idaho Eastern Idaho Regional Medical
Center Idaho Falls 286
West Valley Medical Center Caldwell 150
Indiana Terre Haute Regional Hospital Terre Haute 284
Kentucky Bourbon General Hospital Paris 60
Logan Memorial Hospital Russellville 100
Meadowview Regional Medical Center Maysville 111
PineLake Medical Center Mayfield 116
Scott General Hospital Georgetown 75
Spring View Hospital Lebanon 113
Louisiana Dauterive Hospital New Iberia 113
Doctor's Hospital of Opelousas(6)(7) Opelousas 133
Highland Park Hospital Covington 104
Lakeside Hospital Metairie 186
Medical Center of Baton Rouge Baton Rouge 225
Medical Center of SW Louisiana Lafayette 166
Riverview Medical Center Gonzales 104
Women's and Children's Hospital(8) Lafayette 93
Mississippi Garden Park Community Hospital(9) Gulfport 120
Vicksburg Medical Center Vicksburg 144
Missouri Springfield Community Hospital Springfield 200
North Carolina Davis Community Hospital Statesville 149
The Brunswick Hospital(10) Supply 60
Heritage Hospital Tarboro 127
Oklahoma Claremore Hospital Claremore 89
Doctor's Medical Center Tulsa 211
Edmond Regional Medical Center Edmond 139
Southwestern Medical Center Lawton 108
Wagoner Community Hospital(11) Wagoner 100
Oregon McMinnville Community Hospital McMinnville 80
Douglas Community Hospital Roseburg 118
South Carolina Chesterfield General Hospital Cheraw 72
Colleton Regional Hospital Walterboro 131
Marlboro Park Hospital Bennettsville 111
Tennessee Crockett Hospital Lawrenceburg 106
Hendersonville Hospital Hendersonville 120
Johnson City Specialty Hospital(12) Johnson City 39
Livingston Regional Hospital Livingston 106
Nashville Memorial Hospital Madison 341
North Side Hospital(13) Johnson City 154
River Park Hospital(14) McMinnville 89
Smith County Memorial Hospital Carthage 66
Southern Tennessee Medical Center(15) Winchester 212
South Pittsburg Municipal
Hospital(16) South Pittsburg 107
Stones River Hospital Woodbury 85
Sycamore Shoals Hospital Elizabethton 100
Trinity Hospital Erin 40
Texas Alice Physicians & Surgeons Hospital Alice 131
Alvin Community Hospital Alvin 86
Bayshore Medical Center Pasadena 469
Brownwood Regional Hospital(17) Brownwood 218
Coastal Bend Hospital Aransas Pass 75
Coronado Hospital Pampa 115
Denton Regional Medical Center Denton 297
Detar Hospital Victoria 303
Doctors Hospital(18) Conroe 135
Doctors Hospital of Laredo(19) Laredo 91
El Campo Memorial Hospital El Campo 41
Fort Bend Community Hospital Missouri City 80
Gilmer Medical Center Gilmer 46
Gulf Coast Medical Center Wharton 161
Katy Medical Center Katy 103
Longview Regional Hospital Longview 80
Mainland Regional Healthcare Texas City 430
System(20)
Medical Arts Hospital(21) Dallas 72
Medical Arts Hospital(21) Texarkana 110
Medical Center Hospital Conroe 182
Medical Plaza Hospital Sherman 164
Midway Park Medical Center Lancaster 90
Northeast Community Hospital Bedford 200
North Texas Medical Center McKinney 270
Parkway Hospital Houston 262
Riverside Hospital Corpus Christi 89
Round Rock Community Hospital Round Rock 75
Sun Belt Regional Medical Center(22) Houston 273
Terrell Community Hospital(23) Terrell 101
Valley Regional Medical Center Brownsville 158
Westbury Hospital Houston 134
Woodland Heights Medical Center Lufkin 117
Utah Ashley Valley Medical Center Vernal 39
Brigham City Community Hospital Brigham City 50
Castleview Hospital Price 88
Jordan Valley Hospital West Jordan 50
Lakeview Hospital Bountiful 128
Mountain View Hospital Payson 118
Ogden Regional Medical Center Ogden 239
Pioneer Valley Hospital West Valley City 139
Virginia Montgomery Regional Hospital Blacksburg 146
Northern Virginia Doctors Hospital Arlington 267
Pulaski Community Hospital Pulaski 153
Washington Capital Medical Center Olympia 110
Wyoming Riverton Memorial Hospital Riverton 70
(1) Owned by a limited partnership of which 28.7% of the interest is
held by minority owners. The limited partnership has leased the
hospital to a joint venture of which approximately 23.7% is held
by minority owners.
(2) Operated by a limited partnership of which approximately 18% of
the interest is held by minority owners.
(3) Operated by a partnership of which the Company is the general
partner owning 53% and certain physicians are limited partners
owning 47%.
(4) Lease expires 2005, unless landlord exercises option to purchase
facility for book value in 1995.
(5) Owned by the Company as a tenancy in common with physicians
having a minority interest of 40.5%.
(6) Operated by a limited partnership of which approximately 23% of
the interest is held by minority owners.
(7) The facility is leased.
(8) Ground lease expires 2011; there are two ten-year optional
renewal terms.
(9) Operated by a limited partnership in which the minority
investors receive the first $2 million earned by the partnership
after payment of the lease payments due to the Company ($3
million per year, increasing by 15% per year), and the Company
is entitled to 60% of all additional earnings.
(10) Lease expires in 2004.
(11) Lease expires in 2007.
(12) Owned by a partnership of which the Company is the general
partner owning 87% and certain physicians are limited partners
owning 13%.
(13) Owned by the Company as a tenancy in common with physicians
having a minority interest of 30.25%.
(14) Owned by a partnership of which the Company is the general
partner owning 78% and certain physicians are limited partners
owning 22%.
(15) Includes a leased (lease expires in 2020) hospital campus
located in Sewanee, Tennessee with 50 licensed beds.
(16) Managed by the Company for profits and losses attributable
thereto with an option to buy for $50,000 and the provision for
full payment of all outstanding indebtedness issued in
connection with the construction of the hospital. The
Company's management contract for this facility expires in 1999.
(17) Lease expires in 2000; there are two optional renewal terms of
ten years each.
(18) Initial term of lease expires in 2006; there are three optional
renewal terms of ten years each. The Company has an option to
buy this facility for an amount determined in accordance with a
specified formula.
(19) Operated by a limited partnership of which approximately 22.125%
of the interest is held by minority owners.
(20) Consists of two hospital facilities, one of which is leased.
(21) The facility is leased.
(22) Includes a hospital campus located at Channelview, Texas with 96
licensed beds.
(23) The hospital consists of two facilities, one of which is leased.
Competition
Many areas served by the Company's hospitals are
also served by other facilities which provide services
similar to those offered by the Company's hospitals.
In some cases, competing hospitals are more
established, better equipped or offer a wider range of
services than those of the Company or have financial
resources greater than those of the Company. In
addition, certain competing hospitals are owned by tax-
supported government agencies or by tax-exempt, not-
for-profit corporations, which may be supported by
endowments and charitable contributions. Such support
generally is not available to the Company's hospitals.
In certain localities served by the Company, large
regional teaching and tertiary care hospitals provide
highly specialized facilities, equipment and services
not available at most of the Company's hospitals. Even
in those communities where the Company's hospital is
the sole provider of general acute care hospital
services, the Company's hospital faces competition from
local providers of outpatient services and from
hospitals and other health care providers in nearby
communities.
Competition among hospitals and other health care
providers for patients has intensified in recent years
as occupancy rates have declined as a result of cost
containment pressures, changing technology, changes in
government regulation and reimbursement, and changes in
practice patterns (e.g., shifting from inpatient to
outpatient treatments), and other factors. New
competitive strategies of hospitals and other health
care providers place increasing emphasis on the use of
alternative health care delivery systems (such as home
health services, outpatient surgery and emergency and
diagnostic centers) that eliminate or reduce lengths of
hospital stays. In some cases, these strategies
include the use of larger regional facilities that
employ equipment and services more specialized than
those available at the Company's hospitals. The
Company's competitive position also is affected by the
ability of its hospitals to provide services to managed
care organizations, including HMOs, PPOs and other
purchasers of group health care services. HMOs and
PPOs attempt to direct and control the use of hospital
services through managed care programs and discounts or
other payment mechanisms that are lower than the
hospital's established standard charges. Generally,
hospitals compete for service contracts with HMOs, PPOs
and other group health care services on the basis of
geographic location, quality of services, quality of
medical staffs and price.
Since physicians generally control the majority of
hospital admissions, another significant factor in a
hospital's competitive position is the number and
quality of physicians on its medical staff. A
physician may at any time terminate his or her
affiliation with a Company-operated hospital. The
Company believes that physicians refer patients to a
hospital primarily on the basis of the quality of
services the hospital renders to patients and
physicians, the quality of other physicians on the
medical staff, the location of the hospital and the
quality of its facilities, equipment and employees.
Accordingly, the Company seeks to retain physicians of
varied specialties on its hospital staffs and to
attract other qualified physicians by maintaining high
quality facilities and equipment, dedicated employees
and comprehensive support services for physicians and
their patients, as well as high ethical and
professional standards. The Company also believes that
offering a variety of practice management services to
physicians and operating a medical office building
adjacent to a hospital attracts additional physicians
to the hospital's medical staff and, accordingly,
contributes to patient admissions and utilization at
the hospital facility. Substantially all of the
Company's hospitals have adjacent medical office
buildings and many are offering practice management
services. The Company's hospitals also frequently
participate in the same managed care contracts as its
medical staff physicians. The Company also has a
number of joint venture arrangements with medical staff
physicians relating to physician-hospital organizations
("PHOs") and to minority investments in Company
hospitals, outpatient facilities and other health care
businesses, and intends to pursue additional PHO and
joint venture opportunities in the future. See
"Reimbursement."
Certificate-of-need laws in some states place
limitations on the industry's ability to build new
hospitals, expand existing hospitals and convert
existing facilities to other uses. In those states
with certificate-of-need laws, applications for
approval of new hospitals or services are highly
competitive. See "Regulation."
Professional Liability
As is typical in the health care industry, the
Company is subject to claims and legal actions by
patients in the ordinary course of business. The
Company's current insurance program provides first
dollar coverage for professional and general liability
with commercial insurance carriers for the Company's
hospitals in all states except Florida, Louisiana and
Indiana on a claims-made basis with coverage limits of
$1.0 million for each occurrence and $3.0 million in
the aggregate annually, with no deductibles. In
Florida, such coverage is $2.0 million for each
occurrence, $2.5 million in the aggregate annually and,
in Indiana, such coverage for the Company's hospital is
$100,000 for each occurrence and $300,000 in the
aggregate annually with deductibles of $25,000 for each
occurrence and $125,000 in the aggregate annually. In
Louisiana, the liability of each of the Company's
hospitals is limited to $100,000 for each occurrence
and $300,000 in the aggregate annually, consistent with
Louisiana law and the Hospital's participation in
Louisiana's patient compensation fund. The Company
funds payments under these policies on a
dollar-for-dollar basis. All professional and general
liability in excess of such coverage limits is
self-insured.
The Company maintains an unfunded reserve for its
liability risks that is based on actuarial estimates
calculated and evaluated by an independent actuary.
Actual hospital professional and general liability
costs for a particular period are not normally known
for several years after the period has ended. The
delay in determining the actual cost associated with a
particular period is due to the time between the
occurrence of an incident, the reporting thereof and
the settlement of related claims. Because of this
delay in payment, reserves for losses and related
expenses, using expected loss reporting patterns
determined by the independent actuary, are discounted
using a rate of 6% to their present value. Adjustments
to the total reserves determined by the actuary on an
annual basis are recorded by the Company as an increase
or decrease in the current year's expense. For the
fiscal year ended August 31, 1994, the Company recorded
aggregate expense for professional liability risks of
$38.1 million. As of August 31, 1994, the unfunded
reserve for professional liability risks was $245.4
million.
While the Company's cash flow has been adequate to
provide for alleged and unforeseen liability claims in
the past, there can be no assurance that the Company's
cash flow will continue to be adequate. If payments
with respect to self-insured liabilities increase in
the future, the results of operations of the Company
could be adversely affected.
Regulation
Licensing and Accreditation
Hospital operations are subject to a variety of
federal, state and local regulations relating to the
adequacy of medical care, equipment, personnel,
operating policies and procedures, fire prevention,
rate-setting and compliance with building codes and
environmental protection laws. Various licenses and
permits also are required for the use and storage of
narcotics, the operation of pharmacies and the use of
radioactive material and certain equipment. Facilities
are subject to periodic inspection by governmental and
other authorities to assure continued compliance with
the various standards necessary for licensing and
accreditation. All of the Company's hospitals are
licensed under appropriate state laws and substantially
all of the Company's hospitals are certified under the
Medicare program and are accredited by the Joint
Commission on Accreditation of Health Care
Organizations (the "Joint Commission"). The Company
believes that its hospitals are in substantial
compliance with current federal, state, local and
independent review body regulations and standards. The
requirements for licensing, certificates of need, and
accreditation are subject to change and, in order to
remain qualified, it may be necessary for the Company
to effect changes in its facilities, equipment,
personnel and services. Although the Company intends
to continue its qualifications, there is no assurance
that its hospitals will be able to comply in the
future.
Certificates of Need
Some states in which the Company owns hospitals
require a hospital or its owner to obtain a
certificate-of-need from regional and/or state health
planning agencies as a precondition to hospital
acquisitions, construction, expansion or modernization,
additions of equipment or initiation of major new
services involving capital expenditures in excess of
certain limits. Failure to obtain necessary state
approval can result in the inability to complete an
acquisition or change of ownership, the imposition of
civil or, in some cases, criminal sanctions, the inability to
receive Medicare or Medicaid reimbursement and/or the
revocation of a facility's license.
Utilization Review
The Company's hospitals are subject to various
forms of governmental and private utilization and
quality assurance review. Procedures mandated by the
Social Security Act to ensure that services rendered to
Medicare and Medicaid patients meet recognized
professional standards and are medically necessary
include review by a federally funded Peer Review
Organization ("PRO") of the appropriateness of Medicare
and Medicaid patient admissions and discharges, quality
of care, validity of DRG classifications and
appropriateness of services being provided in an
inpatient setting. PRO's also routinely review
outpatient services for quality and appropriateness and
review ambulatory surgery procedures for proper
classification. While no PRO has taken material
adverse action against any of the Company's hospitals,
negative PRO reviews may result in denial of
reimbursement of payments, assessments of fines or
exclusions from such programs.
Rate Review
Rate or budget review legislation is in effect in
a number of states where the Company owns hospitals.
For example, in Florida a budget review process and a
ceiling on revenue increases per admission has been in
effect with respect to the Company's hospitals since
1986. The ceiling on revenue increases per admission
limits hospital revenue increases to an
administratively determined cost of health care index
plus an additional percentage in excess thereof. This
law has limited the Company's ability to increase rates
at its Florida hospitals. A number of states also have
adopted taxes on hospital revenue and/or imposed
licensure fees to fund indigent health care within such
states. There can be no assurance that these states or
other states in which the Company operates hospitals
will not enact further or new rate-setting or other
regulations that may adversely affect the Company's
hospitals.
Reimbursement
Medicare
The Social Security Amendments of 1965 established
the Medicare program, which is designed to provide
health care services to the aged. Medicare Part A
provides health insurance benefits for covered hospital
and related health care services to most persons who
are 65 years old and are entitled to monthly social
security retirement benefits and to certain disabled
persons. Medicare Part B provides voluntary
supplemental medical benefits covering primarily
outpatient and physician care costs for covered
persons.
Operating Payments
Medicare originally provided reimbursement for the
reasonable direct and indirect costs of hospital
services furnished to beneficiaries, plus an allowed
return on equity for proprietary hospitals. Pursuant
to the Social Security Amendments of 1983 and
subsequent budget reconciliation act modifications, a
prospective payment system intended to cover the
routine and ancillary operating costs of most Medicare
inpatient hospital services was adopted to replace the
original cost-based reimbursement for impatient
services.
Under Medicare's prospective payment system for
inpatient hospital service, hospital discharges are
classified into approximately 500 DRGs, which classify
illnesses according to the estimated intensity of
hospital resources necessary to furnish care for each
principal diagnosis. Hospitals generally receive a
fixed amount based upon the assigned DRG, for each
Medicare patient. Such payment is made regardless of
how long the patient remains in the hospital or the
volume of ancillary services ordered by the attending
physician. Interim payments are made to rural
hospitals with less than 100 beds and hospitals that
serve a disproportionate share of elderly and Medicaid
patients. Approximately 29% of the Company's hospitals
are currently eligible for such payments. Additional
"outlier" payments are made to hospitals for cases
involving extremely long lengths of stay or unusually
high costs in comparison with other discharges in the
same DRG. Under this prospective payment system,
hospitals generally are encouraged to operate with
greater efficiency since they may retain payments in
excess of costs but must absorb costs in excess of such
payments.
The federal Health Care Financing Administration
(the "HCFA"), which administers the Medicare program,
periodically updates and recalibrates DRG rates. Such
updating and recalibrating has been affected by several
recent federal enactments. The Omnibus Budget
Reconciliation Act of 1987 ("OBRA-87") provided for an
increase in prospective payment system update factors
based upon the location of the hospital. As a result
of the Omnibus Budget Reconciliation Act of 1989
("OBRA-89"), future DRG recalibrations must be
undertaken on a budget-neutral basis effective with FY
1991.
In September 1993, the HCFA published final rules
implementing changes to the prospective payment system
which set 4.3% as the market basket increase to be used
in determining the update factor for the large urban,
other urban and rural hospitals in FY 1994. In
September 1994, the HCFA published changes to the
classification categories of the standardized payment
amounts to limit hospital classifications to either
large urban or other effective October 1, 1994. In
addition, the market basket increase used to determine
the annual update factor for urban hospitals was set at
3.6% and the update factor for other hospitals was the
amount needed to equalize the rural and other urban
rates.
Pursuant to OBRA-93, the net updates of DRG rates
for large urban and other urban hospitals are
established as follows: FY 1994 and FY 1995, market
basket minus 2.5%; FY 1996, market basket minus 2.0%;
and FY 1997, market basket minus 0.5%; and thereafter,
market basket. OBRA-93 established the rural hospital
update factors as follows: FY 1994, market basket minus
1.0%; FY 1995, the amount necessary to make the average
standardized amount for rural hospitals equal to that
for hospitals classified as other urban: FY 1996,
market basket minus 2.0%; FY 1997, market basket minus
0.5%; and thereafter, market basket. The hospital
market basket is a measure of the inflation experienced
by hospitals in purchasing the goods and services they
need to provide inpatient services. In FY 1993, the
market basket was 4.1% and the update DRG rate was
market basket minus 1.55% for urban hospitals and
market basket minus 0.55% for rural hospitals. Of the
Company's hospitals, 81 were located in urban areas and
38 were located in rural areas for reimbursement
purposes during fiscal year 1994. As of October 1,
1994, after giving effect to the reclassification of
certain of the Company's hospitals, the Company had 97
hospitals located in urban areas and 22 hospitals
located in rural areas for reimbursement purposes.
Medicare payments for outpatient hospital-based
services generally are the lower of hospital costs or
customary charges. The Omnibus Budget Reconciliation
Act of 1990 ("OBRA-90") directed that payments for the
reasonable cost for outpatient hospital services (other
than for capital related costs) be reduced by 5.8%
during federal fiscal year ("FY") 1991 through FY 1995.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA-
93") extends this provision through FY 1998. Rural
primary care hospitals and sole community hospitals are
exempt from these reductions. Outpatient clinical
laboratory services are reimbursed based upon a fee
schedule substantially lower than customary charges.
Certain ambulatory surgery procedures and outpatient
diagnostic radiology procedures are reimbursed based on
a blend of hospital costs and the rate paid by Medicare
for similar procedures performed in free-standing
facilities. Effective January 1, 1992, the blend for
such procedures is 42% of the hospital costs and 58% of
the fees paid in free-standing facilities. All other
outpatient diagnostic procedures are based on a blend
of 50% of hospital costs and 50% of the fee schedule
amounts paid by Medicare for similar procedures
performed in non-hospital settings; provided, however,
hospitals may not receive more than costs for services
paid on a blend of costs and fees method. In an
effort to restrict unbundling, OBRA-90 directed that
diagnostic services, including clinical diagnostic
laboratory tests, and other admission-related services
provided on the day of hospital admission and up to
three business days immediately preceding the admission
date will no longer be reimbursable under Medicare
Part B if Medicare Part A is the primary payor. This
unbundling provision is applicable to diagnostic
services furnished on or after January 1, 1991 and any
other admission-related services furnished on or after
October 1, 1991. OBRA-90 further directed that the
unbundling apply in the case of any services provided
during the day immediately preceding admission, without
regard to whether the services are related to the
admission.
The original cost-based payment method for
facilities and units that are exempt from the DRG
prospective payment system, including inpatient
psychiatric and rehabilitation hospitals and units,
children's hospitals and long-term care hospitals was
modified by OBRA-90. Such units are reimbursed actual
cost subject to an aggregate limit based on a target
operating cost per discharge. If a hospital's actual
cost per discharge is less than the target cost, the
hospital receives an incentive payment of 50% of the
difference between the target costs and the actual cost
per discharge up to 5% of target operating cost.
OBRA-90 also reduced the penalty for hospitals that
incur actual operating costs in excess of the target
cost by reimbursing 50% of the cost in excess of the
limit up to 110% of the limit. The target cost per
discharge is updated annually by the increase in the
cost of the market basket of hospital goods and
services, which for FY 1993 was an effective increase
of 4.2%. For FY 1994, the market basket increase is
4.3% and for FY 1995 the market basket increase is
3.7%. OBRA-93 set the target cost per discharge update
increase at the market basket minus 1% for FY 1994
through FY 1997.
Capital Payments
Prior to October 1986, the Medicare program
reimbursed each hospital on a reasonable cost basis for
the Medicare program's pro rata share of the hospital's
allowable capital costs related to inpatient care.
Reimbursable capital costs generally include
depreciation, rent and lease expense, capital interest,
property taxes and insurance premiums related to each
of the physical plant, fixed equipment and movable
equipment. Since 1986, Congress has required the HCFA
to reduce capital-related payments below the amount
that was otherwise payable pursuant to increasing
capital payment discounts. Rural primary care
hospitals and sole community hospitals were generally
exempt from these reductions.
In 1991, HHS changed the reimbursement of capital
expenditures related to inpatient care from a cost
reimbursement basis to prospective payment effective
for hospital cost reporting periods beginning on or
after October 1, 1991. The payment system will be
phased in over ten years. The regulations establish a
standard federal rate per discharge for capital-related
inpatient hospital costs. The national rate is based
on the estimated FY 1992 average Medicare payment for
capital cost per discharge under cost reimbursement.
The rate is then adjusted for each hospital to reflect
the relative severity of diagnosis, higher cost of
certain geographic areas, disproportionate share of low
income patients, indirect medical education costs and
extremely high cost cases. Hospitals whose costs per
discharge were below the federal rate were paid on the
basis of a blend of 90% hospital-specific rate and 10%
federal rate in FY 1992. The federal portion is then
scheduled to be increased 10% each year until the
payment becomes 100% federal rate. Hospitals whose
costs per discharge are above the federal rate can
choose to be paid on the basis of 85% of reasonable
costs of "old capital" (costs reported before
December 31, 1990 or costs for capital-related items
and services legally obligated on or before
December 31, 1990 and put into use before October 1,
1994) plus a per case payment for new capital based on
the ratio of the hospital's cost for new capital to its
total capital costs. Hospitals will be eligible for
additional payments to provide minimum payment levels
during the 10-year transition period. The minimum
payment for sole community hospitals is 90% of their
Medicare inpatient capital costs; the minimum payment
for urban hospitals with 100 or more beds and a
disproportionate patient share percentage of at least
20.2% is 80% of their Medicare inpatient capital costs;
for all other hospitals, the minimum payment is 70% of
their Medicare inpatient capital costs. Funds
available for additional payments are limited to 10% of
aggregate inpatient capital payments. As a result,
sufficient funds may not be available to meet the
minimum payment levels. Also, as required by law,
payments will be adjusted in FY 1992 through FY 1995 so
that aggregate payments will not exceed 90% of the
amounts that would have been payable on a cost
reimbursement basis. However, this adjustment will not
apply to payments for old capital. Payments for
future years will be affected by annual updates in the
federal payment rate which cannot be predicted.
The final federal rate for prospective capital in
FY 1993 was $417.29, in FY 1994 was $378.34 and in FY
1995 is $376.83. OBRA-93 required a 7.4% reduction in
the federal rate to correct prior inflation forecast
errors.
The Medicare program reimburses each hospital on a
reasonable cost basis for the Medicare program's pro
rata share of the hospital's allowable capital costs
related to outpatient services. Outpatient capital
reimbursement was reduced by 10% during FY 1992 and
OBRA-90 further directs that outpatient capital
reimbursement be reduced by 10% in FY 1993 through FY
1995. OBRA-1993 extends this reduction through FY
1998. Rural primary care hospitals and sole community
hospitals are exempt from this reduction.
Other Medicare Payment System Initiatives
Considerable uncertainty surrounds the future
determination by the federal government of
reimbursement levels for DRG classifications and for
outpatient services and for capital expenditures.
Congress could consider further legislation in the
prospective payment area, such as reducing DRG payment
rate increases or otherwise revising DRG payment rates
to take into account evidence of historical reductions
in hospital operating costs. In addition, any
automatic spending cuts mandated under Gramm-Rudman
would reduce payments made to the Company's hospitals
under the Medicare program. However, because the
actual amount of the reduction for any fiscal year may
vary according to the federal deficit, the financial
impact on the Company of any such action by Congress or
of Gramm-Rudman cannot be predicted. In addition,
substantial areas of the Medicare programs are subject
to judicial interpretation, administrative rulings,
governmental funding restrictions and requirements for
utilization review (such as second opinions for surgery
and preadmission criteria). Such matters, as well as
more general governmental budgetary concerns, may
significantly reduce payments made to the Company's
hospitals under such programs, and there can be no
assurance that future Medicare payment rates will be
sufficient to cover costs in providing services to
Medicare patients.
The Company believes that the failure to provide
appropriate DRG rate increases, reductions in
reimbursement for capital costs and inadequate
reimbursement for extraordinary Medicare cases have had
a significant negative effect on its hospital operating
margins and the profitability of providing services for
Medicare patients. The continuing effect of the
Medicare prospective payment system on the Company
cannot be accurately predicted. Moreover, significant
operating costs are required to be incurred in order to
satisfy licensing laws, standards of the Joint
Commission and quality of care concerns. See "--
Regulation." Hospital costs also are affected by the
type and severity of each patient's illness, occupancy
rates and decisions of physicians regarding each
patient's length of stay and the number and type of
tests and other procedures ordered. The ability of the
Company's hospitals to control or influence these
factors is limited, as such decisions generally are
made by attending physicians.
Medicaid
The Medicaid program, created by the Social
Security Amendments of 1965, is designed to provide
medical assistance to individuals unable to afford
care. Medicaid is a joint federal and state program in
which states voluntarily participate. Reimbursement
rates under the Medicaid program are set by each
participating state, and rates and covered services may
vary from state to state. At least 50% of Medicaid
funding comes from the federal government, with the
balance shared by state and local
governments. The Company operates hospitals in a
number of states that currently levy taxes on provider
costs or revenues, in part, to fund their Medicaid
programs.
Effective January 1, 1992, Congress established a
national limit on additional amounts required to be
paid to hospitals defined as providing a
disproportionate amount of Medicaid and low-income
inpatient services equal to 12% of total Medicaid
spending for each fiscal year. However, states then
using a greater percentage of their Medicaid
expenditures for disproportionate share hospital
payments are allowed to continue at current levels and
adjustments may be made for states with unusually high
disproportionate share expenditures. After January 1,
1996, states which adopt certain criteria for defining
a hospital as a disproportionate share hospital will
not be subject to the disproportionate share payment
limits. In 1993, the HCFA published final regulations
which loosened national and state limits on
disproportionate share payments to hospitals by
interpreting the statute as setting target percentage
goals, rather than as establishing an absolute cap on
disproportionate share expenditures. The effect of
these regulations was to increase the percentage of FY
1993 Medicaid expenditures for disproportionate share
hospitals from 12% to 13.7%. OBRA-93 further limits
disproportionate share payments to the cost of services
provided to Medicaid and uninsured patients minus
Medicaid payments for state fiscal years beginning
during or after FY 1995.
Many state Medicaid payments are now made under a
prospective payment system. Medicaid payments
generally are substantially less than a hospital's cost
of services. In addition, states increasingly are
seeking and obtaining waivers from HCFA which allow the
provision of Medicaid services through contracts with
managed care organizations. The federal government and
many states are currently considering the use of
managed care and other ways to limit the increase in
the level of Medicaid funding, including replacement of
the current system with a federal system which, in
turn, could adversely affect future levels of Medicaid
reimbursement received by the Company's hospitals.
Annual Cost Reports
The Company's annual cost reports, which are
required under the Medicare and Medicaid programs
involving cost-based reimbursement payment systems, are
subject to audit which may result in adjustments to the
amounts ultimately determined to be due to the Company
under these programs. These audits often require
several years to reach the final determination of
amounts earned under the programs based on cost.
Providers also have rights of appeal. The Company is
currently contesting certain issues raised in audits of
prior years' reports. Management believes that
adequate provision has been made for any material
retroactive adjustments that might result from such
audits and that final results from these issues will
not have a material adverse effect upon the Company's
financial position or results of operations.
Commercial Insurance
The Company's hospitals provide services to
individuals covered by health care insurance offered by
private insurance carriers, such as Blue Cross. Blue
Cross generally pays hospitals for covered services at
their established hospital charges, at a percentage
thereof or at rates negotiated between Blue Cross and
the hospital. At a number of the Company's hospitals,
Blue Cross plans are administered under contracts
providing for payments based on the costs of services.
Other private insurance carriers also reimburse their
policyholders, or make direct payments to hospitals,
for covered hospital services at established hospital
charges or a percentage thereof. In addition, managed
care organizations, which offer prepaid and discounted
medical service packages, represent an increasing
segment of health care payors. Except for patients
covered under cost-based Blue Cross plans and many
managed care contracts, the privately insured patient
generally is responsible to the hospital for any
difference between covered items and the total charges.
Anti-Fraud and Similar Legislation
The Social Security Act imposes criminal and civil
penalties for making false claims to the Medicare or
Medicaid Programs for services not rendered or for
misrepresenting actual services rendered in order to
obtain higher reimbursement. In addition, the Social
Security Act contains prohibitions on offering, paying,
soliciting or receiving remuneration intended to induce
business reimbursed under Medicare or state health care
programs. Financial arrangements between hospitals and
persons, such as physicians, who are in a position to
refer patients or induce the acquisition of any goods
or services paid for by Medicare or state health care
programs must comply with the applicable provisions of
the Social Security Act. In addition to felony
criminal penalties (fines of up to $25,000 and
imprisonment for up to five years per referral), the
Social Security Act also establishes civil monetary
penalties and the sanction of excluding violators from
Medicare and Medicaid participation.
The federal anti-fraud provisions have been
interpreted broadly to include the intentional payment
of anything of value to influence the referral of
Medicare or Medicaid business. In order to provide
guidance to health care providers on ways to engage in
legitimate business practices and avoid scrutiny under
the statute, HHS has issued (i) "fraud alerts"
identifying features of transactions, which, if
present, may indicate that the transaction violates the
law, and (ii) regulations outlining certain "safe
harbor" practices, which, although potentially capable
of inducing prohibited referrals of business under
Medicare or state health programs, would not be subject
to enforcement action under the Social Security Act.
The practices covered by the regulations include
certain physician joint venture transactions, space and
equipment leases, personal services and management
contracts, sales of physician practices, referral
services, warranties, discounts, payments to employees,
group purchasing organizations and waivers of
beneficiary deductibles and co-payments. Additional
safe harbor regulations have been proposed which cover
certain managed care plans, certain investment
interests, physician recruitment, certain malpractice
insurance subsidies, referral agreements, purchases of
physician practices and other matters.
In addition, OBRA-93 included certain amendments
to Section 1877 of the Social Security Act dealing with
"Physician Ownership of, and Referral to, Healthcare
Entities," commonly known as the "Stark Bill." The
amendments significantly broadened the scope of
prohibited physician self-referrals contained in the
original Stark Bill to include referrals by physicians
to entities in which the physician has a financial
relationship and which provide certain "designated
health services" which are reimbursable by Medicare or
Medicaid. These services include, among other things,
clinical laboratory services, certain therapy services,
radiology or other diagnostic services, and inpatient
and outpatient hospital services. The amended Stark
Bill contains exceptions to the self-referral
prohibition, including an exception if the physician
has an ownership interest in the entire hospital. The
amendments become effective January 1, 1995 and
contemplate the promulgation of regulations
implementing the new provisions. The Company cannot
predict the final form that such regulations will take
or the effect that the Stark Bill amendment or the
regulations to be promulgated thereunder will have on
the Company.
Certain of the Company's current financial
arrangements with physicians, including joint ventures,
and the Company's future development of joint ventures
and other financial arrangements with physicians could
be adversely affected by the failure of such
arrangements to comply with federal anti-fraud
provisions, the Stark Bill or other legislation or
regulation in these areas adopted in the future. See
"Properties." The Company is unable to predict the
effect of such regulations on the Company or whether
other legislation or regulations on the federal or
state level in any of these areas will be adopted, what
form such legislation or regulations may take or their
impact on the Company. Although certain of the
Company's current financial arrangements with
physicians do not qualify for the safe harbor
exemptions, the Company exercises care in an effort to
structure its arrangements with health care providers
to comply in all material respects with the anti-fraud
provisions and the Stark Bill. However, there can be
no assurance that such laws will ultimately be
interpreted in a manner consistent with the practices
of the Company.
Corporate Practice of Medicine and Fee-Splitting
Prohibitions
Some of the states in which the Company operates
also have laws that prohibit corporations from
employing physicians and practicing medicine for a
profit or that prohibit certain direct and indirect
payments or fee-splitting arrangements between health
care providers that are designed to induce or encourage
the referral of patients to, or the recommendation of,
particular providers for medical products and services.
In addition, some states restrict certain business
relationships between physicians and pharmacies.
Possible sanctions for violation of these restrictions
include loss of licensure and civil and criminal
penalties. These statutes vary from state to state,
are often vague and have seldom been interpreted by the
courts or regulatory agencies. Although the Company
exercises care in an effort to structure its
arrangements with health care providers to comply with
the relevant state statutes, there can be no assurance
that such state laws will ultimately be interpreted in
a manner consistent with the practices of the Company.
Reform Efforts
In November 1993, President Clinton submitted
proposed comprehensive health care reform legislation
(the "Administration's Proposal") to Congress. Under
the Administration's Proposal, states would be required
to establish regional purchasing cooperatives, known as
"regional alliances," that would be the exclusive
source of coverage for individuals and employers with
less than 5,000 employees. All employers would be
required to make coverage available to their employees
and contribute 80% of the premium and all individuals
would be required to enroll in an approved health plan.
Regional alliances would contract with health plans
that demonstrate an ability to provide consumers with a
full range of benefits, including hospital services,
that would be guaranteed by the federal government.
The federal government would provide subsidies to low
income individuals and certain small businesses to help
pay for the cost of coverage. These subsidies and
other costs of the Administration's Proposal would be
funded in significant part by reductions in payments by
the Medicare and Medicaid programs to providers,
including hospitals. The Administration's Proposal
would also place stringent limits on the annual growth
in health plan premiums. Other comprehensive reform
proposals have been introduced in Congress. These
other proposals contain coverage guarantees, benefit
standards, financing and cost control mechanisms which
differ from the Administration's Proposal. In
addition, certain states have adopted or are
considering health care reform measures. Due to the
uncertainties regarding the ultimate features of reform
initiatives and their enactment, the Company is unable
to predict what, if any, reforms will be adopted in the
future, or when any such reforms will be implemented.
No assurance can be given that such reforms will not
have a material adverse impact on the Company's
revenues or earnings.
Environmental Matters
The Company is subject to various federal, state
and local statutes and ordinances regulating the
discharge of materials into the environment. Company
management does not believe that the Company will be
required to expend any material amounts in order to
comply with these laws and regulations or that
compliance will materially affect its capital
expenditures, earnings or competitive position.
Legal Proceedings
The Company is presently, and is from time to
time, subject to claims and suits arising in the
ordinary course of its business, including claims for
damages for personal injuries or for wrongful
restriction of or interference with physicians' staff
privileges. In certain such actions, plaintiffs
request punitive or other damages that may not be
covered by insurance. Except as described below, the
Company and its subsidiaries presently are not parties
to any legal proceeding in which, in management's
opinion, an adverse determination would have a material
adverse effect on the Company's financial position.
Certain of the Company's Utah hospitals, along
with other Utah hospitals, were the subject of a
federal grand jury investigation of possible criminal
violations of the federal antitrust laws in connection
with nursing compensation practices. Six of the
Company's affiliated hospitals along with a number of
other Utah hospitals have entered into consent decrees
with the Justice Department which settle all charges
against all named hospitals. Under the consent decree,
the Company's affiliated hospitals named in therein are
prohibited from entering into agreements with other
Utah hospitals to fix the compensation paid to nurses
and prohibited from exchanging information with other
Utah hospitals concerning current or prospective
compensation paid to nurses, except in limited
circumstances, for a period of five years. None of the
settling parties admitted any wrongdoing and no fines
or penalties were assessed.
The Internal Revenue Service (the "IRS") has
audited the Company's federal income tax returns for
taxable years ended in 1987 through 1990 and has
proposed certain adjustments thereto. A formal protest
has been filed with the IRS Appeals Office disputing
the proposed adjustments and the Company expects to
settle the disputed adjustments at the Appeals Office
level. Although the ultimate outcome of the
examination cannot be predicted with certainty, the
Company believes that the resolution of these matters
will not have a material adverse effect on the
Company's financial position.
Two purported class actions, entitled Alvarez v.
R. Clayton McWhorter, et al. and Swain vs. R. Clayton
McWhorter, et al., were commenced in Delaware Chancery
Court in October 1994 by two alleged stockholders of
Healthtrust against the Company and its Board of
Directors. The complaints in both actions allege that
the Company's Board of Directors breached their
fiduciary and common law duties to the Company's
stockholders by failing to maximize stockholder value
and obtain the highest price possible for the Company's
stockholders in connection with the Company's agreement
to merge with Columbia. The complaints seek (i) a
preliminary and permanent injunction against the
Merger; (ii) recision and recissionary damages in the
event the transaction is consummated; (iii) an
accounting of any profits that might be realized by the
company's directors through the Merger; (iv)
unspecified compensatory damages; and (v) attorneys'
and experts' fees. Healthtrust believes that the
allegations in the complaints are without merit and
intends to defend both actions vigorously.
Item 2. Properties
Information with respect to this Item is
incorporated herein by reference to Item 1 - Business -
Properties.
Item 3. Legal Proceedings
Information with respect to this Item is
incorporated herein by reference to Item 1 - Business -
Legal Proceedings.
Item 4. Submission of Matters to a Vote
of Security Holders
None.
PART II
Item 5. Market for the Company's Common Equity and
Related Stockholder Matters
The Company's Common Stock is listed on the New
York Stock Exchange and trades under the symbol "HTI".
At November 15, 1994, there were 2,711 holders of
record of the Company's Common Stock. The following
table sets forth the reported high and low sale prices
of the Company's Common Stock for the periods indicated
as reported by the New York Stock Exchange or the Wall
Street Journal:
Period High Low
FY 1993
1st Quarter ............................. $ 17 7/8 $ 11 7/8
2nd Quarter ............................. $ 19 7/8 $ 12
3rd Quarter ............................. $ 19 1/8 $ 13 3/8
4th Quarter ............................. $ 21 7/8 $ 17 3/8
Period High Low
FY 1994
1st Quarter ............................. $ 24 3/4 $ 19 3/4
2nd Quarter ............................. $ 29 5/8 $ 22 5/8
3rd Quarter ............................. $ 33 1/4 $ 27 3/4
4th Quarter ............................. $ 31 $ 26 1/2
FY 1995
1st Quarter (through November 15)........ $ 36 $ 29
Dividends
Each share of Common Stock has an equal and
ratable right to receive dividends to be paid from the
Company's assets legally available therefor when, as
and if declared by the Board of Directors. The
declaration and payment of dividends on the Common
Stock are restricted by the terms of the 1994 Credit
Agreement and the indentures governing the Company's
other long-term indebtedness. No dividends have been
paid on the Company's Common Stock.
Item 6. Selected Financial Data
The following tables set forth selected financial
information for the Company for each of the years in
the five-year period ended August 31, 1994 and
quarterly operations information for each of the fiscal
years ended August 31, 1994 and 1993.
The information in the following tables should be
read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial
Statements and related notes thereto.
SELECTED FINANCIAL DATA
(In millions, except per share amounts)
Statements of Operations Data (Years Ended August 31):
1994 1993 1992 1991 1990
Net operating revenue $2,970.0 $2,394.6 $2,265.3 $2,025.7 $1,856.9
Hospital service costs 2,361.6 1,888.6 1,796.0 1,615.8 1,488.2
608.4 506.0 469.3 409.9 368.7
Income (loss) before
extraordinary charges 173.2 135.2 93.2 6.6 (53.2)
Extraordinary charges
on early retirements
of debt (net of taxes) 0.0 13.6 136.3 0.0 5.8
Net income (loss)
(before preferred dividends) 173.2 121.6 (43.1) 6.6 (59.0)
Net income (loss) to common
stockholders $ 173.2 $ 121.6 $ (67.7) $ (69.7) $ (124.7)
Average shares and share
equivalents 87.4 83.5 76.8 60.4 58.5
Earnings (loss) per share:
Before extraordinary
charges $ 1.98 $ 1.62 $ 0.90 $ (1.15) $ (2.03)
Net income (loss) per share 1.98 1.46 (0.88) (1.15) (2.13)
Balance Sheet Data (At August 31):
Current assets $ 842.2 $ 670.9 $ 584.1 $ 676.9 $ 560.0
Property, plant and
equipment (net) 2,253.7 1,567.5 1,554.1 1,510.2 1,466.0
Excess of purchase price
over net assets acquired 736.2 178.6 176.7 180.9 194.5
Other assets 135.2 119.7 64.8 77.4 73.3
TOTAL ASSETS 3,967.3 2,536.7 2,379.7 2,445.4 2,293.8
Current liabilities 559.1 451.8 338.8 286.7 250.2
Long-term debt 1,740.9 948.6 1,033.9 1,150.0 1,155.6
Other liabilities 641.7 480.6 476.2 344.8 346.3
Redeemable preferred stock 0.0 0.0 0.0 575.9 499.6
Stockholders' equity 1,025.6 655.7 530.8 88.0 42.1
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,967.3 $2,536.7 $2,379.7 $2,445.4 $2,293.8
Cash Flow Data (Years Ended August 31):
Provided by operating
activities $ 368.8 $ 364.5 $ 430.1 $ 321.3 $ 348.6
Used in investing
activities (509.6) (290.8) (155.1) (93.5) (111.0)
Capital expenditures
(included in investing
activities) (221.0) (219.5) (178.1) (170.3) (120.8)
Provided by (used in) financing
activities 81.8 (95.0) (400.0) (74.3) (105.7)
QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share amounts)
Fiscal 1994
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
8-31-94 5-31-94 2-29-94 11-30-93
Net operating revenue $ 941,905 $ 753,515 $ 652,521 $ 622,095
Hospital service costs 762,812 597,833 506,667 494,299
179,093 155,682 145,854 127,796
Income before income
taxes 65,766 78,335 79,758 65,411
Net income $ 41,320 $ 45,648 $ 47,376 $ 38,852
Net income per share $ 0.44 $ 0.52 $ 0.56 $ 0.46
Fiscal 1993
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
8-31-93 5-31-93 2-28-93 11-30-92
Net operating revenue $ 608,178 $ 596,726 $ 597,884 $ 591,779
Hospital service costs 496,526 466,642 461,407 463,976
111,652 130,084 136,477 127,803
Income before income
taxes and extraordinary
charges 41,738 63,391 64,265 56,472
Extraordinary charges
(net of taxes) 923 12,710 0 0
Net income $ 25,623 $ 24,678 $ 37,935 $ 33,322
Income per share:
Before extraordinary
charges $ 0.32 $ 0.45 $ 0.45 $ 0.40
Extraordinary charges 0.01 0.15 0.00 0.00
Net income $ 0.31 $ 0.30 $ 0.45 $ 0.40
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
On October 4, 1994 the Company and Columbia/HCA
Healthcare Corporation announced the signing of a
definitive merger agreement under which the Company's
shareholders will receive 0.88 shares of Columbia
common stock in exchange for each share of Healthtrust
common stock they hold. The proposed transaction is
expected to be accounted for as a pooling of interests.
The completion of the transaction is subject, among
other things, to the approval of the shareholders of
both companies and certain regulatory approvals. The
shareholders' meetings to vote on the Merger
transaction are expected to be scheduled for the first
quarter of calendar 1995.
The following table sets forth certain data
relating to the Company's operations as a percentage of
net operating revenue for each of the past three years.
Year Ended August 31,
1994 1993 1992
Net operating revenue 100.0% 100.0% 100.0%
Hospital service costs:
Salaries and benefits 37.8 37.0 37.5
Supplies 13.6 14.5 14.4
Fees 10.8 11.3 11.5
Other expenses 10.7 10.0 9.8
Bad debt expense 6.6 6.1 6.1
79.5 78.9 79.3
Depreciation and amortization 5.6 5.5 5.6
Interest expense 3.8 4.2 5.2
ESOP/pension expense 1.5 1.6 1.7
Deferred compensation - 0.2 0.4
Other income (net) <0.5> <0.3> <0.2>
Income before minority
interests, income taxes and
extraordinary charges 10.1 9.9 8.0
Minority interests 0.4 0.5 0.7
Income before income taxes
and extraordinary charges 9.7 9.4 7.3
Income tax expense 3.9 3.8 3.2
Extraordinary charges (net) - 0.5 6.0
Net income (loss) 5.8% 5.1% (1.9)%
Results of Operations
General
The Company continues to experience gross and net
operating revenue increases and the Company's results
of operations continue to be affected by the trend
toward certain services being performed more frequently
on an outpatient basis. The Company has been able to
achieve increases in net operating revenue due to the
higher utilization of outpatient and ancillary
services, general price increases and increased
severity of illness of patients admitted. Although the
Company's net operating revenue has grown in each
period, the impact of price increases and increases in
patient acuity have been partially offset by the
increasing proportion of revenue derived from fixed
payment sources, including Medicare and Medicaid
(approximately 45% of the Company's net operating
revenue for fiscal 1994 is related to Medicare and
Medicaid patients).
The growth in outpatient services is expected to
continue as procedures currently being performed on an
inpatient basis become available on an outpatient basis
through continuing advances in pharmaceutical and
medical technologies. The redirection of certain
procedures to an outpatient basis has also been
influenced by pressures from payors to direct certain
procedures from inpatient care to outpatient care.
While the Company expects the growth in outpatient
services to continue, the rate of increase is expected
to decline.
The Company expects Medicare and Medicaid revenue
to continue to increase due to the general aging of the
population and the expansion of state Medicaid
programs. The Medicare program reimburses the
Company's hospitals primarily based on established
rates that are dependant on each patient's diagnosis,
regardless of the provider's cost to treat the patient
or the length of time the patient stays in the
hospital. The Medicare program's established rates are
indexed for inflation annually, but these increases
have historically been less than both the actual
inflation rate and the Company's increases to its
standard charges.
Insurance companies, government programs (other
than Medicare) and employers purchasing health care
services for their employees are negotiating the
amounts they will pay the health care providers rather
than paying the providers standard prices. This leads
to these purchasers of health care services becoming
managed care payors, similar to HMO's and PPO's, in
virtually all markets and making it increasingly
difficult for providers to maintain their historical
net revenue growth trends.
The Company acquired EPIC (which owned 34
hospitals and various related healthcare entities) and
three other hospital facilities during 1994.
Congress is currently considering a variety of
proposals for comprehensive health care reform, with
the objectives of providing health care coverage to
everyone, streamlining the administration of health
care delivery and public assistance programs,
developing a more rational payment approach for health
care services and creating a global strategy for
controlling health care costs. The Company cannot
predict what reforms the Congress will eventually enact
or the resulting implications for providers at this
time. However, the Company believes that the delivery
of primary care, emergency care, obstetrical services
and rehabilitative services, on a local basis, to rural
and suburban markets will be an integral component of
any strategy for controlling health care costs and the
Company believes it is well positioned to provide these
services.
Years Ended August 31, 1994 and 1993
Net operating revenue for the Company's hospitals
for the year ended August 31, 1994, increased 24.0%
(8.9% excluding EPIC) to $2.970 billion, while same
hospitals net operating revenue increased 7.1%. Gross
revenue during the year ended August 31, 1994,
increased 27.1% (11.7% excluding EPIC) due to a 37.6%
increase (18.2% excluding EPIC) in gross outpatient
revenue and a 21.6% increase (8.7% excluding EPIC) in
gross inpatient revenue. On a same hospitals basis,
gross revenue increased 9.7% compared to the prior
year, due to an 16.1% increase in gross outpatient
revenue and a 6.7% increase in gross inpatient revenue.
In each case, gross revenue grew faster than net
operating revenue, primarily because the patient day
mix became more heavily weighted to Medicare, Medicaid
and speciality unit patients (for which reimbursement
rate increases have been less than implemented price
increases) and increased utilization by managed care
programs.
Costs of hospital services (salaries and benefits,
fees, supplies, bad debt expense and other expenses)
for the year ended August 31, 1994 increased 25.0%.
The 24.0% increase in net operating revenue and 25.0%
increase in the costs of hospital services resulted in
the operating margin decreasing from 21.1% for 1993 to
20.5% for 1994. Salaries and benefits, the largest
component of hospital services, increased from 37.0% to
37.8% of net operating revenue due to higher than
average expense at the facilities acquired during 1994.
Supplies expense decreased from 14.5% of net operating
revenue for 1993 to 13.6% of net operating revenue for
1994, reflecting the benefits from the Company's
efforts to standardize supplies and consolidate
vendors. Bad debt expense has increased from 6.1% to
6.6% of net operating revenue for 1994, with higher
than average expense at the facilities acquired during
1994 and 1993 contributing to this increase.
Interest expense increased from $99.8 million to
$113.7 million for 1994, due primarily to the
additional debt incurred to finance the acquisition of
EPIC and the other 1994 acquisitions.
Income before income taxes and extraordinary
charges increased $63.4 million, due primarily to the
net effect of the $102.4 million increase in net
operating revenue less hospital service costs and $47.3
million increase in depreciation, amortization and
interest expense.
The Company's combined federal and state effective
tax rate was 40.1% for both 1994 and 1993. During
1993, the Company incurred an extraordinary charge of
$13.6 million (net of tax benefits) related to the
early retirement of certain long term debt. No
extraordinary charges where incurred during 1994.
The Company continues to generate significantl
levels of cash flows from operating activities, $368.8
million in 1994 and $364.5 million in 1993. Although
net income increased by $51.6 million, changes in
certain working capital items (primarily a decrease in
accounts payable and accrued expenses) offset the
increase in net income to result in cash flow from
operations remaining at a basically constant
level.
Years Ended August 31, 1993 and 1992
Net operating revenue for the Company's hospitals
for the year ended August 31, 1993, increased 5.7% to
$2.395 billion, while same hospitals net operating
revenue increased 8.6%. Gross revenue during the year
ended August 31, 1993, increased 9.1% due to a 15.6%
increase in gross outpatient revenue and a 6.4%
increase in gross inpatient revenue. On a same
hospitals basis, gross revenue increased 12.5% compared
to the prior year, due to an 18.9% increase in gross
outpatient revenue and a 9.7% increase in gross
inpatient revenue. In each case, gross revenue grew
faster than net operating revenue, primarily because
the patient day mix became more heavily weighted to
Medicare, Medicaid and specialty unit patients and
increased utilization by managed care programs.
Costs of hospital services (salaries and benefits,
fees, supplies, bad debt expense and other expenses)
for the year ended August 31, 1993 increased 5.2%. The
5.7% increase in net operating revenue and 5.2%
increase in the costs of hospital services resulted in
the operating margin increasing from 20.7% for 1992 to
21.1% for 1993. Salaries and benefits, the largest
component of hospital services, increased 4.2%. This
increase is lower than the rate of increase in net
revenue and was achieved through favorable changes in
work redesign, nursing skill mixes and employee
retention. Supplies expense increased from 14.4% of
net operating revenue for 1992 to 14.5% of net
operating revenue for 1993, primarily resulting from
additional expense due to changes in the Company's
capitalization policy, offsetting benefits derived from
the Company's efforts to consolidate vendors and
negotiate contracts on a consolidated basis. Bad debt
expense remained constant at 6.1% of net operating
revenue for both 1993 and 1992.
Interest expense was reduced from $119.6 million
for 1992 to $99.8 million for 1993, due primarily to
the Company refinancing $300 million of higher rate
debt at a fixed rate of 8.75% during 1993, lower
interest rates on the Company's variable rate debt and
benefits resulting from the Company's December 1991
Recapitalization Plan transactions.
Income before income taxes and extraordinary
charges increased $61.2 million, due primarily to the
$36.7 million increase in net operating revenue less
hospital service costs and the $19.8 million decrease
in interest expense.
The Company's combined federal and state effective
tax rate was 40.1% for 1993 and 43.4% for 1992.
Although the enactment of the Revenue Reconciliation
Act of 1993 increased 1993 tax expense by approximately
$5.0 million, the utilization of capital loss
carryforwards and lower effective state income tax
rates offset this federal rate increase. In 1992, the
effective income tax rate was increased by
approximately 2.4% due to the recognition of deferred
compensation expense in excess of the amount allowable
for tax purposes.
The Company incurred extraordinary charges (net of
tax benefits) on the early extinguishments of debts of
$13.6 million in 1993 and $136.4 million in 1992.
The Company incurred dividends on preferred stock
of $24.6 million during 1992. There were no preferred
stock dividends in 1993.
Liquidity and Capital Resources
Healthtrust ended fiscal 1994 in the strong
financial position: cash totaled $92.3 million; total
assets reached $3.97 billion; stockholders' equity
climbed to $1.03 billion; and debt as a percentage of
total capital was at 63.0%.
Cash provided from operations continued to satisfy
all of the Company's working capital, capital expenditure
(excluding EPIC and other facility acquisitions) and
debt principal payment requirements. The Company
generated $368.8 million of cash from operations in
1994, $364.5 million in 1993 and $430.1 million in
1992.
Management believes that, based upon its analysis
of the Company's financial condition, the cash flow
generated from operations in the future should provide
sufficient liquidity to meet all cash requirements for
at least the next year without substantial additional
borrowings. In addition, the Company believes, based
on current internal long-term projections of future
results of operations, that it will be able to satisfy
its current and expected obligations as they become due
without incurring substantial additional indebtedness,
and that satisfaction of such obligations will not
prevent the Company from meeting liquidity requirements
for operations and capital expenditures. However,
there can be no assurance that future developments in
the health care industry or general economic trends
will not adversely affect the Company's operations or
its ability to meet such obligations.
During April 1994, the Company entered into a
credit agreement with the Bank of Nova Scotia, acting
as administrative agent for the lenders (the "1994
Credit Agreement"). The 1994 Credit Agreement provides
for an aggregate of up to $1.2 billion in credit
available to the Company. Loans under the 1994
Credit Agreement bear interest at fluctuating rates, as
selected by the Company at specified times, equal to
either (i) an alternate base rate (the higher of the
Bank of Nova Scotia's base rate for dollar loans or the
Federal Funds rate plus 50 basis points) plus 50 basis
points or (ii) LIBO plus 150 basis points.
At August 31, 1994, the Company had outstanding
$415 million of term loans, $277 million of delayed
term loans and $55 million of revolving loans under the
1994 Credit Agreement. At August 31, 1994, the Company
had approximately $429 million of credit available
under the 1994 Credit Agreement.
The Company completed its acquisition of EPIC on
May 5, 1994. EPIC shareholders received $7.00 for each
share of EPIC common stock (approximately $249.4
million in the aggregate) and the Company refinanced
approximately $681 million and assumed approximately
$32 million of EPIC indebtedness. The acquisition was
financed through the public offering of 5,980,000
shares of Healthtrust common stock at $28.25 per share,
the public offering of $200 million of 10 1/4%
Subordinated Notes, borrowings under the Company's bank
credit agreement and cash on hand.
The Company acquired three other hospital
facilities during the fiscal year 1994 for an aggregate
purchase price of approximately $156.7 million. The
Company did not renew the lease on one of the
facilities acquired from EPIC that terminated in July
1994 and one of the facilities acquired from EPIC was
sold during August 1994.
During fiscal 1993, the Company acquired five
hospital facilities for an aggregate purchase price of
$90.1 million. The Company sold one hospital facility
during 1993 for approximately $85.1 million. The
proceeds from this sale were received in September
1993.
During 1994, the Company spent $221 million
(excluding the EPIC and other facility acquisitions)
for capital expenditures, primarily to renovate and add
new equipment and technology to existing facilities,
compared with $220 million in 1993 and $178 million in
1992. The Company intends to continue to invest in its
existing facilities and in new facilities within its
existing health care business and capital expenditures
for fiscal 1995 are expected to be approximately $300
million. The Company may seek to sell certain of its
hospitals from time to time. Management does not
consider the sale of any assets to be necessary to
repay the Company's indebtedness or to provide working
capital. The Company's cash, cash expected to be
generated from operations and available sources of
capital are believed by management to be adequate to
finance its planned future growth.
The Company receives payment for services rendered
from federal and state agencies (under the Medicare,
Medicaid and Champus programs), private insurance
carriers, employers, managed care programs and
patients. During the year ended August 31, 1994,
approximately 45% of the Company's net operating
revenue related to patients participating in the
Medicare and Medicaid programs. The Company recognizes
that revenue and receivables from government agencies
are significant to the Company's operations, but the
Company does not believe that there are any significant
credit risks associated with these government agencies.
The Company does not believe that there are any other
significant concentrations of revenue from any
particular payor that would subject the Company to any
significant credit risks in the collection of its
accounts receivable.
The Company is primarily self-insured for
professional and general liability risks. The unfunded
reserve for professional and general liability risks
was $245.4 million at August 31, 1994. Payments of
professional and general liability claims aggregated
$21.3 million for the year ended August 31, 1994. The
Company does not believe that the payment of these
self-insured risks will have any significant impact on
the Company's liquidity or working capital.
Revenue Reconciliation Act of 1993
Numerous provisions of the Code were revised by
the Revenue Reconciliation Act of 1993. As a result of
this Act, the Company's federal statutory rate was
increased to 35% for fiscal 1994 and thereafter.
Management does not believe that the increased tax rate
will have any significant effect on the Company's cash
flow during fiscal 1995.
Inflation
The health care industry is labor intensive.
Wages and other expenses increase during periods of
inflation and when shortages in the marketplace occur.
In addition, suppliers pass along rising costs to the
Company in the form of higher prices. The Company has,
to date, offset increases in operating costs to the
Company by increasing charges for services and
expanding services. The Company also has implemented
cost control measures to curb increases in operating
costs and expenses. The Company cannot predict its
ability to cover future cost increases, and the
Company's ability to increase prices is limited, in
certain cases, by various federal and state laws,
including federal laws that establish revenues per
admission for hospital services rendered to Medicare
and Medicaid patients.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted in a
separate section of this report. See "Selected
Financial Data" and pages A-1 through A-31.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of
the Registrant
Information with respect to the Company's
executive officers is contained under Item 1,
"Directors and Executive Officers".
Base upon a review of reports filed with the
Securities and Exchange Commission (the "Commission")
under Section 16(a) of the Securities Exchange Act of
1934, as amended, and furnished to the Company during
the Company's most recent fiscal year, William T.
Hjorth, a director of the Company, failed to file one
report on Form 4 with the Commission on a timely basis.
Such report was filed eight calendar days after it was
due and one transaction was disclosed in such report.
Item 11. Executive Compensation
Directors who are not officers receive a fee of
$20,000 per year together with $1,000 plus expenses for
each Board or Committee meeting attended and are
eligible for participation in the Company's Amended and
Restated 1990 Directors Stock Compensation Plan (the
"Directors Plan"). Messrs. Hanselman and Hjorth were
each awarded 28,290 shares under the Directors Plan in
1990 and 1991, respectively, Mr. Dee and Ms. Caldwell
were each awarded stock options for 15,000 shares under
such Plan in 1992 and Dr. Beaty was awarded stock
options for 15,000 shares under such Plan in 1993.
Such shares or options generally vest or become
exercisable in five annual increments of 20% each. The
Directors Plan is of unlimited duration and is
administered by a committee of the Board of Directors,
which has discretion to select participants and to
determine the size of awards at the time of grant. To
enable the granting of awards tailored to changing
business conditions, the Directors Plan provides for
awards payable in stock options, stock appreciation
rights, restricted stock, restricted units, other
equity based units or cash, either singly or in any
combination thereof. Awards may be granted with an
exercise price of less than the fair market value of
the underlying Common Stock on the date of grant.
Shares will vest upon the participant's death,
disability or retirement and as otherwise determined by
the committee at the time of grant. The Directors Plan
authorized awards of up to 188,600 shares of Common
Stock.
Mr. MacNaughton, Chairman of the Executive
Committee of the Board of Directors of the Company
entered into a consulting agreement with the Company
pursuant to which Mr. MacNaughton agreed to serve as a
consultant to the Company following his retirement as
an employee. The agreement provides that Mr.
MacNaughton will receive consulting fees of $11,250 per
month plus reimbursement of expenses and certain
personal benefits for services rendered and in lieu of
director's fees. During fiscal year 1994 Mr.
MacNaughton received cash payments aggregating $135,000
pursuant to such consulting agreement.
In February, 1994, Ms. Caldwell entered into a
consulting agreement with the Company pursuant to which
Ms. Caldwell agreed to provide consulting services to
the Company in connection with the further development
of the Company's strategic planning. The Agreement
provides that Ms. Caldwell will receive consulting fees
of $1,000 per day plus reimbursement of expenses for
services rendered. During fiscal year 1994 Ms.
Caldwell received payments aggregating $23,000 pursuant
to such Consulting Agreement.
Compensation of Officers
The following table sets forth information
concerning the annual and long-term cash compensation
paid or to be paid by the Company to the Company's
Chief Executive Officer and the four most highly-
compensated executive officers of the Company for
services rendered to Healthtrust in all capacities
during the fiscal year ending August 31, 1994 as well
as the total compensation paid to each individual
during the Company's three previous fiscal years:
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Name Other Restricted All Other
and Annual Stock LTIP Compen-
Principal Fiscal Salary Bonus Compen- Award(s) Options/ ayouts sation
Position Year ($) ($) sation($)(1) ($) SARs(#) ($) ($)(2)
R. Clayton McWhorter 1994 $800,000 $400,000 - $400,000(3)333,333 0 $ 33,029(2)
Chairman of the 1993 750,000 375,000 - 0 100,000 0 24,190
Board, CEO 1992 750,000 150,000 - 0 565,800(4) 0 --
and President
W. Hudson Connery, Jr. 1994 $491,667 $200,000 - $200,000(3) 16,667 0 $25,806(2)
Senior Vice President 1993 441,667 175,000 - 0 60,000 0 20,590
and COO 1992 375,000 100,000 - 0 200,000 0 --
Richard E Francis, Jr. 1994 $306,667 $100,000 - $100,000(3) 9,042 0 $24,188(2)
Senior Vice President 1993 267,167 100,000 - 0 70,000 0 17,392
1992 192,666 75,000 - 0 30,000 0 --
Michael A. Koban, Jr. 1994 $295,000 $130,000 - $130,000(3) 10,833 0 $22,285(2)
Senior Vice President 1993 218,334 135,000 - 0 65,000 0 17,587
1992 171,666 75,000 - 0 35,000 0 -
Robert M. Martin 1994 $226,667 $271,400 - $149,270(3) 5,750 0 $22,878(2)
Vice President 1993 213,834 118,500 - 0 30,000 0 18,292
1992 192,666 80,000 - 0 30,000 0 -
(1) In accordance with the Securities and Exchange Commission's
rules, perquisites and other personal benefits,
securities or property which, in the aggregate, do
not exceed the lesser of $50,000 or 10% of the annual
salary and bonus for each named executive are excluded
and amounts for 1992 have been omitted.
(2) In accordance with certain transition rules adopted
by the Securities and Exchange Commission amounts for
1992 have been omitted. Includes contributions made
by the Company during fiscal year 1994 under certain
defined contribution plans and the amount of premiums
paid by the Company under term life insurance and
long-term disability arrangements in the following
amounts respectively: McWhorter, $18,438, $6,300 and
$8,291; Mr. Connery, $18,438, $2,700, and $4,668;
Mr. Francis, $18,438, $2,700, and $3,050; Mr. Koban,
$16,535, $2,700 and $3,050; and Mr. Martin, $16,473,
$2,700 and $3,705.
(3) Pursuant to the Company's compensation program,
participants may elect to defer receipt of their annual
cash bonus and use up to 100% of such amount to
purchase restricted stock at a 50% discount to the
market price on the date of grant of such restricted
stock. Messrs. McWhorter, Connery, Francis and Koban
each deferred 100% and Mr. Martin deferred 55% of their
respective 1994 annual cash bonuses and were granted 22,858,
11,429, 6,200, 7,429 and 8,530 restricted shares,
respectively, all of which shares will vest on August 31,
1996. The value of such restricted shares on the grant
date were respectively: Mr. McWhorter, $800,000;
Mr. Connery, $400,000; Mr. Francis, $200,000; Mr. Koban,
$260,000; and Mr Martin, $298,540. Dividends, if
and when declared, will be paid on such restricted stock.
(4) Mr. McWhorter was awarded an option to purchase 565,800
shares of Common Stock at an option price per share
of $14.00 in fiscal year 1992. In connection with
such award Mr. McWhorter forfeited 282,900 unvested
shares of Restricted Stock previously awarded to him.
The following table sets forth certain information
concerning options granted during fiscal year 1994 to the named
executives:
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Base Price Expiration
Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
R. Clayton McWhorter 333,333 39.50% $23.75 12/31/03 $4,999,995 $12,624,987
W. Hudson Connery, Jr. 16,667 1.97% 23.75 12/31/03 250,005 631,263
Richard E. Francis, Jr. 9,042 1.07% 23.75 12/31/03 135,630 342,466
Michael A. Koban, Jr. 10,833 1.28% 23.75 12/31/03 162,495 410,300
Robert M. Martin 5,750 0.06% 23.75 12/31/03 86,250 217,781
(1) All such options vest and become exercisable on August 31, 1997
except 300,000 for Mr. McWhorter vest on August 31, 1996.
(2) Potential realizable value is based on an assumption that
the stock price of the Company's common stock appreciates
at the annual rate shown (compounded annually) from the date
of grant until the end of the option term. These numbers
are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price growth.
The following table summarizes options exercised during
fiscal year 1994 and presents the value of unexercised options
held by the named executives at fiscal year end:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/ Options/
Shares at Fiscal at Fiscal
Acquired Value Year-End(#) Year-End($)*
on Exercise Realized* Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable (U)
R. Clayton McWhorter 0 0 565,800/433,333 $9,477,150/$3,570,831
W. Hudson Connery, Jr. 0 0 100,000/176,667 $1,600,000/$2,459,169
Richard E. Francis, Jr. 0 0 20,000/89,042 $ 247,500/$1,162,044
Michael A. Koban, Jr. 0 0 20,000/90,833 $ 247,500/$1,192,706
Robert M. Martin 0 0 0/65,750 $ 0/$ 891,500
* For all unexercised in-the-money options, values are
calculated using the difference between fair
market value per share of the stock at the close
of business on August 31, 1994 of $30.75 and the
exercise price of the option.
Employment Agreement
In December, 1993, the Company entered into an
employment agreement (the "Employment Agreement") with
Mr. McWhorter providing for a three-year term of
employment commencing September 1, 1993 and ended
August 31, 1996. Under the Employment Agreement,
Mr. McWhorter is entitled to an annual base salary of
$800,000, subject to increases by the Board of
Directors, and is eligible to participate in all
executive compensation and employee benefit plans or
programs applicable to senior management employees of
the Company including such incentive bonuses as the
Board of Directors may determine from time to time.
Under the Employment Agreement, Mr. McWhorter's
employment may be terminated by the Company for cause,
in which event the Company's obligation to pay
Mr. McWhorter's salary after termination would cease.
In the event Mr. McWhorter becomes disabled or dies
during the term of the Employment Agreement, the
Company could terminate his employment and pay to him
or his estate, as the case may be, disability or death
benefits, equal to his salary then in effect, until the
later of (i) August 31, 1996 and (ii) one year from the
date of such termination.
Severance Protection Agreements
The Company's Board of Directors has authorized
the Company to enter into Severance Protection
Agreements with approximately 70 employees
("Executives"), including the named executives. Such
agreements are expected to provide that if, within 24
months following a Change of Control (as defined
therein), the Executive's employment is terminated by
the Company without Cause (as defined therein) or due
to a Disability (as defined therein) or by the
Executive with Good Reason (as defined therein), the
Executive will be entitled to receive a lump sum
severance payment equal to one, two or three times
annual base salary (two times annual base salary for
Mr. Martin and three times annual base salary for each
of the other named executives) plus a pro rata bonus
for the fiscal year in which termination occurs. In
addition, the Executive would be entitled to continued
coverage under the Company's medical benefit plans for
up to 18 months (or until such earlier date as the
Executive obtains comparable medical coverage from a
new employer).
The Severance Protection Agreements are expected
to provide that if any payment made thereunder would be
subject to an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, such payment
will be reduced to the extent necessary such that the
remaining payment would not be subject to the excise
tax. It is anticipated that each Severance Protection
Agreement will have a two-year term, provided that no
agreement will expire earlier than two years after the
occurrence of a Change in Control.
Compensation Committee Interlocks and Insider
Participation.
Directors Hanselman, Hjorth and MacNaughton
comprise the Committee. Mr. MacNaughton is a former
employee of the Company and currently performs
consulting services for the Company. The Company
intends to retain the services of Mr. MacNaughton in
the next fiscal year.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth as of November 15,
1994 the number of shares of Common Stock of the
Company held beneficially, directly or indirectly, by
each person or entity owning of record, or known by the
Company to own beneficially, more than five percent of
the outstanding Common Stock of the Company, by each
director and each executive officer named in the
Summary Compensation Chart below, individually, and by
all officers and directors as a group, together with
the percentage of the outstanding shares which such
ownership represents.
Name and Address Beneficial Ownership(1)
of Beneficial Owner(2) No. of Shares Percent
Healthtrust, Inc.-The Hospital
Company 401(k) Retirement Plan(3) 25,768,044 28.4%
Mellon Bank Corporation(4) 5,230,000 5.8%
R. Clayton McWhorter 1,200,264 1.3%
W. Hudson Connery, Jr. 240,178 *
Michael A. Koban, Jr. 143,004 *
Harry N. Beaty, M.D. 3,500 *
Alethea O. Caldwell 6,000 *
Robert F. Dee 7,000 *
Richard W. Hanselman 10,000 *
William T. Hjorth 21,941 *
Donald S. MacNaughton 208,754 *
Richard E. Francis 112,857 *
Robert M. Martin 110,026 *
All directors and officers
as a group (25 persons) 2,847,991 3.0%
(1) The beneficial owner has both sole voting and sole investment
power with respect to these shares except as set forth in this
or other footnotes below. Not included in such number of
shares beneficially owned are shares subject to options
becoming exercisable in more than sixty days. Included in
such number of shares beneficially owned are options which are
currently exercisable or will be exercisable within sixty days
as follows: Mr. McWhorter, 565,800 options; Mr. Connery,
100,000 options; Mr. Koban, 20,000 options; Dr. Beaty, 3,000
options; Ms. Caldwell, 6,000 options; Mr. Dee, 6,000 options;
Mr. Francis, 20,000 options; and all 25 directors and officers
as a group, 1,031,800 options. In addition, one director
shares investment power with such director's spouse with
respect to 500 shares and one director and one officer share
voting power with such director's or officer's spouse with
respect to 150,000 and 12,000 shares respectively. Included
are shares allocated to such persons under the Company's
retirement plans as follows: Mr. McWhorter, 17,424 shares;
Mr. Connery, 8,948 shares; Mr. Koban, 9,103 shares; Mr.
Francis, 8,476 shares; Mr. Martin, 8,039 shares; and all 25
directors and officers as a group, 131,687 shares.
(2) The address for the Retirement Plan and for Ms. Caldwell and
Messrs. McWhorter, Connery, Koban, Beaty, Dee, Hanselman,
Hjorth, MacNaughton, Francis and Martin is c/o Healthtrust,
Inc. - The Hospital Company, 4525 Harding Road, Nashville,
Tennessee 37205.
(3) Shares held by the Retirement Plan are voted by the Trustee in
accordance with directions given by employees participating in
the Plan. Shares allocated to participants are voted with
respect to all matters submitted to stockholders only in
accordance with instructions of such participants. The
Trustee may respond to tender or exchange offers only in
accordance with the instructions of participants to whom
shares have been allocated. Under certain circumstances, the
Trustee may be required to override participants' voting
directions or vote allocated shares for which no directions
are received.
(4) Based upon information set forth in the report on Schedule 13G
dated February 10, 1994 filed with the Securities and Exchange
Commission by Mellon BankCorporation and certain of its
subsidiaries ("Mellon"). According to such Schedule 13G
report, Mellon has sole voting power over 3,657,000 of such
shares and shared investment power over 1,232,000 of such
shares. According to such Schedule 13G report, Mellon's
address is one Mellon Bank Center, Pittsburgh, Pennsylvania
15258.
(*) Less than 1%
Item 13. Certain Relationships and Related Transactions
Except as described under Executive Compensation
with respect to certain directors and executive
officers, during fiscal year 1994 the Company's
executive officers and directors were not indebted to,
and did not have significant business relations with,
the Company. In addition, none of these individuals
expect to become indebted to, or have such significant
business relations with, the Company during fiscal year
1995.
In general, officers are elected by the Board of
Directors annually and serve at the discretion of the
Board of Directors. There are no family relationships
between any of the directors or executive officers.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Report on Form 8-K
(a)(1) and (2) List of Financial Statements and
Financial Statement Schedules. The response to this portion of
Item 14 is submitted as a separate section of this
report. See page A-1.
(a)(3) List of Exhibits.
Page Description
2.1 -Agreement and Plan of Merger, dated
October 4, 1994, among Columbia/HCA Healthcare
Corporation, COL Acquisition Corporation and
the Company.
2.2 -Agreement and Plan of Merger, dated as of
January 9, 1994, among the Company, Odyssey
Acquisition Corp. and EPIC Holdings.
Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K
dated January 10, 1994.
3.1 -Restated Certificate of Incorporation of the
Company, as amended to date. Incorporated by
reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended
August 31, 1993.
3.2 -Bylaws of the Company, as amended to date.
4.1 -Rights Agreement, dated as of July 8, 1993,
between the Company and First Union National Bank
of North Carolina, as Rights Agent. Incorporated
by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A dated July 12, 1993.
4.2 -Indenture, dated as of March 30, 1993, between the
Company and The First National Bank of Boston, as
Trustee, relating to the Company's 8-3/4% Subordinated
Debentures due 2005 and the Company's 10 1/4% Subordinated
Notes due 2004. Incorporated by reference to
Exhibit 2 to the Company's Registration Statement
on Form 8-A dated April 22, 1993.
4.3 -Indenture, dated as of May 1, 1992, between the
Company and The First National Bank of Boston, as
Trustee, relating to the Company's 10 3/4% Subordinated
Notes due 2002. Incorporated by reference to Exhibit 4.5
to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1992.
4.4 -Warrant Certificate, dated September 17, 1987.
Incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-1
No. 33-19163.
4.5 -Warrants and Common Stock Registration
Rights Agreement, dated as of September 17,
1987, by and between the Company and the
Purchasers set forth therein. Incorporated
by reference to Exhibit 4.9 to the Company's
Registration Statement on Form S-1 No. 33-19163.
4.6 -Credit Agreement, dated as of April 28, 1994,
as amended as of May 1994, by and among the
Company, certain financial institutions as
lenders and The Bank of Nova Scotia ("Scotia Bank")
as Administrative Agent. Incorporated by
reference to Exhibit 99.4 to the Company's
Current Report Form 8-K dated May 5, 1994.
4.6(a) -Subsidiary Guaranty Agreement, dated as of
April 28, 1994, by the Subsidiaries of the Company,
in favor of Scotiabank as collateral agent for and
representative of the Guarantied Parties.
4.6(b) -Borrower Stock Pledge Agreement, dated as of
April 28, 1994, by the Company, in favor of
Scotiabank as collateral agent for and
representative of the Lender Parties.
4.6(c) -Subsidiary Stock Pledge Agreement, dated as of
April 28, 1994, by the Subsidiaries of the Company,
in favor of Scotiabank as collateral agent for and
representative of the Secured Parties.
10.1 -Healthtrust, Inc. - The Hospital Company
Employee Stock Ownership Trust Agreement,
dated as of September 17, 1987, by and
between the Company and First American
Trust Company, as trustee of the Healthtrust,
Inc. - The Hospital Company Employee Stock
Ownership Trust ("First American").
Incorporated by reference to Exhibit 10.1
to the Company's Registration Statement
on Form S-1 No. 33-19163.
10.1(a) -Healthtrust, Inc. - The Hospital Company
Employee Stock Ownership Plan, effective
September 17, 1987. Incorporated by
reference to Exhibit 10.1(a) to the
Company's Registration Statement on
Form S-1 No. 33-19163.
10.1(b) -First Amendment to the Healthtrust, Inc. - The
Hospital Company Employee Stock Ownership
Plan adopted June 23, 1988. Incorporated
by reference to Exhibit 10.1(h) to the
Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1988, on file
at the Securities and Exchange Commission Public
Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549, File No. 1-10915.
10.1(c) -Second Amendment to Healthtrust, Inc. - The
Hospital Company Employee Stock Ownership
Plan adopted April 7, 1989. Incorporated by
reference to Exhibit 10.1(i) to Company's
Registration Statement on Form S-1 No. 33-19660.
10.1(d) -Third Amendment to Healthtrust, Inc. - The
Hospital Company Employee Stock Ownership
Plan adopted October 15, 1991. Incorporated
by reference to Exhibit 10.4(i) to the Company's
Registration Statement on Form S-1 No. 33-42225.
10.1(e) -Memorandum of Understanding, dated November
15, 1991, by and between the Company and the
Administrative Committee of the Healthtrust, Inc.-
The Hospital Company Employee Stock Ownership
Plan. Incorporated by reference to Exhibit
10.4(m) to the Company's Registration Statement
on Form S-1 No. 33-42225.
10.2 -Employment Agreement, dated as December 21,
1993, by and between the Company and
R. Clayton McWhorter.
10.3 -Amended and Restated 1990 Directors Stock
Compensation Plan of the Company, adopted on
October 15, 1991. Incorporated by reference
to Exhibit 28.8 to the Company's Current
Report on Form 8-K dated February 4, 1992.
10.4 -Amended and Restated 1990 Stock Compensation
Plan of the Company adopted, October 15, 1991.
Incorporated by reference to Exhibit 28.7 to
the Company's Current Report on Form 8-K
dated February 4, 1992.
10.5 -1988 Supplemental Stock Plan of Company,
adopted September 8, 1988. Incorporated by
referenced to Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, on file at the Securities
and Exchange Commission Public Referenced Room,
450 Fifth Street, N.W., Washington, D.C., 20549,
File No. 1-10915.
10.6 -Trust Agreement, dated as of August 31, 1988,
by and between the Company and Dominion Trust
Company of Tennessee ("Dominion"). Incorporated
by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, on file at the Securities
and Exchange Commission Public Reference Room,
450 Fifth Street, N.W., Washington, D.C., 20549,
File No. 1-10915.
10.6(a) -First Amendment to Trust Agreement, dated as
of January 31, 1990, between the Company and
Dominion. Incorporated by reference to
Exhibit 10.36(a) to the Company's Registration
Statement on Form S-1 No. 33-19960.
10.7 -Description of Healthtrust, Inc. Transferred
Assets Retirement Program. Incorporated by
reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, on file at the Securities
and Exchange Commission Public Reference Room,
450 Fifth Street, N.W., Washington, D.C. 20549,
File No. 1-10915.
10.7(a) -First Amendment to the Healthtrust, Inc.
Transferred Assets Retirement Program.
Incorporated by reference to Exhibit 10.38(a)
to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1988, on
file at the Securities and Exchange Commission
Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, File No. 1-10915.
10.7(b) -Second Amendment to the Healthtrust, Inc.
Transferred Assets Retirement Program.
Incorporated by reference to Exhibit 10.38(b)
to the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1988, on
file at the Securities and Exchange Commission
Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, File No. 1-10915.
10.7(c) -Trust Agreement for Healthtrust, Inc. Frozen
Money Purchase Plan. Incorporated by reference
to Exhibit 10.38(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended
August 31, 1988, on file at the Securities and
Exchange Commission Public Reference Room, 450
Fifth Street, N.W., Washington, D.C., 20549,
File No. 1-10915.
10.7(d) -Trust Agreement for Healthtrust, Inc. Frozen
Profit Sharing Plan. Incorporated by reference
to Exhibit 10.38(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended
August 31, 1988, on file at the Securities and
Exchange Commission Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549,
File No. 1-10915.
10.7(e) -Trust Agreement for Healthtrust, Inc.
Frozen 401(k) Plan. Incorporated by
reference to Exhibit 10.38(e) to the Company's
Annual Report on Form 10-K for the fiscal
year ended August 31, 1988, on file at the
Securities and Exchange Commission Public
Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, File No. 1-10915.
10.8 -Healthtrust, Inc. - The Hospital Company 401(k)
Retirement Program effective January 1, 1992.
Incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1992.
10.8(a) -Trust Agreement, effective as of January, 1992,
by and between the Company and Third National
Bank of Tennessee. Incorporated by reference
to Exhibit 10.8(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended August 31,
1992.
10.9 -Consulting Agreement, dated April 14, 1994,
between the Company and Donald S. MacNaughton.
10.10 -Consulting Agreement, dated February 28, 1994,
between the Company and Alethea O. Caldwell.
10.11 -Form of Severance Protection Agreement.
10.12 -Amended and Restated ESOP Agreement, dated as of
March 17, 1994, among the Company, Odyssey Acquisition
Corp., EPIC Holdings, Inc., EPIC Healthcare Group, Inc.,
U.S. Trust Company of California, N.A. and the
ESOP Committee. Incorporated by reference to
Exhibit 2.2 to the Company's Registration Statement
on Form S-3 No. 33-52401.
10.13 -Executive Management Total Direct Compensation Program
11 -Statement re: Computation of Per Share Earnings.
22 -List of Subsidiaries of the Company.
24 -Consent of Ernst & Young LLP.
25 -Powers of Attorney.
27 -Financial Data Schedule
Exhibits are included in a separate bound volume or
volumes.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the
quarter ended August 31, 1994.
(c) Exhibits.
The exhibits required by Item 601 of Regulation S-
K are filed with this report or are incorporated by
this reference herein and are contained in the Exhibits
listed in response to Item 14(a)(3).
(d) Financial Statement Schedules Required by
Regulation S-X.
Reference is hereby made to page A-1 and pages A-29 through
A-31 of this report for the financial statement
schedules required by Regulation S-X.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized, on the 22nd day of November, 1994.
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
By:s/ R. Clayton McWhorter
R. Clayton McWhorter
Chairman, Chief Executive
Officer and President
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the
Company and in the capacities and on the dates
indicated.
Name Title Date
s/R. Clayton McWhorter Chairman, Chief November 22, 1994
R. Clayton McWhorter Executive Officer
and President; Director
(Principal Executive
Officer)
*/W. Hudson Connery, Jr. Senior Vice President November 22, 1994
W. Hudson Connery, Jr. and Chief Operating
Officer; Director
*/Donald S. MacNaughton Director November 22, 1994
Donald S. MacNaughton
*/Richard W. Hanselman Director November 22, 1994
Richard W. Hanselman
*/Robert F. Dee Director November 22, 1994
Robert F. Dee
*/Alethea O. Caldwell Director November 22, 1994
Alethea O. Caldwell
*/William T. Hjorth Director November 22, 1994
William T. Hjorth
*/Harry N. Beaty, M.D. Director November 22, 1994
Harry N. Beaty, M.D.
s/Michael A. Koban, Jr. Senior Vice President November 22, 1994
Michael A. Koban, Jr. (Principal Financial
Officer) Director
s/Kenneth C. Donahey Senior Vice President November 22, 1994
Kenneth C. Donahey (Principal Accounting
Officer)
*By:s/ Michael A. Koban, Jr. November 22, 1994
Michael A. Koban, Jr.
(Attorney-in-Fact)
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a)(1) and (2)
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of the Company
are included in response to Item 8:
Page No.
Report of Independent Auditors........................... A-2
Consolidated Balance Sheets - August 31, 1994 and 1993... A-3
Consolidated Statements of Operations - Years
Ended August 31, 1994, 1993 and 1992................. A-5
Consolidated Statements of Stockholders'
Equity - Years Ended August 31, 1994, 1993 and 1992.. A-6
Consolidated Statements of Cash Flows -
Years Ended August 31, 1994, 1993 and 1992........... A-7
Notes to Consolidated Financial Statements............... A-9
The following financial statement schedules of
the Company are included in Item 14(d):
Schedule V - Property, Plant and Equipment............... A-29
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment........ A-30
Schedule VIII - Valuation and Qualifying Accounts........ A-31
All other schedules of the Company for which provision is made
in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions,
are inapplicable or have been disclosed in the notes to financial
statements and therefore have been omitted.
Audited Consolidated
Financial Statements
Healthtrust, Inc. - The Hospital Company
Years Ended August 31, 1994, 1993 and 1992
with Report of Independent Auditors
Report of Independent Auditors
Board of Directors
Healthtrust, Inc.-The Hospital Company
We have audited the accompanying consolidated balance sheets of
Healthtrust, Inc.-The Hospital Company as of August 31, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended August 31,
1994. Our audits also included the financial statement schedules listed in the
Index at item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Healthtrust, Inc.-The Hospital Company at August 31, 1994 and 1993, and
the consolidated results of operations and cash flows for each of the three
years in the period ended August 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Nashville, Tennessee
October 14, 1994
Healthtrust, Inc. - The Hospital Company
Consolidated Balance Sheets
August 31,
1994 1993
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 92,327 $ 151,346
Accounts receivable, less allowances
for doubtful accounts of $175,838
in 1994 and $107,758 in 1993 549,554 346,491
Receivables from hospital sales - 95,653
Supplies 86,576 51,740
Other current assets 113,752 25,692
Total current assets 842,209 670,922
Property, plant and equipment:
Land 214,536 141,148
Buildings and improvements 1,495,829 987,372
Equipment 1,168,015 895,190
Construction in progress 112,179 144,655
2,990,559 2,168,365
Less accumulated depreciation 736,863 600,853
2,253,696 1,567,512
Excess of purchase price over net assets
acquired 736,189 178,549
Unamortized loan costs 26,768 16,978
Investments in affiliates 58,404 56,154
Other assets 50,016 46,598
$3,967,282 $ 2,536,713
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 153,821 $ 109,545
Employee compensation and benefits 189,317 118,545
Interest payable 43,373 29,229
Income taxes payable - 26,047
Other accrued liabilities 128,011 67,848
Current maturities of long-term debt 44,543 100,605
Total current liabilities 559,065 451,819
Long-term debt 1,740,872 948,604
Deferred income taxes 91,230 133,385
Deferred professional liability risks 215,503 140,124
Other liabilities 335,008 207,124
Stockholders' equity:
Common stock, $.001 par value - authorized
400,000,000 shares, issued and
outstanding 90,733,447 in 1994 and
81,065,074 in 1993 91 81
Paid-in capital 1,021,929 826,350
Deferred compensation - (1,162)
Retained earnings (deficit) 3,584 (169,612)
1,025,604 655,657
$3,967,282 $ 2,536,713
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Operations
Year Ended August 31,
1994 1993 1992
(In Thousands, except per share data)
Net operating revenue $ 2,970,036 $ 2,394,567 $ 2,265,265
Costs and expenses:
Hospital service costs:
Salaries and benefits 1,121,496 886,645 850,723
Supplies 404,734 346,972 325,874
Fees 321,973 270,063 259,745
Other expenses 317,395 239,333 222,582
Bad debt expense 196,013 145,538 137,074
2,361,611 1,888,551 1,795,998
Depreciation and amortization 166,001 132,688 127,509
Interest 113,741 99,787 119,556
ESOP/pension expense 44,497 38,991 38,725
Deferred compensation expense 1,162 4,279 8,104
Other income (net) (15,686) (7,553) (4,617)
2,671,326 2,156,743 2,085,275
Income before minority interests,
income taxes and extraordinary
charges 298,710 237,824 179,990
Minority interests 9,440 11,958 15,316
Income before income taxes
and extraordinary charges 289,270 225,866 164,674
Income tax expense 116,074 90,675 71,432
Income before extraordinary charges 173,196 135,191 93,242
Extraordinary charges on early
extinguishments of debt (net of tax
benefits of $7,723 and $27,959) - 13,633 136,352
Net income (loss) 173,196 121,558 (43,110)
Dividends paid and discount accretion on
preferred stock - - 24,582
Net income (loss) to common stockhold $ 173,196 $ 121,558 $ (67,692)
Weighted average common shares 87,444,065 83,540,815 76,769,481
Income (loss) per common share:
Income before extraordinary charges $ 1.98 $ 1.62 $ 0.90
Extraordinary charges - 0.16 1.78
Net income (loss) $ 1.98 $ 1.46 $ (0.88)
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Stockholders' Equity
Notes Retained
Common Paid-In Receivable Deferred Earnings
Stock Capital From ESOP Compensation (Deficit)
(In Thousands)
Balances at September 1, 1991 $ 60 $ 748,612 $(392,739) $ (19,890) $ (248,060)
Issuance of common stock 40 525,209
Purchase of common stock (3) (31,291)
Receipt and retirement of
common stock in
satisfaction of notes
receivable from ESOP (24) (384,728) 384,752
Shares forfeited under
stock benefit plans (6,264) 6,264
Deferred compensation
accrual 8,104
ESOP accrual 7,987
Dividends paid and discount
accretion on preferred
stock (24,582)
Other 8 491
Net loss (43,110)
Balances at August 31, 1992 81 827,447 0 (5,522) (291,170)
Deferred compensation
accrual 4,279
Other (1,097) 81
Net income 121,558
Balances at August 31, 1993 81 826,350 0 (1,162) (169,612)
Issuance of common stock 10 196,535
Deferred compensation
accrual 1,162
Other (956)
Net income 173,196
Balances at August 31, 1994 $ 91 $1,021,929 $ 0 $ 0 $ 3,584
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Cash Flows
Year Ended August 31,
1994 1993 1992
(In Thousands)
Operating activities
Net income (loss) $ 173,196 $ 121,558 $ (43,110)
Adjustments to reconcile net income
(loss) to cash flows provided by operating
activities:
Depreciation 151,955 124,781 119,993
Extraordinary charges - 21,356 164,311
Noncash ESOP/pension expense 32,413 13,467 38,725
Noncash professional liability expense 15,570 12,112 21,079
Amortization 14,046 7,907 7,516
Deferred tax expense (benefit) 71,231 (31,735) 35,300
Decrease in accounts
and agency receivables 7,683 10,151 41,605
Increase (decrease) in accounts payable
and accrued liabilities (89,725) 78,413 19,302
Other (7,618) 6,529 25,386
Net cash provided by operating activities 368,751 364,539 430,107
Investing activities
Acquisition of hospital facilities (380,916) (101,935) -
Purchases of property, plant and
equipment (220,975) (219,506) (178,138)
Proceeds from sales of property, plant
and equipment 97,349 38,583 24,282
Other (5,054) (7,977) (1,250)
Net cash used in investing activities $ (509,596) $ (290,835) $ (155,106)
Financing activities
Principal payments on long-term debt $ (452,682) $ (628,750) $ (613,521)
Proceeds from long-term borrowings 1,128,000 832,000 1,440,000
Proceeds from common stock issuances 172,849 - 525,249
Purchase of common stock - (4,498) (31,294)
Purchase of preferred stock and warrants - - (600,000)
Purchase of long-term debt securities (754,081) (283,483) (1,070,411)
Payment of debt issuance costs (12,260) (10,227) (50,039)
Net cash provided by (used in) financing activities 81,826 (94,958) (400,016)
Increase (decrease) in cash and cash
equivalents (59,019) (21,254) (125,015)
Cash and cash equivalents at beginning
of year 151,346 172,600 297,615
Cash and cash equivalents at end of year $ 92,327 $ 151,346 $ 172,600
Cash paid during the year for:
Interest $ 101,481 $ 103,236 $ 97,096
Income taxes $ 90,585 $ 83,931 $ 9,996
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Cash Flows
Year Ended August 31,
1994 1993 1992
(In Thousands)
Operating activities
Net income (loss) $ 173,196 $ 121,558 $ (43,110)
Adjustments to reconcile net income
(loss) to cash flows provided by operating
activities:
Depreciation 151,955 124,781 119,993
Extraordinary charges - 21,356 164,311
Noncash ESOP/pension expense 32,413 13,467 38,725
Noncash professional liability expense 15,570 12,112 21,079
Amortization 14,046 7,907 7,516
Deferred tax expense (benefit) 71,231 (31,735) 35,300
Decrease in accounts
and agency receivables 7,683 10,151 41,605
Increase (decrease) in accounts payable
and accrued liabilities (89,725) 78,413 19,302
Other (7,618) 6,529 25,386
Net cash provided by operating activities 368,751 364,539 430,107
Investing activities
Purchases of property, plant and
equipment (601,891) (321,441) (178,138)
Proceeds from sales of property, plant
and equipment 97,349 38,583 24,282
Other (5,054) (7,977) (1,250)
Net cash used in investing activities $ (509,596) $ (290,835) $ (155,106)
Financing activities
Principal payments on long-term debt $ (452,682) (628,750) $ (613,521)
Proceeds from long-term borrowings 1,128,000 832,000 1,440,000
Proceeds from common stock issuances 172,849 - 525,249
Purchase of common stock - (4,498) (31,294)
Purchase of preferred stock and warrants - - (600,000)
Purchase of long-term debt securities (754,081) (283,483) 1,070,411
Payment of debt issuance costs (12,260) (10,227) (50,039)
Net cash provided by (used in) financing
activities 81,826 (94,958) (400,016)
Increase (decrease) in cash and cash
equivalents (59,019) (21,254) (125,015)
Cash and cash equivalents at beginning
of year 151,346 172,600 297,615
Cash and cash equivalents at end of year $ 92,327 $ 151,346 $ 172,600
Cash paid during the year for:
Interest $ 101,481 $ 103,236 $ 97,096
Income taxes $ 90,585 $ 83,931 $ 9,996
See accompanying notes.
1. Accounting Policies
Healthtrust, Inc. - The Hospital Company (the "Company") is engaged
primarily in the operation of hospitals and other medical facilities.
The majority of the Company's hospitals and other medical facilities
were acquired from a subsidiary of Hospital Corporation of America
("HCA") during September 1987. HCA merged with Columbia Hospital
Corporation to form Columbia/HCA Healthcare Corporation ("Columbia")
during 1994.
The Company is structured so that employees of the Company have a
significant beneficial ownership of the Company's common stock through
their participation in the Company's benefit plans.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of the Company and all its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Investments in affiliates (20% to 50% ownership) are recorded
using the equity method of accounting.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates fair value.
Accounts Receivable
The Company receives payment for services rendered from federal and state
agencies (under the Medicare, Medicaid and Champus programs), private
insurance carriers, employers, managed care programs and patients. During
the years ended August 31, 1994 and 1993, approximately 45% and 42%,
respectively, of the Company's net operating revenue related to patients
participating in the Medicare and Medicaid programs. The Company
recognizes that revenue and receivables from government agencies are
significant to the Company's operations, but the Company does not believe
that there are any significant credit risks associated with these government
agencies. 1. Accounting Policies (continued)
The Company does not believe that there are any other significant
concentrations of revenue from any particular payor that would subject the
Company to any significant credit risks in the collection of its accounts
receivable.
Supplies
Supplies are recorded at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost.
Depreciation is computed by the straight-line method over the estimated
useful lives of the buildings and improvements (principally 20 to 40 years)
and equipment (principally 4 to 20 years).
Interest incurred during the construction or improvement of a facility is
capitalized as part of the cost of the constructed assets. Interest
capitalized totaled $4.7 million, $8.4 million and $5.0 million for
fiscal 1994, 1993, and 1992, respectively.
Intangible Assets
The excess of purchase price over the fair value of net assets of purchased
subsidiaries is being amortized over periods of 5 to 40 years using the
straight-line method. Accumulated amortization of the excess of purchase
price over net assets acquired was $50.1 million and $37.8 million at August
31, 1994 and 1993, respectively. The carrying value of goodwill is reviewed
if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill is reduced
by the estimated shortfall of cash flows. Costs incurred in obtaining long-term
financing are deferred and amortized by the interest method over the term of
the related debt and such amortization is included in interest expense.
Accumulated amortization of deferred financing costs was $4.5 million and
$2.0 million at August 31, 1994 and 1993, respectively.
1. Accounting Policies (continued)
Net Operating Revenue
Net operating revenue is based on established billing rates less allowances
and discounts for patients covered by Medicare, Medicaid and other contractual
programs. Payments received under these programs, which are based on
either predetermined rates or the costs of services, are generally less than
the established billing rates of the Company's hospitals, and the differences
are recorded as contractual adjustments or policy discounts. Net operating
revenue is net of contractual adjustments and policy discounts of $1,864.9
million, $1,409.6 million and $1,227.4 million for fiscal 1994, 1993, and 1992,
respectively. The provision for bad debts is included in operating expenses.
Income Taxes
The Company files a consolidated federal income tax return which includes
all of its eligible subsidiaries.
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, deferred tax assets and/or liabilities
are determined by multiplying the difference between the financial reporting
and tax reporting bases of assets and liabilities by the tax rate, determined
in accordance with enacted tax laws, that will be effective when such
differences reverse.
Income (Loss) Per Common Share
Income (loss) per share of common stock is based upon the net income (loss)
applicable to common stockholders and the weighted average number of
shares and share equivalents outstanding during each period.
Fully diluted per common share data is not presented since the effect would
be antidilutive or dilute earnings per share by less than three percent (3%).
2. Acquisitions, Dispositions, and Joint Ventures
1994 Activities
Acquisition of EPIC Holdings
The Company completed its acquisition of EPIC Holdings, Inc. (EPIC) on
May 5, 1994 (effective May 1, 1994 for accounting purposes). EPIC currently
owns and operates 32 hospitals in 10 states.
EPIC shareholders received $7.00 for each share of EPIC common stock
(approximately $249.4 million in the aggregate) and the Company refinanced
approximately $681 million and assumed approximately $32 million of EPIC
indebtedness. The acquisition was financed through the public offering of
5,980,000 shares of Healthtrust common stock at $28.25 per share, the public
offering of $200 million of 10 1/4% Subordinated Notes, borrowings under
the Company's bank credit agreement and cash on hand.
The acquisition was recorded using the purchase method of accounting and
EPIC's results of operations are included in the Company's consolidated
financial statements for periods subsequent to April 30, 1994. The purchase
price was allocated to the assets acquired and liabilities assumed based upon
their respective fair values. Goodwill resulting from the purchase price
allocation (approximately $545.8 million) is being amortized over 40 years
using the straight-line method.
The following unaudited pro forma information has been prepared assuming
the acquisition occurred at the beginning of the periods presented (dollars in
millions, except per share data).
Year Ended
August 31
1994 1993
Net operating revenue $ 3,718.4 $3,413.7
Net income before extraordinary charge $ 166.3 $ 125.9
Net income $ 166.3 $ 90.4
Earnings per share:
Net income before extraordinary
charge $ 1.82 $ 1.42
Net income $ 1.82 $ 1.02
2. Acquisitions, Dispositions, and Joint Ventures (continued)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any operational efficiencies that might be obtained
from combined operations.
Other Acquisitions and Dispositions
The Company acquired three other hospital facilities during fiscal 1994 for
an aggregate purchase price of approximately $156.7 million. These
acquisitions were recorded using the purchase method of accounting and the
aggregate purchase price in excess of the fair value of net assets acquired
was approximately $17.7 million. The results of operations of the acquired
facilities subsequent to the acquisition dates have been included in the
consolidated statements of operations.
The Company did not renew the lease on one of the facilities acquired from
EPIC that terminated in July 1994 and one of the facilities acquired from
EPIC was sold during August 1994. No gain or loss was recognized on either
of these transactions.
1993 Activities
During August 1993, the Company sold one facility for approximately $85.1
million (recognizing a pretax gain of approximately $38.3 million) and sold
its 40% interest in a two-hospital joint venture for approximately $14.3
million (recognizing a pretax loss of approximately $3.0 million). The
Company also recorded reserves of approximately $38.5 million related to
certain facilities that were expected to be sold or closed. These transactions
were all recorded in other income (net). Approximately $95.7 million of the
proceeds from the hospital sales was not received until September 1993 and
such amount was recorded as a receivable at August 31, 1993.
The Company acquired five hospital facilities during fiscal 1993 for an
aggregate purchase price of approximately $90.1 million. These acquisitions
were recorded using the purchase method of accounting and the aggregate
purchase price in excess of the fair value of net assets acquired was
approximately $11.2 million. The results of operations of the acquired
facilities subsequent to the acquisition dates have been included in the
consolidated statements of operations.
2. Acquisitions, Dispositions, and Joint Ventures (continued)
Three of the Company's hospitals entered into joint venture alliances with
other health care providers during the 1993 fiscal year. The Company does
not own a majority interest in these ventures and is using the equity method
of accounting to record its share of their operations.
1992 Activities
During fiscal 1992, the Company completed the sale of four hospitals. The
losses incurred on three of these facilities had been recorded during fiscal
1991. The loss incurred on the fourth facility sold during fiscal 1992 of
approximately $0.5 million is included in other income (net).
3. Long-Term Debt
The Company's long-term debt is summarized below:
August 31
1994 1993
(In Thousands)
Bank credit agreements, interest is paid
at fluctuating rates (7.25% effective
August 31, 1994) $ 747,000 $ 232,000
Subordinated Notes, interest is paid
semiannually at 10.75% 500,000 500,000
Subordinated Debentures, interest is
paid semiannually at 8.75% 300,000 300,000
Subordinated Notes, interest is
paid semiannually at 10.25% 200,000 ---
Other debt 38,415 17,209
1,785,415 1,049,209
Less current portion 44,543 100,605
$1,740,872 $ 948,604
3. Long-Term Debt (continued)
Bank Credit Agreements
During April 1994, the Company entered into a new bank credit agreement
(the "1994 Credit Agreement") with the Bank of Nova Scotia, acting as
administrative agent for the lenders. The 1994 Credit Agreement provides for
an aggregate of up to $1.2 billion in credit available to the Company,
consisting of up to $415 million in term loans, up to $385 million of delayed
term loans and up to $400 million of revolving loans (including up to $150
million of letters of credit). The Company used $202 million of proceeds
from the 1994 Credit Agreement to repay all the outstanding loans under
1992 Credit Agreement.
At August 31, 1994, the Company had $415 million of term loans, $277
million of delayed term loans and $55 million of revolving loans outstanding
and had approximately $429 million (net of outstanding letters of credit) of
credit available under the delayed term loan and revolving loan facilities.
Loans under the 1994 Credit Agreement bear interest at fluctuating rates, as
selected by the Company at specified times, equal to either (i) an alternate
base rate (the higher of the Bank of Nova Scotia's base rate for dollar loans
or the Federal Funds rate plus 50 basis points) plus 50 basis points or (ii)
LIBO plus 150 basis points. The term loans and delayed term loans are subject
to mandatory semiannual principal reductions (beginning December 1, 1994 for
the term loans and June 1, 1995 for the delayed term loans) and are payable
in full on June 1, 2001. The revolving loan commitment amount will be
payable in full on June 1, 2001.
10.75% Subordinated Notes
During May 1992, the Company completed an offering of $500 million of
Subordinated Notes due May 1, 2002 (the "Notes"). The Notes are unsecured
subordinated obligations of the Company and bear interest at 10.75%,
payable semiannually on May 1 and November 1 of each year. The Notes are
redeemable at the option of the Company, in whole or in part, at any time
on or after May 1, 1997 at 104% of par (declining to 102% of par on May 1,
1998 and 100% of par on May 1, 1999 and thereafter).
3. Long-Term Debt (continued)
8.75% Subordinated Debentures
During March 1993, the Company completed an offering of $300 million of
Subordinated Debentures due March 15, 2005 (the "Debentures"). The
Debentures are unsecured subordinated obligations of the Company and bear
interest at 8.75%, payable semiannually on March 15 and September 15 of
each year. The Debentures are redeemable at the option of the Company, in
whole or in part, at any time on or after March 15, 1998 at 104.375% of par
(declining to 100% of par on March 15, 2001 and thereafter).
10.25% Subordinated Notes
During May 1994, the Company completed an offering of $200 million of
Subordinated Notes due April 15, 2004 (the "1994 Notes"). The 1994 Notes
are unsecured subordinated obligations of the Company and bear interest at
10.25%, payable semiannually on April 15 and October 15 of each year,
commencing October 15, 1994. The 1994 Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after April 15, 1999
at 103.84% of par (declining to 102.56% of par on April 15, 2000, 101.28% of
par on April 15, 2001 and 100% of par on April 15, 2002 and thereafter).
Extraordinary Charges - Early Extinguishments of Debt
Fiscal 1993 Transactions
During 1993, the Company recorded an extraordinary charge of $13.6 million
(net of tax benefits of $7.7 million) due to premiums paid and the write-off
of unamortized loan costs related to the early extinguishment of $569.2
million of debt. The debts extinguished included $300.0 million of term loans
under the 1992 Credit Agreement, the Guaranteed Subordinated Debentures
($240.0 million) and Senior Subordinated Debentures ($29.2 million).
Fiscal 1992 Transactions
The Company completed a recapitalization plan (the "Recapitalization Plan")
that included the initial public offering of 40 million shares of its common
stock, the reacquisition of certain preferred stock and warrants from HCA
and the termination of future contributions to the ESOP.
3. Long-Term Debt (continued)
In association with the Recapitalization Plan transactions and certain related
transactions, the Company incurred extraordinary charges of $136.4 million
(net of $28.0 million in net tax benefits) due to the premiums and consent fees
paid, expenses incurred and the write-off of the unamortized loan costs
related to the completion of the tender offers for certain debt securities and
prepaying the loans outstanding under the bank credit agreements. The net
tax benefit of $28.0 million represents a tax benefit of $63.9 million and a
$35.9 million tax charge due to the early extinguishment of the ESOP debt
and termination of contributions to the ESOP resulting in a permanent
difference between ESOP expense for financial and tax reporting purposes.
Other Debt Information
At August 31, 1994, all the shares of common stock of the Company's
subsidiaries have been pledged as collateral for certain outstanding debt
agreements.
Maturities of long-term debt for the fiscal years subsequent to August 31,
1994 are as follows: 1995--$44.5 million; 1996--$66.4 million; 1997--$96.6
million; 1998--$115.4 million; 1999--$117.9 million; and thereafter--$1,344.6
million.
The credit agreements and/or debt indentures require the Company to (1)
maintain net worth at specific levels, (2) pay no cash dividends on common
stock and limit other restricted payments, (3) limit additional debt, liens and
material acquisitions, (4) meet certain ratios related to operations, and (5)
limit the use of funds derived from the sale of assets and business segments.
At August 31, 1994, the fair value (based upon quoted market prices) of the
Company's publicly traded $500 million, 10.75% Subordinated Notes, $300
million, 8.75% Subordinated Debentures and $200 million, 10.25%
Subordinated Notes was $517.5 million, $276.8 million and $202.0 million,
respectively. The carrying amount of the Company's indebtedness under the
1994 Credit Agreement approximates fair value.
4. Income Taxes
The Company's income tax expense, net of the effect of extraordinary items,
consisted of the following:
Year Ended August 31
1994 1993 1992
(In Thousands)
Current expense:
Federal $ 38,664 $ 95,283 $ 3,838
State 6,179 19,404 4,335
Deferred expense (benefit):
Federal 60,817 (25,667) 32,731
State 10,414 (6,068) 2,569
Income tax expense $116,074 $ 82,952 $ 43,473
The net income tax expense includes tax benefits of approximately $7.7
million and $28.0 million for the years ended August 31, 1993 and 1992,
respectively, related to the extraordinary charges incurred on early
extinguishments of debt.
During the years ended August 31, 1994 and 1993, certain tax benefits were
recorded as increases to paid-in capital ($3.6 million and $1.6 million,
respectively) and reductions to the excess of purchase price over net assets
acquired ($139.3 million and $6.7 million, respectively).
On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted.
As a result, the Company's federal statutory rate was increased to 34.67% for
the fiscal year ended August 31, 1993 and 35% thereafter. The effect of this
rate increase was a $2.0 million increase to current federal tax expense and a
$3.0 million increase to deferred federal tax expense, for year ended August
31, 1993.
4. Income Taxes (continued)
The Company's consolidated effective tax rate differed from the federal
statutory rate as set forth in the following table:
Year Ended August 31
1994 1993 1992
(In Thousands)
Tax expense computed at federal
statutory rate (35% for 1994,
34.67% for 1993 and 34%
for 1992 ) $101,225 $ 78,309 $ 55,990
State and local income taxes,
net of federal taxes 10,785 9,031 8,619
Goodwill amortization 2,962 3,051 2,451
Extraordinary charges on early
extinguishments of debt --- (7,723) (27,959)
Other, net 1,102 284 4,372
Income tax expense $116,074 $ 82,952 $ 43,473
At August 31, 1994, net operating loss carryforwards from various states
(expiring in years 1995 through 2009) of approximately $435 million
(including $98 million from EPIC) are available to offset future state
taxable income. In addition, EPIC has approximately $105 million of
federal net operating loss carryforwards (expiring in years 2002 through
2008).
For financial reporting purposes, the tax benefits of the preacquisition EPIC
federal and state net operating loss carryforwards were used to reduce the
Company's deferred tax liability by approximately $43 million. During 1994,
the Company established a valuation allowance of approximately $5 million
to offset the deferred tax asset related to the preacquistion state net
operating loss carryforwards due to the uncertainty of realizing these
benefits. If the state net operating loss carryforwards of EPIC are realized,
the tax benefits from the utilization of such losses will be used to reduce
the excess of purchase price over net assets acquired.
4. Income Taxes (continued)
For federal income tax purposes, as a result of the change in ownership of
EPIC, the utilization of the federal net operating loss carryforwards is
limited to approximately $11 million per year. If the full amount of the
limitation is not used in any year, the amount not used increases the
allowable limit in subsequent years.
The approximate tax effect of each type of temporary difference and
carryforward that gives rise to a significant portion of deferred tax
liabilities and deferred tax assets are as follows:
August 31
1994 1993
(In Thousands)
Deferred tax liabilities:
Property, plant and equipment $268,110 $257,642
Deferred gain 16,090 ---
Change in tax accounting method 4,466 7,962
Bad debt reserve --- 8,077
Other, net 48,502 39,466
Total deferred tax liabilities 337,168 313,147
Deferred tax assets:
Insurance reserves 114,777 77,738
Agency receivables 85,138 75,350
State net operating loss carryforwards 25,150 22,307
Federal net operating loss carryforwards 30,876 ---
Bad debt reserve 23,164 ---
Deferred compensation 5,348 1,863
Accrued vacation 14,279 10,365
Other, net 18,201 28,189
Total deferred tax assets 316,933 215,812
Valuation allowance (31,198) (25,818)
Net deferred tax assets 285,735 189,994
Net deferred tax liability $ 51,433 $123,153
The net deferred tax liabilities at August 31, 1994 and 1993 of $51.4 million
and $123.2 million, respectively, are comprised of current assets of $39.8
million and $10.2 million and noncurrent liabilities of $91.2 million and
$133.4 million, respectively.
5. Preferred Stock
The Company has 78 million authorized shares of $.001 par value preferred
stock of which 46 million shares were originally designated Class A Preferred
Stock and 26 million shares were originally designated Class B Preferred
Stock. No preferred stock was outstanding at August 31, 1994 or 1993.
6. Preferred Stock Purchase Rights
On July 8, 1993, the Company declared a dividend distribution of one
preferred stock purchase right (a "Right") for each outstanding share of
common stock. The Rights are not currently exercisable, but would become
exercisable if certain events occurred relating to a person or group acquiring
or attempting to acquire 15% or more of the outstanding shares of common
stock. In the event that the Rights become exercisable, each right (except for
Rights beneficially owned by the acquiring person or group, which become
null and void) would entitle the holder to purchase from the Company, one
one-hundredth (1/100) of a share of preferred stock of the Company
(designated as Series A Junior Preferred Stock) at a price of $75 per one one-
hundredth (1/100) of a share, subject to adjustments.
Each share of preferred stock will have 100 votes, voting together with the
common stock. In the event of any merger, consolidation or other
transaction in which the Company's common stock is exchanged, each share
of preferred stock will be entitled to receive 100 times the amount received
per common share.
In the event that the Company is acquired in a transaction that has not been
approved by the Board of Directors, the Rights Agreement provides that each
Right holder of record will receive (upon payment of the exercise price)
shares of common stock of the acquiring company having a market value at
the time of such transaction equal to two times the exercise price.
The Rights may be redeemed by the Board of Directors in whole, but not in
part, at a price of $.01 per Right. The Rights have no voting or dividend
privileges and are attached to and do not trade separately from, the common
stock. The Rights expire on July 8, 2003.
7. Common Stock Warrants
Warrants to purchase 814,979 shares of the Company's common stock are
outstanding at August 31, 1994. The warrants may be exercised at any time
through September 17, 2007. The exercise price after October 1, 1993 is $5.30
per warrant and is reduced to $3.18 per warrant if the market value of the
Company's common stock exceeds certain per share values ($30.75 through
September 30, 1995) for certain periods. Warrants for 2,588,770, and 3,772
shares were exercised during fiscal 1994 and 1992, respectively.
8. Stock Benefit Plans
The Company has adopted the 1988 Supplemental Stock Plan (the
"Supplemental Plan"), the Amended and Restated 1990 Stock Compensation
Plan (the "1990 Plan") and the Amended and Restated 1990 Directors Stock
Compensation Plan (the "Directors Plan") to promote the long-term growth
of the Company by enabling officers, other key employees and directors who
are not employees of the Company to acquire shares of common stock.
Supplemental Plan
The Supplemental Plan authorized awards of up to 9,503,707 shares of
common stock. At August 31, 1994 all shares that had been awarded under
the Supplemental Plan (8,483,381 shares) had been distributed to the plan
participants. Shares of common stock reserved for issuance under the
Supplemental Plan, but not awarded, will be transferred to the 1990 Plan.
During fiscal 1994, vesting was accelerated with respect to 384,879 shares
awarded under the Supplemental Plan that would otherwise have vested
September 30, 1994. During fiscal 1993, vesting was accelerated with respect
to 520,673 shares and 197,087 shares awarded under the Supplemental Plan
that would otherwise have vested on September 30, 1993 and 1994,
respectively. During fiscal 1992, as part of the Recapitalization Plan,
vesting was accelerated with respect to 5,185,573 shares of common stock
awarded under the Supplemental Plan that otherwise would have vested on
September 30, 1992. The distribution of vested shares results in the
recognition of income to the beneficiaries. To satisfy the beneficiaries'
federal and state income tax liabilities resulting from such distributions
of vested shares, the Company withheld 142,565, 218,524 and 2,195,169 of the
vested shares of common stock designated to be distributed for the accelerated
vesting in fiscal 1994, 1993 and 1992, respectively, and remitted amounts
equal to the value of those shares to the relevant tax authorities.
8. Stock Benefit Plan (continued)
Supplemental Plan transactions are as follows:
Year Ended August 31
1994 1993 1992
Shares issued at September 1 384,879 1,108,294 8,926,591
Awarded --- --- ---
Fully vested and distributed (384,879) (717,757) (7,380,745)
Surrendered --- (5,658) (437,552)
Shares issued at August 31 --- 384,879 1,108,294
Stock Option Plans - 1990 Plan and Directors Plan
The 1990 Plan presently authorizes distributions of up to 6,601,000 shares to
officers and other key employees, to enable the granting of awards payable in
stock options (nonqualified and incentive), stock appreciation rights,
restricted stock, restricted units, performance shares, performance units,
other equity based units or cash, either singly or in any combination thereof.
The 1990 Plan is of unlimited duration and is administered by a committee
of the Board of Directors. The committee has discretion to (i) select the
participants to whom awards will be granted and to determine the form and
terms of each award, (ii) modify within certain limits the terms of any award
that has been granted, (iii) establish and modify performance objectives and
(iv) make all other determinations that it deems necessary or desirable in the
interpretation and administration of the 1990 Plan. Awards may be granted
with an exercise price less than the fair market value of the underlying
common stock on the date of grant.
8. Stock Benefit Plans (continued)
The Directors Plan authorizes awards of up to 188,600 shares of common
stock. Nonemployee directors are eligible to participate in the Directors
Plan. The Directors Plan is of unlimited duration and is administered by a
committee of the Board of Directors, which has discretion to select
participants and to determine the size of awards. To enable the granting of
awards tailored to changing business conditions, the Directors Plan provides
for awards payable in stock options, stock appreciation rights, restricted
stock, restricted units, other equity based units or cash, either singly or in
any combination thereof. Awards may be granted with an exercise price of less
than the fair market value of the underlying common stock on the date of
grant.
The options granted generally vest over periods of three to five years.
Information with respect to options under the plans is summarized as
follows:
Year Ended August 31
1994 1993 1992
Options outstanding at September 1 3,689,700 2,641,700 ---
---
Granted 930,683 1,113,000 2,671,700
Surrendered (161,585) (65,000) (30,000)
Exercised (223,788) --- ---
Options outstanding at August 31 4,235,010 3,689,700 2,641,700
Options available for grant at
August 31 2,474,222 3,243,320 4,091,320
Options exercisable at August 31 847,488 200,000 ---
Option prices per share:
Outstanding at September 1 $14.00-$18.38 $14.00-$17.88 ---
Granted $ 0.01-$30.13 $17.88-$18.38 $14.00-$17.88
Surrendered $14.75-$23.75 $14.75-$15.25 $14.75
Exercised $0.01-$18.38 --- ---
Outstanding at August 31 $0.01-$30.13 $14.00-$18.38 $14.00-$17.88
9. Employee Benefit Plans
Retirement Plan
The Company adopted its retirement plan (the "Retirement Plan"), effective
January 1, 1992. The Retirement Plan is designed to provide retirement
income to employees, an incentive for employees to remain at Healthtrust
and an opportunity for employees to save for retirement on a tax-advantaged
basis. All employees of the Company who have completed three months of
service are eligible to participate in the Retirement Plan. Participants may
make salary deferral (pretax) contributions of up to 10% of their
compensation to the Retirement Plan. The Company will make a matching
contribution equal to the participant's salary deferral contribution (up to 3%
of the participant's compensation) if the participant has 1,000 hours of
service during the plan year and is employed by the Company on the last day of
the plan year. In addition, the Company, at its discretion, may make profit
sharing contributions to the Retirement Plan. If profit sharing contributions
are made for a plan year, such contributions will be allocated to each
participant who has completed 1,000 hours of service and is employed by the
Company on the last day of the plan year, on the basis that the participant's
compensation bears to the compensation of all participants in the Retirement
Plan. Under the Retirement Plan, participants are fully vested in their salary
deferral contributions and, after five years of vesting service, will fully
vest in Company matching and profit sharing contributions. Vesting service
includes service with Healthtrust prior to adoption of the Retirement Plan
and service with Columbia for those employees who became Healthtrust
employees during September 1987. During the 1994, 1993 and 1992 fiscal
years, the Company recorded expense of approximately $37.9 million, $39.0
million and $30.7 million, respectively, pursuant to the Retirement Plan.
The Retirement Plan provides for payment of benefits at retirement, death
or disability. In addition, account balances may be withdrawn after age 59 1/2
and distributions of salary deferral contributions and certain 401(k) accounts
may be made on account of hardship. The Company's matching and profit
sharing contributions may be made in cash or stock, at the election of the
Company. Cash balances are invested in mutual funds at the participant's
direction. Participants are entitled to liquidate up to 25% of the Company
stock held in their plan accounts in each of the first four years following
attainment of age 55 and ten years of vesting service and up to 50% of such
stock in the fifth year.
9. Employee Benefit Plans (continued)
Healthtrust ESOP
The Company adopted the Healthtrust, Inc. - The Hospital Company
Employee Stock Ownership Plan (the "ESOP") on September 17, 1987. All
employees were eligible to participate in the ESOP, except for employees
who were covered by a collective bargaining agreement (unless the collective
bargaining agreement provided for participation) or who were nonresident
aliens.
As a result of the termination of future contributions to the ESOP due to the
Recapitalization Plan, ESOP participants became fully vested in shares of
common stock allocated to their accounts (26,715,646 shares). The
participants' ESOP account balances were transferred to the Retirement Plan.
Distributions of allocated shares for retirement, disability or death generally
will commence within one year after the close of the year in which
retirement, death or disability occurs.
The Company recorded ESOP expense (and corresponding reductions in the
ESOP notes receivable) of $8.0 million for fiscal 1992. Interest expense
incurred on ESOP debt totaled $12.1 million during fiscal 1992 and is
included in interest expense.
EPIC ESOP
In connection with the acquisition of EPIC and the related Amended and
Restated ESOP Agreement, all shares of EPIC common stock not allocated
or allocatable to EPIC ESOP participants were returned to EPIC in full
satisfaction of certain loans granted by EPIC to the EPIC ESOP.
Subsequent to the acquisition, the Company has agreed to provide certain
minimum retirement benefits to the former EPIC ESOP participants. These
benefits include a profit sharing contribution by the Company on behalf of
EPIC ESOP participants who participate in the Company retirement plan of
4% of aggregate compensation from the May 5, 1994 through December 31,
1994 and a matching contribution by the Company of 100% of participants'
salary deferrals (up to a maximum of 3% of compensation) for the period
from May 5, 1994 through December 31, 1998. During fiscal 1994, the
Company recorded expense of approximately $6.6 million pursuant to the
retirement plan for the former EPIC ESOP participants.
10. Relationship with Columbia
The Company purchases computer time and services from Columbia. Rates
for the data processing services rendered (approximately $18.6 million, $15.5
million and $15.8 million for fiscal 1994, 1993 and 1992, respectively) are
based on customary and reasonable rates for such services.
11. Commitments and Contingencies
The Company is self-insured for a substantial portion of its professional and
general liability risks. The Company recorded self-insurance expense of $38.1
million, $29.5 million and $33.9 million during fiscal 1994, 1993 and 1992,
respectively. At August 31, 1994, the reserve for professional and general
liability risks was $245.4 million, of which $29.9 million is included in
current liabilities. The reserves for self-insured professional and general
liability losses and loss adjustment expenses are based on actuarially
projected estimates discounted to their present value using a rate of 6%.
Columbia retains the liability for all professional liability claims and claims
which would be covered by a policy of comprehensive general liability insurance
with a date of occurrence prior to September 1, 1987.
Final determination of amounts earned under prospective payment and cost
reimbursement activities is subject to review by appropriate governmental
authorities or their agents. In the opinion of management, adequate
provision has been made for any adjustments that could result from such
reviews.
The Company and its subsidiaries are currently, and from time to time are
expected to be, subject to claims and suits arising in the ordinary course of
business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material effect on the Company's
financial position or results of operations.
12. Supplementary Statement of Operations Information
Maintenance and repairs expense was $57.5 million, $44.4 million and $40.6
million during fiscal 1994, 1993 and 1992, respectively. Taxes other than
payroll and income taxes, were $38.6 million, $30.6 million and $29.3 million
during fiscal 1994, 1993 and 1992, respectively.
13. Subsequent Event
On October 4, 1994 the Company and Columbia/HCA Healthcare
Corporation jointly announced the signing of a definitive merger agreement
under which the Company's shareholders will receive 0.88 shares of
Columbia common stock in exchange for each share of Healthtrust common
stock they hold. The proposed transaction is expected to be accounted for
as a pooling of interests.
The completion of the transaction is subject to the approval of the
shareholders of both companies and regulatory approvals. The shareholders
meetings to vote on the proposed merger transaction are expected to be
scheduled for the first quarter of calendar 1995.
Healthtrust, Inc. - The hospital Company
Schedule V - Property, Plant and Equipment
Three Years Ended August 31, 1994
Beginning End of
of Period Additions Other Period
Description Balance at Cost Retirements Charges Balance
(Dollars in Thousands)
YEAR ENDED AUGUST 31, 1994:
Land $ 141,148 $ 5,962 $ 1,697 $ 65,121 (A) $ 214,536
2,002 (B)
2,000 (E)
Buildings and improvements 987,372 30,040 2,862 372,488 (A) 1,495,829
108,791 (B)
Equipment 895,190 99,341 14,019 128,573 (A) 1,168,015
58,930 (B)
Construction in progress 144,655 85,632 212 51,827 (A) 112,179
(169,723)(B)
$ 2,168,365 $ 220,975 $ 18,790 $ (16,038)(D) $ 2,990,559
YEAR ENDED AUGUST 31, 1993:
Land $ 150,760 $ 1,837 $ 15,893 $ 8,421 (A) $ 141,148
1,008 (B)
(4,985)(C)
Buildings and improvements 1,013,483 9,411 53,532 24,256 (A) 987,372
38,145 (B)
(17,182)(C)
(27,209)(D)
Equipment 844,119 69,140 40,145 42,850 (A) 895,190
19,124 (B)
(23,860)(C)
(16,038)(D)
Construction in progress 66,203 139,118 324 63 (A) 144,655
(58,277)(B)
(2,128)(C)
$ 2,074,565 $ 219,506 $109,894 $(15,812) $2,168,365
YEAR ENDED AUGUST 31, 1992:
Land $ 149,483 $ 2,542 $ 1,648 $ 383 (B) $ 150,760
Buildings and improvement 948,642 20,904 16,310 51,294 (B) 1,013,483
12,445 (E)
(3,492)(D)
Equipment 776,183 65,003 23,106 23,839 (B) 844,119
2,200 (E)
Construction in progress 53,552 89,689 1,527 (75,516)(B) 66,203
$1,927,860 $ 178,138 $ 42,591 $ 11,158 $2,074,565
(A) Fixed assets of acquired facilities.
(B) Reclassification of completed construciton to property, plantand equipment.
(C) Assets contributed to/from joint ventures.
(D) Reserves for losses on dispositions.
(E) Reclassification from/to other assets.
Healthtrust, Inc. - The Hospital Company
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
Three Years Ended August 31, 1994
Beginning Additions End of
of Period Charged to Other Period
Description Balance Expense Retirements Charges Balance
(Dollars in Thousands)
YEAR ENDED AUGUST 31, 1994:
Buildings and improvements $ 183,869 $ 47,177 $ 2,385 $ 228,661
Equipment 416,984 104,778 13,560 508,202
$ 600,853 $ 151,955 $ 15,945 $ -0- $ 736,863
YEAR ENDED AUGUST 31, 1993:
Buildings and improvements $ 157,651 $ 38,213 $ 11,995 $ 183,869
Equipment 362,756 86,568 32,340 416,984
$ 520,407 $ 124,781 $ 44,335 $ -0- $ 600,853
YEAR ENDED AUGUST 31, 1992:
Buildings and improvements $ 130,488 $ 36,010 $ 8,847 $ 157,651
Equipment 287,210 83,983 8,437 362,756
$ 417,698 $ 119,993 $ 17,284 $ -0- $ 520,407
Healthtrust, Inc. - The Hospital Company
Schedule VII - Valuation and Qualifying Accounts
Three Years Ended August 31, 1994
Additions
Beginning Charged End of
of Period Bad Debt to Other Period
Description Balance Expense Accounts Deductions Balance
(Dollars in Thousands)
YEAR ENDED AUGUST 31, 1994:
Allowance for doubtful accounts $ 107,758 $ 196,013 $ 44,800 (B) $ 172,733 (A) $ 175,838
YEAR ENDED AUGUST 31, 1993:
Allowance for doubtful accounts $ 102,564 $ 145,538 $ -0- $ 140,344 (A) $ 107,758
YEAR ENDED AUGUST 31, 1992:
Allowance for doubtful accounts $ 108,082 $ 137,074 $ -0- $ 142,592 (A) $ 102,564
(A) Accounts written off.
(B) Reserves of acquired facilities.