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 $23,000 pursuant
to such Consulting Agreement.
Compensation of Officers
The following table sets forth information
concerning the annual and long-term cash compensation
paid or to be paid by the Company to the Company's
Chief Executive Officer and the four most highly-
compensated executive officers of the Company for
services rendered to Healthtrust in all capacities
during the fiscal year ending August 31, 1994 as well
as the total compensation paid to each individual
during the Company's three previous fiscal years:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Name Other Restricted All Other
and Annual Stock LTIP Compen-
Principal Fiscal Salary Bonus Compen- Award(s) Options/ ayouts sation
Position Year ($) ($) sation($)(1) ($) SARs(#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 $108,500 - $108,500(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 -
</TABLE>
(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 $14.00 in fiscal year 1992. In connection with
such award Mr. McWhorter forfeited 282,900 unvested
shares of Restricted Stock previously awarded to him.
The following table sets forth certain information
concerning options granted during fiscal year 1994 to the named
executives:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(2)
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Base Price Expiration
Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
R. Clayton McWhorter 333,333 39.50% $23.75 12/31/03 $4,999,995 $12,624,987
W. Hudson Connery, Jr. 16,667 1.97% 23.75 12/31/03 250,005 631,263
Richard E. Francis, Jr. 9,042 1.07% 23.75 12/31/03 135,630 342,466
Michael A. Koban, Jr. 10,833 1.28% 23.75 12/31/03 162,495 410,300
Robert M. Martin 5,750 0.68% 23.75 12/31/03 86,250 217,781
</TABLE>
(1) All such options vest and become exercisable on August 31, 1997
except 300,000 for Mr. McWhorter vest on August 31, 1996.
(2) Potential realizable value is based on an assumption that
the stock price of the Company's common stock appreciates
at the annual rate shown (compounded annually) from the date
of grant until the end of the option term. These numbers
are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price growth.
The following table summarizes options exercised during
fiscal year 1994 and presents the value of unexercised options
held by the named executives at fiscal year end:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/ Options/
Shares at Fiscal at Fiscal
Acquired Value Year-End(#) Year-End($)*
on Exercise Realized* Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable (U)
<S> <C> <C> <C> <C>
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
</TABLE>
* 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 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.
<PAGE>
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 30th day of November, 1994.
HEALTHTRUST, INC. - THE HOSPITAL COMPANY
By:s/ Michael A. Koban, Jr.
Michael A. Koban, Jr.
Senior Vice President
(Principal Financial Officer)
Director
<PAGE>
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
<TABLE>
<CAPTION>
Year Ended August 31,
1994 1993 1992
(In Thousands, except per share data)
<S> <C> <C> <C>
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)
</TABLE>
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Notes Retained
Common Paid-In Receivable Deferred Earnings
Stock Capital From ESOP Compensation (Deficit)
(In Thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
See accompanying notes.
Healthtrust, Inc. - The Hospital Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended August 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
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
</TABLE>
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).
<PAGE>
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 the 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.
<PAGE>
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
<TABLE>
<CAPTION>
Beginning End of
of Period Additions Other Period
Description Balance at Cost Retirements Changes Balance
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
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 $ 620,009 $ 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
5 (E)
$1,927,860 $ 178,138 $ 42,591 $ 11,158 $2,074,565
</TABLE>
(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
<TABLE>
<CAPTION>
Beginning Additions End of
of Period Charged to Other Period
Description Balance Expense Retirements Charges Balance
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Healthtrust, Inc. - The Hospital Company
Schedule VIII - Valuation and Qualifying Accounts
Three Years Ended August 31, 1994
<TABLE>
<CAPTION>
Additions
Beginning Charged End of
of Period Bad Debt to Other Period
Description Balance Expense Accounts Deductions Balance
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(A) Accounts written off.
(B) Reserves of acquired facilities.
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] YEAR YEAR
[FISCAL-YEAR-END] AUG-31-1994 AUG-31-1993
[PERIOD-END] AUG-31-1994 AUG-31-1993
[CASH] 92327 151346
[SECURITIES] 0 0
[RECEIVABLES] 725392 454249
[ALLOWANCES] 175838 107758
[INVENTORY] 86576 51740
[CURRENT-ASSETS] 842209 670922
[PP&E] 2990559 2168365
[DEPRECIATION] 736863 600853
[TOTAL-ASSETS] 3967282 2536713
[CURRENT-LIABILITIES] 559065 451819
[BONDS] 1740872 948604
[COMMON] 91 81
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[OTHER-SE] 1025513 655576
[TOTAL-LIABILITY-AND-EQUITY] 3967282 2536713
[SALES] 0 0
[TOTAL-REVENUES] 2970036 2394567
[CGS] 0 0
[TOTAL-COSTS] 2211257 1786283
[OTHER-EXPENSES] 159755 137093
[LOSS-PROVISION] 196013 145538
[INTEREST-EXPENSE] 113741 99787
[INCOME-PRETAX] 289270 225866
[INCOME-TAX] 116074 90675
[INCOME-CONTINUING] 173196 135191
[DISCONTINUED] 0 0
[EXTRAORDINARY] 0 13633
[CHANGES] 0 0
[NET-INCOME] 173196 121558
[EPS-PRIMARY] 1.98 1.46
[EPS-DILUTED] 1.98 1.45
</TABLE>
