<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1994
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
COLUMBIA/HCA HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8062 75-2497104
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(502) 572-2000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
STEPHEN T. BRAUN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
COLUMBIA/HCA HEALTHCARE CORPORATION
201 WEST MAIN STREET
LOUISVILLE, KENTUCKY 40202
(502) 572-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
Bruce L. Lieb Richard J. Sandler
Proskauer Rose Goetz & Mendelsohn Davis Polk & Wardwell
1585 Broadway 450 Lexington Avenue
New York, New York 10036 New York, New York 10017
(212) 969-3320 (212) 450-4224
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES REGISTERED(1)(2) PER SHARE(3) PRICE(3) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par 6,900,000
value........................ shares $38.1875 $263,493,750 $90,860
<FN>
(1) Includes 900,000 shares which may be purchased by the Underwriters pursuant
to an overallotment option. See "Underwriting."
(2) Also includes associated Preferred Stock Purchase Rights.
(3) The registration fee has been computed pursuant to Rule 457(c) under the
Securities Act of 1933, as amended, based on the average of the high and
low prices for shares of the Common Stock on May 13, 1994.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: one to be used in
connection with a United States and Canadian offering (the "U.S. Offering") and
one to be used in connection with a concurrent international offering outside
the United States and Canada (the "International Offering," together with the
U.S. Offering, the "Offering"). The complete Prospectus for the U.S. Offering
follows immediately. Following such Prospectus is an alternate front cover page
for the International Offering. All of the other pages of the Prospectus for the
U.S. Offering are to be used for the U.S. Offering and the International
Offering.
The complete Prospectus for the U.S. Offering and the International Offering in
the forms in which they are to be used will be filed with the Securities and
Exchange Commission pursuant to Rule 424 or in an amendment to the Registration
Statement.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
DATED MAY 16, 1994
6,000,000 SHARES
Columbia/HCA Healthcare Corporation
COMMON STOCK
($.01 PAR VALUE)
All of the shares of Common Stock offered hereby are being sold by the Selling
Stockholders of Columbia/HCA Healthcare Corporation (the "Company"). See
"Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares. Of the 6,000,000 shares of Common Stock offered hereby,
4,800,000 shares initially are being offered in the United States and Canada by
the U.S. Underwriters (the "U.S. Underwriters") and 1,200,000 shares initially
are being offered outside of the United States and Canada by the International
Underwriters (the "International Underwriters," together with the U.S.
Underwriters, the "Underwriters").
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "COL." On May 13, 1994, the last reported sale price for the Common
Stock, as reported on the New York Stock Exchange Composite Tape, was $38.00 per
share. See "Price Range of Common Stock and Dividend Policy."
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) The Company will pay the expenses of the offering estimated at $ .
(3) Certain Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable within 30 days of the date of this Prospectus, to
purchase up to an additional 900,000 shares of Common Stock, solely to
cover overallotments, if any. If such overallotment option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
The shares offered by this Prospectus are being offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the approval of certain legal matters by Davis Polk
& Wardwell, counsel for the Underwriters. It is expected that delivery of the
shares will be made against payment therefor on or about , 1994 at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York
10260.
J.P. MORGAN SECURITIES INC.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO.
INCORPORATED
, 1994
<PAGE>
[MAP]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
<PAGE>
No person has been authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, any Selling Stockholder
or any Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby, nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of the Company subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Incorporation of Certain Documents By Reference..... 3
Prospectus Summary.................................. 4
Investment Considerations........................... 7
Price Range of Common Stock and Dividend Policy..... 10
Use of Proceeds..................................... 11
Capitalization...................................... 11
Selected Consolidated Financial Data................ 12
<CAPTION>
Page
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results
of Operations...................................... 14
Selling Stockholders................................ 20
Underwriting........................................ 22
Legal Matters....................................... 24
Experts............................................. 24
Available Information............................... 24
Index to Consolidated Financial Statements.......... F-1
</TABLE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and Exchange
Commission (the "Commission") are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1993 (the
"Form 10-K").
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
3. The portions of the Proxy Statement for the Annual Meeting of
Stockholders which was held May 12, 1994 that have been incorporated by
reference in the Form 10-K.
4. Current Reports on Form 8-K dated April 25, 1994 and May 16, 1994.
5. The description of the Common Stock contained in the Registration
Statement on Form 8-A dated August 31, 1993, as amended.
All reports and other documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, after the date of this Prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any statement set
forth herein or in a document, all or a portion of which is incorporated or
deemed to be incorporated by reference herein, will be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement set
forth herein or in a subsequently filed document deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified and
superseded, to constitute a part of this Prospectus.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY
REFERENCE OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN). REQUESTS FOR SUCH DOCUMENTS
SHOULD BE SUBMITTED IN WRITING TO JOAN O. KROGER, SECRETARY, COLUMBIA/HCA
HEALTHCARE CORPORATION, 201 WEST MAIN STREET, LOUISVILLE, KENTUCKY 40202 OR BY
TELEPHONE AT (502) 572-2259.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE OFFERING OF
4,800,000 SHARES INITIALLY BEING OFFERED IN THE UNITED STATES AND CANADA (THE
"U.S. OFFERING") AND THE OFFERING OF 1,200,000 SHARES INITIALLY BEING OFFERED
OUTSIDE THE UNITED STATES AND CANADA (THE "INTERNATIONAL OFFERING") ARE
COLLECTIVELY REFERRED TO AS THE "OFFERING." UNLESS OTHERWISE INDICATED, THE
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS'
OVERALLOTMENT OPTION IS NOT EXERCISED. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT INDICATES OTHERWISE, THE "COMPANY" MEANS COLUMBIA/HCA HEALTHCARE
CORPORATION, ITS SUBSIDIARIES AND ALL PREDECESSORS OF COLUMBIA/HCA HEALTHCARE
CORPORATION AND ITS SUBSIDIARIES, "COMMON STOCK" MEANS THE COMMON STOCK ($.01
PAR VALUE) OF THE COMPANY AND "NONVOTING COMMON STOCK" MEANS THE NONVOTING
COMMON STOCK ($.01 PAR VALUE) OF THE COMPANY.
THE COMPANY
The Company is one of the largest health care services companies in the United
States. As of March 31, 1994, the Company operated 168 general, acute care
hospitals and 28 psychiatric hospitals in 26 states and two foreign countries.
In addition, as part of its comprehensive health care networks, the Company
operates facilities that provide a range of outpatient and ancillary services.
For the year ended December 31, 1993, the Company generated operating revenues
of $10.3 billion and income from continuing operations of $575 million. The
Company's outpatient and ancillary facilities accounted for 27 percent of total
operating revenues in 1993.
The Company's primary objective is to provide to the markets it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. The Company's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency
services. Outpatient and ancillary health care services are provided by the
Company's general, acute care hospitals as well as at freestanding facilities
operated by the Company including rehabilitation facilities, outpatient surgery
and diagnostic centers, home health care agencies and other facilities. In
addition, the Company operates psychiatric hospitals which generally provide a
full range of mental health care services in inpatient, partial hospitalization
and outpatient settings. The Company believes that its widespread and
comprehensive network of health care facilities enables it to attract business
from managed care plans and major employers seeking efficient access to a wide
array of health care services.
On February 10, 1994, the Company acquired HCA-Hospital Corporation of America
("HCA") in a transaction accounted for as a pooling of interests (the "HCA
Merger"). Effective September 1, 1993, the Company acquired Galen Health Care,
Inc. ("Galen") also in a pooling of interests transaction (the "Galen Merger").
Galen began operations as an independent publicly held corporation upon the
distribution of all of its common stock (the "Spinoff") by its then 100% owner,
Humana Inc. ("Humana"), on March 1, 1993. As a result of these acquisitions, the
Company added 167 hospitals. These acquisitions have allowed the Company to
establish a strong position in new markets. In addition, the Company expects
these acquisitions to enhance its relationships with managed care providers and
other payers by expanding its geographic coverage and the range of outpatient
services it offers, and to permit it to capture significant operating
efficiencies through the consolidation of supply purchasing activities,
information systems, office facilities and various support functions.
The Company intends to continue to pursue a strategy of acquisition and
integration of hospitals and other health care facilities that are complementary
to its existing facilities and that enhance both the array of services offered
by its facilities and the geographic coverage of the markets it serves.
Consistent with this strategy, the Company has in the first quarter of 1994
announced the expansion of a number of its regional networks including Atlanta,
Chicago, Dallas/Fort Worth, Kansas City and Orlando. The Company believes that
significant opportunities exist to integrate facilities that have formerly been
operated on a tax-exempt basis into its networks. In integrating the facilities
it acquires, the Company seeks to decentralize the management of its facilities
and provide local management and physicians with the opportunity to purchase
equity interests in their local operations through partnership or other
corporate structures. In addition to the acquisition of general, acute care
hospitals, the Company is in the process of adding additional sub-acute, home
health, rehabilitation, psychiatric and comprehensive outpatient services.
Along with the Company's focus on the acquisition of facilities that broaden its
range of services and geographic coverage, the Company's strategy also includes
a number of programs designed to enhance the quality of its
4
<PAGE>
health care services and the management and operating efficiency of its
facilities. The principal components of the Company's operating strategy are to:
(i) BECOME A SIGNIFICANT PROVIDER OF HEALTH CARE SERVICES in the markets that it
serves by consolidating services and operations to reduce costs and by
establishing the wide geographic coverage required by managed care and employer
sponsored health care plans; (ii) PROVIDE A COMPREHENSIVE RANGE OF HEALTH CARE
SERVICES in each of its markets to provide managed care and employer health care
plans and individuals with efficient, single provider access to health care
services; (iii) DELIVER HIGH QUALITY SERVICES by using clinical information
systems to focus on patient outcomes and by implementing other quality assurance
programs to support and monitor quality of care standards and to meet
accreditation and regulatory standards; and (iv) INTEGRATE FRAGMENTED DELIVERY
SYSTEMS through the consolidation of acquisitions and existing facilities to
maximize the efficiencies generated by contracting with managed care plans and
employers and coordinating supply purchasing, information systems, government
and private reimbursement and other support functions.
The Company, through various predecessor entities, began operations on July 1,
1988. The Company was incorporated in Nevada in January 1990 and reincorporated
in Delaware in September 1993. The Company's principal executive offices are
located at 201 West Main Street, Louisville, Kentucky 40202 and its telephone
number at such address is (502) 572-2000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholders:
U.S. Offering............................. 4,800,000 shares (1)
International Offering.................... 1,200,000 shares
Total Offering...................... 6,000,000 shares (1)
Common Stock outstanding after the 338,069,320 shares (2)(3)
Offering..................................
NYSE symbol............................... COL
Use of Proceeds........................... All of the Common Stock is being
sold by the Selling Stockholders.
The Company will not receive any
proceeds from the sale of the
shares being offered hereby.
<FN>
- ------------
(1) Assumes the U.S. Underwriters' overallotment option is not exercised. See
"Underwriting."
(2) Does not include 18,198,524 shares as of April 30, 1994 which have been
reserved for issuance under the Company's stock option plans, pursuant to
the exercise of warrants and upon conversion of convertible securities.
(3) Includes 15,089,999 shares of Nonvoting Common Stock.
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below gives effect to
the Galen Merger and the HCA Merger which were accounted for as poolings of
interests. The following financial information has been derived from, and should
be read in conjunction with, the Company's consolidated financial statements,
and notes thereto, included elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
-----------------------------------------------------
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1994 1993 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 2,778 $ 2,654 $ 10,252 $ 9,932 $ 9,598
Non-recurring charges.......................... 159 - 151 439 300
Income from continuing operations before income
taxes......................................... 233 332 969 533 542
Extraordinary loss on extinguishment of debt,
net of income tax benefit..................... (92) - (84) - -
Net income..................................... 45 221 507 165 369
Earnings per common and common equivalent
share......................................... $ .13 $ .65 $ 1.50 $ .50 $ 1.25
BALANCE SHEET DATA (AT END OF PERIOD):
Assets......................................... $ 10,352 $ 10,068 $ 10,216 $ 10,347 $ 10,843
Working capital................................ 758 442 573 606 635
Long-term debt (including amounts due within
one year)..................................... 3,614 3,891 3,698 3,656 5,158
Common stockholders' equity.................... 3,514 3,114 3,471 3,691 2,822
SELECTED OTHER FINANCIAL DATA:
EBDITA(1)...................................... $ 603 $ 557 $ 2,004 $ 1,924 $ 1,972
EBDITA as a percent of revenues................ 21.7% 21.0% 19.5% 19.4% 20.6%
Interest expense............................... $ 64 $ 85 $ 321 $ 401 $ 597
Ratio of debt to debt plus common stockholders'
equity........................................ 50.7% 55.5% 51.6% 49.8% 64.6%
SELECTED OPERATING DATA:
Number of hospitals at end of period........... 196 197 193 200 219
Weighted average licensed beds(2).............. 41,955 41,525 41,263 40,608 42,437
Admissions(3).................................. 309,800 306,200 1,158,400 1,161,100 1,189,700
Average length of stay (days).................. 5.9 6.1 5.9 6.1 6.5
Average daily census........................... 20,341 20,880 18,702 19,253 21,255
Occupancy(4)................................... 48.5% 50.3% 45.3% 47.4% 50.1%
Emergency room visits.......................... 788,300 791,900 3,139,700 3,042,900 3,028,600
<FN>
- ------------
(1) Income from continuing operations before non-recurring transactions,
depreciation, interest expense, minority interests, income taxes and
amortization.
(2) Defined as the number of licensed beds after giving effect to the length
of time the beds have been licensed during the period.
(3) The number of patients admitted for inpatient treatment.
(4) Calculated by dividing average daily census by weighted average licensed
beds.
</TABLE>
6
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully, in addition to the other
information contained or incorporated by reference in this Prospectus, the
following factors before purchasing the Common Stock offered hereby.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on
hospitals, insurance market reforms to increase the availability of group health
insurance to small businesses, requirements that all businesses offer health
insurance coverage to their employees and the creation of a single government
health insurance plan that would cover all citizens. President Clinton has
stated that one of his primary objectives is to reform the nation's health care
system to ensure universal coverage and address the rising costs of care. In
early 1993, President Clinton appointed Hillary Rodham Clinton to lead a health
care reform task force with the objective of developing a health care reform
proposal which could be submitted by the President. On September 22, 1993,
before a Joint Session of Congress, President Clinton outlined the basic
principles of his upcoming health care reform proposal. President Clinton's
Health Security Act, introduced as legislation on November 22, 1993, includes
certain measures that could be viewed as advancing the scope of government
regulation of the health care industry. Key elements in the President's proposal
include various insurance market reforms, the requirement that businesses
provide health insurance coverage for their full-time and part-time employees,
significant reductions in future Medicare and Medicaid payments to providers,
and stringent government cost controls that would directly control insurance
premiums and indirectly affect the fees of hospitals, physicians and other
health care providers. In addition to the President's reform proposal, several
other health care reform bills have recently been introduced, including The
Managed Competition Act of 1993, Affordable Health Care Now Act of 1993 and
Health Equity & Access Reform Today. There can be no assurance that health care
proposals adverse to the Company's business will not be adopted.
COMPETITION; IMPACT OF MANAGED CARE ORGANIZATIONS
The health care business is highly competitive and competition among hospitals
and other health care providers for patients has intensified in recent years.
During this period, U.S. hospital occupancy rates have declined as a result of
cost containment pressures, changing technology, changes in government
regulation and reimbursement, and changes in physician practice patterns from
inpatient to outpatient treatment. In most geographic areas in which the Company
operates, there are other hospitals, outpatient surgery and diagnostic centers
and other facilities that provide most of the services offered by the Company's
hospitals. Certain of these competing facilities offer services, including
extensive medical research and medical education programs, which are not offered
by the Company's hospitals. In addition, hospitals owned by governmental
agencies or other tax-exempt entities benefit from endowments, charitable
contributions, tax-exempt financing and exemptions from sales, property and
income taxes, which advantages are not available to the Company's hospitals.
The competitive position of the Company's hospitals also has been, and will
continue to be, affected by the increasing number of initiatives undertaken
during the past several years by major purchasers of health care, including
federal and state governments, insurance companies and employers, to revise
payment methodologies and monitor health care expenditures in order to contain
health care costs. As a result of these initiatives, managed care organizations,
which offer prepaid and discounted medical services packages, represent an
increasing segment of health care payers, the effect of which has been to reduce
hospital revenue growth.
LIMITS ON REIMBURSEMENT
A significant portion of the Company's revenue is derived from the Medicare
program, which is highly regulated and subject to frequent and substantial
changes. In recent years, fundamental changes in the Medicare program (including
the implementation of a prospective payment system for inpatient services at
medical/surgical hospitals) have resulted in reduced levels of payment for a
substantial portion of hospital procedures and costs. Certain existing payment
programs are scheduled to be revised in the future which will likely result in
further reductions in payment levels. Medicare programs that currently are on a
cost reimbursement basis, such as outpatient and psychiatric hospital services,
may be changed to a prospective payment basis in the future. Additionally,
hospitals have experienced increasing pressures from private payers attempting
to control health
7
<PAGE>
care costs through direct contracting with hospitals to provide services on a
discounted basis, increasing utilization review, and encouraging greater
enrollment in managed care programs such as health maintenance organizations
("HMOs") and preferred provider organizations ("PPOs"). Management believes that
hospital operating margins have been, and may continue to be, under significant
pressure because of deterioration in inpatient volumes and payer mix, and growth
in operating expenses in excess of the increase in prospective payments under
the Medicare program.
EXTENSIVE REGULATION
The health care industry, including hospitals, is subject to extensive federal,
state and local regulation relating to licensure, conduct of operations,
ownership of facilities, addition of facilities and services and prices for
services, and there can be no assurance that future regulatory changes will not
have an adverse impact on the Company. In particular, Medicare and Medicaid
antifraud and abuse amendments codified under Section 1128(b) of the Social
Security Act (the "Antifraud Amendments") prohibit certain business practices
and relationships that might affect the provision and cost of health care
services reimbursable under Medicare and Medicaid. Sanctions for violating the
Antifraud Amendments include criminal penalties and civil sanctions, including
fines and possible exclusion from the Medicare and Medicaid programs. Pursuant
to the Medicare and Medicaid Patient and Program Protection Act of 1987, the
Department of Health and Human Services has issued regulations which describe
some of the conduct and business relationships permissible under the Antifraud
Amendments (the "Safe Harbors"). Certain of the Company's current arrangements
with physicians, including joint ventures, do not qualify for the current Safe
Harbors. Although the Company exercises care in an effort to structure its
arrangements with physicians to comply in all material respects with these laws,
and although management believes that the Company is in compliance with the
Antifraud Amendments, there can be no assurance that (i) government officials
charged with responsibility for enforcing the prohibitions of the Antifraud
Amendments will not assert that the Company or certain transactions in which it
is involved are in violation of the Antifraud Amendments and (ii) such statute
will ultimately be interpreted by the courts in a manner consistent with the
practices of the Company.
PENDING HCA TAX LITIGATION
As a result of examinations by the Internal Revenue Service (the "IRS") of HCA's
federal income tax returns, HCA received statutory notices of deficiency for the
years 1981 through 1988. HCA has filed petitions in the U.S. Tax Court opposing
these claimed deficiencies. Additionally, the IRS completed its examination for
the years 1989 and 1990 and has issued proposed adjustments, which HCA has
protested. In the aggregate, the IRS is claiming additional taxes of $516
million and interest of approximately $802 million through March 31, 1994. In
addition to disputing the IRS's positions, HCA is claiming refunds of $51
million and interest through March 31, 1994 of $95 million. Management is of the
opinion that HCA has properly reported its income and paid its taxes in
accordance with applicable laws and in accordance with agreements established
with the IRS during previous examinations. In management's opinion, the final
outcome from the IRS's examinations of prior years' income taxes will not have a
material adverse effect on the results of operations or financial position of
the Company. If all or the majority of the positions of the IRS are upheld,
however, the financial position, results of operations and liquidity of the
Company would be materially adversely affected. See Note 7 of the Notes to
Consolidated Financial Statements and Note 9 of the Notes to Condensed
Consolidated Financial Statements.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services and management experience
of Richard L. Scott and other executive officers. If Mr. Scott or any of such
other executive officers were to leave the Company, the Company's operating
results could be adversely affected. In addition, the Company's continued growth
depends on its ability to attract and retain skilled employees, on the ability
of its officers and key employees to manage growth successfully and on the
Company's ability to attract and retain physicians at its hospitals.
PROFESSIONAL LIABILITY RISKS
As is typical in the health care industry, the Company is subject to claims and
legal actions by patients and others in the ordinary course of business. The
Company, through two wholly-owned subsidiaries, insures substantially all of its
professional and general liability risks. Subject to various deductibles, the
Company's hospitals are insured by these insurance subsidiaries for losses of up
to $25 million per occurrence for the former
8
<PAGE>
HCA hospitals and up to $5 million per occurrence for the former Columbia
Hospital Corporation and Galen hospitals. The Company currently carries general
and professional liability insurance from unrelated commercial carriers for
losses in excess of amounts insured by its insurance subsidiaries, subject to
certain limitations. While the Company's professional and other liability
insurance has been adequate to provide for liability claims in the past, there
can be no assurance that such insurance will continue to be adequate. If actual
payments of claims with respect to liabilities insured by the Company through
its subsidiaries exceed anticipated payments of claims, the results of
operations and cash flows of the Company could be adversely affected.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation and
Bylaws may make an unsolicited acquisition of control of the Company more
difficult or expensive. Furthermore, the Company has adopted a stockholder
rights plan which may also make an unsolicited acquisition of the Company more
difficult or expensive.
9
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been primarily traded on the New York Stock Exchange (the
"NYSE") (symbol "COL") since July 14, 1993. Prior to that date, the Common Stock
was traded through the National Association of Securities Dealers Automated
Quotation National Market System ("NASDAQ/NMS"). The table below sets forth, for
the calendar quarters indicated, the high and low sales prices per share
reported on the NYSE Composite Tape or NASDAQ/NMS for the Common Stock. The
information with respect to NASDAQ/NMS quotations was obtained from the National
Association of Securities Dealers, Inc. and reflects interdealer prices, without
retail markup, markdown or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
-------------------
HIGH LOW
-------------------
<S> <C> <C>
1992:
First Quarter...................................................... $ 21.25 $ 16.50
Second Quarter..................................................... 22.00 16.25
Third Quarter...................................................... 19.25 16.25
Fourth Quarter..................................................... 21.75 13.75
1993:
First Quarter...................................................... 24.50 16.25
Second Quarter..................................................... 27.75 19.25
Third Quarter...................................................... 31.00 25.38
Fourth Quarter..................................................... 33.88 27.00
1994:
First Quarter...................................................... 45.25 33.25
Second Quarter (through May 13, 1994).............................. 43.00 37.13
</TABLE>
The registrar and transfer agent for the Common Stock is First Union National
Bank of North Carolina. At the close of business on March 31, 1994, there were
15,600 holders of record of the Common Stock and one holder of record of the
Nonvoting Common Stock. See the cover page of this Prospectus for a recent
closing sale price of the Common Stock.
The Company commenced the payment of a quarterly dividend of $.03 per share in
the fourth quarter of 1993. Prior to that time, the Company did not pay any cash
dividends. While it is the present intention of the Board of Directors to
continue paying a quarterly dividend of $.03 per share, the declaration and
payment of future dividends by the Company will be at the discretion of the
Board of Directors and will depend upon many factors, including the Company's
earnings, financial condition, business needs, capital and surplus and
regulatory considerations.
10
<PAGE>
USE OF PROCEEDS
All of the Common Stock is being offered by the Selling Stockholders. The
Company will not receive any of the proceeds from the sale of the shares being
offered.
CAPITALIZATION
The following table sets forth as of March 31, 1994 the capitalization of the
Company. The table should be read in conjunction with the Company's condensed
consolidated financial statements, and the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
-----------
AS OF
MARCH 31
1994
-----------
(UNAUDITED)
<S> <C>
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
SHORT-TERM DEBT:
Current portion of long-term debt................................................................. $ 81
------------
LONG-TERM DEBT:
Bank debt......................................................................................... 318
Other floating rate debt.......................................................................... 1,779
Fixed rate notes and debentures................................................................... 1,338
Capitalized leases................................................................................ 98
------------
Total long-term debt............................................................................ 3,533
------------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share; 800,000,000 voting shares and 25,000,000 nonvoting shares
authorized; 318,806,900 voting shares and 18,990,000 nonvoting shares issued and
outstanding(1)................................................................................... 3
Capital in excess of par value.................................................................... 2,226
Other............................................................................................. 4
Retained earnings................................................................................. 1,281
------------
Total common stockholders' equity............................................................... 3,514
------------
TOTAL CAPITALIZATION................................................................................ $ 7,128
------------
------------
<FN>
- ------------
(1) Does not include 18,428,489 shares which have been reserved for issuance
under the Company's stock option plans, pursuant to the exercise of
warrants and upon conversion of convertible securities.
</TABLE>
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below gives effect to the
Galen Merger and the HCA Merger which were accounted for as poolings of
interests. The following financial information has been derived from, and should
be read in conjunction with, the Company's consolidated financial statements,
and notes thereto, included elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
THREE MONTHS ENDED
DOLLARS IN MILLIONS, EXCEPT PER MARCH 31 YEAR ENDED DECEMBER 31
SHARE AMOUNTS 1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 2,778 $ 2,654 $ 10,252 $ 9,932 $ 9,598 $ 8,641 $ 7,724
-------- -------- ---------- ---------- ---------- ---------- ----------
Salaries, wages and benefits....... 1,113 1,072 4,215 4,112 3,976 3,510 3,066
Supplies........................... 434 433 1,664 1,613 1,467 1,314 1,135
Other operating expenses........... 492 478 1,893 1,849 1,739 1,586 1,483
Provision for doubtful accounts.... 150 126 542 515 508 444 407
Depreciation and amortization...... 144 136 554 541 524 499 468
Interest expense................... 64 85 321 401 597 694 667
Investment income.................. (14) (12) (66) (81) (64) (69) (103)
Non-recurring transactions......... 159 - 151 439 300 22 (10)
-------- -------- ---------- ---------- ---------- ---------- ----------
2,542 2,318 9,274 9,389 9,047 8,000 7,113
-------- -------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations
before minority interests and
income taxes...................... 236 336 978 543 551 641 611
Minority interests in earnings of
consolidated entities............. 3 4 9 10 9 4 4
-------- -------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes............... 233 332 969 533 542 637 607
Provision for income taxes......... 96 127 394 294 189 240 223
-------- -------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations........................ 137 205 575 239 353 397 384
Income (loss) from operations of
discontinued health plan segment,
net of income taxes (benefit)..... - 16 16 (125) 16 (6) (18)
Extraordinary loss on
extinguishment of debt, net of
income tax benefit................ (92) - (84) - - - (9)
Cumulative effect on prior years of
a change in accounting for income
taxes............................. - - - 51 - - -
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 45 $ 221 $ 507 $ 165 $ 369 $ 391 $ 357
-------- -------- ---------- ---------- ---------- ---------- ----------
-------- -------- ---------- ---------- ---------- ---------- ----------
Earnings per common and common
equivalent share (1):
Income from continuing
operations...................... $ .40 $ .61 $ 1.70 $ .73 $ 1.20 $ 1.28
Income (loss) from operations of
discontinued health plan
segment......................... - .04 .04 (.39) .05 (.02)
Extraordinary loss on
extinguishment of debt.......... (.27) - (.24) - - -
Cumulative effect on prior years
of a change in accounting for
income taxes.................... - - - .16 - -
-------- -------- ---------- ---------- ---------- ----------
Net income..................... $ .13 $ .65 $ 1.50 $ .50 $ 1.25 $ 1.26
-------- -------- ---------- ---------- ---------- ----------
-------- -------- ---------- ---------- ---------- ----------
Shares used in earnings per common
and common equivalent share
computations (in thousands)....... 341,621 337,739 339,222 328,564 279,954 262,552
Net cash provided by continuing
operations........................ $ 367 $ 376 $ 1,298 $ 1,287 $ 1,257 $ 1,191 $ 919
Cash dividends declared and paid
per common share.................. .03 - .03 - - - -
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
AS OF MARCH 31 AS OF DECEMBER 31
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Assets............................. $ 10,352 $ 10,068 $ 10,216 $ 10,347 $ 10,843 $ 10,391 $ 10,461
Working capital.................... 758 442 573 606 635 482 379
Long-term debt, including amounts
due within one year............... 3,614 3,891 3,698 3,656 5,158 5,139 6,022
Common stockholders' equity........ 3,514 3,114 3,471 3,691 2,822 2,099 1,585
<CAPTION>
-----------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OTHER FINANCIAL DATA:
EBDITA (2)......................... $ 603 $ 557 $ 2,004 $ 1,924 $ 1,972 $ 1,856 $ 1,736
Percent of revenues:
Salaries, wages and benefits..... 40.1% 40.4% 41.1% 41.4% 41.4% 40.6% 39.7%
Supplies......................... 15.6 16.3 16.2 16.2 15.3 15.2 14.7
Other operating expenses......... 17.7 18.1 18.5 18.6 18.1 18.4 19.2
Provision for doubtful
accounts........................ 5.4 4.7 5.3 5.2 5.3 5.1 5.3
EBDITA........................... 21.7 21.0 19.5 19.4 20.6 21.5 22.5
Ratio of debt to debt plus common
stockholders' equity.............. 50.7% 55.5% 51.6% 49.8% 64.6% 71.0% 79.2%
SELECTED OPERATING DATA:
Number of hospitals at end of
period............................ 196 197 193 200 219 221 218
Weighted average licensed beds..... 41,955 41,525 41,263 40,608 42,437 42,264 41,452
Admissions......................... 309,800 306,200 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300
Average length of stay (days)...... 5.9 6.1 5.9 6.1 6.5 6.6 6.8
Average daily census............... 20,341 20,880 18,702 19,253 21,255 21,351 21,155
Occupancy.......................... 48.5% 50.3% 45.3% 47.4% 50.1% 50.5% 51.0%
Emergency room visits.............. 788,300 791,900 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900
<FN>
- -------------
(1) Earnings per common and common equivalent share are not presented for
periods prior to the initial public offering of Columbia Hospital
Corporation common stock in May 1990. Earnings per common and common
equivalent share include the effect of preferred stock dividend
requirements totaling $18 million in 1991 and $63 million in 1990.
(2) Income from continuing operations before non-recurring transactions,
depreciation, interest expense, minority interests, income taxes and
amortization.
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND INFORMATION AND BUSINESS STRATEGY
HCA MERGER
As discussed in Notes 1 and 2 of the Notes to the Consolidated Financial
Statements of the Company, on October 2, 1993, Columbia Healthcare Corporation
("Columbia") entered into a definitive agreement to merge with HCA. This
transaction was completed on February 10, 1994 and was accounted for as a
pooling of interests. Accordingly, the accompanying financial statements and the
financial and operating data included in this discussion and analysis give
retroactive effect to the HCA Merger and include the combined operations of
Columbia and HCA for all periods presented.
GALEN MERGER
The Galen Merger was completed on September 1, 1993 and was also accounted for
as a pooling of interests. Accordingly, the accompanying financial statements
and the financial and operating data included in this discussion and analysis
give retroactive effect to the Galen Merger and include the combined operations
of Columbia Hospital Corporation ("CHC") and Galen for all periods presented. In
addition, the historical financial information related to Galen (which prior to
the Galen Merger was reported on a fiscal year ending August 31) has been recast
to conform to the Company's annual reporting period ending December 31.
SPINOFF TRANSACTION
Prior to the merger with CHC, Galen became a publicly held corporation as a
result of the Spinoff which was completed on March 1, 1993. The Spinoff
separated Humana's previously integrated hospital and managed care health plan
businesses and was effected through the distribution of Galen common stock to
then current Humana common stockholders on a one-for-one basis. For accounting
purposes, because of the relative significance of the hospital business, the
pre-Spinoff financial statements of Galen (and now those of the Company) include
the separate results of Humana's hospital business, while the operating results
and net assets of Humana's managed care health plans have been classified as
discontinued operations.
BUSINESS STRATEGY
The Company primarily operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries or (ii) ownership of controlling
interests in various partnerships in which subsidiaries of the Company serve as
the managing general partner. The Company's business strategy centers on the
development of comprehensive, integrated health care delivery networks with
physicians and other health care providers in targeted markets, which typically
involves significant health care facility acquisition and consolidation
activities.
During the past several years, hospital inpatient admission trends have been
adversely impacted by cost containment efforts initiated by federal and state
governments and various third-party payers, including HMOs, PPOs, commercial
insurance companies and employer-sponsored networks. In addition, a significant
number of medical procedures have shifted from inpatient to less expensive
outpatient settings as a result of both cost containment pressures and advances
in medical technology.
In response to changes in the health care industry, the Company has developed
the following operating strategy to provide the highest quality health care
services at the lowest possible cost:
BECOME A SIGNIFICANT PROVIDER OF SERVICES -- The Company attempts to
(i) consolidate services to reduce costs and (ii) develop the geographic
coverage necessary for inclusion in most managed care and employer-sponsored
networks in each market.
PROVIDE A COMPREHENSIVE RANGE OF SERVICES -- In addition to the
operation of general, acute care hospitals, the Company also operates
psychiatric and rehabilitation facilities, outpatient surgery and diagnostic
centers, home health agencies and other services. This strategy enables the
Company to attract business from managed care plans and major employers
seeking efficient access to a wide array of health care services.
14
<PAGE>
DELIVER HIGH QUALITY SERVICES -- Through the use of clinical
information systems and continuous quality enhancement programs, the Company
focuses on patient outcomes and strives to continuously improve the quality
of care and service provided to patients.
INTEGRATE FRAGMENTED DELIVERY SYSTEMS -- Through its networks, the
Company focuses on coordinating contracting, information systems, economic
incentives and quality assurance activities among providers in each market.
Management intends to implement its strategy discussed above in a substantial
number of former Galen and HCA markets as well as new markets, and further
develop the integrated health care networks in its five pre-Galen Merger
markets.
COMPARISON OF RESULTS OF OPERATIONS FOR THE
QUARTERS ENDED MARCH 31, 1994 AND 1993
Revenues increased 5% to $2.8 billion in the first quarter of 1994 compared to
the same period of 1993 primarily as a result of price increases, growth in
inpatient and outpatient volumes and acquisitions. On a same-hospital basis,
first quarter 1994 admissions increased 1.4% and outpatient visits increased
8.1% from the same period of 1993.
Despite a continued deterioration in payer mix, EBDITA increased 8% to $603
million in the first quarter of 1994 from $557 million in the first quarter of
1993. The increase in EBDITA margins to 21.7% in the first quarter of 1994 from
21.0% in the first quarter of 1993 resulted primarily from volume growth,
improvements in staffing levels, increased discounts on medical supplies and
other operating efficiencies related to growth in volume of services. Medicare
admissions as a percentage of total admissions increased from 40% in the first
quarter of 1993 to 41% in the first quarter of 1994, while discounted and
managed care admissions grew from 32% to 37%, respectively.
During the first quarter of 1994, the Company recorded $159 million ($102
million net of tax) of certain non-recurring charges in connection with the HCA
Merger. In addition to investment and advisory fees associated with the HCA
Merger, these charges reflect management's actions to reduce overhead costs,
eliminate duplicative operating facilities in certain markets and consolidate
management information systems. These cost-saving measures should be completed
during 1994. The Company may incur additional charges related to the HCA Merger
during the remainder of 1994 in connection with severance payments resulting
from continued consolidation activities. Management believes that these actions
related to the HCA Merger, combined with cost reductions from renegotiations of
medical supply contracts and interest savings from the first quarter 1994
refinancing of long-term debt, may result in annual pretax savings of
approximately $130 million, of which as much as $75 million may be realized in
1994.
Excluding the effects of the non-recurring transactions, income from continuing
operations in the first quarter of 1994 totaled $239 million or $.70 per share,
an increase of 15% over the $205 million or $.61 per share in the first quarter
of 1993. The increase was attributable to the previously discussed growth of
EBDITA and a $21 million decline in interest expense resulting from refinancing
activities and reductions of long-term debt.
Results of operations for the first quarter of 1993 include income from
discontinued operations of $16 million or $.04 per share related to Humana's
health plan business prior to the Spinoff. See Note 6 of the Notes to Condensed
Consolidated Financial Statements for a description of the Spinoff.
In the first quarter of 1994, the Company refinanced approximately $2 billion of
HCA's high coupon fixed and floating rate long-term debt. These transactions
were effected to reduce future interest expense and eliminate certain
restrictive covenants. After-tax losses from these extinguishments of debt
aggregated $92 million or $.27 per share.
In connection with the Galen Merger, the Company recorded charges in the third
quarter of 1993 totaling $151 million ($98 million net of tax) for management
actions similar to those previously discussed as part of the HCA Merger. As of
March 31, 1994, consolidation and cost-saving activities related to these
charges were
15
<PAGE>
substantially completed. Management believes that these actions related to the
Galen Merger, combined with cost reductions from renegotiations of medical
supply contracts and interest savings from the third quarter 1993 refinancing of
long-term debt, should result in annual pretax savings in 1994 of approximately
$30 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
At the time of the HCA Merger, the Company operated 195 hospitals (43,075
licensed beds) and certain ancillary health care facilities in forty major
markets located in twenty-six states and two foreign countries. Operating data
related to the pre-HCA Merger entities follows (dollars in millions):
<TABLE>
<CAPTION>
----------------------------------
COLUMBIA HCA CONSOLIDATED
<S> <C> <C> <C>
----------------------------------
Revenues:
1993............................................................. $ 5,130 $ 5,122 $ 10,252
1992............................................................. 4,806 5,126 9,932
1991............................................................. 4,612 4,986 9,598
EBDITA:
1993............................................................. $ 907 $ 1,097 $ 2,004
1992............................................................. 870 1,054 1,924
1991............................................................. 928 1,044 1,972
Income from continuing operations (a):
1993............................................................. $ 291 $ 382 $ 673
1992............................................................. 297 300 597
1991............................................................. 358 156 514
Admissions (in thousands):
1993............................................................. 596.3 562.1 1,158.4
1992............................................................. 586.5 574.6 1,161.1
1991............................................................. 587.8 601.9 1,189.7
Emergency room visits (in thousands):
1993............................................................. 1,563.2 1,576.5 3,139.7
1992............................................................. 1,537.4 1,505.5 3,042.9
1991............................................................. 1,519.7 1,508.9 3,028.6
<FN>
- ------------
(a) Excludes the after-tax effect of non-recurring transactions. See Note 5 of
the Notes to the Consolidated Financial Statements for a description of
these transactions.
</TABLE>
Revenues increased 3% to $10.3 billion in 1993 and 3% to $9.9 billion in 1992.
Increases in both periods resulted primarily from price increases, acquisitions
and growth in outpatient services.
During 1992 and 1993, the Company completed numerous acquisitions and
divestitures of hospitals, most of which are discussed in Notes 5 and 6 of the
Notes to the Consolidated Financial Statements. The following table summarizes
percentage changes in same-hospital volumes for each respective period of 1993
compared to the same period of 1992, and changes in same-hospital volumes for
each respective period of 1992 compared to the same period of 1991.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
COLUMBIA1993 VS 1992 COLUMBIA1992 VS 1991
------------- -------------
CHC GALEN HCA CONSOLIDATED CHC GALEN HCA CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
ADMISSIONS:
Quarter:
First................ 6.7 (2.1) (1.5) (1.5) 8.4 -- 3.5 2.1
Second............... 8.9 (1.3) (2.5) (1.6) 2.4 (4.8) 1.2 (1.5)
Third................ 5.9 (1.0) (3.0) (1.8) 4.6 (4.1) (0.4) (1.9)
Fourth............... 5.9 1.3 (0.4) 0.6 4.6 (3.6) (2.2) (2.6)
Year............... 6.8 (0.8) (1.8) (1.1) 5.0 (3.1) 0.6 (1.0)
EMERGENCY ROOM VISITS:
Quarter:
First................ 19.2 4.4 9.0 7.3 6.3 2.2 0.9 1.7
Second............... 11.7 (0.1) 4.2 2.6 8.0 (1.8) -- (0.5)
Third................ 5.8 (2.2) 1.9 0.3 16.5 0.2 7.0 4.0
Fourth............... 6.9 2.4 5.7 4.3 8.9 (2.2) (0.5) (1.0)
Year............... 10.6 1.1 5.1 3.6 9.1 (0.4) 1.8 1.0
</TABLE>
16
<PAGE>
In addition to the above, same-hospital outpatient volumes for CHC facilities
increased 9.5% in 1993 and 39% in 1992, while such volumes for Galen facilities
declined 3.6% and 1.5%, respectively. Same-hospital outpatient volumes for HCA
increased 9.6% in 1993 and 14.6% in 1992 compared to the respective prior year.
Since it began operations in 1988, CHC had experienced significant growth in
patient volumes, revenues and net income, primarily as a result of successful
implementation of its strategy.
The historical operating results of Galen's hospitals (which include the
hospital operations of Humana prior to the Spinoff) had been adversely impacted
as a result of such hospitals' pre-Spinoff relationship with Humana's managed
care health plan business in certain markets. Management believes that this
relationship caused some physicians to discontinue referrals of their patients
to Galen's hospitals, and had precluded these hospitals from contracting with
unaffiliated insurers. In addition, Galen's volume of patients covered by
traditional insurance (who pay amounts which more closely approximate
established charges) declined significantly in 1992 due in part to increased
price consciousness of patients and physicians with respect to Galen's pricing
policies. Same-hospital volume trends at former Galen facilities have improved
in 1993 primarily as a result of increased volumes from discounted managed care
health plans other than Humana.
During 1993 HCA facilities experienced declines in inpatient admissions and
increases in outpatient volumes primarily as a result of the previously
discussed cost containment efforts and outpatient utilization trends. In
addition, volumes in HCA's psychiatric facilities had been adversely impacted in
both 1992 and 1993 as a result of negative publicity in the psychiatric hospital
industry.
Despite declines in same-hospital admissions and deterioration in payer mix,
EBDITA for the Company increased 4% to $2 billion in 1993 from $1.9 billion in
1992. EBDITA margins improved slightly to 19.5% from 19.4% primarily as a result
of improvements in staffing levels and increased medical supply discounts.
Medicare admissions as a percentage of total admissions increased from 37% in
1992 to 39% in 1993, while discounted and managed care admissions grew from 32%
to 35%, respectively. EBDITA declined 3% in 1992 from 1991 due to a decline in
same-hospital admissions at former Galen facilities and deterioration in Galen's
payer mix.
During the third quarter of 1993, the Company recorded non-recurring charges of
$151 million ($98 million net of tax) of costs related to the Galen Merger.
Results of operations in 1992 include (i) $394 million ($330 million net of tax)
of losses associated with divestitures of certain hospitals, (ii) $138 million
($86 million net of tax) of costs related primarily to the Spinoff and (iii) a
gain of $93 million ($58 million net of tax) on the sale of the common stock of
HealthTrust, Inc. -- The Hospital Company ("HealthTrust").
Income from continuing operations in 1991 includes (i) a charge of $413 million
($256 million net of tax) in connection with the acceleration of vesting of
stock options under the HCA Nonqualified Stock Option Plan and the establishment
of exercise prices at levels substantially less than the then fair value of the
underlying common stock, (ii) a charge of $159 million ($99 million net of tax)
primarily in connection with the anticipated loss on the disposition of certain
hospitals and other assets, (iii) a gain of $51 million ($32 million net of tax)
on the sale of a hospital, and (iv) a gain of $221 million ($162 million net of
tax) on the sale of an investment in preferred stock and warrants of
HealthTrust.
See Note 5 of the Notes to Consolidated Financial Statements and Note 7 of the
Notes to Condensed Consolidated Financial Statements for a discussion of
non-recurring transactions.
Excluding the effects of the non-recurring transactions, income from continuing
operations increased 13% to $673 million ($1.99 per share) in 1993 and 16% to
$597 million ($1.82 per share) in 1992. Improvements in both years resulted
primarily from reductions in interest expense, and in 1993, growth in EBDITA.
During the third quarter of 1993, in an effort to reduce future interest expense
and eliminate certain restrictive covenants, the Company effected the
refinancing of $787 million of its long-term debt (bearing interest at an
average rate of 8.5%) primarily through the issuance of commercial paper, and
renegotiated HCA's bank credit agreement (subsequently replaced upon
consummation of the HCA Merger). After-tax losses from these refinancing
activities aggregated $84 million or $.24 per share.
17
<PAGE>
Results of operations include income from discontinued operations of $16 million
in 1993, a loss of $125 million in 1992 and income of $16 million in 1991.
Losses from discontinued operations in 1992 include costs of $135 million (net
of tax) incurred by Humana in connection with the Spinoff.
LIQUIDITY
Cash provided by continuing operations totaled $367 million for the three months
ended March 31, 1994 compared to $376 million for the comparable period of 1993.
Cash flows in the first quarter of 1994 were reduced by approximately $75
million in connection with a payment to the IRS related to disputed prior year
income taxes and interest. In the first quarter of both 1994 and 1993, cash
flows in excess of the Company's capital expenditure program were used primarily
to reduce long-term debt and in the first quarter of 1993, to finance a payment
of $135 million to Humana in connection with the Spinoff. A substantial portion
of the non-recurring transactions recorded in the first quarter of 1994
comprises the writedown of recorded assets and, accordingly, management does not
expect that these transactions will have a material adverse effect on cash flows
from continuing operations in 1994.
Cash provided by continuing operations totaled $1.3 billion in each of the last
three fiscal years. Cash flows in excess of the Company's capital expenditure
program were used primarily to reduce long-term debt.
Working capital totaled $758 million at March 31, 1994, $573 million at December
31, 1993 and $606 million at December 31, 1992. Management believes that cash
flows from operations and amounts available under the Company's revolving credit
facilities and related commercial paper programs are sufficient to meet expected
future liquidity needs.
Investments of the Company's professional liability insurance subsidiaries to
maintain statutory equity and pay claims totaled $778 million at both March 31,
1994 and December 31, 1993, and $709 million at December 31, 1992.
In September 1993 the Board of Directors initiated the payment of a regular
quarterly cash dividend of $.03 per common share. While it is the present
intention of the Board of Directors to continue paying a quarterly dividend of
$.03 per share, the declaration and payment of future dividends by the Company
will be at the discretion of the Board of Directors and will depend upon many
factors, including the Company's earnings, financial condition, business needs,
capital and surplus and regulatory considerations.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $214 million and $181
million for the three months ended March 31, 1994 and 1993, respectively, and
$836 million in all of 1993 compared to $668 million in 1992 and $645 million in
1991. Planned capital expenditures in 1994 (excluding acquisitions) are expected
to approximate $800 million. Management believes that its capital expenditure
program is adequate to expand, improve and equip existing health care
facilities.
In addition, the Company expended $114 million and $75 million for acquisitions
in the respective first quarters of 1994 and 1993, and $79 million, $36 million
and $96 million during all of 1993, 1992 and 1991, respectively. See Note 6 of
the Notes to Consolidated Financial Statements and Note 8 of the Notes to
Condensed Consolidated Financial Statements for a description of these
activities. As part of its business strategy, the Company intends to acquire
additional health care facilities in the future.
The Company expects to finance all capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt, commercial paper, unused bank revolving credits and equity. At
March 31, 1994, there were projects under construction which had an estimated
additional cost to complete of approximately $285 million.
In connection with the Spinoff, common stockholders' equity was reduced by $802
million in 1993 as a result of the following transactions with Humana: (i)
distribution of the net assets of the health plan business ($392 million) and
the net assets of a hospital facility ($25 million), (ii) payment of cash ($135
million) and (iii) issuance of notes ($250 million). The notes were refinanced
in September 1993. The ratio of debt to debt plus common stockholders' equity
improved from 58% at December 31, 1992 (after giving pro forma effect to the
Spinoff) to 52% at December 31, 1993 and 51% at March 31, 1994.
18
<PAGE>
On April 29, 1994, the Company filed a Registration Statement on Form S-3 with
the Commission in connection with the planned public offering of up to $1.5
billion of long-term debt. The proceeds from the sales of such securities will
be used for general corporate purposes, which may include repayment of
commercial paper and other indebtedness, additional capitalization of the
Company's subsidiaries, capital expenditures and possible acquisitions.
The Company's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
The Company was in compliance with all such covenants at March 31, 1994.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain cases,
limit the Company's ability to increase prices. Revenues for hospital services
rendered to Medicare patients are established under the federal government's
prospective payment system. Medicare revenues approximated 34%, 30% and 29% of
revenues in 1993, 1992 and 1991, respectively.
Management believes that hospital operating margins have been, and may continue
to be, under significant pressure because of deterioration in inpatient volumes
and payer mix, and growth in operating expenses in excess of the increase in
prospective payments under the Medicare program. The Company expects that the
average rate of increase in Medicare prospective payments will approximate 2% in
1994. In addition, as a result of increasing regulatory and competitive
pressures, the Company's ability to maintain operating margins through price
increases to non-Medicare patients is limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and some state legislatures that would
significantly affect health care systems in the Company's markets. Proposals
under consideration include cost controls on hospitals, insurance market reforms
that increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance to their employees and
creation of a single government health insurance plan that would cover all
citizens.
President Clinton's health care reform bill, introduced as legislation in
November 1993, includes certain measures that could significantly reduce future
payments to providers of health care services.
OTHER INFORMATION
As discussed in Note 9 of the Notes to Condensed Consolidated Financial
Statements, the Company is contesting certain income taxes and related interest,
aggregating approximately $1.3 billion at March 31, 1994, proposed by the IRS
for prior years. Management believes that final resolution of these disputes
will not have a material adverse effect on the financial position, results of
operations or liquidity of the Company. However, if all or a majority of the
positions of the IRS are upheld, the financial position, results of operations
and liquidity of the Company would be materially adversely affected.
On March 24, 1994, the Company made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior year income
taxes and related interest. This payment will not have a material effect on 1994
earnings.
Resolution of various other loss contingencies, including litigation pending
against the Company in the ordinary course of business, is not expected to have
a material adverse effect on its financial position or results of operations.
During 1992 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which increased
1992 first quarter net income by $51 million or $.16 per share. See Note 7 of
the Notes to Consolidated Financial Statements.
19
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth as of April 30, 1994, and after the sale of the
Common Stock offered hereby (assuming no exercise of the U.S. Underwriters'
overallotment option) certain information regarding the beneficial ownership of
the Common Stock by each person selling Common Stock in the Offering (a "Selling
Stockholder"). All information with respect to the ownership of shares of the
Common Stock by the Selling Stockholders has been furnished by the Selling
Stockholders to the Company.
<TABLE>
<CAPTION>
---------------------------------------------------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING BEING OFFERING
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Capital Corporation ...................... 16,683,122(1) 5% 6,000,000 15,089,999(2) 4.5%
60 Wall Street
New York, New York 10260
<FN>
- ------------
(1) J.P. Morgan Capital Corporation ("J.P. Morgan Capital") owns 2,100,000
shares of Common Stock and 18,989,999 shares of Nonvoting Common Stock.
The number of shares shown in the table includes 2,100,000 shares of
Common Stock and 14,583,122 shares of Nonvoting Common Stock which are
immediately convertible into shares of Common Stock, and excludes
4,406,877 shares of Nonvoting Common Stock which are not immediately
convertible into shares of Common Stock. In addition, on April 30, 1994,
J.P. Morgan Investment Management Inc. and Morgan Guaranty Trust Company
of New York, which are affiliates of J.P. Morgan Capital, held for
investment by their clients 2,269,858 shares of Common Stock, as to which
beneficial ownership is disclaimed by J.P. Morgan Capital.
(2) The number of shares shown in the table represents 15,089,999 shares of
Nonvoting Common Stock which will be immediately convertible into shares
of Common Stock after the Offering.
</TABLE>
CERTAIN RELATIONSHIPS OF THE SELLING STOCKHOLDERS TO THE COMPANY
J.P. Morgan Capital, a Selling Stockholder, is an indirect wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated and an affiliate of J.P. Morgan
Securities Inc. ("J.P. Morgan Securities") and J.P. Morgan Securities Ltd.,
which are the lead managers of the Offering, and of Morgan Guaranty Trust
Company of New York ("Morgan Guaranty") and J.P. Morgan Delaware (together with
Morgan Guaranty, the "J.P. Morgan Bank Entities"), which are lenders to the
Company.
In the ordinary course of their respective businesses, affiliates of J.P. Morgan
Capital have engaged, and may in the future engage, in commercial banking and
investment banking transactions with the Company and its subsidiaries, including
HCA and Galen. J.P. Morgan Securities was a co-managing underwriter of the
Company's public offerings in April and March, 1994 of $150 million of 8.36%
Debentures Due 2024 and $150 million of 7.15% Notes Due 2004 and the Company's
public offering in December 1993 of $150 million of 7 1/2% Debentures Due 2023
and $150 million of 6 1/8% Notes Due 2000. In addition, during the first quarter
of 1994, J.P. Morgan Securities assisted the Company in connection with certain
swap transactions. In 1993, J.P. Morgan Securities arranged a $1.6 billion
credit facility for HCA, and in 1992, J.P. Morgan Securities was a co-managing
underwriter of HCA's initial public offering.
Upon consummation of the HCA Merger, the Company entered into revolving credit
agreements in an aggregate amount of $3 billion. The J.P. Morgan Bank Entities,
which are wholly-owned subsidiaries of J.P. Morgan & Co.
20
<PAGE>
Incorporated, are lenders in this credit facility, and Morgan Guaranty is a
co-agent bank for this credit facility. The Company's total indebtedness under
this credit facility at March 31, 1994 was approximately $218 million. The J.P.
Morgan Bank Entities have received certain commitment and other fees from the
Company in connection with the credit facility. Prior to the HCA Merger, Morgan
Guaranty was the agent bank, and the J.P. Morgan Bank Entities were lenders, in
certain of HCA's credit facilities, including a $1.6 billion credit facility. In
addition, Morgan Guaranty has engaged in certain transactions with, and provided
certain products and services to, the Company and its predecessors relating to
the management of interest rate and foreign exchange exposures.
During the period beginning January 1, 1993 and ended December 31, 1993, the
Company and its subsidiaries paid underwriting, arrangement and other fees to
J.P. Morgan Securities, and commitment, agency and other fees to the J.P. Morgan
Bank Entities, in the aggregate amount of approximately $2.6 million.
Pursuant to a Registration Rights Agreement dated as of March 16, 1989, as
amended (the "Registration Rights Agreement"), J.P. Morgan Capital and certain
other original investors in HCA had demand registration rights to require four
registrations (and after completion of the Offering will have demand
registration rights to require three more registrations), and have unlimited
"piggyback" registration rights with respect to registrations of shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act"). The Company has agreed to pay all of the expenses of such registrations,
including the fees and disbursements of counsel for such stockholders. Pursuant
to the Registration Rights Agreement and the Underwriting Agreement dated the
date hereof, the Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Securities Act.
21
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Selling Stockholders have agreed to sell to them,
severally, the respective number of shares of the Company's Common Stock set
forth opposite their names below:
<TABLE>
<CAPTION>
----------
NUMBER
OF
SHARES
----------
<S> <C>
U.S. UNDERWRITERS
J.P. Morgan Securities Inc...............................................................
Dean Witter Reynolds Inc.................................................................
Morgan Stanley & Co. Incorporated........................................................
----------
Subtotal............................................................................... 4,800,000
----------
INTERNATIONAL UNDERWRITERS
J.P. Morgan Securities Ltd...............................................................
Dean Witter International Ltd............................................................
Morgan Stanley & Co. International Limited...............................................
----------
Subtotal............................................................................... 1,200,000
----------
Total................................................................................ 6,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are committed to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the overallotment option described below) if any are taken. The
closing of the U.S. Offering is a condition to the closing of the International
Offering, and the closing of the International Offering is a condition to the
closing of the U.S. Offering.
Pursuant to the Agreement Between U.S. and International Underwriters, each U.S.
Underwriter has represented and agreed that, with certain exceptions set forth
below, (a) it is not purchasing any shares of Common Stock being sold by it (the
"U.S. Shares") for the account of anyone other than a United States or Canadian
Person and (b) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions set forth below, (a) it is not purchasing
any shares of Common Stock being sold by it (the "International Shares") for the
account of any United States or Canadian Person and (b) it has not offered or
sold, and will not offer or sell, directly or indirectly, any International
Shares or distribute any prospectus relating to the International Shares within
the United States or Canada or to any United States or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation, pension,
profit-sharing or other trust or other entity organized under the laws of the
United States or Canada or of any political subdivision thereof (other than a
branch located outside the United States and Canada of any United States or
Canadian Person) and includes any United States or Canadian branch of a person
who is otherwise not a United States or Canadian Person.
Pursuant to the Agreement Between U.S. and International Underwriters, sales may
be made between the U.S. Underwriters and the International Underwriters of any
number of shares of Common Stock to be purchased pursuant to the Underwriting
Agreement as may be mutually agreed. The per share price and currency of
settlement of any shares so sold shall be the Price to Public set forth on the
cover page hereof, in United States dollars, less an amount not greater than the
per share amount of the concession to dealers set forth below.
22
<PAGE>
Pursuant to the Agreement Between U.S. and International Underwriters, each U.S.
Underwriter has represented that it has not offered or sold, and agreed not to
offer or sell, any Common Stock, directly or indirectly, in Canada in
contravention of the securities laws of Canada or any province or territory
thereof and has represented that any offer of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
Common Stock a notice stating in substance that, by purchasing such Common
Stock, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, directly or indirectly, any of such Common Stock in
Canada or to, or for the benefit of, any resident of Canada in contravention of
the securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption from
the requirement to file a prospectus in the province of Canada in which such
offer is made, and that such dealer will deliver to any other dealer to whom it
sells any such Common Stock a notice containing substantially the same statement
as is contained in this sentence.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and will not offer or sell in the United Kingdom by means of any
document, any shares of Common Stock, other than to persons whose ordinary
business it is to buy or sell shares or debentures, whether as principal or
agents, or in circumstances which do not constitute an offer to the public
within the meaning of the Companies Act of 1985, (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the shares of Common Stock in,
from or otherwise involving the United Kingdom, and (iii) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the sale of the shares of Common
Stock if that person is of a kind described in Article 9(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a
person to whom the document may otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to certain other dealers.
Pursuant to the Underwriting Agreement, certain Selling Stockholders have
granted to the U.S. Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to an additional 900,000 shares of
Common Stock at the public offering price set forth on the cover page hereof
less the underwriting discount. The U.S. Underwriters may exercise such option
to purchase solely for the purpose of covering overallotments, if any, made in
connection with the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
offered hereby.
From time to time in the ordinary course of their respective businesses, J.P.
Morgan Securities, Dean Witter Reynolds Inc. and Morgan Stanley & Co.
Incorporated have engaged and may in the future engage in investment banking
transactions with, and provide financial advisory services to, the Company. For
additional information with respect to certain relationships with the Company
and its subsidiaries, see "Selling Stockholders -- Certain Relationships of the
Selling Stockholders to the Company."
J.P. Morgan Capital will be a Selling Stockholder in the Offering. The
provisions of Section (c)(8) of the Corporate Financing Rule under Section 44 of
Article III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., apply to this Offering since substantially all of the
net proceeds of the Offering will be paid to J.P. Morgan Capital. See "Selling
Stockholders."
The Selling Stockholders have agreed in the Underwriting Agreement not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock (except for the
shares offered hereby) for a period of 90 days after the date of this
Prospectus, without the prior written consent of J.P. Morgan Securities, as
representative of the several Underwriters. The Company has agreed in the
Underwriting Agreement not to effect any registration of any shares of Common
Stock or any
23
<PAGE>
securities convertible into or exchangeable for Common Stock (except for the
shares offered hereby and shares registered in connection with acquisitions and
employee benefit plans) for a period of 90 days after the date of this
Prospectus, without the prior written consent of J.P. Morgan Securities, as
representative of the several Underwriters.
In the Underwriting Agreement, the Company and the Selling Stockholders have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the federal securities laws, or to contribute to payments
which the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be passed
upon for the Company by Stephen T. Braun, Senior Vice President and General
Counsel of the Company. Davis Polk & Wardwell, New York, New York, is acting as
counsel for the Underwriters in connection with certain legal matters relating
to the shares of Common Stock offered hereby. As of May 12, 1994, Mr. Braun
owned approximately 1,072 shares and had options to purchase 94,500 shares of
Common Stock.
EXPERTS
The annual consolidated financial statements of the Company, the consolidated
financial statements and financial statement schedules of Columbia and the
supplemental consolidated financial statements and supplemental financial
statement schedules of the Company, included or incorporated by reference in
this Prospectus, have been audited by Coopers & Lybrand, independent
accountants, to the extent and for the periods indicated in their reports
thereon included or incorporated by reference herein, which include explanatory
paragraphs regarding (as to the Company and Columbia) a change in accounting for
income taxes and (as to the supplemental financial statements and supplemental
financial statement schedules of the Company) the merger of Columbia and HCA.
Such financial statements and financial statement schedules audited by Coopers &
Lybrand have been included or incorporated by reference in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at the Washington, D.C.
address. Such reports, proxy statements and other information concerning the
Company also may be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which the shares of Common
Stock of the Company are listed.
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and exhibits and schedules thereto, certain portions of which have
been omitted pursuant to the rules and regulations of the Commission. The
information so omitted, including exhibits, may be obtained from the Commission
at its principal office in Washington, D.C. upon the payment of the prescribed
fees, or may be examined without charge at the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. For
further information, reference is made to the Registration Statement and
exhibits thereto.
24
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
----
PAGE
----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements:
Consolidated Statement of Income for the years ended December 31, 1993,
1992 and 1991........................................................................................... F-3
Consolidated Balance Sheet, December 31, 1993 and 1992................................................... F-4
Consolidated Statement of Common Stockholders' Equity for the years ended December 31, 1993,
1992 and 1991........................................................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991................ F-6
Notes to Consolidated Financial Statements............................................................... F-7
Quarterly Consolidated Financial Information (Unaudited)................................................. F-24
Condensed Consolidated Financial Statements:
Condensed Consolidated Statement of Income for the three months ended March 31, 1994 and March 31, 1993
(Unaudited)............................................................................................. F-25
Condensed Consolidated Balance Sheet, March 31, 1994 and December 31, 1993 (Unaudited)................... F-26
Consolidated Statement of Cash Flows for the three monthsended March 31, 1994 and March 31, 1993
(Unaudited)............................................................................................. F-27
Notes to Condensed Consolidated Financial Statements (Unaudited)......................................... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation
We have audited the accompanying consolidated balance sheet of Columbia/HCA
Healthcare Corporation as of December 31, 1993 and 1992, and the related
consolidated statements of income, common stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1993, which
statements give retroactive effect to the pooling of interests described in Note
2 to the consolidated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Columbia/HCA
Healthcare Corporation as of December 31, 1993 and 1992, and the consolidated
results of operations and cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1992, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
[LOGO]
COOPERS & LYBRAND
Louisville, Kentucky
February 28, 1994,
except for Note 15,
as to which the date
is March 24, 1994
F-2
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------------
1993 1992 1991
---------------------------
<S> <C> <C> <C>
Revenues............................................................................ $ 10,252 $ 9,932 $ 9,598
--------- --------- ---------
Salaries, wages and benefits........................................................ 4,215 4,112 3,976
Supplies............................................................................ 1,664 1,613 1,467
Other operating expenses............................................................ 1,893 1,849 1,739
Provision for doubtful accounts..................................................... 542 515 508
Depreciation and amortization....................................................... 554 541 524
Interest expense.................................................................... 321 401 597
Investment income................................................................... (66) (81) (64)
Non-recurring transactions.......................................................... 151 439 300
--------- --------- ---------
9,274 9,389 9,047
--------- --------- ---------
Income from continuing operations before minority interests and income taxes........ 978 543 551
Minority interests in earnings of consolidated entities............................. 9 10 9
--------- --------- ---------
Income from continuing operations before income taxes............................... 969 533 542
Provision for income taxes.......................................................... 394 294 189
--------- --------- ---------
Income from continuing operations................................................... 575 239 353
Discontinued operations:
Income (loss) from operations of discontinued health plan segment, net of income
tax (benefit) of $9 in 1993, ($46) in 1992 and $9 in 1991........................ 16 (108) 16
Costs associated with discontinuance of health plan segment, net
of income tax benefit of $2...................................................... - (17) -
Extraordinary loss on extinguishment of debt, net of income tax benefit of $51...... (84) - -
Cumulative effect on prior years of a change in accounting for income taxes......... - 51 -
--------- --------- ---------
Net income.................................................................... $ 507 $ 165 $ 369
--------- --------- ---------
--------- --------- ---------
Earnings per common and common equivalent share:
Income from continuing operations................................................. $ 1.70 $ .73 $ 1.20
Discontinued operations:
Income (loss) from operations of discontinued health plan segment............... .04 (.33) .05
Costs associated with discontinuance of health plan segment..................... - (.06) -
Extraordinary loss on extinguishment of debt...................................... (.24) - -
Cumulative effect on prior years of a change in accounting for income taxes....... - .16 -
--------- --------- ---------
Net income.................................................................... $ 1.50 $ .50 $ 1.25
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-3
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
-------------------
1993 1992
-------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 224 $ 217
Accounts receivable less allowance for loss of $513 -- 1993 and $475 -- 1992.............. 1,566 1,624
Inventories............................................................................... 245 238
Other..................................................................................... 453 496
--------- ---------
2,488 2,575
Property and equipment, at cost:
Land...................................................................................... 568 553
Buildings................................................................................. 4,049 3,741
Equipment................................................................................. 3,442 3,133
Construction in progress (estimated cost to complete and equip after December 31, 1993 --
$299).................................................................................... 333 258
--------- ---------
8,392 7,685
Accumulated depreciation.................................................................. (2,792) (2,437)
--------- ---------
5,600 5,248
Net assets of discontinued operations....................................................... - 376
Investments of professional liability insurance subsidiaries................................ 700 644
Intangible assets net of accumulated amortization of $178 -- 1993
and $233 -- 1992........................................................................... 1,232 1,247
Other....................................................................................... 196 257
--------- ---------
$ 10,216 $ 10,347
--------- ---------
--------- ---------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 445 $ 410
Salaries, wages and other compensation.................................................... 232 211
Other accrued expenses.................................................................... 853 903
Income taxes.............................................................................. 22 92
Long-term debt due within one year........................................................ 363 353
--------- ---------
1,915 1,969
Long-term debt.............................................................................. 3,335 3,303
Deferred credits and other liabilities...................................................... 1,438 1,353
Minority interests in equity of consolidated entities....................................... 57 31
Contingencies
Common stockholders' equity:
Common stock $.01 par; authorized 800,000,000 voting shares and 25,000,000 nonvoting
shares; issued and outstanding 317,686,800 voting shares and 18,990,000 nonvoting shares
-- 1993 and 308,252,100 voting shares and 23,421,700 nonvoting shares -- 1992............ 3 3
Capital in excess of par value............................................................ 2,164 2,070
Other..................................................................................... 59 69
Retained earnings......................................................................... 1,245 1,549
--------- ---------
3,471 3,691
--------- ---------
$ 10,216 $ 10,347
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-4
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
----------------------------------------------------
COMMON STOCK CAPITAL IN
SHARES PAR EXCESS OF RETAINED
(000) VALUE PAR VALUE OTHER EARNINGS TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1990........................... 255,276 $ 3 $ 734 $ 48 $ 1,314 $2,099
Net income.......................................... 369 369
Cash dividends (Galen Health Care, Inc.)............ (138) (138)
Paid-in-kind dividend on cumulative exchangeable
preferred stock.................................... (18) (18)
Issuance of common stock............................ 4,310 61 61
Stock options exercised and related tax benefits,
net of 224,000 shares tendered in partial payment
therefor........................................... 797 24 24
Accumulated credit under stock option contract...... 413 413
Other............................................... 24 2 10 12
------- ----- ---------- ----- -------- ------
Balances, December 31, 1991........................... 260,407 3 821 471 1,527 2,822
Net income.......................................... 165 165
Cash dividends (Galen Health Care, Inc.)............ (143) (143)
Issuance of common stock............................ 48,282 916 916
Stock options exercised and related tax benefits,
net of 30,000 shares tendered in partial payment
therefor........................................... 22,967 331 (386) (55)
Other............................................... 18 2 (16) (14)
------- ----- ---------- ----- -------- ------
Balances, December 31, 1992........................... 331,674 3 2,070 69 1,549 3,691
Net income.......................................... 507 507
Cash dividends (Columbia Healthcare Corporation).... (9) (9)
Stock options exercised and related tax benefits,
net of 81,000 shares tendered in partial payment
therefor........................................... 4,000 71 (35) 36
Spinoff transaction with Humana Inc.:
Cash payment to Humana Inc........................ (135) (135)
Noncash transactions:
Issuance of notes payable....................... (250) (250)
Distribution of net investment in discontinued
health plan operations......................... (392) (392)
Transfer of a hospital facility................. (25) (25)
Net unrealized gains on investment securities....... 27 27
Other............................................... 1,003 23 (2) 21
------- ----- ---------- ----- -------- ------
Balances, December 31, 1993........................... 336,677 $ 3 $ 2,164 $ 59 $ 1,245 $3,471
------- ----- ---------- ----- -------- ------
------- ----- ---------- ----- -------- ------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-5
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
-------------------------
1993 1992 1991
-------------------------
<S> <C> <C> <C>
Cash flows from continuing operations:
Net income.......................................................................... $ 507 $ 165 $ 369
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations........................................................... (16) 127 (16)
Minority interests in earnings of consolidated entities........................... 9 10 9
Non-recurring transactions........................................................ 151 439 300
Depreciation and amortization..................................................... 554 541 524
Amortization of debt discounts and loan costs..................................... 45 78 116
Noncash interest on exchange debentures........................................... - 4 57
Deferred income taxes............................................................. (28) 34 (210)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable...................................... 19 98 (53)
Increase in inventories and other assets........................................ (7) (58) (42)
Increase (decrease) in income taxes............................................. 19 (160) 53
Increase (decrease) in other liabilities........................................ (87) 83 164
Change in accounting for income taxes............................................. - (51) -
Extraordinary loss on extinguishment of debt...................................... 135 - -
Other............................................................................. (3) (23) (14)
--------- --------- ---------
Net cash provided by continuing operations...................................... 1,298 1,287 1,257
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................................................. (836) (668) (645)
Acquisition of hospitals and health care facilities................................. (79) (36) (96)
Sale of assets...................................................................... 191 225 860
Investment in discontinued operations............................................... - (71) (76)
Change in investments............................................................... 21 (35) (33)
Other............................................................................... (34) (8) (25)
--------- --------- ---------
Net cash used in investing activities........................................... (737) (593) (15)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt.......................................................... 1,586 240 216
Net change in commercial paper borrowings and lines of credit....................... 342 (176) 124
Repayment of long-term debt......................................................... (2,325) (1,799) (890)
Payment to Humana Inc. in spinoff transaction....................................... (135) - -
Payment of cash dividends........................................................... (40) (143) (134)
Issuance of common stock............................................................ 43 741 71
Other............................................................................... (25) (15) (6)
--------- --------- ---------
Net cash used in financing activities........................................... (554) (1,152) (619)
--------- --------- ---------
Change in cash and cash equivalents................................................... 7 (458) 623
Cash and cash equivalents at beginning of period...................................... 217 675 52
--------- --------- ---------
Cash and cash equivalents at end of period............................................ $ 224 $ 217 $ 675
--------- --------- ---------
--------- --------- ---------
Interest payments..................................................................... $ 278 $ 319 $ 469
Income tax payments, net of refunds................................................... 347 360 385
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-6
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation
which began operations on February 10, 1994 as a result of a merger involving
Columbia Healthcare Corporation ("Columbia") and HCA -- Hospital Corporation of
America ("HCA") (the "HCA Merger"). See Note 2 for a description of the specific
terms of the HCA Merger.
Prior to the HCA Merger, Columbia began operations on September 1, 1993 as a
result of a merger involving Columbia Hospital Corporation ("CHC") and Galen
Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 3 for a description
of the specific terms of the Galen Merger.
Columbia/HCA primarily operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries or (ii) ownership of controlling
interests in various partnerships in which subsidiaries of Columbia/ HCA serve
as the managing general partner.
BASIS OF PRESENTATION
The consolidated financial statements include substantially all subsidiaries and
partnerships controlled by Columbia/HCA as the managing general partner.
Significant intercompany transactions have been eliminated.
The HCA Merger and the Galen Merger have been accounted for by the
pooling-of-interests method. Accordingly, the consolidated financial statements
included herein give retroactive effect to these transactions and include the
combined operations of CHC, Galen and HCA for all periods presented. In
addition, the historical financial information related to Galen (which prior to
the Galen Merger was reported on a fiscal year ending August 31) has been recast
to conform to Columbia/HCA's annual reporting period ending December 31.
REVENUES
Columbia/HCA's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which Columbia/HCA is paid based upon established charges, cost of
providing services, predetermined rates by diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and third-party
payers for health care services provided, including anticipated settlements
under reimbursement agreements with third-party payers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Depreciation expense, computed by the straight-line method, was $504 million in
1993, $493 million in 1992 and $478 million in 1991. Columbia/HCA uses component
depreciation for buildings. Depreciation rates for buildings are equivalent to
useful lives ranging generally from 20 to 25 years. Estimated useful lives of
equipment vary generally from 3 to 10 years.
F-7
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
On December 31, 1993, Columbia/HCA adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which requires that investments in
debt and equity securities be classified according to certain criteria.
INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method over periods ranging from 10 to 40 years. Noncompete and
debt issuance costs are amortized based upon the lives of the respective
contracts or loans.
PROFESSIONAL LIABILITY INSURANCE CLAIMS
Provisions for loss for professional liability risks are based upon actuarially
determined estimates. To the extent that subsequent claims information varies
from management's estimates, earnings are charged or credited.
MINORITY INTERESTS IN CONSOLIDATED ENTITIES
The consolidated financial statements include all assets, liabilities and
earnings of Columbia/HCA's partnerships, certain partnership interests of which
are not owned by Columbia/HCA. Accordingly, management has recorded minority
interests in the earnings and equity of such partnerships.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based upon the weighted
average number of common shares outstanding adjusted for the dilutive effect of
common stock equivalents consisting primarily of stock options. The computation
also gives retroactive effect to the exchange of common shares in connection
with the HCA Merger.
The following is a summary of shares used in the computation of earnings per
common and common equivalent share (amounts in thousands):
<TABLE>
<CAPTION>
------------------------------
1993 1992 1991
------------------------------
<S> <C> <C> <C>
Columbia:
Weighted average shares outstanding.................................. 150,017 144,897 138,936
Common stock equivalents............................................. 966 718 750
--------- --------- ---------
Columbia common and common equivalent shares......................... 150,983 145,615 139,686
--------- --------- ---------
HCA:
Weighted average shares outstanding.................................. 175,374 149,547 113,480
Common stock equivalents............................................. 3,901 24,690 20,109
--------- --------- ---------
HCA common and common equivalent shares.............................. 179,275 174,237 133,589
Merger exchange ratio................................................ 1.05 1.05 1.05
--------- --------- ---------
Adjusted HCA common and common equivalent shares..................... 188,239 182,949 140,268
--------- --------- ---------
Shares used in computation of earnings per common and common
equivalent share.................................................... 339,222 328,564 279,954
--------- --------- ---------
--------- --------- ---------
</TABLE>
Fully diluted earnings per common and common equivalent share is not presented
because it approximates earnings per common and common equivalent share.
NOTE 2 -- HCA MERGER
On October 2, 1993, Columbia entered into a definitive agreement to merge with
HCA. This transaction was completed on February 10, 1994. In connection with the
HCA Merger, Columbia stockholders approved an
F-8
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- HCA MERGER (CONTINUED)
amendment to Columbia's Certificate of Incorporation changing the name of the
corporation to Columbia/HCA Healthcare Corporation. HCA was then merged into a
wholly owned subsidiary of Columbia/HCA. Shares of HCA Class A voting common
stock and Class B nonvoting common stock were converted on a tax-free basis into
approximately 166,846,000 shares of Columbia/HCA voting common stock and
approximately 18,990,000 shares of Columbia/HCA nonvoting common stock,
respectively (an exchange ratio of 1.05 shares of Columbia/HCA common stock for
each share of HCA voting and nonvoting common stock).
The HCA Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the combined operations of Columbia and HCA for all periods presented. The
following is a summary of the results of operations of the separate entities for
periods prior to the HCA Merger (dollars in millions):
<TABLE>
<CAPTION>
------------------------------
COLUMBIA HCA COMBINED
------------------------------
<S> <C> <C> <C>
1993:
Revenues............................................................. $ 5,130 $ 5,122 $ 10,252
Income from continuing operations.................................... 193 382 575
Net income........................................................... 139 368 507
1992:
Revenues............................................................. $ 4,806 $ 5,126 $ 9,932
Income from continuing operations.................................... 211 28 239
Net income........................................................... 137 28 165
1991:
Revenues............................................................. $ 4,612 $ 4,986 $ 9,598
Income (loss) from continuing operations............................. 358 (5) 353
Net income (loss).................................................... 374 (5) 369
</TABLE>
NOTE 3 -- GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the Galen
Merger, effective as of September 1, 1993. In connection with the Galen Merger,
CHC, a Nevada corporation, was merged into Columbia. Each CHC share of common
stock was converted on a tax-free basis into one share of Columbia common stock.
Immediately subsequent thereto, a wholly owned subsidiary of Columbia was merged
into Galen, at which time Galen became a wholly owned subsidiary of Columbia. In
connection with this transaction, Columbia issued approximately 123,830,000
shares of common stock in a tax-free exchange for all of the outstanding common
shares of Galen (an exchange ratio of 0.775 of a share of Columbia common stock
for each share of Galen common stock).
F-9
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- GALEN MERGER (CONTINUED)
The Galen Merger has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements give retroactive effect to
the combined operations of CHC and Galen for all periods presented. The
following is a summary of the results of operations of the separate entities for
periods prior to the Galen Merger (dollars in millions):
<TABLE>
<CAPTION>
--------------------------
CHC GALEN COMBINED
--------------------------
<S> <C> <C> <C>
Eight months ended August 31, 1993 (unaudited):
Revenues................................................................. $ 823 $ 2,600 $ 3,423
Income from continuing operations........................................ 17 176 193
Net income............................................................... 17 192 209
1992:
Revenues................................................................. $ 819 $ 3,987 $ 4,806
Income from continuing operations........................................ 26 185 211
Net income............................................................... 26 111 137
1991:
Revenues................................................................. $ 499 $ 4,113 $ 4,612
Income from continuing operations........................................ 15 343 358
Net income............................................................... 15 359 374
</TABLE>
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS
Prior to the Galen Merger, Galen began operating its hospital business as an
independent publicly held corporation on March 1, 1993 as a result of a tax-free
spinoff transaction (the "Spinoff") by Humana Inc. ("Humana"), which retained
its managed care health plan business. The Spinoff separated Humana's previously
integrated hospital and managed care health plan businesses and was effected
through the distribution of Galen common stock to then current Humana common
stockholders on a one-for-one basis.
For accounting purposes, because of the relative significance of the hospital
business, the pre-Spinoff consolidated financial statements of Galen (and now
those of Columbia/HCA) include the separate results of Humana's hospital
business, while the operations and net assets of Humana's managed care health
plans have been classified as discontinued operations.
In connection with the Spinoff, Galen entered into various agreements with
Humana which were intended to facilitate orderly changes for both the hospital
and managed care health plan businesses in a way which would be minimally
disruptive to each entity. Principal contracts are summarized below:
OPERATIONS -- Certain former Galen hospitals will provide medical services to
insureds of Humana for three years subsequent to the Spinoff. The contract
includes, among other things, established payment rates for various inpatient
and outpatient services and annual increases therein, and hospital utilization
guarantees and related penalties.
LIABILITIES AND INDEMNIFICATION -- Each entity assumed liability for specified
claims. The entities will also share risks with respect to certain litigation
and other contingencies, both identified and unknown.
INCOME TAXES -- Each entity entered into risk-sharing arrangements in connection
with the ultimate resolution of various income tax disputes.
FINANCING -- In January 1993 certain subsidiaries issued $250 million of notes
payable to Humana, and paid to Humana $135 million in cash on March 1, 1993
which was financed principally through the issuance of commercial paper. The
$250 million of notes were repaid in September 1993 in connection with the
refinancing of certain long-term debt.
F-10
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED)
ADMINISTRATION -- These arrangements relate to leasing of certain administrative
facilities, division of information systems, employee benefit and stock option
plans, and various administrative service arrangements.
Revenues of the discontinued managed care health plan business (included in
discontinued operations in the accompanying consolidated statement of income)
were $523 million in 1993, $2.9 billion in 1992 and $2.5 billion in 1991.
NOTE 5 -- NON-RECURRING TRANSACTIONS
1993
In September 1993 the following charges were recorded in connection with the
Galen Merger (dollars in millions):
<TABLE>
<S> <C>
Investment advisory and professional fees, and employee benefit plan
costs............................................................... $ 62
Writedown of assets in connection with the consolidation of the
combined entity's operations........................................ 63
Administrative facility asset writedowns and conversion costs
associated with the transaction..................................... 16
Provision for loss on planned sales of assets........................ 10
---------
$ 151
---------
---------
</TABLE>
1992
In September 1992 a pretax charge of $394 million was recorded in connection
with the planned divestiture of twenty-two psychiatric hospitals and the
unrelated sale of two other facilities. The charge included the writedown to
estimated net realizable value of the hospitals to be sold, a $231 million
writeoff of permanently impaired cost in excess of net assets acquired, and the
costs associated with the replacement of certain credit agreements.
Income from continuing operations in 1992 also includes a gain of $93 million on
the sale of an investment in common stock of HealthTrust, Inc. -- The Hospital
Company ("HealthTrust").
Income from continuing operations in 1992 includes $138 million of charges
incurred primarily in connection with the Spinoff, including a provision for
loss on the planned sale of hospitals, writedowns of assets in markets with
significant declines in operations, administrative facility asset writedowns and
certain other costs associated with the separation of the hospital and health
plan businesses. Costs aggregating $171 million (before income taxes) incurred
by Humana primarily in connection with the Spinoff are included in discontinued
operations in 1992.
1991
Income from continuing operations in 1991 includes (i) a charge of $413 million
in connection with the acceleration of vesting of stock options under the HCA
Nonqualified Stock Option Plan and the establishment of exercise prices at
levels substantially less than the then fair value of the underlying common
stock, (ii) a charge of $159 million primarily in connection with the
anticipated loss on the disposition of certain hospitals and other assets, (iii)
a gain of $51 million on the sale of a hospital, and (iv) a gain of $221 million
on the sale of an investment in preferred stock and warrants of HealthTrust.
NOTE 6 -- OTHER BUSINESS COMBINATIONS
During the past three years, Columbia/HCA has acquired various hospitals and
related ancillary health care facilities (or controlling interests in such
facilities), all of which have been accounted for by the purchase method.
Accordingly, the aggregate purchase price of these transactions has been
allocated to tangible and
F-11
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- OTHER BUSINESS COMBINATIONS (CONTINUED)
identifiable intangible assets acquired and liabilities assumed based upon their
respective fair values. The consolidated financial statements include the
operations of acquired entities since the respective acquisition dates.
The following is a summary of acquisitions and joint ventures consummated during
the last three years (dollars in millions):
<TABLE>
<CAPTION>
------------------------
1993 1992 1991
------------------------
<S> <C> <C> <C>
Number of hospitals.......................................................... 3 15 2
Number of licensed beds...................................................... 903 2,345 1,420
Purchase price information:
Fair value of assets acquired.............................................. $ 164 $ 490 $ 165
Liabilities assumed........................................................ (76) (279) (48)
--------- --------- ---------
Net assets acquired...................................................... 88 211 117
--------- --------- ---------
Issuance of common stock................................................... - 119 1
Cash acquired.............................................................. 9 15 15
Cash received from sale of certain acquired assets......................... - 40 -
Other...................................................................... - 1 5
--------- --------- ---------
9 175 21
--------- --------- ---------
Net cash paid for acquisitions........................................... $ 79 $ 36 $ 96
--------- --------- ---------
--------- --------- ---------
</TABLE>
In July 1992 Columbia/HCA acquired Basic American Medical, Inc. ("BAMI")
(included in the table above) through a merger into a wholly owned subsidiary.
The assets of BAMI included eight hospitals containing 1,203 licensed beds and
certain other health care businesses. The transaction was financed through the
assumption of approximately $140 million of long-term debt, issuance of
6,995,000 shares of common stock and payment of $38 million in cash to BAMI
stockholders.
The purchase price paid in excess of the fair value of identifiable net assets
of acquired entities aggregated $7 million in 1993, $97 million in 1992 and $19
million in 1991.
The pro forma effect of these acquisitions on Columbia/HCA's results of
operations was not significant.
NOTE 7 -- INCOME TAXES
Provision for income taxes consists of the following (dollars in millions):
<TABLE>
<CAPTION>
---------------------
1993 1992 1991
---------------------
<S> <C> <C> <C>
Current:
Federal....................................................................... $ 357 $ 232 $ 375
State......................................................................... 69 34 64
--------- --------- ---------
426 266 439
--------- --------- ---------
Deferred:
Federal....................................................................... (36) 22 (218)
State......................................................................... 4 6 (32)
--------- --------- ---------
(32) 28 (250)
--------- --------- ---------
$ 394 $ 294 $ 189
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Reconciliation of federal statutory rate to effective income tax rate follows:
<TABLE>
<CAPTION>
--------------------------
1993 1992 1991
--------------------------
<S> <C> <C> <C>
Federal statutory rate..................................................... 35.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit...................... 4.6 4.4 2.9
Gain on sale of HealthTrust investments.................................... - - (3.5)
Merger costs............................................................... 0.6 - -
Costs in excess of net assets acquired..................................... 1.2 16.6 2.3
Tax exempt investment income............................................... (0.9) (1.7) (1.5)
Other items, net........................................................... 0.1 1.8 0.7
--- --- ---
Effective income tax rate.................................................. 40.6% 55.1% 34.9%
--- --- ---
--- --- ---
</TABLE>
In August 1993 Congress enacted the Omnibus Budget Reconciliation Act of 1993
which included, among other things, an increase in corporate income tax rates
retroactive to January 1, 1993. This legislation had no material effect on 1993
net income.
Columbia/HCA adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1,
1992, the effect of which increased 1992 net income by $51 million. The
provisions of SFAS 109 require, among other things, recognition of deferred
income taxes using statutory rates at which temporary differences in the tax and
book bases of assets and liabilities are expected to affect taxable income in
future years.
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31, 1993 and 1992 follows (dollars in millions):
<TABLE>
<CAPTION>
----------------------------------------
1993 1992
ASSETS LIABILITIES ASSETS LIABILITIES
----------------------------------------
<S> <C> <C> <C> <C>
Depreciation................................................. $ - $ 766 $ - $ 748
Long-term debt............................................... - 26 - 71
Professional liability risks................................. 329 - 336 -
Doubtful accounts............................................ 91 - 85 -
Property losses.............................................. 87 - 111 -
Cash basis................................................... - 60 - 89
Compensation................................................. 24 - 18 -
Capitalized leases........................................... 11 - 12 -
Other........................................................ 215 167 202 106
----- ----------- ----- -----------
$ 757 $ 1,019 $ 764 $ 1,014
----- ----------- ----- -----------
----- ----------- ----- -----------
</TABLE>
Management believes that the deferred tax assets in the table above will
ultimately be realized. Management's conclusion is based primarily on its
expectation of future taxable income and the existence of sufficient taxable
income within the allowable carryback periods to realize the tax benefits of
deductible temporary differences recorded at December 31, 1993.
Deferred income taxes totaling $295 million and $257 million at December 31,
1993 and 1992, respectively, are included in other current assets. Noncurrent
deferred income taxes, included in deferred credits and other liabilities,
totaled $557 million and $507 million at December 31, 1993 and 1992,
respectively.
The Internal Revenue Service (the "Service") has issued statutory notices of
deficiency in connection with its examinations of HCA's federal income tax
returns for 1981 through 1988. Columbia/HCA is currently contesting
F-13
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
these claimed deficiencies in the United States Tax Court. In addition, the
Service has proposed certain adjustments in connection with its examinations of
HCA's 1989 and 1990 federal income tax returns. The following is a discussion of
the disputed items with respect to these years.
METHOD OF ACCOUNTING
For years 1981 through 1986, most of HCA's hospital subsidiaries (the
"Subsidiaries") reported taxable income primarily using the cash method of
accounting. This method was prevalent within the hospital industry and the
Subsidiaries applied the method in accordance with prior agreements with the
Service. The Service now asserts that the accrual method of accounting should
have been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act")
requires the use of the accrual method of accounting beginning in 1987.
Consequently, the Subsidiaries changed to the accrual method beginning January
1, 1987. In accordance with the provisions of the 1986 Act, income that had been
deferred at the end of 1986 is being recognized as taxable income by the
Subsidiaries in equal annual installments over ten years. If the Service should
ultimately prevail in its claim that the Subsidiaries should have used the
accrual method for 1981 through 1986, the claim would be reduced to the extent
that HCA has recognized as taxable income a portion of such deferred income
taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987
that had been using the cash method resulted in the recognition of a substantial
gain that would not have been recognized had the Subsidiaries been using the
accrual method. If the Service were successful with respect to this issue,
Columbia/HCA would owe an additional $110 million in income taxes and $432
million in interest as of December 31, 1993.
HOSPITAL ACQUISITIONS
In connection with hospitals acquired by HCA in 1981 and 1985, the Service has
asserted that a portion of the costs allocated to identifiable assets with
ascertainable useful lives should be reclassified as nondeductible goodwill. If
the Service ultimately prevails in this regard, Columbia/HCA would owe an
additional $113 million in income taxes and $139 million in interest as of
December 31, 1993.
INSURANCE SUBSIDIARY
Based on a Sixth Circuit Court of Appeals decision (the Court having
jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid
to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the
Service asserts that such premiums are not deductible and that corresponding
losses are only deductible at the time and to the extent that claims are
actually paid. HCA has claimed the additional deductions in its Tax Court
petitions. Through December 31, 1993, Columbia/HCA is seeking a refund totaling
$51 million in income taxes and $93 million in interest in connection with this
issue.
As an alternative to its position, HCA has asserted that in connection with the
sale of hospitals to HealthTrust in 1987, premiums paid to Parthenon by the sold
hospitals, if not deductible as discussed above, became deductible at the time
of the sale. Accordingly, HCA claimed such deduction in its 1987 federal income
tax return. The Service has disallowed the deduction and is claiming an
additional $5 million in income taxes and $15 million in interest. A final
determination that the premiums are not deductible either when paid to Parthenon
or upon the sale of certain hospitals to HealthTrust would increase the taxable
basis in the hospitals sold, thereby reducing HCA's gain realized on the sale.
HEALTHTRUST SALE
In connection with its sale of certain Subsidiaries to HealthTrust in 1987 in
exchange for cash, HealthTrust preferred stock and stock purchase warrants, HCA
calculated its gain based on the valuation of such stock and warrants by an
independent appraiser. The Service claims a higher aggregate valuation, based on
the face amount of the preferred stock and a separate appraisal HealthTrust
obtained for the stock purchase warrants. Application of the higher valuation
would increase the gain recognized by HCA on the sale. However, if the Service
succeeds in its assertion, HCA's tax basis in its HealthTrust preferred stock
and warrants will be increased accordingly, thereby substantially reducing the
tax from the sale of such preferred stock and warrants by a corresponding
F-14
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
amount. By December 31, 1992, HCA had sold its entire interest in the
HealthTrust preferred stock and warrants. Including the effect of the sales of
these securities, the Service is claiming additional interest of $64 million
through December 31, 1993.
Also in connection with the 1987 sale of certain Subsidiaries to HealthTrust,
the Service claims that HCA's basis in the stock of the Subsidiaries sold to
HealthTrust should be calculated by adjusting such basis to reflect accelerated
rather than straight-line depreciation, which would reduce HCA's basis in the
stock sold and increase the taxable gain on the sale. The Service position is
contrary to a Tax Court decision in a similar case. The Service is claiming
additional income taxes of $79 million and interest of $66 million through
December 31, 1993.
In connection with the 1987 HealthTrust transactions, the Service further
asserts that, to the extent the Subsidiaries were properly on the cash method
through 1986, and therefore properly recognizing taxable income over the
ten-year transition period, HCA should have additional income in 1987 equal to
the unamortized portion of the deferred income. It is HCA's position that no
additional income need be included in 1987 and that the deferred income
continues to qualify for the ten-year transition period after the sale. Should
the Service prevail, Columbia/HCA would owe $11 million of additional income
taxes and $17 million of interest through December 31, 1993. The position of the
Service is an alternative to its denial of the use of the cash method of
accounting previously discussed.
DOUBTFUL ACCOUNTS
The Service is asserting that in 1986 HCA was not entitled to include charity
care writeoffs in the formula used to calculate its deduction for doubtful
accounts. For years 1987 and 1988, the Service is asserting that HCA was not
entitled to exclude from income amounts which are unlikely to be collected.
Management believes that such exclusions are permissible under an accrual method
of accounting, and because HCA is a "service business" and not a "merchandising
business," it is entitled to a special exclusion provided to service businesses
by the 1986 Act. The Service disagrees, asserting that HCA is engaged, at least
in part, in a merchandising business. Notwithstanding this assertion, the
Service contends that the exclusion taken by HCA is excessive under applicable
Temporary Treasury Regulations. Columbia/HCA believes that the calculation of
the exclusion is inaccurate since it does not permit the exclusion in accordance
with the controlling statute. If the Service prevails, Columbia/HCA would owe
additional income taxes of $102 million and interest of $48 million through
December 31, 1993.
LEVERAGED BUY-OUT EXPENSES
The Service has asserted that no deduction is allowed for various expenses
incurred in connection with HCA's leveraged buy-out transaction in 1989,
including the amortization of loan costs incurred to borrow funds to acquire the
stock of the former shareholders, certain fees incurred by the Special Committee
of HCA's Board of Directors to evaluate the buy-out proposal, compensation
payments to cancel employee stock plans, and various other costs incurred after
the buy-out which have been treated as part of the transaction by the Service.
Columbia/HCA believes that all of these costs are deductible. If the Service
prevails on these issues, Columbia/ HCA would owe income taxes of $94 million
and interest of $24 million through December 31, 1993.
OTHER ISSUES
Additional federal income tax issues primarily concern disputes over the
depreciable lives utilized by HCA for constructed hospital facilities,
investment tax credits, vacation pay deductions and income from foreign
operations. Many of these items, including depreciation, investment tax credits
and foreign issues, have been resolved favorably in previous settlements. The
Service is claiming an additional $44 million in income taxes and $28 million in
interest through December 31, 1993 with respect to these issues.
F-15
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
Management believes that HCA had properly reported its income and paid its taxes
in accordance with applicable laws and agreements established with the Service
during previous examinations, and that final resolution of these disputes will
not have a material adverse effect on the results of operations or financial
position of Columbia/HCA.
NOTE 8 -- PROFESSIONAL LIABILITY RISKS
Columbia/HCA insures a substantial portion of its professional liability risks
through wholly owned insurance subsidiaries. Provisions for such risks
underwritten by the subsidiaries and deductibles at certain hospitals, including
expenses incident to claim settlements, were $96 million for 1993, $102 million
for 1992 and $111 million for 1991. Amounts funded to the insurance subsidiaries
were $62 million for 1993, $55 million for 1992 and $56 million for 1991.
Allowances for professional liability risks, included principally in deferred
credits and other liabilities, were $817 million and $791 million at December
31, 1993 and 1992, respectively.
As discussed in Note 1, Columbia/HCA adopted the provisions of SFAS 115 on
December 31, 1993. Accordingly, common stockholders' equity was increased by $27
million (net of deferred income taxes) to reflect the net unrealized gain on
investments classified as available for sale. Prior to the adoption of SFAS 115,
debt securities were recorded at amortized cost (which approximated fair value),
while equity securities were recorded at the lower of aggregate cost or fair
value. The adoption of SFAS 115 had no effect on earnings in 1993.
The provisions of SFAS 115 require that investments in debt and equity
securities be classified according to the following criteria:
TRADING ACCOUNT -- Assets held for resale in anticipation of short-term changes
in market conditions are recorded at fair value and gains and losses, both
realized and unrealized, are included in income. Columbia/HCA does not maintain
a trading account portfolio.
HELD TO MATURITY -- Certain debt securities of Columbia/HCA's professional
liability insurance subsidiaries are expected to be held to maturity as a result
of management's intent and ability to do so. These investments are carried at
amortized cost.
AVAILABLE FOR SALE -- Debt and equity securities not classified as either
trading securities or held to maturity are classified as available for sale and
recorded at fair value. Unrealized gains and losses are excluded from income and
recorded as a separate component of common stockholders' equity.
F-16
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The following is a summary of the insurance subsidiaries' investments at
December 31, 1993 and 1992 (dollars in millions):
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31, 1993
UNREALIZED
AMOUNTS
-------------- FAIR
COST GAINS LOSSES VALUE
----------------------------
<S> <C> <C> <C> <C>
Held to maturity:
United States Government obligations............ $ 44 $ - $ - $ 44
---- ----- ------- -----
Available for sale:
Bonds:
United States Government...................... 19 1 - 20
States and municipalities..................... 372 16 - 388
Mortgage-backed securities.................... 54 1 - 55
Corporate and other........................... 51 2 (1) 52
Money market funds.............................. 31 - - 31
Redeemable preferred stocks..................... 17 1 - 18
---- ----- ------- -----
544 21 (1) 564
---- ----- ------- -----
Equity securities:
Adjustable rate preferred stocks.............. 13 1 - 14
Common stocks................................. 133 27 (4) 156
---- ----- ------- -----
146 28 (4) 170
---- ----- ------- -----
$734 $ 49 $ (5) 778
---- ----- -------
---- ----- -------
Amounts classified as current assets.............. (78)
-----
Investment carrying value......................... $ 700
-----
-----
</TABLE>
F-17
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31, 1992
UNREALIZED
AMOUNTS
-------------- FAIR
COST GAINS LOSSES VALUE
----------------------------
<S> <C> <C> <C> <C>
Held to maturity:
United States Government obligations............ $ 19 $ - $ - $ 19
Certificates of deposit......................... 20 - - 20
---- ----- ------- -----
39 - - 39
---- ----- ------- -----
Available for sale:
Bonds:
United States Government...................... 22 1 - 23
States and municipalities..................... 312 9 - 321
Mortgage-backed securities.................... 55 - - 55
Corporate and other........................... 39 2 - 41
Money market funds.............................. 68 - - 68
Redeemable preferred stocks..................... 18 - - 18
---- ----- ------- -----
514 12 - 526
---- ----- ------- -----
Equity securities:
Adjustable rate preferred stocks.............. 20 1 - 21
Common stocks................................. 136 21 (9) 148
---- ----- ------- -----
156 22 (9) 169
---- ----- ------- -----
709 $ 34 $ (9) $ 734
----- ------- -----
----- ------- -----
Amounts classified as current assets.............. (65)
----
Investment carrying value......................... $644
----
----
</TABLE>
The cost and estimated fair value of debt and equity securities at December 31,
1993 by contractual maturity are shown below (dollars in millions). Expected and
contractual maturities will differ because the issuers of certain securities may
have the right to prepay or otherwise redeem such obligations without penalty.
<TABLE>
<CAPTION>
----------------
FAIR
COST VALUE
----------------
<S> <C> <C>
Held to maturity:
Due in one year or less.................................................. $ 44 $ 44
--------- ---------
Available for sale:
Due in one year or less.................................................. 34 34
Due after one year through five years.................................... 134 136
Due after five years through ten years................................... 131 137
Due after ten years...................................................... 245 257
--------- ---------
544 564
Equity securities........................................................ 146 170
--------- ---------
690 734
--------- ---------
$ 734 $ 778
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The fair value of the subsidiaries' investments is based generally on quoted
market prices.
The average life of the above investments (excluding common stocks) approximated
five years at December 31, 1993 and four years at December 31, 1992, and the tax
equivalent yield on such investments averaged 10% for the last three years. Tax
equivalent yield is the rate earned on invested assets, excluding unrealized
gains and losses, adjusted for the benefit of nontaxable investment income.
Sales of securities for the year ended December 31, 1993 are summarized below
(dollars in millions):
<TABLE>
<CAPTION>
----------------
TYPE OF SECURITY
DEBT EQUITY
----------------
<S> <C> <C>
Cash proceeds........................................................................ $ 185 $ 106
Gross realized gains................................................................. 4 19
Gross realized losses................................................................ - 10
</TABLE>
NOTE 9 -- LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in millions):
<TABLE>
<CAPTION>
----------------
1993 1992
----------------
<S> <C> <C>
Senior collateralized debt, 5% to 13.8% (rates generally fixed) payable in periodic
installments through 2034........................................................... $ 211 $ 401
Senior debt, 8% to 13.3% (rates generally fixed) payable in periodic installments
through 2023........................................................................ 1,158 1,166
Fixed rate note agreement (13% rate)................................................. 100 100
Commercial paper (rates fixed under interest rate agreements averaging four years at
7.9%)............................................................................... 380 380
Commercial paper (floating rates averaging 3.4%)..................................... 495 153
Bank credit agreement (floating rates averaging 4.4%)................................ 1,172 1,067
Bank line of credit (floating rates averaging 3.6%).................................. 100 -
Subordinated credit agreement (floating rates averaging 5.9%)........................ - 300
Subordinated debt, 8.5% to 15% (rates generally fixed) payable in periodic
installments through 2008........................................................... 82 89
--------- ---------
Total debt, average life of six years (rates averaging 6.7%)......................... 3,698 3,656
Amounts due within one year.......................................................... 363 353
--------- ---------
Long-term debt....................................................................... $ 3,335 $ 3,303
--------- ---------
--------- ---------
</TABLE>
Borrowings under the commercial paper programs are classified as long-term debt
due to the credit available under the revolving credit agreements discussed
below and management's intention to refinance these borrowings on a long-term
basis.
Maturities of long-term debt in years 1995 through 1998 are $1.1 billion, $161
million, $64 million and $1.1 billion, respectively. Such amounts reflect
maturities of debt issued for refinancings through March 24, 1994 and, as to
short-term debt classified as long-term, are based upon maturities of the
revolving credit agreements. Approximately 8% of Columbia/HCA's property and
equipment is pledged on senior collateralized debt.
During the past three years Columbia/HCA has reduced interest costs and
eliminated certain restrictive covenants by refinancing or prepaying high
interest rate debt, primarily through the use of existing cash and cash
equivalents and issuance of long-term debt, commercial paper and equity. Amounts
refinanced or prepaid totaled $787 million in 1993, $1 billion in 1992 and $275
million in 1991. After-tax losses from refinancing activities in 1993 aggregated
$84 million or $.24 per share.
F-19
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
In February 1994 Columbia/HCA entered into revolving credit agreements (the
"Credit Facilities") in the aggregate amount of $3 billion. The Credit
Facilities comprise a four-year $1 billion revolving credit agreement and a
364-day $2 billion revolving credit agreement. The Credit Facilities were
established to support Columbia/ HCA's commercial paper programs and replace
$3.2 billion of prior revolving credit agreements associated with HCA ($1.6
billion) and Columbia ($1.6 billion). Interest is payable generally at either
LIBOR plus 1/4% to 1/2% (depending on Columbia/HCA's credit rating), or the
higher of prime, the bank certificate of deposit rate plus 1% or the Federal
Funds rate plus 1/2%.
In December 1993 Columbia/HCA issued $150 million of 6 1/8% Notes due 2000 and
$150 million of 7 1/2% Notes due 2023.
During 1992 Columbia/HCA sold $100 million face amount of 10 7/8% Senior
Subordinated Notes due 2002 and $135 million face amount of 11 1/2% Senior
Subordinated Notes due 2002. In September 1993 $232 million face amount of these
notes were retired through the completion of a tender offer.
Proceeds from the public offering of 41,055,000 shares of voting common stock in
1992 were used to repay $352 million of debt outstanding under a bank credit
agreement and redeem the 15 3/4% Subordinated Discount Debentures and related
interest aggregating $444 million.
In connection with the acquisition of BAMI in 1992, Columbia/HCA assumed
approximately $140 million of long-term debt, including approximately $64
million of senior collateralized notes payable in quarterly installments through
1998 at interest rates ranging from 10.7% to 11.7%. In September 1993
Columbia/HCA effected the defeasance of these notes.
In 1991 one of Columbia/HCA's partnerships issued $95 million of 11.45% Senior
Secured Notes due 2001. Proceeds from the issuance were used to repay $66
million of bank debt and finance expansion. These notes were retired in
connection with the refinancing of debt in September 1993. Columbia/HCA also
issued in 1991 a $40 million face amount 9% Subordinated Mandatory Convertible
Note due 1999. The note is convertible at the option of the holder into
Columbia/HCA voting common stock at a price of $18.50 per share (adjusted for
stock splits, recapitalizations and reorganizations). The note will be
automatically converted into common stock if the average per share market price
for four months preceding the July 1 anniversary exceeds a specified amount
ranging from $27.00 in 1994 to $34.00 in 1996.
In 1991 Columbia/HCA exchanged its Cumulative Exchangeable Preferred Stock for
17 1/2% Junior Subordinated Exchangeable Debentures due 2005. These debentures
were redeemed in 1992 from proceeds on the 1991 sale of HealthTrust preferred
stock and warrants.
Columbia/HCA's credit facilities contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership and (iii) maintenance of certain interest coverage ratios.
The estimated fair value of Columbia/HCA's long-term debt was $4.1 billion at
both December 31, 1993 and 1992, compared to carrying amounts aggregating $3.7
billion at the end of each year. Certain subsidiaries of Columbia/HCA have
entered into agreements which reduce the impact of changes in interest rates on
$380 million of floating rate long-term debt. At December 31, 1993 and 1992, the
fair value of Columbia/HCA's net payable position under these agreements
(included in the aggregate fair value amounts above) totaled $34 million and $29
million, respectively. The estimate of fair value is based upon the quoted
market prices for the same or similar issues of long-term debt, or on rates
available to Columbia/HCA as a result of the HCA Merger for debt of the same
remaining maturities.
F-20
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
As discussed in Note 4, in connection with the Spinoff, certain subsidiaries
issued notes payable ($250 million) and paid cash ($135 million financed
primarily through the issuance of commercial paper) to Humana in 1993. If the
Spinoff had occurred on December 31, 1992, Columbia/HCA's ratio of debt to debt
plus common stockholders' equity would have increased from 50% to 58%.
NOTE 10 -- LEASES
Columbia/HCA leases real estate and equipment under cancelable and
non-cancelable arrangements. Future minimum payments under non-cancelable
operating leases are as follows (dollars in millions):
<TABLE>
<S> <C>
1994................................................................. $ 123
1995................................................................. 102
1996................................................................. 78
1997................................................................. 63
1998................................................................. 43
Thereafter........................................................... 242
</TABLE>
Rent expense aggregated $196 million, $190 million and $170 million for the
years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 11 -- CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for loss have been provided to the extent
necessary and that its assessment of contingencies is reasonable. Management
believes that resolution of contingencies will not materially affect
Columbia/HCA's financial position or results of operations.
Principal contingencies are described below:
REVENUES -- Certain third-party payments are subject to examination by
agencies administering the programs. Columbia/HCA is contesting certain
issues raised in audits of prior year cost reports.
PROFESSIONAL LIABILITY RISKS -- Columbia/HCA has provided for loss for
professional liability risks based upon actuarially determined estimates.
Actual settlements and expenses incident thereto may differ from the
provisions for loss.
INTEREST RATE AGREEMENTS -- Certain subsidiaries of Columbia/HCA are parties
to agreements which reduce the impact of changes in interest rates on its
floating rate long-term debt. In the event of nonperformance by other
parties to these agreements, Columbia/HCA may incur a loss on the difference
between market rates and contract rates.
INCOME TAXES -- Columbia/HCA is contesting adjustments proposed by the IRS.
SPINOFF -- Certain subsidiaries of Columbia/HCA are parties to risk-sharing
arrangements with Humana.
REGULATORY REVIEW -- Federal regulators are investigating certain financial
arrangements with physicians at two psychiatric hospitals.
LITIGATION -- Various suits and claims arising in the ordinary course of
business are pending against Columbia/HCA.
F-21
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL STOCK
The terms and conditions associated with each class of Columbia/HCA common stock
are substantially identical except for voting rights. All nonvoting common
stockholders may convert their shares on a one-for-one basis into voting common
stock, subject to certain limitations. In addition, certain voting common
stockholders may convert their shares on a one-for-one basis into nonvoting
common stock.
The following shares of common stock were reserved at December 31, 1993 (amounts
in thousands):
<TABLE>
<S> <C>
Stock option plans.................................................. 20,118
Retirement and savings plans........................................ 8,887
Other............................................................... 2,853
---------
31,858
---------
---------
</TABLE>
Columbia/HCA has plans under which options to purchase common stock may be
granted to officers, employees and directors. Except for those discussed in Note
5, options have been granted at not less than market price on the date of grant.
Exercise provisions vary, but most options are exercisable in whole or in part
beginning one to four years after grant and ending four to fifteen years after
grant. Activity in the plans is summarized below (share amounts in thousands):
<TABLE>
<CAPTION>
----------------------------
SHARES
UNDER OPTION PRICE
OPTION PER SHARE
----------------------------
<S> <C> <C>
Balances, December 31, 1990................................... 37,163 $ 0.22 to $37.00
Granted..................................................... 4,078 0.60 to 25.24
Exercised................................................... (1,021) 7.21 to 23.37
Cancelled or lapsed......................................... (1,142) 0.60 to 37.00
---------
Balances, December 31, 1991................................... 39,078 0.22 to 25.71
Granted..................................................... 3,950 0.60 to 22.62
Conversion of BAMI stock options............................ 466 3.18 to 11.59
Exercised................................................... (22,998) 0.22 to 17.25
Cancelled or lapsed......................................... (7,399) 0.22 to 23.37
---------
Balances, December 31, 1992................................... 13,097 0.22 to 25.71
Granted..................................................... 1,660 0.60 to 33.38
Exercised................................................... (4,018) 0.22 to 23.37
Cancelled or lapsed......................................... (709) 0.22 to 25.71
---------
Balances, December 31, 1993................................... 10,030 $ 0.22 to $33.38
---------
---------
</TABLE>
At December 31, 1993, options for 4,026,700 shares were exercisable. Shares of
common stock available for future grants were 10,088,000 at December 31, 1993
and 11,442,900 at December 31, 1992.
In connection with the Galen Merger, certain preferred stock purchase rights
were redeemed which were previously issued to Galen common stockholders. The
cost of this transaction was not significant. In addition, a stockholder rights
plan was adopted upon consummation of the Galen Merger (similar to that of
Galen) under which common stockholders have the right to purchase Series A
Preferred Stock in the event of accumulation of or tender offer for certain
percentages of Columbia/HCA's common stock. The rights will expire in 2003
unless redeemed earlier by Columbia/HCA.
In September 1993 the Board of Directors initiated a regular quarterly cash
dividend on common stock of $.03 per share.
F-22
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- CAPITAL STOCK (CONTINUED)
In March 1992 Columbia/HCA issued 41,055,000 shares of voting common stock, the
net proceeds from which ($796 million) were used to reduce long-term debt.
Assuming that these shares were issued and the proceeds therefrom were used to
reduce long-term debt at the beginning of the year, earnings per common and
common equivalent share would have been $.53 in 1992.
In connection with the HCA Merger, Columbia/HCA stockholders voted to increase
the aggregate number of authorized voting shares of common stock from 400
million to 800 million, and the number of authorized nonvoting common shares was
established at 25 million. In addition, authorized shares of preferred stock
(none of which are outstanding) were increased from 10 million to 25 million.
NOTE 13 -- EMPLOYEE BENEFIT PLANS
Columbia/HCA maintains noncontributory defined contribution retirement plans
covering substantially all employees. Benefits are determined as a percentage of
a participant's earned income and are vested over specified periods of employee
service. Retirement plan expense was $97 million for 1993, $102 million for 1992
and $86 million for 1991. Amounts equal to retirement plan expense are funded
annually.
Columbia/HCA maintains various contributory savings plans which are available to
employees who meet certain minimum requirements. Certain of the plans require
that Columbia/HCA match an amount ranging from 50% to 60% of a participant's
contribution up to certain maximum levels. The cost of these plans totaled $20
million for 1993, $19 million for 1992 and $15 million for 1991. Columbia/HCA
contributions are funded periodically during the year.
NOTE 14 -- ACCRUED EXPENSES
The following is a summary of other accrued expenses at December 31 (dollars in
millions):
<TABLE>
<CAPTION>
----------------
1993 1992
----------------
<S> <C> <C>
Workers' compensation...................................................... $ 102 $ 90
Taxes other than income.................................................... 143 118
Professional liability risks............................................... 89 80
Employee benefit plans..................................................... 158 197
Interest................................................................... 181 167
Other...................................................................... 180 251
--------- ---------
$ 853 $ 903
--------- ---------
--------- ---------
</TABLE>
NOTE 15 -- SUBSEQUENT EVENTS
INCOME TAXES
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior year income
taxes and related interest. This transaction will not have a material effect on
1994 earnings.
LONG-TERM DEBT
Since completion of the HCA Merger, certain HCA and other long-term debt has
been refinanced in an effort to reduce future interest expense. These
transactions were financed primarily through the issuance of commercial paper,
$175 million of 6 1/2% Notes due 1999 and $150 million of 7.15% Notes due 2004.
Management anticipates that losses resulting from these refinancing activities
will reduce Columbia/HCA's first quarter 1994 net income by approximately $80
million.
F-23
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-----------------------------------------------------
1993
FIRST SECOND THIRD FOURTH
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 2,654 $ 2,536 $ 2,491 $ 2,571
Net income (loss):
Continuing operations (a)............................ 205 166 28 176
Discontinued operations.............................. 16 - - -
Extraordinary loss on extinguishment of
debt................................................ - - (84) -
Net income (loss).................................. 221 166 (56) 176
Per common share:
Earnings (loss):
Continuing operations (a).......................... .61 .49 .08 .52
Discontinued operations............................ .04 - - -
Extraordinary loss on extinguishment of
debt.............................................. - - (.24) -
Net income (loss)................................ .65 .49 (.16) .52
Market prices (b):
High............................................... 24 1/2 27 3/4 31 33 7/8
Low................................................ 16 1/4 19 1/4 25 3/8 27
<CAPTION>
-----------------------------------------------------
1992
FIRST SECOND THIRD FOURTH
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 2,559 $ 2,450 $ 2,451 $ 2,472
Net income (loss):
Continuing operations (c)(d)......................... 174 158 (300) 207
Discontinued operations (c).......................... 3 (2) (132) 6
Change in accounting for income taxes................ 51 - - -
Net income (loss).................................. 228 156 (432) 213
Per common share:
Earnings (loss):
Continuing operations (c)(d)....................... .57 .48 (.89) .61
Discontinued operations (c)........................ .02 (.02) (.39) .02
Change in accounting for income taxes.............. .16 - - -
Net income (loss)................................ .75 .46 (1.28) .63
Market prices (b):
High............................................... 21 1/4 22 19 1/4 21 3/4
Low................................................ 16 1/2 16 1/4 16 1/4 13 3/4
<FN>
- ------------
(a) Third quarter loss includes $98 million ($.29 per share) of costs related
to the Galen Merger. See Note 5 of the Notes to Consolidated Financial
Statements.
(b) Represents high and low sales prices of CHC common stock for periods prior
to the Galen Merger and Columbia common stock prior to the HCA Merger.
Columbia/HCA common stock is traded on the New York Stock Exchange (ticker
symbol -- COL).
(c) Third quarter net loss includes charges of $221 million ($.65 per share)
related primarily to the Spinoff, of which $86 million ($.25 per share) is
included in continuing operations and $135 million ($.40 per share) is
included in discontinued operations. The loss also includes $330 million
($.98 per share) associated with divestitures of certain assets. See Note
5 of the Notes to Consolidated Financial Statements.
(d) Fourth quarter net income includes a gain of $58 million ($.17 per share)
on the sale of HealthTrust common stock. See Note 5 of the Notes to
Consolidated Financial Statements.
</TABLE>
F-24
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
---------------------
1994 1993
---------------------
<S> <C> <C>
Revenues.................................................................................. $ 2,778 $ 2,654
---------- ----------
Salaries, wages and benefits.............................................................. 1,113 1,072
Supplies.................................................................................. 434 433
Other operating expenses.................................................................. 492 478
Provision for doubtful accounts........................................................... 150 126
Depreciation and amortization............................................................. 144 136
Interest expense.......................................................................... 64 85
Investment income......................................................................... (14) (12)
Non-recurring transactions................................................................ 159 -
---------- ----------
2,542 2,318
---------- ----------
Income from continuing operations before minority interests and income taxes.............. 236 336
Minority interests in earnings of consolidated entities................................... 3 4
---------- ----------
Income from continuing operations before income taxes..................................... 233 332
Provision for income taxes................................................................ 96 127
---------- ----------
Income from continuing operations......................................................... 137 205
Income from operations of discontinued health plan segment, net of income taxes........... - 16
Extraordinary loss on extinguishment of debt, net of income tax benefit................... (92) -
---------- ----------
Net income............................................................................ $ 45 $ 221
---------- ----------
---------- ----------
Earnings per common and common equivalent share:
Income from continuing operations....................................................... $ .40 $ .61
Income from operations of discontinued health plan segment.............................. - .04
Extraordinary loss on extinguishment of debt............................................ (.27) -
---------- ----------
Net income............................................................................ $ .13 $ .65
---------- ----------
---------- ----------
Cash dividends declared and paid per common share......................................... $ .03 $ -
Shares used in earnings per common and common
equivalent share computation (000)....................................................... 341,621 337,739
</TABLE>
See accompanying notes.
F-25
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-------------------------
DECEMBER 31,
ASSETS MARCH 31, 1993
1994
-------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 109 $ 224
Accounts receivable less allowance for loss of $544 -- March 31, 1994 and $513 --
December 31, 1993.................................................................. 1,625 1,566
Inventories......................................................................... 258 245
Other............................................................................... 516 453
----------- -------------
2,508 2,488
Property and equipment, at cost....................................................... 8,589 8,392
Accumulated depreciation.............................................................. (2,947) (2,792)
----------- -------------
5,642 5,600
Investments of professional liability insurance subsidiaries.......................... 688 700
Intangible assets..................................................................... 1,277 1,232
Other................................................................................. 237 196
----------- -------------
$ 10,352 $ 10,216
----------- -------------
----------- -------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 414 $ 445
Salaries, wages and other compensation.............................................. 260 232
Other accrued expenses.............................................................. 924 853
Income taxes........................................................................ 71 22
Long-term debt due within one year.................................................. 81 363
----------- -------------
1,750 1,915
Long-term debt........................................................................ 3,533 3,335
Deferred credits and other liabilities................................................ 1,421 1,438
Minority interests in equity of consolidated entities................................. 134 57
Contingencies
Common stockholders' equity:
Common Stock, $.01 par, authorized 800,000,000 voting shares and 25,000,000
nonvoting shares; issued and outstanding 318,806,900 voting shares and 18,990,000
nonvoting shares -- March 31, 1994 and 317,686,800 voting shares and 18,990,000
nonvoting shares -- December 31, 1993.............................................. 3 3
Other............................................................................... 3,511 3,468
----------- -------------
3,514 3,471
----------- -------------
$ 10,352 $ 10,216
----------- -------------
----------- -------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993
UNAUDITED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
----------------
1994 1993
----------------
<S> <C> <C>
Cash flows from continuing operations:
Net income................................................................................... $ 45 $ 221
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations........................................................ - (16)
Non-recurring transactions................................................................. 159 -
Depreciation and amortization.............................................................. 144 136
Deferred income taxes...................................................................... (64) (6)
Change in operating assets and liabilities:
Increase in accounts receivable.......................................................... (35) (112)
(Increase) decrease in inventories and other assets...................................... (53) 31
Increase in income taxes................................................................. 64 110
Decrease in other liabilities............................................................ (55) (8)
Extraordinary loss on extinguishment of debt............................................... 149 -
Other...................................................................................... 13 20
--------- ---------
Net cash provided by continuing operations............................................... 367 376
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................................................... (214) (181)
Acquisition of hospitals and health care facilities.......................................... (114) (75)
Disposition of property and equipment........................................................ 62 54
Change in investments........................................................................ (12) -
Other........................................................................................ (64) (3)
--------- ---------
Net cash used in investing activities.................................................... (342) (205)
--------- ---------
Cash flows from financing activities:
Issuance of long-term debt................................................................... 325 -
Net change in commercial paper borrowings and lines of credit................................ 1,461 103
Repayment of long-term debt.................................................................. (1,954) (126)
Payment of cash dividends.................................................................... (5) (36)
Issuance of common stock..................................................................... 11 2
Payment to Humana Inc. in spinoff transaction................................................ - (135)
Other........................................................................................ 22 (2)
--------- ---------
Net cash used in financing activities.................................................... (140) (194)
--------- ---------
Change in cash and cash equivalents............................................................ (115) (23)
Cash and cash equivalents at beginning of period............................................... 224 217
--------- ---------
Cash and cash equivalents at end of period..................................................... $ 109 $ 194
--------- ---------
--------- ---------
Interest payments.............................................................................. $ 106 $ 77
Income tax payments, net of refunds............................................................ 38 23
</TABLE>
See accompanying notes.
F-27
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- REPORTING ENTITY
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation
which began operations on February 10, 1994 as a result of a merger involving
Columbia Healthcare Corporation ("Columbia") and HCA -- Hospital Corporation of
America ("HCA") (the "HCA Merger"). See Note 4 for a description of the specific
terms of the HCA Merger.
Prior to the HCA Merger, Columbia began operations on September 1, 1993 as a
result of a merger involving Columbia Hospital Corporation ("CHC") and Galen
Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 5 for a description
of the specific terms of the Galen Merger.
Columbia/HCA primarily operates hospitals and ancillary health care facilities
through either (i) wholly owned subsidiaries or (ii) ownership of controlling
interests in various partnerships in which subsidiaries of Columbia/ HCA serve
as the managing general partner.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements do not include all
of the disclosures normally required by generally accepted accounting principles
or those normally required in annual reports filed on Form 10-K. Accordingly,
these financial statements should be read in conjunction with the audited
consolidated financial statements of Columbia/HCA for the year ended December
31, 1993 contained in this Prospectus.
The financial information has been prepared in accordance with Columbia/HCA's
customary accounting practices and has not been audited. Management believes
that the financial information presented reflects all adjustments necessary for
a fair statement of interim results. All such adjustments are of a normal and
recurring nature.
For accounting purposes, the HCA and Galen Mergers have been treated as poolings
of interests. Accordingly, these financial statements give retroactive effect to
the mergers and include the combined operations of the respective former
entities for all periods presented. In addition, the historical financial
information related to Galen (which prior to the Galen Merger was reported on a
fiscal year ending August 31) has been recast to conform to Columbia/HCA's
annual reporting period ending December 31.
NOTE 3 -- EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon weighted average
common shares outstanding adjusted for the dilutive effect of common stock
equivalents consisting primarily of stock options. Fully diluted earnings per
common and common equivalent share is not presented because it approximates
earnings per common and common equivalent share.
NOTE 4 -- HCA MERGER
On October 2, 1993, Columbia entered into a definitive agreement to merge with
HCA. This transaction was completed on February 10, 1994. In connection with the
HCA Merger, Columbia stockholders approved an amendment to Columbia's
Certificate of Incorporation changing the name of the corporation to
"Columbia/HCA Healthcare Corporation". HCA was then merged into a wholly owned
subsidiary of Columbia/HCA. Shares of HCA Class A voting common stock and Class
B nonvoting common stock were converted on a tax-free basis into approximately
166,846,000 shares of Columbia/HCA voting common stock and approximately
18,990,000 shares of Columbia/HCA nonvoting common stock, respectively (an
exchange ratio of 1.05 shares of Columbia/HCA common stock for each share of HCA
voting and nonvoting common stock).
F-28
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
NOTE 4 -- HCA MERGER (CONTINUED)
The HCA Merger has been accounted for as a pooling of interests, and
accordingly, the condensed consolidated financial statements give retroactive
effect to the HCA Merger and include combined operations of Columbia and HCA for
all periods presented. The following is a summary of the results of operations
of the separate entities for periods prior to the HCA Merger (dollars in
millions):
<TABLE>
<CAPTION>
--------------------------------
COLUMBIA HCA CONSOLIDATED
--------------------------------
<S> <C> <C> <C>
One month ended January 31, 1994:
Revenues................................................. $ 480 $ 460 $ 940
Net income............................................... 33 44 77
Three months ended March 31, 1993:
Revenues................................................. $ 1,329 $ 1,325 $ 2,654
Net income:
Continuing operations.................................. $ 90 $ 115 $ 205
Discontinued operations................................ 16 - 16
----------- --------- ------
$ 106 $ 115 $ 221
----------- --------- ------
----------- --------- ------
</TABLE>
NOTE 5 -- GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the Galen
Merger, effective as of September 1, 1993. In connection with the Galen Merger,
CHC, a Nevada corporation, was merged into Columbia. Each CHC share of common
stock was converted on a tax-free basis into one share of Columbia common stock.
Immediately subsequent thereto, a wholly owned subsidiary of Columbia was merged
into Galen, at which time Galen became a wholly owned subsidiary of Columbia. In
connection with this transaction, Columbia issued approximately 123,830,000
shares of common stock in a tax-free exchange for all of the outstanding common
shares of Galen (an exchange ratio of 0.775 of a share of Columbia common stock
for each share of Galen common stock).
The Galen Merger has been accounted for as a pooling of interests and
accordingly, the condensed consolidated financial statements give retroactive
effect to the Galen Merger and include combined operations of CHC and Galen for
all periods presented. The following is a summary of the results of operations
of the separate entities for the first quarter of 1993 (dollars in millions):
<TABLE>
<CAPTION>
-----------------------------
CHC GALEN CONSOLIDATED
-----------------------------
<S> <C> <C> <C>
Revenues...................................................... $ 312 $ 1,017 $ 1,329
Net income:
Continuing operations....................................... $ 10 $ 80 $ 90
Discontinued operations..................................... - 16 16
--------- --------- ------
$ 10 $ 96 $ 106
--------- --------- ------
--------- --------- ------
</TABLE>
NOTE 6 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS
Prior to the Galen Merger, Galen began operating its hospital business as an
independent publicly held corporation on March 1, 1993 as a result of a spinoff
transaction by Humana Inc. ("Humana") (the "Spinoff"), which retained its
managed care health plan business. The Spinoff separated Humana's previously
integrated hospital and managed care health plan businesses and was effected
through the distribution of Galen common stock to then current Humana
stockholders on a one-for-one basis.
F-29
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
NOTE 6 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED)
For accounting purposes, because of the relative significance of the hospital
business, the consolidated financial statements of Galen (and now those of
Columbia/HCA) include the separate results of Humana's hospital business, while
the operations and net assets of Humana's managed care health plans have been
classified as discontinued operations.
Revenues of the discontinued managed care health plan business (included in
discontinued operations in the condensed consolidated statement of income) were
$523 million for the three months ended March 31, 1993.
NOTE 7 -- NON-RECURRING TRANSACTIONS AND EXTINGUISHMENT OF DEBT
In the first quarter of 1994 Columbia/HCA recorded the following charges in
connection with the HCA Merger (dollars in millions):
<TABLE>
<S> <C>
Employee benefit and certain severance actions....................... $ 40
Investment advisory and professional fees............................ 12
Costs of information systems consolidations primarily related to the
writedown of assets................................................. 42
Writedown of assets in connection with consolidation of duplicative
facilities.......................................................... 53
Other................................................................ 12
---------
$ 159
---------
---------
</TABLE>
In addition to employee severance costs above, Columbia/HCA is a party to
employment agreements with certain key employees as a result of the Galen and
HCA Mergers. Future severance payments under these agreements, which may occur
as a result of continued consolidation activities, will be charged to earnings
as incurred.
In the first quarter of 1994, Columbia/HCA refinanced approximately $2 billion
of HCA's high coupon fixed and floating rate long-term debt. These transactions
were effected to reduce future interest expense and eliminate certain
restrictive covenants. After-tax losses from these extinguishments of debt
aggregated $92 million or $.27 per share.
NOTE 8 -- ACQUISITIONS
The following is a summary of acquisitions and joint ventures consummated during
the respective three month periods (dollars in millions):
<TABLE>
<CAPTION>
-----------------
1994 1993
-----------------
<S> <C> <C>
Number of hospitals....................................................... 4 2
Number of licensed beds................................................... 1,264 843
Purchase price information:
Fair value of assets acquired........................................... $ 192 $ 145
Liabilities assumed..................................................... (31) (32)
--------- ---------
Net assets acquired................................................. 161 113
Contributions from minority partners.................................... (47) (27)
Cash acquired........................................................... - (11)
--------- ---------
Net cash paid for acquisitions.................................... $ 114 $ 75
--------- ---------
--------- ---------
</TABLE>
NOTE 9 -- INCOME TAXES
The Internal Revenue Service (the "IRS") has issued statutory notices of
deficiency in connection with its examinations of HCA's federal income tax
returns for 1981 through 1988. Columbia/HCA is currently contesting
F-30
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
NOTE 9 -- INCOME TAXES (CONTINUED)
these claimed deficiencies in the United States Tax Court. In addition, the IRS
has proposed certain adjustments in connection with its examinations of HCA's
1989 and 1990 federal income tax returns. The following is a discussion of the
disputed items with respect to these years.
METHOD OF ACCOUNTING
For years 1981 through 1986, most of HCA's hospital subsidiaries (the
"Subsidiaries") reported taxable income primarily using the cash method of
accounting. This method was prevalent within the hospital industry and the
Subsidiaries applied the method in accordance with prior agreements with the
IRS. The IRS now asserts that the accrual method of accounting should have been
used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act") requires
the use of the accrual method of accounting beginning in 1987. Consequently, the
Subsidiaries changed to the accrual method of accounting beginning January 1,
1987. In accordance with the provisions of the 1986 Act, income that had been
deferred at the end of 1986 is being recognized as taxable income by the
Subsidiaries in equal annual installments over ten years. If the IRS should
ultimately prevail in its claim that the Subsidiaries should have used the
accrual method for 1981 through 1986, the claim would be reduced to the extent
that HCA has recognized as taxable income a portion of such deferred income
taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987
that had been using the cash method resulted in the recognition of a substantial
gain that would not have been recognized had the Subsidiaries been using the
accrual method. If the IRS were successful with respect to this issue,
Columbia/HCA would owe an additional $110 million in income taxes and $444
million in interest as of March 31, 1994.
HOSPITAL ACQUISITIONS
In connection with hospitals acquired by HCA in 1981 and 1985, the IRS has
asserted that a portion of the costs allocated to identifiable assets with
ascertainable useful lives should be reclassified as nondeductible goodwill. If
the IRS ultimately prevails in this regard, Columbia/HCA would owe an additional
$113 million in income taxes and $145 million in interest as of March 31, 1994.
INSURANCE SUBSIDIARY
Based on a Sixth Circuit Court of Appeals decision (the Court having
jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid
to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the
IRS asserts that such premiums are not deductible and that corresponding losses
are only deductible at the time and to the extent that claims are actually paid.
HCA has claimed the additional deductions in its Tax Court petitions. Through
March 31, 1994, Columbia/HCA is seeking a refund totaling $51 million in income
taxes and $95 million in interest in connection with this issue.
As an alternative to its position, HCA has asserted that in connection with the
sale of hospitals to HealthTrust, Inc. - The Hospital Company ("HealthTrust") in
1987, premiums paid to Parthenon by the sold hospitals, if not deductible as
discussed above, became deductible at the time of the sale. Accordingly, HCA
claimed such deduction in its 1987 federal income tax return. The IRS has
disallowed the deduction and is claiming an additional $5 million in income
taxes and $16 million in interest. A final determination that the premiums are
not deductible either when paid to Parthenon or upon the sale of certain
hospitals to HealthTrust would increase the taxable basis in the hospitals sold,
thereby reducing HCA's gain realized on the sale.
HEALTHTRUST SALE
In connection with its sale of certain Subsidiaries to HealthTrust in 1987 in
exchange for cash, HealthTrust preferred stock and stock purchase warrants, HCA
calculated its gain based on the valuation of such stock and warrants by an
independent appraiser. The IRS claims a higher aggregate valuation, based on the
face amount of the preferred stock and a separate appraisal HealthTrust obtained
for the stock purchase warrants. Application of the higher valuation would
increase the gain recognized by HCA on the sale. However, if the IRS succeeds in
its assertion, HCA's tax basis in its HealthTrust preferred stock and warrants
will be increased accordingly, thereby
F-31
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
NOTE 9 -- INCOME TAXES (CONTINUED)
substantially reducing the tax from the sale of such preferred stock and
warrants by a corresponding amount. By December 31, 1992, HCA had sold its
entire interest in the HealthTrust preferred stock and warrants. Including the
effect of the sales of these securities, the IRS is claiming additional interest
of $66 million through March 31, 1994.
Also in connection with the 1987 sale of certain Subsidiaries to HealthTrust,
the IRS claims that HCA's basis in the stock of the Subsidiaries sold to
HealthTrust should be calculated by adjusting such basis to reflect accelerated
rather than straight-line depreciation, which would reduce HCA's basis in the
stock sold and increase the taxable gain on the sale. The IRS position is
contrary to a Tax Court decision in a similar case. The IRS is claiming
additional income taxes of $79 million and interest of $69 million through March
31, 1994.
In connection with the 1987 HealthTrust transactions, the IRS further asserts
that, to the extent the Subsidiaries were properly on the cash method through
1986, and therefore properly recognizing taxable income over the ten-year
transition period, HCA should have additional income in 1987 equal to the
unamortized portion of the deferred income. It is HCA's position that no
additional income need be included in 1987 and that the deferred income
continues to qualify for the ten-year transition period after the sale. Should
the IRS prevail, Columbia/ HCA would owe $11 million of additional income taxes
and $17 million of interest through March 31, 1994. The position of the IRS is
an alternative to its denial of the use of the cash method of accounting
previously discussed.
DOUBTFUL ACCOUNTS
The IRS is asserting that in 1986 HCA was not entitled to include charity care
writeoffs in the formula used to calculate its deduction for doubtful accounts.
For years 1987 and 1988, the IRS is asserting that HCA was not entitled to
exclude from income amounts which are unlikely to be collected. Management
believes that such exclusions are permissible under the accrual method of
accounting, and because HCA is a "service business" and not a "merchandising
business," it is entitled to a special exclusion provided to service businesses
by the 1986 Act. The IRS disagrees, asserting that HCA is engaged, at least in
part, in a merchandising business. Notwithstanding this assertion, the IRS
contends that the exclusion taken by HCA is excessive under applicable Temporary
Treasury Regulations. Columbia/HCA believes that the calculation of the
exclusion is inaccurate since it does not permit the exclusion in accordance
with the controlling statute. If the IRS prevails, Columbia/HCA would owe
additional income taxes of $102 million and interest of $51 million through
March 31, 1994.
LEVERAGED BUY-OUT EXPENSES
The IRS has asserted that no deduction is allowed for various expenses incurred
in connection with HCA's leveraged buy-out transaction in 1989, including the
amortization of loan costs incurred to borrow funds to acquire the stock of the
former shareholders, certain fees incurred by the Special Committee of HCA's
Board of Directors to evaluate the buy-out proposal, compensation payments to
cancel employee stock plans, and various other costs incurred after the buy-out
which have been treated as part of the transaction by the IRS. Columbia/ HCA
believes that all of these costs are deductible. If the IRS prevails on these
issues, Columbia/HCA would owe income taxes of $94 million and interest of $26
million through March 31, 1994.
OTHER ISSUES
Additional federal income tax issues primarily concern disputes over the
depreciable lives utilized by HCA for constructed hospital facilities,
investment tax credits, vacation pay deductions and income from foreign
operations. Many of these items, including depreciation, investment tax credits
and foreign issues, have been resolved favorably in previous settlements. The
IRS is claiming an additional $44 million in income taxes and $29 million in
interest through March 31, 1994.
F-32
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
NOTE 9 -- INCOME TAXES (CONTINUED)
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of
approximately $75 million in connection with certain disputed prior years income
taxes and related interest. This payment will not have a material effect on 1994
earnings.
Management believes that HCA had properly reported its income and paid its taxes
in accordance with applicable laws and agreements established with the IRS
during previous examinations, and that final resolution of these disputes will
not have a material adverse effect on the results of operations or financial
position of Columbia/HCA.
NOTE 10 -- CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party
reimbursements and deductions that continue to be claimed in current cost
reports and tax returns.
Management believes that allowances for loss have been provided to the extent
necessary and that its assessment of contingencies is reasonable. Management
believes that resolution of contingencies will not materially affect
Columbia/HCA's financial position or results of operations.
Principal contingencies are described below:
REVENUES
Certain third-party payments are subject to examination by agencies
administering the programs. Columbia/ HCA is contesting certain issues raised in
audits of prior year cost reports.
PROFESSIONAL LIABILITY RISKS
Columbia/HCA has provided for loss for professional liability risks based
upon actuarially determined estimates. Actual settlements and expenses incident
thereto may differ from the provisions for loss.
INCOME TAXES
Columbia/HCA is contesting adjustments proposed by the IRS.
SPINOFF
Certain subsidiaries of Columbia/HCA are parties to risk-sharing
arrangements with Humana.
REGULATORY REVIEW
Federal regulators are investigating certain financial arrangements with
physicians at two psychiatric hospitals.
LITIGATION
Various suits and claims arising in the ordinary course of business are
pending against Columbia/HCA.
F-33
<PAGE>
COLUMBIA/HCA A New Commitment To Healthcare . . . Together
- --------------------------------------------------------------------------------
HEALTHCARE CORPORATION
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(ALTERNATE COVER PAGE FOR INTERNATIONAL OFFERING)
PROSPECTUS SUBJECT TO COMPLETION
DATED MAY 16, 1994
6,000,000 SHARES
Columbia/HCA Healthcare Corporation
COMMON STOCK
($.01 PAR VALUE)
All of the shares of Common Stock offered hereby are being sold by the Selling
Stockholders of Columbia/HCA Healthcare Corporation (the "Company"). See
"Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares. Of the 6,000,000 shares of Common Stock offered hereby,
1,200,000 shares initially are being offered outside of the United States and
Canada by the International Underwriters (the "International Underwriters") and
4,800,000 shares initially are being offered in the United States and Canada by
the U.S. Underwriters (the "U.S. Underwriters," together with the International
Underwriters, the "Underwriters").
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "COL." On May 13, 1994, the last reported sale price for the Common
Stock, as reported on the New York Stock Exchange Composite Tape, was $38.00 per
share. See "Price Range of Common Stock and Dividend Policy."
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3) $ $ $
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) The Company will pay the expenses of the offering estimated at $ .
(3) Certain Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable within 30 days of the date of this Prospectus, to
purchase up to an additional 900,000 shares of Common Stock, solely to
cover overallotments, if any. If such overallotment option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
The shares offered by this Prospectus are being offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the approval of certain legal matters by Davis Polk
& Wardwell, counsel for the Underwriters. It is expected that delivery of the
shares will be made against payment therefor on or about , 1994 at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York
10260.
J.P. MORGAN SECURITIES LTD.
DEAN WITTER INTERNATIONAL LTD.
MORGAN STANLEY & CO.
INTERNATIONAL
, 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC filing fee............................................................ $ 90,860
Accounting fees and expenses.............................................. 20,000
Printing and engraving.................................................... 75,000
Blue Sky fees and expenses (including legal fees)......................... 15,000
Selling Stockholders' legal fees.......................................... 40,000
Miscellaneous............................................................. 9,140
---------
Total................................................................. $ 250,000
---------
---------
<FN>
- ------------
All amounts shown are estimated except the SEC filing fee
</TABLE>
The Company will bear all of the above expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides that each person who was
or is made a party to, or is involved in, any action, suit or proceeding by
reason of the fact that he or she was a director or officer of the Registrant
(or was serving at the request of the Registrant as director, officer, employee
or agent for another entity) will be indemnified and held harmless by the
Registrant, to the full extent authorized by the Delaware General Corporation
Law.
Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgements, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him or her if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless a court finds that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
The Registrant's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law as the same exists or
may hereafter be amended, a director of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Delaware General Corporation Law permits Delaware
corporations to include in their certificates of incorporation a provision
eliminating or limiting director liability for monetary damages arising from
breaches of their fiduciary duty. The only limitations imposed under the statute
are that the provision may not eliminate or limit a director's liability (i) for
breaches of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or known violations of law, (iii) for the payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for
transactions in which the director received an improper personal benefit.
The Registrant is insured against liabilities which it may incur by reason of
its indemnification of officers and directors in accordance with its Certificate
of Incorporation. In addition, directors and officers are insured, at the
Registrant's expense, against certain liabilities that might arise out of their
employment and are not subject to indemnification under the Certificate of
Incorporation.
II-1
<PAGE>
The Form of Underwriting Agreement, filed as Exhibit 1 to this Registration
Statement, obligates the underwriters and selling stockholders to indemnify the
Registrant, its officers and directors, and persons who control the Registrant,
under certain circumstances.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Certificate of Incorporation and agreements referred to above and are
qualified in their entirety by reference thereto.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1 Form of Underwriting Agreement.
4.1 Specimen Certificate for shares of Common Stock, par value $.01 per share, of the
Company (filed as Exhibit 4.1 to the Company's Form SE to Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible Note Due June 30,
1999 (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated March
18, 1991 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the Company and The 1818 Fund, L.P.
dated as of March 18, 1991 (filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by
reference).
4.5 Warrant to purchase shares of Common Stock, par value $.01 per share, of the Company
(filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16, 1989, by and among HCA-Hospital
Corporation of America and the persons listed on the signature pages thereto (filed
as Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital
Corporation of America, Hospital Corporation of America and The HCA Profit Sharing
Plan on March 22, 1989, and incorporated herein by reference).
4.7 Assignment and Assumption Agreement dated as of February 10, 1994, between
HCA-Hospital Corporation of America and the Company relating to the Registration
Rights Agreement, as amended (filed as Exhibit 4.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by
reference).
4.8 Amended and Restated Rights Agreement dated February 10, 1994 between the Company and
Mid-America Bank of Louisville and Trust Company (filed as Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among the Company, the
Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF
Loan Agent (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by reference).
4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among the Company, the
Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF
Loan Agent (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein by reference).
4.11 Indenture dated as of December 15, 1993 between the Company and The First National
Bank of Chicago, as Trustee (filed as Exhibit 4.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by
reference).
5 Opinion of Stephen T. Braun, Esq.
23(a) Consent of Coopers & Lybrand.
23(b) Consent of Stephen T. Braun, Esq. appears in his opinion filed as Exhibit 5.
24 Power of Attorney of certain signatories appears on page II-4.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
II-2
<PAGE>
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, unless the information required to be
included in such post-effective amendment is contained in a
periodic report filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 and
incorporated herein by reference;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement, unless the
information required to be included in such post-effective
amendment is contained in a periodic report filed by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 and incorporated herein by
reference; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Louisville, Commonwealth of Kentucky, on the 16th day
of May, 1994.
COLUMBIA/HCA HEALTHCARE CORPORATION
By: /s/ STEPHEN T. BRAUN
-----------------------------------
Stephen T. Braun
SENIOR VICE PRESIDENT AND GENERAL
COUNSEL
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears below
constitutes and appoints Stephen T. Braun and David C. Colby, and each of them,
his or her true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all Amendments (including
Post-Effective Amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform such and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
/s/ THOMAS F. FRIST, JR., M.D.
------------------------------------------- Chairman of the Board May 16, 1994
Thomas F. Frist, Jr., M.D.
/s/ RICHARD L. SCOTT President, Chief Executive Officer
------------------------------------------- (Principal Executive Officer) and May 16, 1994
Richard L. Scott Director
/s/ DAVID C. COLBY Senior Vice President, Chief Financial
------------------------------------------- Officer and Treasurer (Principal May 16, 1994
David C. Colby Financial Officer)
/s/ RICHARD A. LECHLEITER
------------------------------------------- Vice President & Controller (Principal May 16, 1994
Richard A. Lechleiter Accounting Officer)
/s/ MAGDALENA AVERHOFF, M.D.
------------------------------------------- Director May 16, 1994
Magdalena Averhoff, M.D.
/s/ J. DAVID GRISSOM
------------------------------------------- Director May 16, 1994
J. David Grissom
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
/s/ ETHAN JACKSON
------------------------------------------- Director May 16, 1994
Ethan Jackson
/s/ CHARLES J. KANE
------------------------------------------- Director May 16, 1994
Charles J. Kane
/s/ JOHN W. LANDRUM
------------------------------------------- Director May 16, 1994
John W. Landrum
/s/ T. MICHAEL LONG
------------------------------------------- Director May 16, 1994
T. Michael Long
/s/ DARLA D. MOORE
------------------------------------------- Director May 16, 1994
Darla D. Moore
/s/ RODMAN W. MOORHEAD III
------------------------------------------- Director May 16, 1994
Rodman W. Moorhead III
/s/ CARL F. POLLARD
------------------------------------------- Director May 16, 1994
Carl F. Pollard
------------------------------------------- Director
Carl E. Reichardt
/s/ FRANK S. ROYAL, M.D.
------------------------------------------- Director May 16, 1994
Frank S. Royal, M.D.
/s/ ROBERT D. WALTER
------------------------------------------- Director May 16, 1994
Robert D. Walter
/s/ WILLIAM T. YOUNG
------------------------------------------- Director May 16, 1994
William T. Young
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE NO.
- ------- -------------
<C> <S> <C>
1 Form of Underwriting Agreement.
4.1 Specimen Certificate for shares of Common Stock, par value $.01 per share, of the Company
(filed as Exhibit 4.1 to the Company's Form SE to Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference).
4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible Note Due June 30, 1999
(filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated March 18,
1991 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.4 Securities Purchase Agreement by and between the Company and The 1818 Fund, L.P. dated as
of March 18, 1991 (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, and incorporated herein by reference).
4.5 Warrant to purchase shares of Common Stock, par value $.01 per share, of the Company
(filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by reference).
4.6 Registration Rights Agreement dated as of March 16, 1989, by and among HCA-Hospital
Corporation of America and the persons listed on the signature pages thereto (filed as
Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation
of America, Hospital Corporation of America and The HCA Profit Sharing Plan on March 22,
1989, and incorporated herein by reference).
4.7 Assignment and Assumption Agreement dated as of February 10, 1994, between HCA-Hospital
Corporation of America and the Company relating to the Registration Rights Agreement, as
amended (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference).
4.8 Amended and Restated Rights Agreement dated February 10, 1994 between the Company and
Mid-America Bank of Louisville and Trust Company (filed as Exhibit 4.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated
herein by reference).
4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several
Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent
(filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).
4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several
Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent
(filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).
4.11 Indenture dated as of December 15, 1993 between the Company and The First National Bank of
Chicago, as Trustee (filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated herein by reference).
5 Opinion of Stephen T. Braun, Esq.
23(a) Consent of Coopers & Lybrand.
23(b) Consent of Stephen T. Braun, Esq. appears in his opinion filed as Exhibit 5.
24 Power of Attorney of certain signatories appears on page II-4.
</TABLE>
<PAGE>
GRAPHIC AND IMAGE MATERIAL
On the inside front cover of the Prospectus is a map of the United States,
and an insert depicting England and Switzerland. The number of the Company's
facilities are listed in each state or country. The number of acute care
hospitals are contained within a square in each state or country, the number of
psychiatric hospitals are contained within a circle in each state and the number
of ancillary facilities are contained within a triangle. The Company logo is
at the top of the page.
<PAGE>
UNDERWRITING AGREEMENT
[ ] Shares
Columbia/HCA Healthcare Corporation
Common Stock (par value $0.01 per share)
[ ], 1994
J.P. Morgan Securities Inc.
Dean Witter Reynolds Inc.
Morgan Stanley & Co. Incorporated
As representatives of the several
U.S. underwriters listed in
Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
J.P. Morgan Securities Ltd.
Dean Witter International Ltd.
Morgan Stanley & Co. International Limited
As representatives of the several
international managers listed in
Schedule II hereto
c/o J.P. Morgan Securities Ltd.
60 Victoria Embankment
London EC4Y OJP
Dear Sirs:
The persons named in Schedule III hereto (the
"Selling Stockholders") propose to sell to the several
Underwriters (as defined below), and the Underwriters
propose to purchase from such Selling Stockholders, an
aggregate of [ ] shares of voting common stock, par
value $0.01 per share, of Columbia/HCA Healthcare
Corporation, a Delaware corporation (the "Company"), which
[ ] shares are referred to herein as the
"Underwritten Shares".
In addition, the Selling Stockholders propose to
sell to the several U.S. Underwriters (as defined below),
for the sole purpose of covering over-allotments in
connection with the sale of the Underwritten Shares, at the
option of the U.S. Underwriters, up to an additional
<PAGE>
[ ] shares of voting common stock, par value $0.01
per share, of the Company (the "Option Shares"). The
Underwritten Shares and the Option Shares are herein
referred to as the "Shares". The Shares will have attached
thereto rights (the "Rights") to purchase the Company's
Series A Participating Preferred Stock.
It is understood that, subject to the conditions
hereinafter stated, [ ] Underwritten Shares (the
"U.S. Underwritten Shares") will be sold to the several U.S.
underwriters named in Schedule I hereto (the "U.S.
Underwriters") in connection with the offering and sale of
such U.S. Underwritten Shares in the United States and
Canada to United States and Canadian Persons (as such terms
are defined in the Agreement Between U.S. and International
Underwriting Syndicates of even date herewith between the
U.S. Underwriters and the International Managers), and
[ ] Underwritten Shares (the "International Shares")
will be sold to the several international managers named in
Schedule II hereto (the "International Managers") in
connection with the offering and sale of such International
Shares outside the United States and Canada to persons other
than United States and Canadian Persons. J.P. Morgan
Securities Inc., Morgan Stanley & Co. Incorporated and Dean
Witter Reynolds Inc. shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and J.P.
Morgan Securities Ltd., Morgan Stanley & Co. International
Limited and Dean Witter International shall act as
representatives (the "International Representatives") of the
several International Managers. The U.S. Underwriters and
the International Managers are hereinafter collectively
referred to as the "Underwriters", and the U.S.
Representatives and the International Representatives are
hereinafter collectively referred to as the
"Representatives".
The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"),
a registration statement on Form S-3 (File No. 33- )
relating to the Shares. The registration statement contains
two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sale of Shares in the
United States and Canada to United States and Canadian
Persons, and the international prospectus, to be used in
connection with the offering and sale of Shares outside the
United States and Canada to persons other than United States
and Canadian Persons. The international prospectus is
2
<PAGE>
identical to the U.S. prospectus except for the outside
front cover page. The registration statement as amended at
the time when it shall become effective, or, if a
post-effective amendment is filed with respect thereto, as
amended by such post-effective amendment at the time of its
effectiveness, including in each case information (if any)
deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities
Act, is referred to in this Agreement as the "Registration
Statement", and the U.S. prospectus and the international
prospectus in the respective forms first used to confirm
sales of Shares are hereinafter collectively referred to as
the "Prospectus". Any reference in this Agreement to the
Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Securities Act, as of the effective
date of the Registration Statement or the date of such
preliminary prospectus or the Prospectus, as the case may
be, and any reference to "amend", "amendment" or
"supplement" with respect to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to
refer to and include any documents filed after such date
under the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") that are deemed to be
incorporated by reference therein.
1. AGREEMENTS TO SELL AND PURCHASE. Each
Selling Stockholder, severally and not jointly, hereby
agrees to sell to each Underwriter as hereinafter provided,
and each Underwriter, upon the basis of the representations
and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase at a price
of $[ ] per share (the "Purchase Price"), severally and
not jointly, from each Selling Stockholder the respective
number of shares (subject to such adjustments to eliminate
any fractional shares as the Representatives in their sole
discretion may make) that bears the same proportion to the
number of Underwritten Shares to be sold by such Selling
Stockholder to the U.S. Underwriters or the International
Managers, as the case may be, each as set forth on Schedule
III hereto, as the number of U.S. Underwritten Shares set
forth opposite the name of such U.S. Underwriter on Schedule
I hereto or the number of International Shares set forth
opposite the name of such International Manager on Schedule
II hereto, as the case may be (or such number of U.S.
Underwritten Shares or International Shares, as the case may
be, increased as set forth in Section 10 hereof), bears to
the total number of U.S. Underwritten Shares and
International Shares, respectively.
3
<PAGE>
Each of the Selling Stockholders, severally and
not jointly, agrees to sell to the U.S. Underwriters the
Option Shares, each such Selling Stockholder selling the
number of Option Shares set forth opposite such Selling
Stockholder's name in Schedule III hereto (or, if less than
the total number of Option Shares is purchased by the U.S.
Underwriters, a number of shares bearing the same proportion
to such lesser aggregate number of Option Shares purchased
as the number of Option Shares set forth opposite such
Selling Stockholder's name in Schedule III hereto bears to
the total number of Option Shares), and the U.S.
Underwriters shall have a one-time right to purchase,
severally and not jointly, up to [ ] Option Shares at the
Purchase Price. Option Shares may be purchased as provided
below solely for the purpose of covering over-allotments
made in connection with the offering of the Underwritten
Shares. If any Option Shares are to be purchased, each U.S.
Underwriter agrees, severally and not jointly, to purchase
the number of Option Shares (subject to such adjustments to
eliminate any fractional shares as the U.S. Representatives
in their sole discretion may make) that bears the same
proportion to the total number of Option Shares to be
purchased as the number of U.S. Underwritten Shares set
forth in Schedule I hereto opposite the name of such U.S.
Underwriter bears to the total number of U.S. Underwritten
Shares.
The U.S. Underwriters may exercise the option to
purchase the Option Shares at any time on or before the
thirtieth day following the date of this Agreement, by
written notice from the U.S. Representatives to the Company
and the Selling Stockholders. Such notice shall set forth
the aggregate number of Option Shares as to which the option
is being exercised and the date and time when the Option
Shares are to be delivered and paid for which may be the
same date and time as the Closing Date (as hereinafter
defined) but shall not be earlier than the Closing Date nor
later than the tenth full Business Day (as hereinafter
defined) after the date of such notice (unless such time and
date are postponed in accordance with the provisions of
Section 10 hereof). Such notice shall be given at least two
Business Days prior to the date and time of delivery
specified therein.
Each Selling Stockholder hereby agrees for a
period of 90 days after the date of this Agreement not to
offer, sell, contract to sell or otherwise dispose of any
shares of common stock of the Company or any securities
convertible into or exercisable or exchangeable for shares
of common stock of the Company without the prior written
consent of J.P. Morgan Securities Inc., other than the
4
<PAGE>
Shares to be sold hereunder and except for the conversion of
non-voting common stock into common stock by J.P. Morgan
Capital Corporation ("J.P. Morgan Capital") for sale pursuant to
this Agreement.
2. TERMS OF PUBLIC OFFERING. The Company and the
Selling Stockholders understand that the Underwriters intend
(i) to make a public offering of the Shares as soon after
the Registration Statement and this Agreement have become
effective as in the judgment of the Representatives is
advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
3. DELIVERY OF THE SHARES AND PAYMENT THEREFOR.
Payment for the Shares shall be made to the Selling
Stockholders or to their order by certified or official bank
check or checks payable in New York Clearing House or other
next day funds in such location outside the State of New
York as you shall designate at [ ], New York City
time, in the case of the Underwritten Shares, on [ ],
1994, or at such other time on the same or such other date,
not later than the fifth Business Day thereafter, as the
Representatives and the Company may agree upon in writing
or, in the case of the Option Shares, on the date and at the
time specified by the U.S. Representatives in the written
notice of the U.S. Underwriters' election to purchase such
Option Shares. The time and date of such payment for the
Underwritten Shares are referred to herein as the Closing
Date and the time and date for such payment for the Option
Shares, if other than the Closing Date, are herein referred
to as the Additional Closing Date. As used herein, the term
"Business Day" means any day other than a day on which banks
are permitted or required to be closed in New York City.
Payment for the Shares to be purchased on the
Closing Date or the Additional Closing Date, as the case may
be, shall be made against delivery to the Representatives
for the respective accounts of the several Underwriters of
the Shares to be purchased on such date registered in such
names and in such denominations as the Representatives shall
request in writing not later than two full Business Days
prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in
connection with the transfer to the Underwriters of the
Shares duly paid by the Selling Stockholders. The Selling
Stockholders hereby agree to pay any such transfer taxes.
The certificates for the Shares will be made available for
inspection and packaging by the Representatives not later
than [ ], New York City time, on the Business Day
prior to the Closing Date or the Additional Closing Date, as
the case may be.
5
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Underwriter and
to each Selling Stockholder that:
(a) no order preventing or suspending the use of
any preliminary prospectus has been issued by the
Commission, and each preliminary prospectus filed as
part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act;
(b) (i) no stop order suspending the
effectiveness of the Registration Statement is in
effect and no proceedings for that purpose are pending
before or threatened by the Commission, (ii) each
document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the
Prospectus complied or will comply when so filed in all
material respects with the Exchange Act and the
applicable rules and regulations of the Commission
thereunder, (iii) each part of the Registration
Statement, when such part became effective, did not
contain, and each such part, as amended or
supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, (iv) the Registration Statement and the
Prospectus comply, and, as amended or supplemented, if
applicable, will comply in all material respects with
the Securities Act and the applicable rules and
regulations of the Commission thereunder, and (v) the
Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein,
in the light of the circumstances under which they were
made, not misleading; except that the foregoing
representations and warranties shall not apply to
statements or omissions in the Registration Statement
or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter
or Selling Stockholder furnished to the Company in
writing by such Underwriter through the Representatives
or by such Selling Stockholder expressly for use
therein;
(c) the financial statements, and the related
notes thereto, included or incorporated by reference in
the Registration Statement and the Prospectus, present
6
<PAGE>
fairly the consolidated financial position of the
Company and its consolidated subsidiaries as of the
dates indicated and the results of their operations and
the changes in their consolidated cash flows for the
periods specified; and said financial statements have
been prepared in conformity with generally accepted
accounting principles applied on a consistent basis,
except as disclosed therein, and the supporting
schedules included or incorporated by reference in the
Registration Statement present fairly the information
required to be stated therein;
(d) the Company has been duly incorporated, is
validly existing as a corporation in good standing
under the laws of Delaware, has the corporate power and
authority to own its property and to conduct its
business as described in the Prospectus, and is duly
qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its
business or its ownership or leasing of property
requires such qualification, except to the extent that
the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company
and its Subsidiaries (as hereinafter defined), taken as
a whole;
(e) each direct and indirect subsidiary of the
Company (the "Corporate Subsidiaries") has been duly
incorporated, is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to
own its property and to conduct its business as
described in the Prospectus and is duly qualified to
transact business and is in good standing in each
jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a
material adverse effect on the Company and its
Subsidiaries, taken as a whole; and all the outstanding
shares of capital stock of each Corporate Subsidiary
which is a Significant Subsidiary within the meaning of
the rules and regulations under the Securities Act (the
"Material Corporate Subsidiaries") have been duly
authorized and validly issued, are fully-paid and
non-assessable, and are owned by the Company, directly
or indirectly, free and clear of all liens,
encumbrances, security interests and claims;
(f) each of the partnerships owned or controlled,
directly or indirectly, by the Company (the
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<PAGE>
"Partnerships," and together with the Corporate
Subsidiaries, the "Subsidiaries") has been duly formed
and is validly existing under the laws of its
jurisdiction of formation and has the partnership power
and authority to carry on its business as it is
currently being conducted and to own, lease and operate
it properties, and each is duly qualified as a foreign
partnership authorized to do business in each
jurisdiction in which the nature of its business or its
ownership or leasing of property requires such
qualification, except where the failure to be so
qualified would not have a material adverse effect on
the Company and its Subsidiaries, taken as a whole;
(g) this Agreement has been duly authorized,
executed and delivered by the Company;
(h) there has not occurred any material adverse
change, or any development involving a prospective
material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations
of the Company and its Subsidiaries, taken as a whole,
from that set forth in the Prospectus;
(i) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Registration Statement and the
Prospectus, and all of the outstanding shares of
capital stock of the Company have been duly authorized
and validly issued, are fully-paid and non-assessable
and are not subject to any preemptive or similar
rights, except as described in the Registration
Statement and the Prospectus;
(j) the execution and delivery by the Company of,
and the performance by the Company of its obligations
under, this Agreement will not contravene any provision
of applicable law or the certificate of incorporation
or bylaws of the Company or any agreement or other
instrument binding upon the Company or any of its
Subsidiaries that is material to the Company and its
Subsidiaries, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court
having jurisdiction over the Company or any Subsidiary,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is
required for the performance by the Company of its
obligations under this Agreement, except such as have
been obtained under the Securities Act or such as may
be required by the securities or Blue Sky laws of the
various states or any applicable foreign securities
8
<PAGE>
laws or other foreign laws in connection with the offer
and sale of the Shares;
(k) the Rights attached to the Shares have been
duly authorized and validly issued;
(l) there are no legal or governmental
proceedings pending or, to the knowledge of the
Company, threatened to which the Company or any of its
Subsidiaries is a party or to which any of the
properties of the Company or any of its Subsidiaries is
subject that are required to be described in the
Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or
other documents that are required to be described in
the Registration Statement or the Prospectus or to be
filed or incorporated by reference as exhibits to the
Registration Statement that are not described, filed or
incorporated as required;
(m) other than the Selling Stockholders, no
holder of any securities of the Company has any rights,
not effectively satisfied or waived, to require the
Company to register the sale of any securities under
the Securities Act in connection with the filing of the
Registration Statement or the consummation of the
transactions contemplated therein;
(n) the Company and its Subsidiaries are (i) in
compliance with any and all applicable foreign,
federal, state and local laws and regulations relating
to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to
conduct their respective businesses, and (iii) are in
compliance with all terms and conditions of any such
permit, license or approval, except where such
noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals
or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly
or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries, taken as a whole;
(o) in the ordinary course of its business, the
Company conducts a periodic review of the effect of
Environmental Laws on the business, operations and
properties of the Company and its Subsidiaries, in the
course of which it identifies and evaluates associated
9
<PAGE>
costs and liabilities (including, without limitation,
any capital or operating expenditures required for
clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any
potential liabilities to third parties). On the basis
of such review, the Company has reasonably concluded
that such associated costs and liabilities would not,
singly or in the aggregate, have a material adverse
effect on the Company and its Subsidiaries, taken as a
whole;
(p) the Company and each of its Subsidiaries hold
all licenses, consents, certificates of need and
approvals issued, and have satisfied all eligibility
and other similar requirements imposed, by hospital,
health or similar regulatory bodies, administrative
agencies or other governmental bodies, agencies or
officials, or that are related to private or
governmental programs for the reimbursement or payment
of health care costs, in each case as required for the
conduct of the respective businesses in which they are
engaged (i) as contemplated by the Prospectus and (ii)
in each jurisdiction or place where the conduct of
their respective businesses requires such licenses,
consents, certificates of need or approvals, or
satisfaction of such requirements (including each such
jurisdiction and place referred to in the Prospectus),
except in each case where the failure to hold any such
license, consent, certificate of need or approval, or
to satisfy any such requirement, would not have a
material adverse effect on the Company and its
Subsidiaries, taken as a whole;
(q) the Company is not an "investment company" or
an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of
1940, as amended; and
(r) the Company has complied with all provisions
of Section 517.075, Florida Statutes (Chapter 92-198,
Laws of Florida).
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING
STOCKHOLDERS. Each of the Selling Stockholders, severally
and not jointly, represents and warrants to each of the
Underwriters and the Company that:
(a) this Agreement has been duly authorized,
executed and delivered by such Selling Stockholder;
10
<PAGE>
(b) the execution and delivery by such Selling
Stockholder of, and the performance by such Selling
Stockholder of its obligations under, this Agreement
will not contravene any provision of applicable law
(subject to obtaining the governmental approvals set
forth below), or the certificate of incorporation or
by-laws of such Selling Stockholder (if such Selling
Stockholder is a corporation), or any agreement or
other instrument binding upon such Selling Stockholder
or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the
performance by such Selling Stockholder of its
obligations under this Agreement, except such as have
been obtained under the Securities Act and such as may
be required by the securities or Blue Sky laws of the
various states or any applicable foreign securities
laws or other foreign laws in connection with the offer
and sale of the Shares;
(c) such Selling Stockholder has, and on the
Closing Date and any Additional Closing Date will have,
valid marketable title to the Shares to be sold by such
Selling Stockholder, and subject to obtaining the
governmental approvals set forth in paragraph (b)
above, the legal right and power, and all authorization
and approval required by law, to enter into this
Agreement and to sell, transfer and deliver the Shares
to be sold by such Selling Stockholder; PROVIDED that
with respect to J.P. Morgan Capital, J.P. Morgan Capital
has on the date of this Agreement valid marketable title
to the shares of non-voting common stock of the Company
to be converted into the Shares to be sold by it pursuant
to this Agreement and on the Closing Date and any
Additional Closing Date, will have valid marketable
title to the Shares to be sold by it pursuant to this
Agreement;
(d) delivery of the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, against
payment therefor, will pass marketable title to such
Shares free and clear of any security interests,
claims, liens, equities and other encumbrances;
(e) all written information relating to such
Selling Stockholder furnished by or on behalf of such
Selling Stockholder for use in the Registration
Statement and Prospectus is, and on the Closing Date
11
<PAGE>
and any Additional Closing Date will be, true, correct,
and complete in all material respects, and does not,
and on the Closing Date and any Additional Closing Date
will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to
make such information not misleading; and
(f) certificates in negotiable form for all
Shares to be sold by such Selling Stockholder under
this Agreement have been irrevocably delivered to
Proskauer Rose Goetz & Mendelsohn, counsel for the
Selling Stockholders, for the purpose of effecting
delivery under this Agreement; PROVIDED that with
respect to J.P. Morgan Capital, J.P. Morgan Capital has
irrevocably delivered to such counsel certificates for
the shares of non-voting common stock of the Company to
be converted into the Shares to be sold by J.P. Morgan
Capital pursuant to this Agreement.
6. AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with the several Underwriters and the
Selling Stockholders as follows:
(a) to use its best efforts to cause the
Registration Statement to become effective at the
earliest possible time and, if required, to file the
final Prospectus with the Commission within the time
periods specified by Rule 424(b) and Rule 430A under
the Securities Act;
(b) to furnish you, without charge, three signed
copies of the Registration Statement (as originally
filed) and each amendment thereto, in each case
including exhibits, and to each other Underwriter and
each Selling Stockholder a conformed copy of the
Registration Statement (as originally filed) and each
amendment thereto, in each case without exhibits and,
during the period mentioned in paragraph (e) below, to
each of the Underwriters as many copies of the
Prospectus (including all amendments and supplements
thereto and documents incorporated by reference
therein) as the Representatives may reasonably request;
(c) before filing any amendment or supplement to
the Registration Statement or the Prospectus, whether
before or after the time the Registration Statement
becomes effective, to furnish to the Representatives
and the Selling Stockholders a copy of the proposed
amendment or supplement for review and not to file any
such proposed amendment or supplement to which the
12
<PAGE>
Representatives or the Selling Stockholders reasonably
object;
(d) to advise the Representatives and the Selling
Stockholders promptly, and to confirm such advice in
writing, (i) when the Registration Statement shall
become effective, (ii) when any amendment to the
Registration Statement shall have become effective,
(iii) of any request by the Commission for any
amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any
additional information, (iv) of the issuance by the
Commission of any stop order suspending the
effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that
purpose and (v) of the receipt by the Company of any
notification with respect to any suspension of the
qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and to use its best
efforts to prevent the issuance of any such stop order
or notification and, if issued, to obtain as soon as
possible the withdrawal thereof;
(e) if, during such period after the first date
of the public offering of the Shares as in the opinion
of your counsel a prospectus relating to the Shares is
required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of
the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with law,
forthwith to prepare, file with the Commission and
furnish, without charge, to the Underwriters and to the
dealers (whose names and addresses the Representatives
will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the
Underwriters and to any other dealers upon request,
such amendments or supplements to the Prospectus as may
be necessary so that the statements in the Prospectus
as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus will
comply with law;
(f) to endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives shall reasonably
13
<PAGE>
request and to continue such qualification in effect so
long as reasonably required for distribution of the
Shares and to pay all fees and expenses (including fees
and disbursements of counsel to the Underwriters)
reasonably incurred in connection with such
qualification; PROVIDED that the Company shall not be
required to file a general consent to service of
process in any jurisdiction or subject itself to
general taxation in any jurisdiction;
(g) to make generally available to its security
holders and to the Representatives as soon as
practicable an earning statement covering a period of
at least twelve months beginning with the first fiscal
quarter of the Company occurring after the effective
date of the Registration Statement, which shall satisfy
the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Commission promulgated thereunder;
(h) for a period of 90 days after the date of
this Agreement, without the prior written consent of
J.P. Morgan Securities Inc., not to effect any registration
of any shares of common stock of the Company or any
securities convertible into or exercisable or exchangeable
for shares of common stock of the Company, other than the
Shares to be sold hereunder and shares of common stock
of the Company registered in connection with acquisitions
and existing employee benefit plans; and
(i) to pay all costs and expenses incident to the
performance of its obligations hereunder, including
without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation,
issuance, execution and delivery of the Shares,
(ii) incident to the preparation, printing and filing
under the Securities Act of the Registration Statement,
the Prospectus and any preliminary prospectus
(including in each case all exhibits, amendments and
supplements thereto), (iii) incurred in connection with
the registration or qualification of the Shares under
the laws of such jurisdictions as the Representatives
may reasonably request (including filing fees and the
reasonable fees of counsel for the Underwriters and
their disbursements), (iv) in connection with the
listing of the Shares on the New York Stock Exchange,
(v) of Proskauer Rose Goetz & Mendelsohn, counsel for
14
<PAGE>
the Selling Stockholders and (vi) in connection with
the printing (including word processing and duplication
costs) and delivery of this Agreement, the Agreement
Between U.S. and International Underwriting Syndicates,
the Agreement Among U.S. Underwriters, the Agreement
Among International Underwriters, any dealer
agreements, the Preliminary and Supplemental Blue Sky
Memoranda and the furnishing to the Underwriters and
dealers of copies of the Registration Statement and the
Prospectus, including mailing and shipping, as herein
provided.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
several obligations of the Underwriters hereunder to
purchase the Underwritten Shares are subject to the
following conditions:
(a) the Registration Statement shall have become
effective (or if a post-effective amendment is required
to be filed under the Securities Act, such
post-effective amendment shall have become effective)
not later than 5:00 P.M., New York City time, on the
date hereof; and no stop order suspending the
effectiveness of the Registration Statement shall be in
effect, and no proceedings for such purpose shall be
pending before or threatened by the Commission; and all
requests by the Commission for additional information
shall have been complied with to the reasonable
satisfaction of the Representatives;
(b) the representations and warranties of the
Company contained herein are true and correct on and as
of the Closing Date as if made on and as of the Closing
Date and the Company shall have complied with all
agreements and satisfied all conditions on its part to
be performed or satisfied hereunder at or prior to the
Closing Date;
(c) subsequent to the execution and delivery of
this Agreement and prior to the Closing Date, there
shall not have occurred any change, or any development
involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations, of the Company and its Subsidiaries, taken
as a whole, from that set forth in the Prospectus, that
in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the
Shares on the terms and in the manner contemplated in
the Prospectus;
15
<PAGE>
(d) the Representatives shall have received on
and as of the Closing Date a certificate of the Company
signed by the Chief Executive Officer, the Chief
Operating Officer or the Chief Financial Officer of the
Company to the effect set forth in subsections (a) and
(b) of this Section and to the further effect that
there shall not have occurred any change, or any
development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations, of the Company and its
Subsidiaries, taken as a whole, from that set forth in
the Prospectus, that is material and adverse;
(e) the Representatives shall have received on
the Closing Date an opinion of Stephen T. Braun, Senior
Vice President and General Counsel of the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated,
is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and
authority to own its property and to conduct its
business as described in the Prospectus and is
duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of
property requires such qualification, except to
the extent that the failure to be so qualified or
be in good standing would not have a material
adverse effect on the Company and its
Subsidiaries, taken as a whole;
(ii) each Material Corporate Subsidiary has
been duly incorporated, is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation, has the
corporate power and authority to own its property
and to conduct its business as described in the
Prospectus and is duly qualified to transact
business and is in good standing in each
jurisdiction in which the conduct of its business
or its ownership or leasing of property requires
such qualification, except to the extent that the
failure to be so qualified or be in good standing
would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(iii) each of the Partnerships, which is a
Significant Subsidiary within the meaning of the
rules and regulations under the Securities Act
16
<PAGE>
(the "Material Partnerships" and, together with
the Material Corporate Subsidiaries, the "Material
Subsidiaries"), has been duly formed and is
validly existing under the laws of its
jurisdiction of formation and has the partnership
power and authority to carry on its business as it
is currently being conducted and to own, lease and
operate its properties, and each is duly qualified
as a foreign partnership authorized to do business
in each jurisdiction in which the nature of its
business or its ownership or leasing of property
requires such qualification, except where the
failure to be so qualified would not have a
material adverse effect on the Company and its
Subsidiaries, taken as whole;
(iv) this Agreement has been duly authorized,
executed and delivered by the Company;
(v) the authorized capital stock of the
Company conforms as to legal matters to the
description thereof contained in the Prospectus;
(vi) the shares of capital stock of the
Company (including the Shares to be sold by the
Selling Stockholders) have been duly authorized
and are validly issued, fully paid and non-
assessable;
(vii) the Rights attached to the Shares have
been duly authorized and validly issued;
(viii) the execution and delivery by the
Company of, and the performance by the Company of
its obligations under, this Agreement will not
contravene any provision of applicable law or the
certificate of incorporation or bylaws of the
Company or, to the best of such counsel's
knowledge, any agreement or other instrument
binding upon the Company or any of its Material
Subsidiaries that is material to the Company and
its Subsidiaries, taken as a whole, or, to the
best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency
or court having jurisdiction over the Company or
any subsidiary, and no consent, approval,
authorization or order of, or qualification with,
any governmental body or agency is required for
the performance by the Company of its obligations
under this Agreement, except such as have been
obtained under the Securities Act or such as may
17
<PAGE>
be required by the securities or Blue Sky laws of
the various states or any applicable foreign
securities laws or other foreign laws in
connection with the offer and sale of the Shares;
(ix) the statements in the Company's Annual
Report on Form 10-K for the year ended December
31, 1993 incorporated by reference in the
Prospectus under Item 1 "Regulation and Other
Factors" and "Internal Revenue Service
Examinations and Tax Litigation" and under Item 3,
insofar as such statements constitute a summary of
the legal matters, documents or proceedings
referred to therein, fairly present the
information called for with respect to such legal
matters, documents or proceedings;
(x) after due inquiry, such counsel does not
know of any legal or governmental proceedings
pending or threatened to which the Company or any
of its Material Subsidiaries is a party or to
which any of the properties of the Company or any
of its Material Subsidiaries is subject that are
required to be described in the Registration
Statement or the Prospectus and are not so
described or incorporated by reference or of any
statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be
filed or incorporated by reference as exhibits to
the Registration Statement that are not described,
filed or incorporated as required;
(xi) other than the Selling Stockholders, no
holder of any securities of the Company has any
rights not effectively satisfied or waived, to
require the Company to register the sale of any
securities under the Securities Act in connection
with the filing of the Registration Statement or
the consummation of the transactions contemplated
therein; and
(xii) such counsel (1) is of the opinion that
each document, if any, filed pursuant to the
Exchange Act and incorporated by reference in the
Prospectus (except for financial statements and
schedules and other financial data included
therein as to which such counsel need not express
any opinion), complied when so filed as to form in
all material respects with the Exchange Act and
the applicable rules and regulations of the
18
<PAGE>
Commission thereunder and (2) is of the opinion
that the Registration Statement and Prospectus
(except for financial statements and schedules and
other financial data included therein as to which
such counsel need not express any opinion), comply
as to form in all material respects with the
Securities Act and the applicable rules and
regulations of the Commission thereunder.
In addition, such counsel shall also include a
statement to the effect that nothing has come to the
attention of such counsel which leads him to believe
that (1) any part of the Registration Statement (except
for financial statements and schedules and other
financial data included therein as to which such
counsel need not make any statement), when such part
became effective contained or, as of the date such
opinion is delivered, contains any untrue statement of
a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make
the statements therein not misleading and (2) the
Prospectus (except for financial statements and
schedules and other financial data included therein as
to which such counsel need not make any statement) as
of its date or the date such opinion is delivered
contained or contains any untrue statement of a
material fact or omitted or omits to state a material
fact necessary in order to make the statements therein,
in the light of the circumstances under which they were
made, not misleading. In rendering such statement,
such counsel may state that such statement is based
upon such counsel's employment as Senior Vice President
and General Counsel of the Company, his participation
in the preparation of the Registration Statement and
the Prospectus (including any documents incorporated by
reference therein) and his participation in conferences
with certain officers or employees and representatives
of the Company and its subsidiaries, with
representatives of Coopers & Lybrand, and with any
others referred to in the opinion. Such counsel in
rendering his opinion may rely as to certain matters of
fact on certificates of officers of the Company and of
public officials, and may state that he expresses no
opinion as to the laws of any jurisdiction other than
the State of Texas, the Federal law of the United
States and the Delaware General Corporation Law.
Such opinion shall be rendered to the
Representatives and the Selling Stockholders at the
request of the Company and shall so state therein.
19
<PAGE>
(f) You shall have received on the Closing Date
an opinion of Proskauer Rose Goetz & Mendelsohn,
counsel for the Selling Stockholders, dated the Closing
Date, to the effect that:
(i) this Agreement has been duly authorized,
executed and delivered by or on behalf of each of
the Selling Stockholders;
(ii) the execution and delivery by each
Selling Stockholder of, and the performance by
such Selling Stockholder of its obligations under,
this Agreement will not contravene any provision
of applicable law (except that no opinion need be
expressed as to the securities or Blue Sky laws of
the various states or any applicable foreign
securities laws or other foreign laws, or as to
provisions relating to indemnification or
contribution), or the certificate of incorporation
or bylaws of such Selling Stockholder (if such
Selling Stockholder is a corporation) or, to the
best of such counsel's knowledge, any agreement or
other instrument binding upon such Selling
Stockholder or, to the best of such counsel's
knowledge, any judgment, order or decree of any
governmental body, agency or court having
jurisdiction over such Selling Stockholder, and no
consent, approval, authorization or order of or
qualification with any governmental body or agency
is required for the performance by such Selling
Stockholder of its obligations under this
Agreement, except such as have been obtained under
the Securities Act or such as may be required by
the securities or Blue Sky laws of the various
states or any applicable foreign securities laws
or other foreign laws in connection with the offer
and sale of the Shares;
(iii) each Selling Stockholder has the
corporate power and authority to enter into this
Agreement and to sell, transfer and deliver the
Shares to be sold by such Selling Stockholder; and
(iv) each of the Underwriters which purchases
Shares in good faith and without notice of any
security interest, claim, lien, equity or
encumbrance or any other adverse claim within the
meaning of the Uniform Commercial Code, upon
indorsement and delivery of the Shares pursuant to
this Agreement, and payment of the purchase price
therefor, will acquire title to such Shares, free
20
<PAGE>
and clear of any adverse claim within the meaning
of the Uniform Commercial Code arising from the
actions of, or created by, the Selling
Stockholders.
The above opinion shall be rendered to the
Representatives at the request of the Selling
Stockholders and shall so state therein. In rendering
such opinion, such counsel may rely (A) as to matters
of fact, upon certificates of officers or other
representatives of the Selling Stockholders and (B)
upon any opinions of counsel to the Selling
Stockholders satisfactory to the Representatives;
PROVIDED that a copy of any such opinions shall be
furnished to the Underwriters through the
Representatives. Such counsel may state that its
opinion is limited to the laws of the State of New
York, the Federal laws of the United States and the
Delaware General Corporation Law.
(g) on the effective date of the Registration
Statement and the effective date of the most recently
filed post-effective amendment to the Registration
Statement and also on the Closing Date, Coopers &
Lybrand shall have furnished to the Representatives
letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to the
Representatives, containing statements and information
of the type customarily included in accountants'
"comfort letters" to underwriters with respect to the
financial statements and certain financial information
contained in the Registration Statement and the
Prospectus; such letters shall also be addressed and
delivered to each Selling Stockholder;
(h) the Representatives shall have received on
and as of the Closing Date an opinion of Davis Polk &
Wardwell, counsel to the Underwriters, with respect to
the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably
request, and such counsel shall have received such
papers and information as they may reasonably request
to enable them to pass upon such matters;
(i) J.P. Morgan Capital will have taken, on or
prior to the Closing Date or the Additional Closing
Date, as the case may be, all necessary action to cause
the conversion of the shares of non-voting common stock
of the Company into the Shares to be sold by it
pursuant to this Agreement; and
21
<PAGE>
(j) on or prior to the Closing Date the Company
shall have furnished to the Representatives such
further certificates and documents as the
Representatives shall reasonably request.
The several obligations of the U.S. Underwriters to purchase
Option Shares hereunder on the Additional Closing Date are,
unless otherwise agreed by the U.S. Underwriters, subject to
the delivery to the Representatives on the Additional
Closing Date of such documents as they may reasonably
request with respect to the good standing of the Company and
its subsidiaries, the due authorization and issuance of the
Option Shares and other matters related to the issuance of
the Option Shares.
8. INDEMNIFICATION AND CONTRIBUTION. The Company
agrees to indemnify and hold harmless each Selling
Stockholder and Underwriter and each person, if any, who
controls any Selling Stockholder or Underwriter within the
meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without
limitation the legal fees and other expenses reasonably
incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission
or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to any
Selling Stockholder or any Underwriter furnished to the
Company in writing by such Underwriter through the
Representatives or by such Selling Stockholder expressly for
use therein; PROVIDED that the foregoing indemnity with
respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting
any such losses, claims, damages or liabilities purchased
Shares if such untrue statement or omission or alleged
untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the Prospectus (as
amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) and, if required by
law, a copy of the Prospectus (as so amended or
supplemented) shall not have been furnished to such person
22
<PAGE>
at or prior to the written confirmation of the sale of such
Shares to such person.
Each Selling Stockholder agrees, severally and not
jointly, to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act and the Company, its
directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the
meaning of either such Section from and against any and all
losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged
untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading;
but only with reference to information relating to such
Selling Stockholder furnished to the Company or to any
Underwriter in writing by such Selling Stockholder expressly
for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements
thereto; PROVIDED that the foregoing indemnity with respect
to any preliminary prospectus shall not inure to the benefit
of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting
any such losses, claims, damages or liabilities purchased
Shares if such untrue statement or omission or alleged
untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the Prospectus (as
amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) and, if required by
law, a copy of the Prospectus (as so amended or
supplemented) shall not have been furnished to such person
at or prior to the written confirmation of the sale of such
Shares to such person. Notwithstanding the foregoing, the
aggregate liability of any Selling Stockholder pursuant to
the provisions of this paragraph shall be limited to an
amount equal to the aggregate purchase price received by
such Selling Stockholder from the sale of such Selling
Stockholder's Shares hereunder.
Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each
Selling Stockholder, the directors of the Company, the
officers of the Company who sign the Registration Statement
23
<PAGE>
and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in
writing by such Underwriter through the Representatives
expressly for use in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any
preliminary prospectus.
If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand
shall be brought or asserted against any person in respect
of which indemnity may be sought pursuant to any of the
three preceding paragraphs, such person (hereinafter called
the Indemnified Person) shall promptly notify the person
against whom such indemnity may be sought (hereinafter
called the Indemnifying Person) in writing, and the
Indemnifying Person, upon request of the Indemnified Person,
shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and
any others the Indemnifying Person may designate in such
proceeding and shall pay the fees and expenses of such
counsel related to such proceeding. In any such proceeding,
any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying
Person has failed within a reasonable time to retain counsel
satisfactory to the Indemnified Person or (iii) the named
parties to any such proceeding (including any impleaded
parties) include both the Indemnifying Person and the
Indemnified Person and representation of both parties by the
same counsel would be inappropriate due to actual or
potential differing interests between them. It is
understood that the Indemnifying Person shall not, in
connection with any proceeding or related proceeding in the
same jurisdiction, be liable for (a) the fees and expenses
of more than one separate firm (in addition to any local
24
<PAGE>
counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act,
(b) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Company, its
directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the
meaning of either such Section and (c) the fees and expenses
of more than one separate firm (in addition to any local
counsel) for all Selling Stockholders and all persons, if
any, who control any Selling Stockholder within the meaning
of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control
persons of Underwriters, such firm shall be designated in
writing by J.P. Morgan Securities Inc. In the case of any
such separate firm for the Company, and such directors,
officers and control persons of the Company, such firm shall
be designated in writing by the Company. In the case of any
such separate firm for the Selling Stockholders and such
controlling persons of Selling Stockholders, such firm shall
be designated in writing by J.P. Morgan Capital. The
Indemnifying Person shall not be liable for any settlement
of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment
for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss
or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested an Indemnifying
Person to reimburse the Indemnified Person for fees and
expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Person agrees that it shall
be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the
Indemnified Person in accordance with such request prior to
the date of such settlement, PROVIDED, HOWEVER, that such
Indemnified Person shall not have the right to enter into
such settlement if there is a good faith dispute between
such Indemnified Person and such Indemnifying Person
regarding such Indemnifying Person's obligation to reimburse
such Indemnified Person for such fees and expenses of
counsel. No Indemnifying Person shall, without the prior
written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have
been a party and indemnity could have been sought hereunder
by such Indemnified Person, unless such settlement includes
25
<PAGE>
an unconditional release of such Indemnified Person from all
liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first,
second or third paragraph of this Section 8 is unavailable
to an Indemnified Person under such paragraph in respect of
any losses, claims, damages or liabilities referred to
therein, then each Indemnifying Person under such paragraph,
in lieu of indemnifying such Indemnified Person thereunder,
shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims,
damages or liabilities as follows: (A) as between the
Company or the Selling Stockholders on the one hand and the
Underwriters on the other (i) in such proportion as is
appropriate to reflect the aggregate relative benefits
received by the Company and the Selling Stockholders and by
the Underwriters from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the
Selling Stockholders and of the Underwriters in connection
with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other
relevant equitable considerations; and (B) as between the
Company on the one hand and each Selling Stockholder on the
other (x) in such proportion as is appropriate to reflect
the relative benefits received by the Company and by such
Selling Stockholder from the offering of the Shares or (y)
if the allocation provided by clause (x) above is not
permitted by applicable law or if the allocation provided by
clause (x) above provides a lesser sum to the Indemnified
Person than the amount hereinafter calculated, then in such
proportion as is appropriate to reflect not only the
relative benefits referred to in clause (x) above, but also
the relative fault of the Company and the Selling
Stockholder in connection with the statements or omissions
that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and by
the Underwriters on the other shall be deemed to be in the
same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Selling
Stockholders and the total underwriting discounts and
commissions received by the Underwriters, in each case as
set forth in the table on the cover of the Prospectus, bear
to the aggregate public offering price of the Shares. The
relevant benefits received by the Company on the one hand
and the Selling Stockholders on the other shall take into
26
<PAGE>
consideration the fact that the provision of registration
rights pursuant to which the offering of Shares is being
made was a material inducement to the Selling Stockholders
to purchase shares in the Company or its predecessor. The
relative fault of the Company and the Selling Stockholders
on the one hand and of the Underwriters on the other shall
be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact
relates to information supplied by the Company or the
Selling Stockholders or by the Underwriters and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing, the aggregate
liability of any Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount
equal to the aggregate purchase price received by such
Selling Stockholder from the sale of such Selling
Stockholder's Shares hereunder.
The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined
by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other
method of allocation that does not take account of the
equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an
Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Person in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, in no
event shall an Underwriter be required to contribute any
amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8 are
several in proportion to the respective number of Shares
they have purchased hereunder, and not joint.
27
<PAGE>
The indemnity and contribution agreements
contained in this Section 8 are in addition to any liability
which the Indemnifying Persons may otherwise have to the
Indemnified Persons referred to above.
The indemnity and contribution agreements
contained in this Section 8 and the representations and
warranties of the Company and the Selling Stockholders
contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any
Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder, or the Company, its
officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the
Shares.
9. TERMINATION OF AGREEMENT. Notwithstanding
anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the
Option Shares) may be terminated in the absolute discretion
of the Representatives, by notice given to the Company and
the Selling Stockholders, if after the execution and
delivery of this Agreement and prior to the Closing Date
(or, in the case of the Option Shares, prior to the
Additional Closing Date) (i) trading generally shall have
been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the National
Association of Securities Dealers, Inc., or the London Stock
Exchange, (ii) trading of any securities of the Company
shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York or London shall
have been declared by either U.S. Federal, New York State or
United Kingdom authorities or exchange controls shall have
been imposed by the United States, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that,
in the judgment of the Representatives, is material and
adverse and which, in the judgment of the Representatives,
makes it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
10. EFFECTIVENESS OF AGREEMENT; ADDITIONAL
OBLIGATIONS OF THE UNDERWRITERS. This Agreement shall
become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration
Statement (or, if applicable, any post-effective amendment)
by the Commission.
28
<PAGE>
If, on the Closing Date or the Additional Closing
Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Shares which
it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number
of Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions
that the number of Shares set forth opposite their
respective names in Schedules I and II hereto bears to the
aggregate number of Underwritten Shares set forth opposite
the names of all such non-defaulting Underwriters, or in
such other proportions as the Representatives may specify,
to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on
such date; PROVIDED that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant
to Section 1 be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If, on the
Closing Date or the Additional Closing Date, as the case may
be, any Underwriter or Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase
hereunder on such date, and the number of Shares with
respect to which such default occurs is more than one-tenth
of the aggregate number of Shares to be purchased on such
date, and arrangements satisfactory to the Representatives,
the Company and the Selling Stockholders for the purchase of
such Shares are not made within 36 hours after such default,
this Agreement (or the obligations of the several
Underwriters to purchase the Option Shares, as the case may
be) shall terminate without liability on the part of any
non-defaulting Underwriter, the Selling Stockholders or the
Company. In any such case either the Representatives or the
Company shall have the right to postpone the Closing Date
(or, in the case of the Option Shares, the Additional
Closing Date), but in no event for longer than seven days,
in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken
under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
11. REIMBURSEMENT UPON OCCURRENCE OF CERTAIN
EVENTS. If this Agreement shall be terminated by the
Underwriters, or any of them, because of any failure or
refusal on the part of the Company or any Selling
Stockholder to comply with the terms, or if for any reason
the
29
<PAGE>
Company or any Selling Stockholder shall be unable to
perform its obligations under this Agreement, the Company or
any such Selling Stockholder, as the case may be,
responsible for such noncompliance or nonperformance agrees
to reimburse the Underwriters or such Underwriters as have
so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the
fees and expenses of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the
offering contemplated hereunder.
12. MISCELLANEOUS. This Agreement shall inure to
the benefit of and be binding upon the Company, the Selling
Stockholders, the Underwriters, any controlling persons
referred to herein and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person,
firm or corporation any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision
herein contained. No purchaser of Shares from any
Underwriter shall be deemed to be a successor by reason
merely of such purchase.
13. NOTICE. Any action by the Underwriters
hereunder may be taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the
Representatives jointly or by J.P. Morgan Securities Inc.
alone shall be binding upon the Underwriters. All notices
and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be given to the
Representatives c/o J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York 10260 (facsimile: (212) 648-
5705); Attention: Syndicate Department. Notices to the
Company shall be given to it at Columbia/HCA Healthcare
Corporation, 201 West Main Street, Louisville, Kentucky
40202 (facsimile: (502) 572-2163); Attention: General
Counsel. Notices to the Selling Stockholders shall be given
to each of them at their respective addresses as set forth
in Schedule III hereto with a copy to Bruce L. Lieb, Esq.,
Proskauer Rose Goetz & Mendelsohn, 1585 Broadway, New York,
New York 10036.
30
<PAGE>
14. COUNTERPARTS; APPLICABLE LAW. This Agreement
may be signed in counterparts, each of which shall be an
original and all of which together shall constitute one and
the same instrument. This Agreement shall be governed by
and construed in accordance with the laws of the State of
New York, without giving effect to the conflicts of laws
provisions thereof.
31
<PAGE>
If the foregoing is in accordance with your
understanding, please sign and return six counterparts
hereof.
Very truly yours,
COLUMBIA/HCA HEALTHCARE
CORPORATION
By:____________________________
Name:
Title:
J.P. MORGAN CAPITAL CORPORATION
By:____________________________
Name:
Title:
[Insert other Selling Stockholders]
Accepted: [ ], 1994
J.P. MORGAN SECURITIES INC.
DEAN WITTER REYNOLDS INC.
MORGAN STANLEY & CO. INCORPORATED
Acting severally on behalf
of themselves and the several
U.S. Underwriters listed
in Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
By:_______________________
Name:
Title:
32
<PAGE>
J.P. MORGAN SECURITIES LTD.
DEAN WITTER INTERNATIONAL LTD.
MORGAN STANLEY & CO. INTERNATIONAL
Acting severally on behalf
of themselves and the several
international managers listed
in Schedule II hereto.
By: J.P. MORGAN SECURITIES LTD.
By:________________________
Name:
Title: Attorney-in-Fact for J.P.
Morgan Securities Ltd.
33
<PAGE>
SCHEDULE I
Number of U.S.
Underwritten Shares
U.S. Underwriters To Be Purchased
- ----------------- -------------------
J.P. Morgan Securities Inc. . . . . . . . . . . . . .
Dean Witter Reynolds Inc. . . . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . . . . . .
Total: . . . . . . . . . . . . . . . . . . .
<PAGE>
SCHEDULE II
Number of
International
Underwritten Shares
International Managers To Be Purchased
- ---------------------- -------------------
J.P. Morgan Securities Ltd. . . . . . . . . . . . . .
Dean Witter International Ltd.. . . . . . . . . . . .
Morgan Stanley & Co. International Limited. . . . . .
Total: . . . . . . . . . . . . . . . . . . .
<PAGE>
SCHEDULE III
Maximum Number of
Underwritten Shares Underwritten Shares Option Shares to
Selling to be sold to the to be sold to the be sold to the
Stockholder U.S. Underwriters International Managers U.S. Underwriters
---------- ------------------ ---------------------- -----------------
J.P. Morgan Capital
Corporation
<PAGE>
[Columbia/HCA Letterhead]
May 16, 1994
Columbia/HCA Healthcare Corporation
201 West Main Street
Louisville, KY 40202
Re: Registration Statement on Form S-3
Ladies & Gentlemen:
I am Senior Vice President and General Counsel of Columbia/HCA Healthcare
Corporation and have acted as such in connection with the preparation of a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Act"), covering 6,900,000 shares of common stock, $.01 par value per
share (the "Shares"), of Columbia/HCA Healthcare Corporation (the "Company").
The Shares also include associated Preferred Stock Purchase Rights (the
"Rights"). The Shares and the Rights are hereinafter collectively referred
to as the "Common Stock."
I have examined the Restated Certificate of Incorporation, By-laws and other
corporate records of the Company and such other documents as I have deemed
relevant to this opinion.
Based on the foregoing, it is my opinion that when the 6,900,000 shares of
the Common Stock, or any portion thereof, are sold as described in the Registra-
tion Statement, such shares will be duly authorized, validly issued, fully paid
and nonassessable.
I hereby consent to the use of my name under the caption "Legal Matters" in the
Registration Statement and any prospectus which constitutes a part thereof and
to the filing of this opinion as an exhibit to the Registration Statement. In
giving this consent, I do not hereby admit that I come within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
Stephen T. Braun
Senior Vice President
and General Counsel
<PAGE>
Ex 23.(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report dated February 28, 1994, except for Note 15, as to which the date is
March 24, 1994 (which includes an explanatory paragraph regarding a change in
accounting for income taxes) on our audits of the consolidated financial
statements of Columbia/HCA Healthcare Corporation as of December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993.
Additionally, we consent to the incorporation by reference of our report dated
February 28, 1994 (which includes an explanatory paragraph regarding a change
in accounting for income taxes) on our audits of the consolidated financial
statements and financial statement schedules of Columbia Healthcare
Corporation as of December 31, 1993 and 1992, and for each of the three years
in the period ended December 31, 1993 and our report dated February 28, 1994,
except for Note 15, as to which the date is March 24, 1994 (which includes
explanatory paragraphs regarding the merger of Columbia Healthcare Corporation
and HCA - Hospital Corporation of America and a change in accounting for
income taxes) on our audits of the supplemental consolidated financial
statements and supplemented financial statement schedules of Columbia/HCA
Healthcare Corporation as of December 31, 1993 and 1992, and for each of the
three years in the period ended December 31, 1993, which reports are included
in Columbia/HCA Healthcare Corporation Form 10-K for the fiscal year ended
December 31, 1993 incorporated by reference herein. We also consent to the
reference to our Firm under the caption, "Experts."
COOPERS & LYBRAND
Louisville, Kentucky
May 16, 1994
