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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
Mark One:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EX-
CHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to .
------ ------
COMMISSION FILE NUMBER 1-11239
----------------
COLUMBIA/HCA HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 75-2497104
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE PARK PLAZA
NASHVILLE, TENNESSEE 37203
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (615) 327-9551
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 Par Value New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [_]
As of February 28, 1995, there were outstanding 348,191,828 shares of the
Registrant's Common Stock and 14,118,999 shares of the Registrant's Nonvoting
Common Stock. As of February 28, 1995 the aggregate market value of the Common
Stock held by non-affiliates was approximately $12,505,233,000. For purposes
of the foregoing calculation only, the Registrant's directors, executive offi-
cers, and The Columbia/HCA Healthcare Corporation Stock Bonus Plan have been
deemed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
The Exhibit Index is on page 36.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<C> <S> <C>
PART I
Item 1. Business.......................................... 1
Item 2. Properties........................................ 17
Item 3. Legal Proceedings................................. 22
Item 4. Submission of Matters to a Vote of Security
Holders........................................... 24
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................... 25
Item 6. Selected Financial Data........................... 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 27
Item 8. Financial Statements and Supplementary Data....... 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 36
PART III
Item 10. Directors and Executive Officers of the
Registrant........................................ 36
Item 11. Executive Compensation............................ 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 36
Item 13. Certain Relationships and Related Transactions.... 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 36
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Columbia/HCA Healthcare Corporation is one of the largest health care serv-
ices companies in the United States. At February 28, 1995, the Company oper-
ated 171 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 broad
range of outpatient and ancillary services. At February 28, 1995, the Company
operated more than 125 outpatient centers. The term "the Company" as used
herein refers to Columbia/HCA Healthcare Corporation and its direct and indi-
rect subsidiaries and affiliated partnerships, unless otherwise stated or in-
dicated by context.
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, oncolo-
gy, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emer-
gency services. Outpatient and ancillary health care services are provided by
the Company's general, acute care hospitals as well as at freestanding facili-
ties operated by the Company including outpatient surgery and diagnostic cen-
ters, rehabilitation facilities, home health care agencies and other facili-
ties. In addition, the Company operates psychiatric hospitals which generally
provide a full range of mental health care services in inpatient, partial hos-
pitalization and outpatient settings.
On September 16, 1994, the Company acquired Medical Care America, Inc.
("MCA") in a transaction accounted for as a purchase (the "MCA Merger"). On
February 10, 1994, the Company acquired HCA-Hospital Corporation of America
("HCA") pursuant to a merger transaction accounted for as a pooling of inter-
ests (the "HCA Merger"). Effective September 1, 1993, the Company acquired Ga-
len Health Care, Inc. ("Galen") pursuant to a merger transaction accounted for
as a pooling of interests (the "Galen Merger"). Galen began operations as an
independent publicly held corporation upon the distribution of all of its com-
mon stock (the "Spinoff") by its then 100% owner, Humana Inc. ("Humana"), on
March 1, 1993.
The Company, through various predecessor entities, began operations on July
1, 1988. The Company was incorporated in Nevada in January 1990 and reincorpo-
rated in Delaware in September 1993. The Company's principal executive offices
are located at One Park Plaza, Nashville, Tennessee 37203, and its telephone
number at such address is (615) 327-9551.
RECENT DEVELOPMENT
On October 4, 1994, the Company, a wholly-owned subsidiary of the Company
("Columbia Sub") and Healthtrust, Inc.--The Hospital Company ("Healthtrust")
executed an Agreement and Plan of Merger, pursuant to which, among other
things, (a) Columbia Sub would be merged with and into Healthtrust (the
"Healthtrust Merger") and (b) each stockholder of Healthtrust would receive
for each share of Healthtrust common stock owned as of the effective time of
the Healthtrust Merger 0.88 of a share of the Company's common stock. On Feb-
ruary 28, 1995, the stockholders of both the Company and Healthtrust voted to
approve the Healthtrust Merger. The transaction remains conditioned upon the
finalization of a consent agreement with the Federal Trade Commission and com-
pletion of final documentation. The transaction is expected to be consummated
in April 1995.
Healthtrust is one of the largest providers of health care services in the
United States, delivering a full range of inpatient, outpatient and other
health care services principally through its
1
<PAGE>
affiliated hospitals. At December 31, 1994, Healthtrust operated 116 acute
care hospitals, all of which are owned or leased by Healthtrust through its
subsidiaries or joint venture arrangements. Healthtrust is also an investor,
through joint ventures, in four other acute care hospitals. Healthtrust's af-
filiated hospitals are located in rural, suburban and urban communities in 22
southern and western states. Healthtrust's affiliated hospitals generally pro-
vide a full range of inpatient and outpatient health care services, including
medical/surgical, diagnostic, obstetric, pediatric, and emergency services.
Many of Healthtrust's hospitals also offer certain specialty programs and
services, including occupational medicine programs, home health care services,
skilled nursing services, physical therapy programs, rehabilitation services,
alcohol and drug dependency programs and selected mental health services. The
health care services provided by each hospital are based upon the local demand
for such services and the ability to provide such services on a competitive
basis.
Healthtrust has experienced consistent growth since it began operations
through the acquisition of a group of hospitals and related assets (the
"Healthtrust Formation") from Hospital Corporation of America (the predecessor
to HCA) in September 1987. On May 5, 1994, Healthtrust acquired EPIC Holdings,
Inc. ("EPIC") in a transaction accounted for as a purchase (the "EPIC Merg-
er").
The Healthtrust Merger involves the integration of two companies that have
previously operated independently. There can be no assurance that the Company
will not encounter difficulties in integrating the operations of Healthtrust
with those of the Company or that the benefits expected from such integration
will be realized. Any delays or unexpected costs incurred in connection with
such integration could have a material adverse effect on the Company's busi-
ness, operating results or financial condition. Furthermore, there can be no
assurance that the operations, managements and personnel of the two companies
will be compatible or that the Company or Healthtrust will not experience the
loss of key personnel. Among the factors considered by the Board of Directors
of the Company in connection with its approval of the Healthtrust Merger were
the opportunities for economies of scale and operating efficiencies that
should result from the Healthtrust Merger. While the Company expects to
achieve annual savings in operating costs as a result of the Healthtrust
Merger (including, without limitation, integration of office facilities, in-
formation systems and support functions and the combined purchasing power of
the two companies) of approximately $125 million annually, there can be no as-
surances that these savings will be realized.
BUSINESS STRATEGY
The Company's strategy is to become a significant, comprehensive provider of
quality health care services in targeted markets. The Company pursues its
strategy by acquiring the health care facilities necessary to develop a com-
prehensive health care network with wide geographic presence throughout the
market. Typically, the Company enters a market by acquiring one or more mid-
to large-size general, acute care hospitals (over 150 licensed beds), which
have either desirable physical plants or ones which can be upgraded on an eco-
nomically feasible basis. The Company then upgrades equipment and facilities
and adds new services to increase the attractiveness of the hospital to local
physicians and patient populations. The Company typically develops a network
by acquiring additional health care facilities including additional general,
acute care hospitals, psychiatric hospitals and outpatient facilities such as
surgery centers, diagnostic centers, physical therapy centers and other treat-
ment or wellness facilities including home health care agencies. By developing
a comprehensive health care network in a local market, the Company achieves
greater visibility and is better able to attract physicians and patients by
offering a full range of services in the entire market area. The Company is
also able to reduce operating costs by sharing certain services among several
facilities in the same market and is better positioned
2
<PAGE>
to work with health maintenance organizations ("HMOs"), preferred provider or-
ganizations ("PPOs") and employers.
Upon acquisition of a facility, the Company hires experienced executives to
manage its operations and decentralizes operational decision making to the lo-
cal level, while providing local physicians and managers the opportunity to
purchase equity interests in the operations through a partnership or corporate
structure. Management believes the Company's strategy of co-ownership of its
facilities with physicians produces significant operational advantages. Physi-
cians who have an ownership interest in a facility take a more active role in
recruiting other physicians and in improving efficiency by containing costs
and making more rational capital expenditure decisions, and often are more ac-
tive supporters of operations and medical staff quality assurance activities,
as they have a direct personal interest in the success and reputation of the
facility. Moreover, because the Company's facilities are co-owned with and op-
erated by prominent members of the local medical community, both community
support for the facilities and the Company's ability to recruit physicians to
the facilities are enhanced. In addition, by giving local managers of its fa-
cilities the opportunity to purchase equity interests in such facilities, the
Company creates incentives on the part of its local managers to operate their
facilities successfully with a long-term perspective.
HEALTH CARE FACILITIES
The Company currently operates hospitals, ambulatory surgery centers, diag-
nostic centers, cardiac rehabilitation centers, physical therapy centers, ra-
diation oncology centers, comprehensive outpatient rehabilitation centers and
home health care agencies and programs.
The Company currently operates 171 general, acute care hospitals with 41,541
licensed beds. Most of the Company's general, acute care hospitals provide
medical and surgical services, including inpatient care, intensive and cardiac
care, diagnostic services and emergency services. The general, acute care hos-
pitals also provide outpatient services such as outpatient surgery, laborato-
ry, radiology, respiratory therapy, cardiology and physical therapy. A local
advisory board, which usually includes members of the hospital's medical
staff, generally makes recommendations concerning the medical, professional
and ethical practices at each hospital and monitors such practices. However,
the hospital is ultimately responsible for ensuring that these practices con-
form to established standards. When the Company acquires a hospital, it estab-
lishes quality assurance programs to support and monitor quality of care stan-
dards and to meet accreditation and regulatory requirements. Patient care
evaluations and other quality of care assessment activities are monitored on a
continuing basis.
Like most hospitals, the Company's hospitals do not engage in extensive med-
ical research and medical education programs. However, some of the Company's
hospitals have an affiliation with medical schools, including the clinical ro-
tation of medical students.
The Company currently operates 28 psychiatric hospitals with 3,173 licensed
beds. The Company's psychiatric hospitals provide therapeutic programs tai-
lored to child psychiatric, adolescent psychiatric, adult psychiatric, adoles-
cent alcohol or drug abuse and adult alcohol or drug abuse patients. The hos-
pitals use the treatment team concept whereby the admitting physician, team
psychologist, social workers, nurses, therapists and counselors coordinate
each phase of therapy. Services provided by this team include crisis interven-
tion, individual psychotherapy, group and family therapy, social services,
chemical dependency counseling, behavioral modification and physical medicine.
Family aftercare plans are actively promoted from the time of admission,
through hospitalization and after discharge. An aftercare plan measures each
patient's post-program progress and utilizes one or more self-help groups.
Program procedures are designed to ensure that quality standards are achieved
and maintained. Certain of the Company's general, acute care hospitals also
have a limited number of licensed psychiatric beds.
3
<PAGE>
Other outpatient or related health care services operated by the Company in-
clude ambulatory surgery centers, diagnostic centers, outpatient physical
therapy/rehabilitation centers, outpatient radiation therapy centers, cardiac
rehabilitation centers, skilled nursing services and home health/infusion
services. These outpatient and related services are an integral component of
the Company's strategy to develop a comprehensive health care network in each
of its target markets. The Company currently operates more than 125 outpatient
centers.
In addition to providing capital resources, the Company makes available a
variety of management services to its health care facilities, most signifi-
cantly: national supply and equipment purchasing and leasing contracts; finan-
cial policies; accounting, financial and clinical systems; governmental reim-
bursement assistance; construction planning and coordination; information sys-
tems; legal; personnel management; and internal audit.
SOURCES OF REVENUE
Hospital revenues depend upon inpatient occupancy levels, the extent to
which ancillary services and therapy programs are ordered by physicians and
provided to patients, the volume of outpatient procedures and the charges or
negotiated payment rates for such services. Charges and reimbursement rates
for inpatient routine services vary significantly depending on the type of
service (e.g., medical/surgical, intensive care or psychiatric) and the geo-
graphic location of the hospital. The Company has experienced an increase in
the percentage of patient revenues attributable to outpatient services. This
increase is primarily the result of advances in technology (which allow more
services to be provided on an outpatient basis), acquisitions of additional
outpatient facilities and increased pressures from Medicare, Medicaid, HMOs,
PPOs and insurers to reduce hospital stays and provide services, where possi-
ble, on a less expensive outpatient basis.
The Company receives payment for patient services from the federal govern-
ment primarily under the Medicare program, state governments under their re-
spective Medicaid programs, HMOs, PPOs and other private insurers and directly
from patients. The approximate percentages of patient revenues of the
Company's facilities from such sources during the periods specified below were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Medicare...................................... 34% 34% 30%
Medicaid...................................... 5 4 4
Other sources................................. 61 62 66
-------- -------- --------
Total......................................... 100% 100% 100%
======== ======== ========
</TABLE>
Medicare is a federal program that provides certain hospital and medical in-
surance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a federal-state program administered
by the states which provides hospital benefits to qualifying individuals who
are unable to afford care. Substantially all of the Company's hospitals are
certified as providers of Medicare and Medicaid services. Amounts received un-
der the Medicare and Medicaid programs are generally significantly less than
the hospital's customary charges for the services provided.
To attract additional volume, most of the Company's hospitals offer dis-
counts from established charges to certain large group purchasers of health
care services, including Blue Cross, other private insurance companies, em-
ployers, HMOs, PPOs and other managed care plans. Blue Cross is a private
health care program that funds hospital benefits through independent plans
that vary in each state. These discount programs limit the Company's ability
to increase charges in response to increasing costs. See "Competition." Pa-
tients are generally not responsible for any difference between customary hos-
pital charges and amounts reimbursed for such services under
4
<PAGE>
Medicare, Medicaid, some Blue Cross plans, HMOs or PPOs, but are responsible
to the extent of any exclusions, deductibles or co-insurance features of their
coverage. The amount of such exclusions, deductibles and co-insurance has gen-
erally been increasing each year. Collection of amounts due from individuals
is typically more difficult than from governmental or business payors.
Medicare
Under the Medicare program the Company receives reimbursement under a pro-
spective payment system ("PPS") for the routine and ancillary operating costs
of most Medicare inpatient hospital services. Psychiatric, long-term care, re-
habilitation, pediatric and certain designated cancer research hospitals, as
well as psychiatric or rehabilitation units that are distinct parts of a hos-
pital, are currently exempt from PPS and are reimbursed on a cost based sys-
tem, subject to certain cost caps. It is uncertain what impact, if any, the
federal efforts to reform the health care system or balance the federal budget
will have on the current method of Medicare reimbursement.
Under PPS, fixed payment amounts per inpatient discharge were established
based on the patient's assigned diagnosis related group ("DRG"). DRG's clas-
sify patients' treatments for illnesses according to the estimated intensity
of hospital resources necessary to furnish care for each principal diagnosis.
DRG rates have been established for each individual hospital participating in
the Medicare program and are based upon a statistically normal distribution of
severity. Patients falling well outside the normal distribution are afforded
additional payments and defined as "outliers." Under PPS, hospitals may retain
payments in excess of costs but must absorb costs in excess of such payments;
therefore, hospitals are encouraged to operate more efficiently.
DRG rates are updated and recalibrated periodically and have been affected
by several recent federal enactments. The index used by the Health Care Fi-
nancing Administration ("HCFA") to adjust the DRG rates gives consideration to
the inflation experienced by hospitals in purchasing goods and services ("mar-
ket basket"). However, for several years the percentage increases to the DRG
rates have been lower than the percentage increases in the costs of goods and
services purchased by hospitals. The market basket is adjusted each federal
fiscal year ("FY") which begins on October 1. The market basket for FY 1993
was 4.1%, FY 1994 was 4.3%, and for FY 1995 is 3.6%.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA-93") extended the re-
duction enacted by the Omnibus Budget Reconciliation Act of 1990 ("OBRA-90")
in the Medicare DRG payments to healthcare providers through 1997. A substan-
tial number of the Company's hospitals are classified as urban hospitals for
reimbursement purposes. The net updates of DRG rates for large urban and other
urban hospitals are established as follows: FY 1994 and FY 1995 market basket
minus 2.5%; FY 1996 market basket minus 2%; and FY 1997 market basket minus
0.5%. Management cannot predict how future adjustments by Congress and HCFA
will affect the profitability of the Company's health care facilities.
The provisions of OBRA-90 required the Secretary (the "Secretary") of the
Department of Health and Human Services ("HHS") to develop a proposal for a
PPS for all hospital-based outpatient services and inpatient psychiatric care.
The Secretary's report, which was due on September 1, 1991, was submitted to
Congress on March 17, 1995. The Secretary's report recommends a phase-in of
PPS for outpatient services with prospective payment rates being established
initially for surgical and radiological services and other diagnostic proce-
dures that account for almost half of hospital outpatient Medicare charges.
Other groups of outpatient services would be brought under PPS as appropriate
methodologies are developed. The report also addressed changes to beneficiary
coinsurance and the computation of coinsurance under the current blended pay-
ment method. Implementation of the Secretary's proposals would require Con-
gress to enact legislation. The Company is unable to assess whether such leg-
islation, if any, will be enacted in connection with changes to Medicare reim-
bursement of hospital outpatient services. Until such time as the Secretary
has implemented a PPS for all hospital-based outpatient services, OBRA-90 di-
rects that
5
<PAGE>
payments for the reasonable cost of outpatient hospital services (other than
for capital related costs) be reimbursed at 94.2% of such reasonable costs for
cost reporting periods falling within FY 1991 through FY 1995. OBRA-93 ex-
tended this reduction through FY 1998.
Subsequent to September 30, 1991 and through FY 1992, capital related pay-
ments for inpatient hospital services were made at the rate of 90% of reason-
able capital costs. The PPS capital costs reimbursement applies an estimated
national average of FY 1989 Medicare capital costs per patient discharge up-
dated to FY 1992 by the estimated increase in Medicare capital costs per dis-
charge (the "Federal Rate"). Capital PPS is applicable to cost reports begin-
ning on or after October 1, 1991. Under capital PPS reimbursement a 10 year
transition period has been established. A hospital is paid under one of the
following two different payment methodologies during this transition period:
(i) hospitals with a hospital-specific rate (the rate established for a hospi-
tal based on the cost report ending on or before December 31, 1990) below the
Federal Rate would be paid on a fully prospective payment methodology and (ii)
hospitals with a hospital-specific rate above the Federal Rate would be paid
based on a hold-harmless payment methodology or 100% of the Federal Rate
whichever results in a higher payment. A hospital is paid under one methodol-
ogy throughout the entire transition. After the transition period, all hospi-
tals would be paid the Federal Rate.
The impact of PPS capital reimbursement in the first two years has not been
material to Medicare capital reimbursement. The hospital-specific rates for FY
1994 decreased 2.16%. The established Federal Rate for FY 1994 was reduced by
9.33% to $378 per patient discharge and for FY 1995 was reduced by 0.4% to
$377 per patient discharge. Management believes that the decrease in the rate
of reimbursement for capital costs will not have a material adverse effect on
the Company's results of operations.
Medicaid
Most state Medicaid payments are made under a prospective payment system or
under programs which negotiate payment levels with individual hospitals. Med-
icaid reimbursement is generally substantially less than a hospital's cost of
services. Medicaid is currently funded approximately 50% by the states and ap-
proximately 50% by the federal government. The federal government and many
states are currently considering significant reductions in the level of Medic-
aid funding while at the same time expanding Medicaid benefits, which could
adversely affect future levels of Medicaid reimbursement received by the
Company's hospitals.
On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991 (the "Medicaid Amendments"),
which limit the amount of voluntary contributions and provider-specific taxes
that can be used by states to fund Medicaid and require the use of broad-based
taxes for such funding. As a result of enactment of the Medicaid Amendments,
certain states in which the Company operates have adopted broad-based provider
taxes to fund their Medicaid programs. To date, the impact upon the Company of
these new taxes has not been materially adverse. However, the Company is un-
able to predict whether any additional broad-based provider taxes will be
adopted by the states in which it operates and, accordingly, is unable to as-
sess the effect thereof on its results of operations or financial position.
Annual Cost Reports
The Company's annual cost reports which are required under the Medicare and
Medicaid programs are subject to audit which may result in adjustments to the
amounts ultimately determined to be due the Company under these reimbursement
programs. These audits often require several years to reach the final determi-
nation of amounts earned under the programs. Providers also have rights of ap-
peal, and the Company is currently contesting certain issues raised in audits
of prior years' reports. Management believes that adequate provision has been
made in its financial statements for any material retroactive adjustments that
might result from all of such audits and that final resolution of all of these
issues will not have a material adverse effect upon the
6
<PAGE>
Company's results of operations or financial position. Since the inception of
the Medicare prospective payment system in 1983, the amount of reimbursement
to the Company's general, acute care hospitals potentially affected by audit
adjustments has substantially diminished.
Commercial Insurance
The Company's hospitals provide services to individuals covered by private
health care insurance. Private insurance carriers either reimburse their pol-
icy holders or make direct payments to the Company's hospitals based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy. Blue Cross is a health care financing program that
provides its subscribers with hospital benefits through independent organiza-
tions that vary from state to state. The Company's hospitals are paid directly
by local Blue Cross organizations on the basis agreed to by each hospital and
Blue Cross by a written contract.
Recently, several commercial insurers have undertaken efforts to limit the
costs of hospital services by adopting prospective payment or DRG based sys-
tems. To the extent such efforts are successful, and to the extent that the
insurers' systems fail to reimburse hospitals for the costs of providing serv-
ices to their beneficiaries, such efforts may have a negative impact on the
operating results of the Company's hospitals.
HOSPITAL UTILIZATION
The Company believes that the two most important factors relating to the
overall utilization of a hospital are the quality and market position of the
hospital and the number and quality of physicians providing patient care
within the facility. Generally, the Company believes that the ability of a
hospital to be a market leader is determined by its breadth of services, level
of technology, emphasis on quality of care and convenience for patients and
physicians. Other factors which impact utilization include the growth in local
population, local economic conditions and market penetration of managed care
programs.
The following table sets forth certain operating statistics for hospitals
owned and operated by the Company for each of the most recent five years.
Medical/surgical hospital operations are subject to certain seasonal fluctua-
tions, including decreases in patient utilization during holiday periods and
increases in the cold weather months. Psychiatric hospital operations are also
subject to certain seasonal fluctuations, including decreases in patient occu-
pancy during the summer months and holiday periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of hospitals (1). 195 193 200 219 221
Weighted average
licensed beds (2)...... 42,357 41,263 40,608 42,437 42,264
Admissions (3).......... 1,189,400 1,158,400 1,161,100 1,189,700 1,174,700
Average length of stay
(days)................. 5.7 5.9 6.1 6.5 6.6
Average daily census.... 18,524 18,702 19,253 21,255 21,351
Occupancy rate (4)...... 44% 45% 47% 50% 51%
Emergency room visits... 3,215,500 3,139,700 3,042,900 3,028,600 2,894,800
Outpatient revenues as a
%
of patient revenues.... 30% 27% 26% 24% 22%
</TABLE>
--------
(1) End of period.
(2) Weighted average licensed beds is defined as the number of licensed beds
after giving effect to the length of time the beds have been licensed dur-
ing the period.
(3) Admissions represent the number of patients admitted for inpatient treat-
ment.
(4) Occupancy rates are calculated by dividing average daily census by
weighted average licensed beds.
7
<PAGE>
Beginning in 1983, hospitals began experiencing significant shifts from in-
patient to outpatient care as well as decreases in average lengths of inpa-
tient stay primarily as a result of hospital payment changes by Medicare, in-
surance carriers and self-insured employers. These changes generally encour-
aged the utilization of outpatient, rather than inpatient, services whenever
possible, and shortened lengths of stay for inpatient care. Another factor af-
fecting hospital utilization levels is improved treatment protocols as a re-
sult of medical technology and pharmacological advances.
COMPETITION
Generally, other hospitals in the local markets served by most of the
Company's hospitals provide services that are offered by the Company's hospi-
tals. Additionally, in the past several years, the number of free-standing
outpatient surgery and diagnostic centers in the geographic areas in which the
Company operates has increased significantly. As a result, most of the
Company's hospitals operate in an increasingly competitive environment. The
rates charged by the Company's hospitals are intended to be competitive with
those charged by other local hospitals for similar services. In some cases,
competing hospitals are more established than the Company's hospitals. Also,
some competing hospitals are owned by tax-supported government agencies and
many others by tax-exempt corporations which may be supported by endowments
and charitable contributions and which are exempt from sales, property and in-
come taxes. Such exemptions and support are not available to the Company's
hospitals. In addition, in certain localities served by the Company there are
large teaching hospitals which provide highly specialized facilities, equip-
ment and services which may not be available at most of the Company's hospi-
tals. Psychiatric hospitals frequently attract patients from areas outside
their immediate locale and, therefore, the Company's psychiatric hospitals
compete with both local and regional hospitals, including the psychiatric
units of general, acute care hospitals.
The Company believes that its hospitals compete within local markets on the
basis of many factors, including the quality of care, ability to attract and
retain quality physicians, location, breadth of services and technology of-
fered and prices charged. The competition among hospitals and other health
care providers has intensified in recent years as hospital occupancy rates
have declined. The Company's strategies are designed, and management believes
that its hospitals are positioned, to be competitive under these changing cir-
cumstances.
One of the most significant factors in the competitive position of a hospi-
tal is the number and quality of physicians affiliated with the hospital. Al-
though physicians may at any time terminate their affiliation with a hospital
operated by the Company, the Company seeks to retain physicians of varied spe-
cialties on its hospitals' medical staffs and to attract other qualified phy-
sicians. The Company believes that physicians refer patients to a hospital
primarily on the basis of the quality of services it renders to patients and
physicians, the quality of other physicians on the medical staff, the location
of the hospital and the quality of the hospital's facilities, equipment and
employees. Accordingly, the Company strives to maintain high ethical and pro-
fessional standards and quality facilities, equipment, employees and services
for physicians and their patients.
Another major factor in the competitive position of a hospital is its man-
agement's ability to negotiate service contracts with purchasers of group
health care services. HMOs and PPOs attempt to direct and control the use of
hospital services through managed care programs and to obtain discounts from
hospitals' established charges. In addition, employers and traditional health
insurers are increasingly interested in containing costs through negotiations
with hospitals for managed care programs and discounts from established
charges. Generally, hospitals compete for service contracts with group health
care service purchasers on the basis of price, market reputation, geographic
location, quality and range of services, quality of the medical staff and con-
venience. The importance of obtaining contracts with managed care organiza-
tions varies from market to market depending on the market strength of such
organizations.
8
<PAGE>
State certificate of need ("CON") laws, which place limitations on a hospi-
tal's ability to expand hospital services and add new equipment, may also have
the effect of restricting competition. The application process for approval of
covered services, facilities, changes in operations and capital expenditures
is, therefore, highly competitive. In those states which have no CON laws or
which set relatively high levels of expenditures before they become reviewable
by state authorities, competition in the form of new services, facilities and
capital spending is more prevalent. The Company has not experienced, and does
not expect to experience, any material adverse effects from state CON require-
ments or from the imposition, elimination or relaxation of such requirements.
See "Regulation and Other Factors."
REGULATION AND OTHER FACTORS
Licensure, Certification and Accreditation
Health care facility construction and operation is subject to federal, state
and local regulations relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting
and compliance with building codes and environmental protection laws. Facili-
ties are subject to periodic inspection by governmental and other authorities
to assure continued compliance with the various standards necessary for li-
censing and accreditation. All of the Company's health care facilities are
properly licensed under appropriate state laws. Substantially all of the
Company's general, acute care hospitals are certified under the Medicare pro-
gram or are accredited by the Joint Commission on Accreditation of Health Care
Organizations ("Joint Commission"), the effect of which is to permit the fa-
cilities to participate in the Medicare and Medicaid programs. Certain of the
Company's psychiatric hospitals do not participate in these programs. Should
any facility lose its Joint Commission accreditation, or otherwise lose its
certification under the Medicare program, the facility would be unable to re-
ceive reimbursement from the Medicare and Medicaid programs. Management be-
lieves that the Company's facilities are in substantial compliance with cur-
rent applicable federal, state, local and independent review body regulations
and standards. The requirements for licensure, certification and accreditation
are subject to change and, in order to remain qualified, it may be necessary
for the Company to effect changes in its facilities, equipment, personnel and
services.
Certificates of Need
The construction of new facilities, the acquisition of existing facilities,
and the addition of new beds or services may be subject to review by state
regulatory agencies under a CON program. The Company operates hospitals in
some states that require approval under a CON program. Such laws generally re-
quire appropriate state agency determination of public need and approval prior
to the addition of beds or services or certain other capital expenditures.
Failure to obtain necessary state approval can result in the inability to ex-
pand facilities, complete an acquisition or change ownership. Further, viola-
tion may result in the imposition of civil or, in some cases, criminal sanc-
tions, the denial of Medicare or Medicaid reimbursement or the revocation of a
facility's license.
State Rate Review
Some states in which the Company owns hospitals have adopted legislation
mandating rate or budget review for hospitals or have adopted taxes on hospi-
tal revenues, assessments or licensure fees to fund indigent health care
within the state.
In Florida, a budget review process and limitations on net revenue increases
per admission have been in effect with respect to the Company's hospitals
since January 1, 1986. The increase in hospital net revenues per admission is
limited to an annually-determined percentage increase in costs that Florida
hospitals pay for goods and services plus a statutory 2%, plus additional
9
<PAGE>
amounts which recognize the effect of patient days related to Medicare, Medic-
aid and uncompensated charity care. This law limits the ability of Florida
hospitals to increase rates to maintain operating margins. The Company owned
47 hospitals aggregating 11,775 beds in Florida as of February 28, 1995.
In the aggregate, state rate or budget review and indigent tax provisions
have not materially adversely affected the Company's results of operations.
The Company is unable to predict whether any additional state rate or budget
review or indigent tax provisions will be adopted and, accordingly, is unable
to assess the effect thereof on its results of operations or financial condi-
tion.
Utilization Review
Federal law contains numerous provisions designed to ensure that services
rendered by hospitals to Medicare and Medicaid patients meet professionally
recognized standards, are medically necessary and that claims for reimburse-
ment are properly filed. These provisions include a requirement that a sam-
pling of admissions of Medicare and Medicaid patients must be reviewed by peer
review organizations ("PROs"), which review the appropriateness of Medicare
and Medicaid patient admissions and discharges, the quality of care provided,
the validity of DRG classifications and the appropriateness of cases of ex-
traordinary length of stay or cost. While no PROs have ever taken any material
adverse action against any of the Company's hospitals, PROs may deny payment
for services provided, may assess fines and also have the authority to recom-
mend to HHS that a provider which is in substantial noncompliance with the
standards of the PRO be excluded from participating in the Medicare program.
Medicare Regulations and Fraud and Abuse
Participation in the Medicare program is heavily regulated by federal stat-
ute and regulation. If a hospital provider fails substantially to comply with
the numerous conditions of participation in the Medicare program or performs
certain prohibited acts (e.g., (i) making false claims to Medicare for serv-
ices not rendered or misrepresenting actual services rendered in order to ob-
tain higher reimbursement; (ii) paying remuneration for Medicare referrals (so
called "fraud and abuse" which is prohibited by the "anti-kickback" provisions
of the Social Security Act); (iii) failing to stabilize all individuals who
come to its emergency room who have an "emergency medical condition," whether
or not any such individual is eligible for Medicare; (iv) transferring any
stabilized patient to another health care facility before such other facility
has agreed to the transfer of such patient, while such other facility does not
have sufficient room and staff to treat the patient, without the patient's
emergency department medical records, or without appropriate life support
equipment; and (v) transferring any unstabilized patient except those trans-
ferred at the patient's request or with physician certification that the medi-
cal risks from the transfer are less harmful than continued treatment at the
transferring facility), such hospital's participation in the Medicare program
may be terminated or civil or criminal penalties may be imposed upon such hos-
pital under certain provisions of the Social Security Act.
Moreover, HHS and the courts have interpreted the "fraud and abuse" anti-
kickback provisions of the Social Security Act (presently codified in Section
1128B(b) of the Social Security Act, hereinafter the "Antifraud Amendments")
broadly to include the intentional offer, payment, solicitation or receipt of
anything of value if one purpose of the payment is to induce the referral of
Medicare business. Health care providers generally are concerned that many
relatively innocuous, or even beneficial, commercial arrangements with their
physicians may technically violate this strict interpretation of the Antifraud
Amendments.
In 1976 Congress established the Office of Inspector General ("OIG") at HHS
to identify and eliminate fraud, abuse and waste in HHS programs and to pro-
mote efficiency and economy in HHS departmental operations. The OIG carries
out this mission through a nationwide program
10
<PAGE>
of audits, investigations and inspections. In order to provide guidance to
health care providers on ways to engage in legitimate business practices and
avoid scrutiny under the fraud and abuse statute, the OIG has from time to
time issued "fraud alerts" identifying features of transactions, which, if
present, may indicate that the transaction violates the fraud and abuse law.
In May 1992, the OIG issued a special fraud alert regarding hospital incen-
tives to physicians. The alert identified the following incentive arrangements
as potential violations of the statute: (a) payment of any sort of incentive
by the hospital each time a physician refers a patient to the hospital,
(b) the use of free or significantly discounted office space or equipment (in
facilities usually located close to the hospital), (c) provision of free or
significantly discounted billing, nursing or other staff services, (d) free
training for a physician's office staff in areas such as management tech-
niques, CPT coding and laboratory techniques, (e) guarantees which provide
that, if the physician's income fails to reach a predetermined level, the hos-
pital will supplement the remainder up to a certain amount, (f) low-interest
or interest-free loans, or loans which may be forgiven if a physician refers
patients (or some number of patients) to the hospital, (g) payment of the
costs of a physician's travel and expenses for conferences, (h) coverage on
the hospital's group health insurance plans at an inappropriately low cost to
the physician and (i) payment for services (which may include consultations at
the hospital) which require few, if any, substantive duties by the physician,
or payment for services in excess of the fair market value of services ren-
dered. In this fraud alert the OIG encouraged persons having information about
hospitals who offer the above types of incentives to physicians to report such
information to the OIG.
In addition, on July 29, 1991, the OIG issued final regulations outlining
certain "safe harbor" practices, which, although potentially capable of induc-
ing prohibited referrals of business under Medicare or state health programs,
would not be subject to enforcement action under the Social Security Act. The
practices covered by the regulations include certain physician joint venture
transactions, rental of space and equipment, personal services and management
contracts, sales of physician practices, referral services, warranties, dis-
counts, payments to employees, group purchasing organizations and waivers of
beneficiary deductibles and co-payments. Additional proposed safe harbors are
expected to be published in the near future by the OIG, including a safe har-
bor regulation for physician recruitment. Certain of the Company's current ar-
rangements with physicians, including joint ventures, do not qualify for the
current safe harbor exemptions and, as a result, such arrangements risk scru-
tiny by the OIG and may be subject to enforcement action. The failure of these
arrangements to satisfy all of the conditions of the applicable safe harbor
criteria does not mean that the arrangements are illegal. Nevertheless, cer-
tain of the Company's current financial arrangements with physicians, includ-
ing joint ventures, and the Company's future development of joint ventures and
other financial arrangements with physicians, could be adversely affected by
the failure of such arrangements to comply with the safe harbor regulations,
or the future adoption of other legislation or regulation in these areas.
Under provisions of the Omnibus Budget Reconciliation Act of 1989 and OBRA-
90, referrals of Medicare and Medicaid patients to clinical laboratories with
which a referring physician has a financial relationship are prohibited effec-
tive January 1, 1991. As of January 1, 1992, any claim for payment submitted
to Medicare by a provider must identify the name and provider number of the
referring physician and must indicate whether the physician has an ownership
or other financial arrangement with the provider. Under the provisions of
OBRA-93, referrals of Medicare and Medicaid patients to certain "designated
health services" with which a referring physician has a financial relationship
are prohibited as of January 1, 1995. These designated health services include
the following: clinical laboratory; physical and occupational therapy servic-
es; radiology or other diagnostic services; radiation therapy services; dura-
ble medical equipment; parenteral and enteral nutrients, equipment and sup-
plies; prosthetics, orthotics and prosthetic devices; home health services;
outpatient prescription drugs; and inpatient and outpatient hospital services.
11
<PAGE>
There are a number of exceptions that may apply to the compensation arrange-
ments under which a facility contracts with certain of its physicians includ-
ing exceptions for bona fide employment relationships, personal service ar-
rangements, and physician recruitment arrangements.
The Social Security Act also imposes criminal and civil penalties for making
false claims to Medicare and Medicaid for services not rendered or for misrep-
resenting actual services rendered in order to obtain higher reimbursement.
Like the Antifraud Amendments, this statute is very broad. Careful and accu-
rate coding of claims for reimbursement must be performed to avoid liability
under the false claims statutes.
The OIG has requested information regarding the Company's procedures for
preparing Medicare cost reports. The Company is cooperating fully with the OIG
and has provided various information in order to explain the Company's prac-
tices. Management believes that any claims in this regard, if asserted, would
not have a material adverse effect on the Company's financial position or re-
sults of operations.
Management exercises care in an effort to structure its arrangements with
physicians to comply in all material respects with these laws, and management
believes that the Company is in compliance with the Antifraud Amendments; how-
ever, there can be no assurance that (i) government officials charged with re-
sponsibility 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) the Antifraud Amendments
will ultimately be interpreted by the courts in a manner consistent with the
practices of the Company.
The federal Medicaid regulations also prohibit fraudulent and abusive prac-
tices and authorize the exclusion from such program of providers in violation
of such regulations.
State Legislation
Some of the states in which the Company operates also have laws that pro-
hibit corporations and other entities from employing physicians and practicing
medicine for a profit or that prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of,
particular providers for medical products and services. In addition, some
states restrict certain business relationships between physicians and pharma-
cies. Possible sanctions for violation of these restrictions include loss of
licensure and civil and criminal penalties. These statutes vary from state to
state, are often vague and have seldom been interpreted by the courts or regu-
latory agencies. Although the Company exercises care in an effort to structure
its arrangements with health care providers to comply with the relevant state
statutes, and although management believes that the Company is in compliance
with these laws, there can be no assurance that (i) governmental officials
charged with responsibility for enforcing these laws will not assert that the
Company or certain transactions in which it is involved are in violation of
such laws and (ii) such state laws will ultimately be interpreted by the
courts in a manner consistent with the practices of the Company.
Health Care Reform
In recent years, an increasing number of legislative proposals have been in-
troduced or proposed in Congress and in some state legislatures that would ef-
fect major changes in the health care system, either nationally or at the
state level. Among the proposals under consideration are cost controls on hos-
pitals, insurance market reforms to increase the availability of group health
insurance to small businesses, requirements that all businesses offer health
insurance coverage
12
<PAGE>
to their employees and the creation of a single government health insurance
plan that would cover all citizens. The costs of certain proposals would be
funded in significant part by reductions in payments by governmental programs,
including Medicare and Medicaid, to health care providers such as hospitals.
There can be no assurance that health care proposals adverse to the business
of the Company will not be adopted.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local statutes and or-
dinances regulating the discharge of materials into the environment. Manage-
ment does not believe that the Company will be required to expend any material
amounts in order to comply with these laws and regulations or that compliance
will materially affect its capital expenditures, earnings or competitive posi-
tion.
INSURANCE
As is typical in the health care industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. Through a
wholly-owned insurance subsidiary, the Company insures a substantial portion
of its general and professional liability risks. Subject to various deduct-
ibles, the Company's health care facilities are insured by the insurance sub-
sidiary for losses of up to $25 million per occurrence. The Company also main-
tains general and professional liability insurance with unrelated commercial
carriers for losses in excess of amounts insured by its insurance subsidiary.
The Company and its insurance subsidiaries maintain allowances for loss for
professional and general liability risks which totalled $852 million at Decem-
ber 31, 1994. Management considers such allowances, which are based on actua-
rially determined estimates, to be adequate for such liability risks. Any
losses incurred in excess of the established allowances for loss will be re-
flected as a charge to earnings of the Company. Any losses incurred within the
deductible(s) or in excess of amounts funded and maintained with commercial
excess liability insurance carriers will be funded from the Company's working
capital. While the Company's cash flow has been adequate to provide for al-
leged and unforeseen liability claims in the past, there can be no assurance
that such amounts will continue to be adequate. If payments for general and
professional liabilities exceed anticipated losses, the results of operations
and financial condition of the Company could be adversely affected.
EMPLOYEES AND MEDICAL STAFFS
At December 31, 1994, the Company had approximately 157,000 employees, in-
cluding approximately 43,500 part-time employees. Employees at five hospitals
are represented by various labor unions. The Company considers its employee
relations to be satisfactory. While the Company's hospitals experience union
organizational activity from time to time, the Company does not expect such
efforts to materially affect its future operations. The Company's hospitals,
like most hospitals, have experienced labor costs rising faster than the gen-
eral inflation rate. In recent years, the Company generally has not experi-
enced material difficulty in recruiting and retaining employees, including
nurses and professional staff members, primarily as a result of staff reten-
tion programs and general economic conditions. There can be no assurance as to
future availability and cost of qualified medical personnel.
As of December 31, 1994, approximately 58,000 licensed physicians were ac-
tive members of the medical staffs of the Company's hospitals. With limited
exceptions, physicians generally are not employees of the Company's hospitals.
However, some physicians provide services in the Company's hospitals under
contracts, which generally describe a term of service, provide and establish
the duties and obligations of such physicians, require the maintenance of cer-
tain perfor-
13
<PAGE>
mance criteria and fix compensation for such services. Any licensed physician
may apply to be admitted to the medical staff of any of the Company's hospi-
tals, but admission to the staff must be approved by the hospital's medical
staff and the appropriate governing board of the hospital in accordance with
established credentialling criteria. Members of the medical staffs of the
Company's hospitals often also serve on the medical staffs of other hospitals,
and may terminate their affiliation with a hospital at any time.
PENDING HCA TAX LITIGATION; SPINOFF TAX RULING
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 exam-
ination 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
$544 million and interest of approximately $956 million through December 31,
1994. In addition to disputing the IRS's positions, HCA is claiming refunds
totaling $63 million in income taxes and $120 million in interest through De-
cember 31, 1994. Management of the Company 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 previ-
ous examinations. In management's opinion, the final outcome from the IRS's
examinations of prior years' income taxes will not have a material adverse ef-
fect on the results of operations, financial position or liquidity of the Com-
pany. 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. Management believes that any cash pay-
ments necessary as a result of such final outcome would be funded with cash
from operations and, if necessary, with amounts available under the Company's
revolving credit or other borrowing facilities.
Certain actions or events both in and beyond the control of the Company
could render the Spinoff or certain related transactions taxable. In connec-
tion with the Spinoff, Humana received rulings from the IRS to the effect,
among other things, that the Spinoff was tax-free under Section 355 of the In-
ternal Revenue Code of 1986, as amended (the "Code"). Prior to the Galen Merg-
er, Galen received a supplemental tax ruling that the Galen Merger would not
alter such tax rulings. Although generally binding on the IRS, each of the tax
rulings and the supplemental tax ruling is subject to the accuracy of certain
factual representations and assumptions contained in the ruling requests made
by Humana and Galen. While the Company is not aware of any facts or circum-
stances which would cause such representations and assumptions to be inaccu-
rate, there can be no assurances in this regard. Each of Galen and Humana
would be liable for the full amount of any tax if the Spinoff were held tax-
able, although as between Galen and Humana, Galen would be liable for approxi-
mately 61% of that tax under a Tax Sharing and Indemnification Agreement en-
tered into in connection with the Spinoff (unless the Spinoff became taxable
by reason of actions or events deemed to be in the control of Galen, in which
event Galen would be responsible for 100% of such tax).
ERISA MATTERS
In connection with the Healthtrust Formation in 1987, Healthtrust's Employee
Stock Ownership Plan (the "ESOP") purchased approximately 50.9 million shares
of Healthtrust common stock for $810 million. The purchase price was based on
the determination of the committee administering the ESOP (the "ESOP Commit-
tee") as to the fair market value of such shares at that time. Based on such
determination, and subject to limitations contained in the Code, Healthtrust
has claimed income tax deductions for contributions to the ESOP for the years
to which such contributions relate. Contributions to the ESOP were used by the
ESOP to pay interest and principal on the loans owed to Healthtrust. These
payments were in turn used by Healthtrust to pay inter-
14
<PAGE>
est and principal on the ESOP term loans under a Healthtrust bank credit
agreement and certain other indebtedness related to the ESOP. As a result,
Healthtrust was effectively able to obtain a deduction for principal, as well
as interest payments, on ESOP related borrowings. If the ESOP Committee's de-
termination of fair market value was incorrect, Healthtrust's contribution to
the ESOP may not be fully deductible, which could have a material adverse ef-
fect on Healthtrust and on the Company following the Healthtrust Merger.
It was intended that qualified holders of the ESOP term loans and the other
indebtedness incurred in connection with the ESOP be entitled to exclude from
taxable income 50% of the interest received on such indebtedness. In addition,
the loans to the ESOP and the purchase of Healthtrust common stock by the ESOP
were intended to qualify for exemption from the "prohibited transaction" rules
under the Code and the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), which rules generally prohibit sale and loan transactions
between an employer and a qualified retirement plan. The 50% interest exclu-
sion and the prohibited transaction exemption were available only if the plan
was designed to invest primarily in "employer securities". It is likely that
if Healthtrust and HCA were deemed to have been members of the same "con-
trolled group of corporations" for purposes of the relevant section in the
Code or ERISA, the stock of HCA, and not Healthtrust's common stock, would
have been "employer securities" for these purposes. Healthtrust and HCA con-
cluded that they were not in the same "controlled group of corporations" (as
defined in Section 409(l) of the Code). If, notwithstanding such conclusion,
HCA's common stock were deemed to have been "employer securities" for such
purposes, there could be severe adverse consequences to Healthtrust, including
violation of the prohibited transaction rules discussed above (which could
subject Healthtrust or other disqualified persons with respect to the ESOP to
an excise tax and could require that certain corrective action be taken) and
retroactive increases in the rate of interest payable on certain of
Healthtrust's previously outstanding ESOP related indebtedness as a result of
the loss of the 50% interest exclusion. In addition, the 50% interest exclu-
sion and the prohibited transaction exemption were available only if the price
paid by the ESOP reflected the fair market value of the employer securities as
determined in good faith by the plan fiduciaries. Accordingly, if the ESOP
Committee's determination of fair market value was incorrect, the 50% interest
exclusion might not have been fully available and Healthtrust or other dis-
qualified persons may have committed prohibited transactions, either of which
events could have a material adverse effect on Healthtrust, which could have a
material adverse effect on the Company following the Healthtrust Merger.
The purchase of EPIC common stock by the EPIC Employee Stock Ownership Plan
(the "EPIC ESOP") in connection with EPIC's acquisition (the "EPIC Formation")
of its facilities from American Medical International, Inc. ("AMI") in 1988
was structured in a manner similar to the purchase of Healthtrust common stock
by the ESOP in connection with the Healthtrust Formation and was intended to
(i) qualify for exemption from the "prohibited transaction" rules of the Code
and ERISA, (ii) permit EPIC to deduct for federal income tax purposes its con-
tributions to the EPIC ESOP used to pay principal and interest on loans made
by EPIC to the EPIC ESOP and (iii) permit qualified holders of indebtedness
incurred in connection with the EPIC ESOP to benefit from the 50% interest ex-
clusion provision referred to above. Exemption from the prohibited transaction
rules and the availability of the ESOP related benefits described above de-
pends on (i) the amount the EPIC ESOP paid for EPIC common stock not having
exceeded the fair market value of that EPIC common stock, (ii) the EPIC common
stock being "employer securities" and (iii) compliance with the other relevant
provisions of the Code and ERISA. If (i) the EPIC ESOP paid an amount in ex-
cess of fair market value for the EPIC common stock, (ii) the EPIC common
stock were to fail to qualify as "employer securities" or (iii) the EPIC ESOP
were to fail to comply with the other relevant provisions of the Code or
ERISA, such events could result in material adverse consequences to
Healthtrust, which could have a material adverse effect on the Company follow-
ing the Healthtrust Merger.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 28, 1995, were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Thomas F. Frist, Jr.,
M.D.................... 56 Chairman of the Board
Richard L. Scott........ 42 President and Chief Executive Officer
David T. Vandewater..... 44 Chief Operating Officer
Stephen T. Braun........ 39 Senior Vice President and General Counsel
Victor L. Campbell...... 48 Senior Vice President
David C. Colby.......... 41 Senior Vice President, Chief Financial Officer and Treasurer
Samuel A. Greco......... 43 Senior Vice President--Financial Operations
Neil D. Hemphill........ 41 Senior Vice President--Human Resources
Richard A. Lechleiter... 36 Vice President and Controller
Joseph D. Moore......... 48 Senior Vice President--Development
Lindy B. Richardson..... 48 Senior Vice President--Marketing/Public Affairs
Richard A. Schweinhart.. 45 Senior Vice President--Finance
</TABLE>
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board of the Com-
pany since February 1994. Dr. Frist, a founder of HCA, served as Chairman of
the Board, President and Chief Executive Officer of HCA from September 1987 to
February 1994. Dr. Frist was Chairman and Chief Executive Officer of HCA from
August 1985 until September 1987.
Richard L. Scott has served as President, Chief Executive Officer and a di-
rector of the Company since September 1993. Mr. Scott was Chairman, Chief Ex-
ecutive Officer and a director of the Company or its predecessors from July
1988 to September 1993. Mr. Scott is also a director of Banc One Corporation.
David T. Vandewater has served as Chief Operating Officer of the Company
since September 1993. Mr. Vandewater was President of the Company from Febru-
ary 1991 to September 1993 and served as its Executive Vice President from May
1990 until February 1991. From July 1988 until February 1990, Mr. Vandewater
was an Executive Vice President and Chief Operating Officer of Republic Health
Corporation (presently called OrNda Healthcorp).
Stephen T. Braun has served as Senior Vice President and General Counsel of
the Company since September 1993. Mr. Braun served as Vice President and Gen-
eral Counsel of the Company from October 1991 until September 1993. From July
1987 to October 1991, Mr. Braun practiced law with the law firm of Doherty,
Rumble & Butler, Professional Association, Saint Paul, Minnesota.
Victor L. Campbell has served as Senior Vice President of the Company since
February 1994. For more than five years prior to that time, Mr. Campbell
served as HCA's Vice President for Investor, Corporate, and Government Rela-
tions. Mr. Campbell is currently a director of the Federation of American
Health Systems and the American Hospital Association.
David C. Colby has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since February 1994. Mr. Colby has served as
Chief Financial Officer of the Company or its predecessors since July 1988.
Mr. Colby was elected Treasurer of the Company in November 1991.
Samuel A. Greco has served as Senior Vice President--Financial Operations of
the Company since July 1992. Mr. Greco served as Senior Vice President of Fi-
nance--South Florida Division of the Company from November 1990 to July 1992.
Mr. Greco was Chief Financial Officer of University Hospital, Tamarac, Flori-
da, which is owned and operated by the Company, from January 1990 to November
1990.
Neil D. Hemphill has served as Senior Vice President--Human Resources of the
Company since February 1994. Mr. Hemphill served as Vice President--Human Re-
sources of the Company
16
<PAGE>
from June 1992 to February 1994. Mr. Hemphill was a Director of Human Re-
sources of Republic Health Corporation (presently called OrNda Healthcorp)
from January 1985 to June 1992.
Richard A. Lechleiter has served as Vice President and Controller of the
Company since September 1993. Mr. Lechleiter served in the same capacity at
both Galen and Humana from September 1990 to September 1993. From July 1988
until September 1990, Mr. Lechleiter was the Controller of Humana.
Joesph D. Moore has served as Senior Vice President--Development of the Com-
pany since February 1994. Mr. Moore was Senior Vice President--Finance and De-
velopment of HCA from January 1993 to February 1994. Mr. Moore was Senior Vice
President--Development of HCA from April 1992 until January 1993 and Vice
President--Development of HCA from 1980 until April 1992.
Lindy B. Richardson has served as Senior Vice President--Marketing/Public
Affairs of the Company since February 1994. Ms. Richardson served as Vice
President--Marketing/Public Affairs of the Company from September 1993 to Feb-
ruary 1994. Ms. Richardson served as Director of Marketing/Public Affairs for
both Galen and Humana from 1988 to September 1993.
Richard A. Schweinhart has served as Senior Vice President--Finance of the
Company since September 1993. Mr. Schweinhart served as Senior Vice Presi-
dent--Finance for both Galen and Humana from November 1991 to September 1993.
Mr. Schweinhart also served as Vice President--Finance of Humana from 1988 un-
til November 1991.
ITEM 2. PROPERTIES.
The location and name of, and the number of licensed beds in, each of the
Company's hospitals at February 28, 1995, grouped by state, are set forth in
the following table:
<TABLE>
<CAPTION>
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
----- ---- ---- ------------- ----
<S> <C> <C> <C> <C>
Alabama Florence Florence Hospital 155 M
Montgomery East Montgomery Medical Center 150 M
Montgomery Montgomery Regional Medical Center 250 M
Muscle Shoals Medical Center Shoals 128 M
Russellville Northwest Medical Center 100 M
Alaska Anchorage Alaska Regional Hospital 238 M
Arizona Phoenix Healthwest Regional Medical Center 302 M
Phoenix Paradise Valley Hospital 140 M
Phoenix Paradise Valley Psychiatric Services 19 P
Arkansas Little Rock Columbia Doctors Hospital 341 M
California Anaheim West Anaheim Medical Center 243 M
Canoga Park West Hills Regional Medical Center 236 M
Huntington Beach Huntington Beach Medical Center 135 M
Pasadena Las Encinas Hospital 153 P
San Leandro San Leandro Hospital 136 M
Thousand Oaks Los Robles Regional Medical Center 204 M
Colorado Aurora Aurora Regional Medical Center 200 M
Littleton Columbine Psychiatric Center 80 P
Thornton North Suburban Medical Center 200 M
Delaware Newark Rockford Center 74 P
Florida Aventura Aventura Hospital and Medical Center 458 M
Bradenton L.W. Blake Hospital 383 M
Brandon Brandon Hospital 250 M
Dade City Dade City Hospital 120 M
Daytona Beach Daytona Medical Center 214 M
Englewood Englewood Community Hospital 100 M
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
----- ---- ---- ------------- ----
<S> <C> <C> <C> <C>
Florida Ft. Myers Gulf Coast Hospital 120 M
Ft. Myers Southwest Florida Regional Medical 400 M
Center
Ft. Pierce Lawnwood Regional Medical Center 335 M
Ft. Walton Beach Fort Walton Beach Medical Center 247 M
Gainesville North Florida Regional Medical Center 267 M
Hudson Bayonet Point/Hudson Medical Center 256 M
Jasper Hamilton Memorial Hospital 42 M
Jacksonville Memorial Hospital Jacksonville 353 M
Jacksonville Memorial Specialty Hospital 107 M
Kissimmee Osceola Regional Hospital 169 M
Largo Largo Medical Center 256 M
Margate Northwest Regional Hospital 150 M
Miami Cedars Medical Center 885 M
Miami Deering Hospital 260 M
Miami Grant Center of Deering 140 P
Miami Kendall Regional Medical Center 412 M
Miami Beach Miami Heart Institute 258 M
New Port Richey New Port Richey Hospital 414 M
Niceville Twin Cities Hospital 75 M
Ocala Marion Community Hospital 230 M
Okeechobee Raulerson Hospital 101 M
Orange Park Orange Park Medical Center 224 M
Orlando Columbia Park Medical Center 267 M
Palatka Putnam Community Hospital 161 M
Panama City Gulf Coast Hospital 176 M
Pembroke Pines Pembroke Pines Hospital 301 M
Pensacola West Florida Regional Medical Center 547 M
Plantation Westside Regional Medical Center 204 M
Pompano Beach Pompano Beach Medical Center 273 M
Port Charlotte Fawcett Memorial Hospital 254 M
Port St. Lucie Medical Center of Port St. Lucie 150 M
St. Petersburg Northside Hospital 301 M
St. Petersburg St. Petersburg General Hospital 219 M
Sanford Central Florida Regional Hospital 226 M
Sarasota Doctors Hospital of Sarasota 168 M
Spring Hill Oak Hill Hospital 204 M
Tallahassee Tallahassee Community Hospital 180 M
Tamarac University Hospital 269 M
Tamarac University Pavilion 60 P
West Palm Beach Columbia Hospital 250 M
Winter Park Winter Park Memorial Hospital 339 M
Georgia Albany Palmyra Medical Center 248 M
Atlanta Dunwoody Medical Center 168 M
Atlanta Metropolitan Hospital 64 M
Atlanta Northlake Regional Medical Center 120 M
Atlanta West Paces Medical Center 294 M
Augusta Augusta Regional Medical Center 374 M
Cartersville Cartersville Medical Center 80 M
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
----- ---- ---- ------------- ----
<S> <C> <C> <C> <C>
Georgia Chatsworth Murray Medical Center 42 M
Columbus Hughston Sports Medicine Hospital 100 M
Dublin Fairview Park Hospital 190 M
Lithia Springs Parkway Medical Center 304 M
Macon Coliseum Medical Centers 250 M
Macon Coliseum Psychiatric Hospital 92 P
Newnan Peachtree Regional Hospital 144 M
Rome Redmond Regional Medical Center 201 M
Snellville Eastside Medical Center 104 M
Illinois Chicago Chicago Lakeshore Hospital 150 P
Chicago Grant Hospital 479 M
Chicago Michael Reese Hospital and Medical 920 M
Center
Forest Park Riveredge Hospital 210 P
Hoffman Estates Hoffman Estates Medical Center 356 M
Hoffman Estates Woodland Hospital 100 P
Indiana Indianapolis The Women's Hospital--Indianapolis 182 M
Kansas Dodge City Western Plains Regional Hospital 100 M
Overland Park Overland Park Regional Medical Center 400 M
Wichita Wesley Medical Center 760 M
Kentucky Bowling Green Greenview Hospital 211 M
Frankfort Bluegrass Regional Medical Center 190 M
Louisville Audubon Regional Medical Center 480 M
Louisville Southwest Hospital 150 M
Louisville Suburban Medical Center 380 M
Louisville University of Louisville Hospital 404 M
Somerset Lake Cumberland Regional Hospital 227 M
Louisiana Alexandria Rapides Regional Medical Center 396 M
Lafayette Cypress Hospital 116 P
Lake Charles Lake Area Medical Center 80 M
Marksville Avoyelles Hospital 55 M
Monroe North Monroe Hospital 228 M
New Orleans DePaul Hospital 309 P
New Orleans Lakeland Medical Center 150 M
Oakdale Oakdale Community Hospital 60 M
Shreveport Highland Hospital 126 M
Springhill Springhill Medical Center 86 M
Ville Platte Ville Platte Medical Center 124 M
Winnfield Winn Parish Medical Center 103 M
Missouri Independence Independence Regional Health Center 366 M
Kansas City Research Psychiatric Center 100 P
Nevada Las Vegas Sunrise Hospital and Medical Center 688 M
New Hampshire Derry Parkland Medical Center 86 M
Portsmouth Portsmouth Regional Hospital 144 M
Portsmouth Portsmouth Pavilion 65 P
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
----- ---- ---- ------------- ----
<S> <C> <C> <C> <C>
New Mexico Albuquerque Heights Psychiatric Hospital 92 P
Carlsbad Guadalupe Medical Center 138 M
Hobbs Lea Regional Hospital 250 M
North Carolina Fayetteville Highsmith-Rainey Memorial Hospital 150 M
Raleigh Holly Hill Hospital 108 P
Raleigh Raleigh Community Hospital 230 M
Oklahoma Enid St. Mary's Hospital 277 M
Oklahoma City Presbyterian Hospital 396 M
South Carolina Aiken Aiken Regional Medical Center 225 M
Charleston Trident Regional Medical Center 281 M
Myrtle Beach Grand Strand Regional Medical Center 172 M
Summerville Summerville Medical Center 80 M
Tennessee Athens Athens Community Hospital 118 M
Chattanooga Parkridge Medical Center 296 M
Chattanooga Valley Psychiatric Hospital 118 P
East Ridge East Ridge Hospital 128 M
Hermitage Summit Medical Center 218 M
Jackson Regional Hospital of Jackson 166 M
Kingsport Indian Path Medical Center 295 M
Kingsport Indian Path Pavilion 61 P
Martin Volunteer General Hospital 100 M
Nashville Centennial Medical Center 656 M
Nashville Centennial Medical Center/Parthenon 162 P
Pavilion
Nashville Southern Hills Medical Center 180 M
Nashville The Psychiatric Hospital at Vanderbilt 88 P
Texas Arlington Arlington Medical Center 287 M
Austin South Austin Medical Center 164 M
Beaumont Beaumont Regional Medical Center 381 M
Bryan Brazos Valley Medical Center 100 M
Corpus Christi Bay Area Medical Center 144 M
Corpus Christi Bayview Hospital 68 P
Corpus Christi Doctors Regional Medical Center 282 M
Corpus Christi Rehabilitation Hospital of South Texas 80 M
Corsicana Navarro Regional Hospital 168 M
Dallas Medical City Dallas Hospital 555 M
Denton Denton Community Hospital 104 M
El Paso Columbia Behavioral Center 125 P
El Paso Columbia Medical Center--East 235 M
El Paso Columbia Medical Center--West 252 M
El Paso Columbia Rehabilitation Center 40 M
Ft. Worth Plaza Medical Center 338 M
Ft. Worth Plaza Medical Center--East 475 M
Houston Bellaire General Hospital 349 M
Houston Champions Residential Treatment Center 48 P
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
STATE CITY NAME LICENSED BEDS TYPE
----- ---- ---- ------------- ----
<S> <C> <C> <C> <C>
Texas Houston Medical Center Hospital 281 M
Houston Rosewood Medical Center 231 M
Houston Spring Branch Medical Center 621 M
Houston West Houston Medical Center 232 M
Houston Woman's Hospital of Texas 198 M
Lewisville Lewisville Hospital 148 M
McAllen Rio Grande Regional Hospital 220 M
North Richland North Hills Medical Center 152
Hills M
Plano Medical Center of Plano 267 M
San Antonio Metropolitan Hospital 263 M
San Antonio San Antonio Regional Hospital 416 M
San Antonio Southwest Texas Methodist Hospital 573 M
San Antonio Village Oaks Medical Center 112 M
San Antonio Women's and Children's Hospital 150 M
Silsbee Silsbee Doctors Hospital 69 M
Webster Clear Lake Regional Medical Center 459 M
Utah Layton Davis Hospital and Medical Center 120 M
Salt Lake City St. Mark's Hospital 306 M
Virginia Falls Church Dominion Hospital 100 P
Hampton Peninsula Center for Behavioral Health 125 P
Petersburg Poplar Springs Hospital 100 P
Reston Reston Hospital Center 127 M
Richlands Clinch Valley Medical Center 200 M
Richmond Chippenham Hospital 470 M
Richmond Henrico Doctors Hospital 340 M
Richmond Johnston-Willis Hospital 292 M
Salem Lewis-Gale Hospital 406 M
Salem Lewis-Gale Psychiatric Center 145 P
West Virginia Beckley Raleigh General Hospital 275 M
Bluefield St. Luke's Hospital 79 M
Charleston Saint Francis Hospital 200 M
Huntington River Park Hospital 165 P
Hurricane Putnam General Hospital 68 M
Ronceverte Greenbrier Valley Medical Center 122 M
INTERNATIONAL
United Kingdom London The Wellington Hospital 121 M
London The Wellington Hospital II 124 M
Switzerland Geneva Hopital de la Tour et Pavillon Gourgas 242 M
</TABLE>
--------
M--Medical/Surgical
P--Psychiatric
In addition to the hospitals listed in the above table, the Company operates
more than 125 outpatient centers. The Company also operates medical office
buildings in conjunction with its hospitals. These office buildings are pri-
marily occupied by physicians who practice at the Company's hospitals.
21
<PAGE>
The Company owns and maintains its headquarters in approximately 400,000
square feet of space in four office buildings in Nashville, Tennessee. In ad-
dition, the Company maintains offices in approximately 110,000 square feet of
office space located in Louisville, Kentucky.
The Company's headquarters, hospitals and other facilities are suitable for
their respective uses and are, in general, adequate for the Company's present
needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of business, including claims for personal in-
juries or for wrongful restriction of, or interference with, physicians' staff
privileges. In certain of these actions the claimants have asked for punitive
damages against the Company, which are usually not covered by insurance. In
the opinion of management, the ultimate resolution of any of these pending
claims and legal proceedings will not have a material adverse effect on the
Company's results of operations or financial position.
A class action styled Mary Forsyth et al. v. Humana Inc. et al., Case #CV-S-
89-249-PMP (L.R.L.), was filed on March 29, 1989, in the United States Dis-
trict Court for the District of Nevada (the "Forsyth" case). On August 12,
1991, a Second Amended Complaint was filed in the Forsyth case which signifi-
cantly increased the amount of damages claimed by the plaintiffs in previously
filed complaints. The claimed damages increased from $10 million to
$84,520,143 in connection with a count which alleges a violation of the Em-
ployee Retirement Income Security Act (the "ERISA Count"); from $10 million to
$181,034,570 (before trebling) in connection with an alleged violation of the
Sherman Anti-Trust Act (the "Anti-Trust Count"); and from $10 million to
$181,034,570 (before trebling) for an alleged violation of the Racketeer In-
fluenced and Corrupt Organization Act (the "RICO Count"). In late March 1992,
as part of the discovery process, the plaintiffs provided information in re-
gard to their calculation of damages which indicates they are seeking recovery
of $49,440,000 of damages plus approximately $15,396,000 of interest in the
ERISA Count and $103,562,165 of damages (before trebling) plus approximately
$31,800,000 of interest in the RICO Count. Specific amounts were not readily
apparent for the Anti-Trust Count but it appears the plaintiffs believe their
claimed damages in the Anti-Trust Count would be similar to those in the RICO
Count. The ERISA Count, which is being asserted by the Co-Payer Class, claims
that Humana Inc. ("Humana") violated a fiduciary duty in connection with (i)
the calculation of co-insurance payments required under policies issued by
Humana's insurance subsidiary ("Humana Insurance") for insureds who were
treated at Sunrise Hospital in Las Vegas (now owned by the Company), and (ii)
payments to the hospital by Humana Insurance. The Anti-Trust Count, which is
being asserted by the Premium Payer Class, alleges that Sunrise Hospital has
monopolized or has attempted to monopolize the for-profit, acute care hospital
services market in Clark County, Nevada, and that Humana Insurance engaged in
predatory pricing in connection with the sale of insurance policies to members
of such class. The plaintiffs have also indicated damages with respect to the
Co-Payer Class. The RICO Count, which is being asserted by both the Premium
Payer and Co-Payer Classes, alleges fraud in connection with (i) the sale of
insurance policies to members of the Premium Payer Class and (ii) the calcula-
tion of the co-insurance payments. On June 22, 1992, defendants filed a Motion
for Summary Judgment on all three counts of the Complaint. On July 21, 1993,
Summary Judgment was entered in favor of defendants on all counts, although
the Court allowed the Co-Payer Class to file a Third Amended Complaint. On Au-
gust 24, 1993, the plaintiffs filed a Third Amended Complaint against Humana
Insurance, seeking to recover at least $2,000,000, plus interest, which repre-
sents the difference between their co-insurance payments and what the payments
would have been if calculated based on the discounted payments made by Humana
Insurance to Sunrise Hospital. The plaintiffs filed a Motion for Summary Judg-
ment on the Third Amended Complaint on November 10, 1993. The Court granted
the plaintiff's Motion for Summary Judgment on June 3, 1994. The plaintiffs
have
22
<PAGE>
appealed the grant of defendants Motion for Summary Judgment on the RICO Count
and the Anti-Trust Count. The matter has been fully briefed and is pending be-
fore the Ninth Circuit Court of Appeals. Pursuant to an Assumption of Liabili-
ties and Indemnification Agreement entered into in connection with the Spin-
off, Humana assumed approximately 39% and Galen assumed approximately 61% of
all liabilities, costs and expenses arising out of certain identified legal
proceedings and claims, including the Forsyth case.
On April 22, 1993, an alleged stockholder of Galen filed a purported stock-
holder derivative action in the Court of Chancery of the State of Delaware,
County of New Castle, styled Lewis v. Austen, et al., Civil Action No. 12937.
The action was purportedly brought on behalf of Galen and Humana against all
of the directors of both companies at the time of the Spinoff alleging, among
other things, that the defendants had improperly amended Humana's existing
stock option plans in connection with the Spinoff. The plaintiff claims that
the amendment to the stock option plans constituted a waste of corporate as-
sets to the extent that employees of such company received options in the
stock of the other company. (The challenged amendment to the plans was ap-
proved by Humana's stockholders at the 1993 Annual Meeting of Stockholders, at
which time Galen was a wholly owned subsidiary of Humana.) The plaintiff re-
quests, among other things, an injunction prohibiting the exercise of Humana
stock options by Company personnel and the exercise of Company stock options
by Humana personnel and an award of damages. The Company believes that the
complaint is without merit.
A class action, In re Medical Care America, Inc. Securities Litigation, is
pending in the United States District Court for the Northern District of Tex-
as, Dallas Division (Civil Action No. 3-92-CV-1996-R). A class has been certi-
fied by the Court consisting of all persons who owned securities of Medical
Care America, Inc. ("MCA") at the close of trading on September 24, 1992 and
who acquired those securities either in purchases in the open market following
the September 9, 1992 merger of Medical Care International, Inc. ("MCI") and
Critical Care America, Inc. ("CCA") forming MCA or through exchange of their
securities in said companies pursuant to the merger, and who allegedly sus-
tained damages as a result of such purchases, subject to certain exclusions
(the "Class Members"). The named defendants include MCA, MCI, CCA as well as
certain officers and/or directors of MCA, MCI or CCA. The plaintiffs seek to
recover damages sustained by Class Members as a result of alleged violations
by the defendants of Section 11 of the Securities Act of 1933, as amended, and
Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder. In addition, the complaint asserts claims under
the state law of Texas which have not been certified for class treatment at
the present time, without prejudice to any party's rights regarding certifica-
tion of such claims in the future. The complaint alleges a course of conduct
in which the defendants knowingly or recklessly failed to state material in-
formation and released false and misleading information to the investing pub-
lic, regarding the earnings, profitability and business prospects of MCA and
of MCI and CCA prior to their merger. The plaintiffs allege that, as a result
of this false and misleading information, the market price of MCA securities
was artificially inflated throughout the class period. The plaintiffs further
allege that, upon the dissemination on September 25, 1992 of the true facts
concerning MCA's earnings, profitability and business prospects, the market
price of MCA common stock dropped precipitously, resulting in a significant
market loss of over $1 billion, and causing damages to plaintiffs and the
other Class Members. The litigation has been tentatively settled for $60 mil-
lion. The settlement is subject to the approval of the Court as well as a ma-
jority of the Class Members.
Two purported class actions, entitled Alvarez v. R. Clayton McWhorter, et
al. and Swain v. R. Clayton McWhorter, et al., were commenced in Delaware
Chancery Court in October 1994 by two alleged stockholders of Healthtrust
against Healthtrust and its Board of Directors. The complaint in the Swain
case also names the Company as a defendant. The complaints in both actions al-
lege that Healthtrust's Board of Directors breached its fiduciary and common
law duties to
23
<PAGE>
Healthtrust's stockholders by failing to maximize stockholder value and obtain
the highest price possible for the Healthrust stockholders in connection with
the Healthtrust Merger. The complaints seek (i) a preliminary and permanent
injunction against the Healthtrust Merger; (ii) recision and damages in the
event the Healthtrust Merger is consummated; (iii) an accounting of any prof-
its that might be realized by Healthtrust's directors through the Healthtrust
Merger; (iv) unspecified compensatory damages; and (v) attorneys and experts
fees. The litigation is in the early stages of discovery. The Company believes
that the allegations in the complaints are without merit and intends to defend
such actions vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
24
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's 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 Company's Common Stock was traded through the National Association of Se-
curities 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 Company's 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 com-
missions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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.................................................. 43.00 36.50
Third Quarter................................................... 44.00 38.25
Fourth Quarter.................................................. 43.75 33.50
</TABLE>
The Company's registrar and transfer agent for its Common Stock is National
City Bank, Cleveland, Ohio. At the close of business on February 28, 1995,
there were approximately 20,000 holders of record of the Company's Common
Stock and one holder of record of the Company's Nonvoting Common Stock.
In September 1993 the Company initiated a regular quarterly dividend of $.03
per share. Prior to that time, the Company did not pay any cash dividends.
While it is the present intention of the Company's Board of Directors to con-
tinue paying a quarterly dividend of $.03 per share, the declaration and pay-
ment of future dividends by the Company will depend upon many factors, includ-
ing the Company's earnings, financial condition, business needs, capital and
surplus and regulatory considerations.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................ $ 11,132 $ 10,252 $ 9,932 $ 9,598 $ 8,641
--------- --------- --------- --------- ---------
Salaries, wages and
benefits............... 4,545 4,215 4,112 3,976 3,510
Supplies................ 1,686 1,664 1,613 1,467 1,314
Other operating
expenses............... 2,059 1,893 1,849 1,739 1,586
Provision for doubtful
accounts............... 628 542 515 508 444
Depreciation and
amortization........... 609 554 541 524 499
Interest expense........ 248 321 401 597 694
Investment income....... (62) (66) (81) (64) (69)
Non-recurring
transactions........... 159 151 439 300 22
--------- --------- --------- --------- ---------
9,872 9,274 9,389 9,047 8,000
--------- --------- --------- --------- ---------
Income from continuing
operations before
minority interests and
income taxes........... 1,260 978 543 551 641
Minority interests in
earnings of
consolidated entities.. 29 9 10 9 4
--------- --------- --------- --------- ---------
Income from continuing
operations before
income taxes........... 1,231 969 533 542 637
Provision for income
taxes.................. 486 394 294 189 240
--------- --------- --------- --------- ---------
Income from continuing
operations............. 745 575 239 353 397
Discontinued operations:
Income (loss) from
operations of
discontinued health
plan segment, net of
income tax (benefit).. - 16 (108) 16 (6)
Costs associated with
discontinuance of
health plan
segment, net of income
tax benefit........... - - (17) - -
Extraordinary loss on
extinguishment of debt,
net of income tax
benefit................ (115) (84) - - -
Cumulative effect on
prior years of a change
in accounting
for income taxes....... - - 51 - -
--------- --------- --------- --------- ---------
Net income............ $ 630 $ 507 $ 165 $ 369 $ 391
========= ========= ========= ========= =========
Earnings per common and
common equivalent share
(a):
Income from continuing
operations............ $ 2.13 $ 1.70 $ .73 $ 1.20 $ 1.28
Discontinued
operations:
Income (loss) from
operations of
discontinued health
plan segment.......... - .04 (.33) .05 (.02)
Costs associated with
discontinuance of
health plan segment... - - (.06) - -
Extraordinary loss on
extinguishment of
debt.................. (.33) (.24) - - -
Cumulative effect on
prior years of a
change in accounting
for income taxes...... - - .16 - -
--------- --------- --------- --------- ---------
Net income............ $ 1.80 $ 1.50 $ .50 $ 1.25 $ 1.26
========= ========= ========= ========= =========
Shares used in earnings
per common and common
equivalent share
computations (in
thousands)............. 350,075 339,222 328,564 279,954 262,552
Net cash provided by
continuing operations.. $ 1,301 $ 1,298 $ 1,287 $ 1,257 $ 1,191
FINANCIAL POSITION:
Assets.................. $ 12,339 $ 10,216 $ 10,347 $ 10,843 $ 10,391
Working capital......... 783 573 606 635 482
Net assets of
discontinued
operations............. - - 376 411 303
Long-term debt,
including amounts due
within one year........ 3,930 3,698 3,656 5,158 5,139
Minority interests in
equity of consolidated
entities............... 258 57 31 23 16
Common stockholders'
equity................. 5,022 3,471 3,691 2,822 2,099
OPERATING DATA (B):
Number of hospitals at
end of period.......... 195 193 200 219 221
Number of licensed beds
at end of period....... 43,670 42,237 42,245 43,231 42,789
Weighted average bed
capacity............... 42,357 41,263 40,608 42,437 42,264
Average daily census.... 18,524 18,702 19,253 21,255 21,351
Occupancy............... 44% 45% 47% 50% 51%
Admissions.............. 1,189,400 1,158,400 1,161,100 1,189,700 1,174,700
Average length of stay
(days)................. 5.7 5.9 6.1 6.5 6.6
Emergency room visits... 3,215,500 3,139,700 3,042,900 3,028,600 2,894,800
Outpatient revenues as a
percentage of patient
revenues............... 30% 27% 26% 24% 22%
</TABLE>
--------
(a) Earnings per common and common equivalent share include the effect of pre-
ferred stock dividend requirements totaling $18 million in 1991 and $63
million in 1990.
(b) Operating data for 1992 exclude the twenty-two divested psychiatric hospi-
tals discussed in Note 7 of the Notes to Consolidated Financial State-
ments.
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Selected Financial Data in Item 6 and the accompanying consolidated fi-
nancial statements set forth certain information with respect to the financial
position, results of operations and cash flows of Columbia/HCA Healthcare Cor-
poration ("Columbia/HCA") which should be read in conjunction with the follow-
ing discussion and analysis.
HEALTHTRUST MERGER
The merger transaction with Healthtrust, Inc. -- The Hospital Company
("Healthtrust") (the "Healthtrust Merger") was approved by the stockholders of
both companies on February 28, 1995. Subject to certain regulatory and other
approvals, the Healthtrust Merger is expected to be consummated in April 1995.
At December 31, 1994, Healthtrust operated 116 hospitals and certain other an-
cillary health care facilities located in twenty-two states with annual reve-
nues approximating $3.4 billion. Although the Healthtrust Merger is expected
to be treated as a pooling of interests for accounting purposes, the accompa-
nying consolidated financial statements and selected financial and operating
data included in this discussion and analysis do not include the retroactive
effect of the Healthtrust Merger. See Note 5 of the Notes to Consolidated Fi-
nancial Statements for a description of the specific terms of the Healthtrust
Merger.
BACKGROUND INFORMATION AND BUSINESS STRATEGY
MCA Merger
In September 1994 Columbia/HCA completed a merger transaction with Medical
Care America, Inc. ("MCA") (the "MCA Merger"). MCA was a national provider of
alternative-site health care services through the operation of free-standing
surgical centers and certain other outpatient ancillary facilities located in
twenty-six states with annual revenues in excess of $400 million. The MCA
Merger was accounted for under the purchase method, and accordingly, the ac-
companying consolidated financial statements and selected financial and oper-
ating data included in this discussion and analysis include the operations of
MCA since September 1, 1994.
HCA Merger
Columbia Healthcare Corporation ("Columbia") completed a merger transaction
with HCA - Hospital Corporation of America ("HCA") (the "HCA Merger") to form
Columbia/HCA in February 1994. At the time of the HCA Merger, HCA operated 97
hospitals located in twenty-one states with annual revenues in excess of $5
billion. For accounting purposes, the HCA Merger was treated as a pooling of
interests. Accordingly, the accompanying consolidated financial statements and
selected 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
In September 1993 Columbia Hospital Corporation ("CHC") completed a merger
transaction with Galen Health Care, Inc. ("Galen") (the "Galen Merger") to
form Columbia. At the time of the Galen Merger, CHC operated twenty-two hospi-
tals and certain ancillary health care facilities in five major markets lo-
cated in Florida and Texas. Annual revenues of CHC were in excess of
27
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
BACKGROUND INFORMATION AND BUSINESS STRATEGY (CONTINUED)
$1 billion. Galen operated 71 hospitals located in eighteen states and two
foreign countries with annual revenues of approximately $4 billion. The Galen
Merger was accounted for as a pooling of interests. Accordingly, the accompa-
nying consolidated financial statements and selected financial and operating
data included in this discussion and analysis give retroactive effect to the
Galen Merger and include the combined operations of CHC and Galen for all pe-
riods presented.
Spinoff Transaction
Prior to the merger with CHC, Galen became a publicly held corporation on
March 1, 1993 as a result of a tax-free spinoff transaction (the "Spinoff") by
Humana Inc. ("Humana"). 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 sig-
nificance of the hospital business, the pre-Spinoff financial statements of
Galen (and now those of Columbia/HCA) include the separate results of Humana's
hospital business, while the operating results and net assets of Humana's man-
aged care health plans have been classified as discontinued operations.
Business Strategy
Columbia/HCA primarily operates hospitals and ancillary health care facili-
ties through either (i) wholly owned subsidiaries, (ii) joint ventures or
(iii) ownership of controlling interests in various partnerships in which sub-
sidiaries of Columbia/HCA serve as the managing general partner.
Columbia/HCA'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 acquisitions and consolidation activities.
During the past several years, hospital industry inpatient admission trends
have been adversely impacted by cost containment efforts initiated by federal
and state governments and various third-party payers, including health mainte-
nance organizations, preferred provider organizations, 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 medi-
cal technology.
In response to changes in the health care industry, Columbia/HCA has devel-
oped the following strategy to provide the highest quality health care serv-
ices at the lowest possible cost:
Become a significant provider of services -- Columbia/HCA 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, Columbia/HCA also operates psychiatric and re-
habilitation facilities, outpatient sur-gery and diagnostic centers, home
health agencies and other services. This strategy enables
28
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
BACKGROUND INFORMATION AND BUSINESS STRATEGY (CONTINUED)
Columbia/HCA to attract business from managed care plans and major employers
seeking efficient access to a wide array of health care services.
Deliver high quality services -- Through the use of clinical information
systems and continuous quality enhancement programs, Columbia/HCA 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, Columbia/HCA
focuses on coordinating pricing, contracting, information systems, economic
incentives and quality assurance activities among providers in each market.
29
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following is a summary of continuing operations (dollars in millions,
except per share amounts).
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $11,132 100.0 $10,252 100.0 $9,932 100.0
------- ----- ------- ----- ------ -----
Salaries, wages and benefits.... 4,545 40.8 4,215 41.1 4,112 41.4
Supplies........................ 1,686 15.2 1,664 16.2 1,613 16.2
Other operating expenses........ 2,059 18.5 1,893 18.5 1,849 18.6
Provision for doubtful accounts. 628 5.7 542 5.3 515 5.2
Investment income............... (62) (0.6) (66) (0.6) (81) (0.8)
------- ----- ------- ----- ------ -----
8,856 79.6 8,248 80.5 8,008 80.6
------- ----- ------- ----- ------ -----
EBDITA (a)...................... 2,276 20.4 2,004 19.5 1,924 19.4
Depreciation and amortization... 609 5.5 554 5.4 541 5.5
Interest expense................ 248 2.2 321 3.1 401 4.0
Non-recurring transactions...... 159 1.4 151 1.5 439 4.4
------- ----- ------- ----- ------ -----
Income before minority interests
and income taxes............... 1,260 11.3 978 9.5 543 5.5
Minority interests.............. 29 0.2 9 0.1 10 0.1
------- ----- ------- ----- ------ -----
Income from continuing
operations before income taxes. 1,231 11.1 969 9.4 533 5.4
Provision for income taxes...... 486 4.4 394 3.8 294 3.0
------- ----- ------- ----- ------ -----
Income from continuing
operations..................... $ 745 6.7 $ 575 5.6 $ 239 2.4
======= ===== ======= ===== ====== =====
Earnings per common and common
equivalent share:
Excluding non-recurring
transactions................. $ 2.42 $ 1.99 $ 1.82
Non-recurring transactions.... (.29) (.29) (1.09)
------- ------- ------
Income from continuing
operations................... $ 2.13 $ 1.70 $ .73
======= ======= ======
% changes from prior year:
Revenues...................... 8.6 3.2
EBDITA........................ 13.6 4.2
Income from continuing
operations before
income taxes................. 27.1 81.9
Income from continuing
operations................... 29.4 140.6
Earnings per common and common
equivalent share............. 25.3 132.9
Other information excluding the
effect of
non-recurring transactions:
Income from continuing
operations
before income taxes.......... $ 1,390 12.5 $ 1,120 10.9 $ 972 9.8
Income from continuing
operations................... 847 7.6 673 6.6 597 6.0
% changes from prior year:
Income from continuing
operations before income
taxes...................... 24.2 15.3
Income from continuing
operations................. 25.7 12.8
Earnings per common and
common equivalent share.... 21.6 9.3
</TABLE>
--------
(a) Income from continuing operations before non-recurring transactions, de-
preciation, interest, minority interests, income taxes and amortization.
Although EBDITA is not a measure of operating performance calculated in
accordance with generally accepted accounting principles, it is commonly
used as an analytical indicator within the health care provider industry.
In addition, EBDITA also serves as a measurement of leverage capacity and
debt service ability. EBDITA should not be considered as a measure of
profitability or liquidity or as an alternative to net income, cash flows
generated by operating, investing or financing activities or other finan-
cial statement data presented in the consolidated financial statements as
an indicator of financial performance.
30
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenues increased 9% to $11.1 billion in 1994 and 3% to $10.3 billion in
1993. Increases in both periods resulted primarily from acquisitions, growth
in same-hospital outpatient services, price increases and, in 1994, growth in
same-hospital inpatient volumes. On a same-hospital basis, admissions in-
creased 1.5% in 1994 and declined 1.1% in 1993, while outpatient visits grew
43.6% in 1994 and 4.6% in 1993. The significant increase in outpatient visits
in 1994 was primarily a result of expanding home health care and other outpa-
tient ancillary services.
During the past three years, Columbia/HCA has experienced increases in dis-
counted business. Medicare admissions as a percentage of total admissions was
39% in both 1994 and 1993 and 37% in 1992, while discounted and managed care
admissions grew to 39% in 1994 from 35% in 1993 and 32% in 1992.
Despite a continued increase in discounted business, income from continuing
operations before income taxes increased 27% to $1.2 billion in 1994 from $969
million in 1993 and pretax margins increased to 11.1% in 1994 from 9.4% in
1993. Excluding the effect of non-recurring transactions, income from continu-
ing operations before income taxes increased 24% to $1.4 billion in 1994 from
$1.1 billion in 1993 and pretax margins increased to 12.5% in 1994 from 10.9%
in 1993. The improvement in pretax income was primarily attributable to growth
in revenues and reductions in interest expense resulting from refinancing ac-
tivities in both 1994 and 1993. In addition, pretax margins also increased due
to improvements in staffing levels and increased discounts on medical sup-
plies. Salaries, wages and benefits increased approximately 8% and declined as
a percentage of revenues to 40.8% in 1994 from 41.1% in 1993, while supply
costs increased approximately 1% and declined as percentage of revenues to
15.2% in 1994 compared to 16.2% in 1993.
Pretax income from continuing operations increased 82% to $969 million in
1993 from $533 million in 1992 and pretax margins increased to 9.4% in 1993
from 5.4% in 1992. Excluding the effect of non-recurring transactions, pretax
income from continuing operations increased 15% to $1.1 billion in 1993 from
$972 million in 1992 and pretax margins increased to 10.9% in 1993 from 9.8%
in 1992. The improvement was primarily attributable to reductions in interest
expense resulting from refinancing activities in both 1993 and 1992. In addi-
tion, pretax margins also increased due to improvements in staffing levels.
Salaries, wages and benefits increased approximately 2% in 1993 and declined
as a percentage of revenues to 41.1% in 1993 from 41.4% in 1992.
Income from continuing operations increased 29% to $745 million ($2.13 per
share) in 1994 and 141% to $575 million ($1.70 per share) in 1993. Excluding
the effects of the non-recurring transactions, income from continuing opera-
tions increased 26% to $847 million ($2.42 per share) in 1994 and 13% to $673
million ($1.99 per share) in 1993.
Columbia/HCA recorded significant non-recurring charges during each of the
last three years. In 1994 Columbia/HCA recorded $159 million ($102 million net
of tax) of charges in connection with the HCA Merger. In addition to invest-
ment 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 were substantially completed during 1994. In con-
nection with the Galen Merger, Columbia/HCA recorded charges in 1993 totaling
$151 million ($98 million net of tax) for management actions similar to those
previously discussed as part of the HCA Merger. Consolidation and cost-saving
activities related to these charges have been completed. Results of operations
31
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
in 1992 include (i) $394 million ($330 million net of tax) of losses associ-
ated 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 Healthtrust common stock.
The free-standing surgical center business acquired in connection with the
MCA Merger in September 1994 increased revenues by $163 million ($124 million
in the fourth quarter). The MCA Merger had no material effect on 1994 earn-
ings. See Note 9 of the Notes to Consolidated Financial Statements for certain
pro forma information related to the MCA Merger.
Results of operations for the periods prior to the Spinoff include income
from discontinued operations of $16 million ($.04 per share) in 1993 and
losses of $125 million ($.39 per share) in 1992 related to Humana's health
plan business. Losses from discontinued operations in 1992 include non-recur-
ring costs of $135 million (net of tax) incurred by Humana in connection with
the Spinoff.
In connection with the Galen Merger and the HCA Merger, substantial amounts
of high-coupon long-term debt were refinanced to reduce future interest ex-
pense and eliminate certain restrictive covenants. In 1994 Columbia/HCA refi-
nanced approximately $2.2 billion of long-term debt resulting in an after-tax
loss of $115 million ($.33 per share). Losses from refinancings of $787 mil-
lion of long-term debt and a revolving credit agreement in 1993 reduced net
income by $84 million ($.24 per share).
LIQUIDITY
Cash provided by continuing operations totaled $1.3 billion in each of the
last three years. Cash flows in 1994 were reduced by approximately $75 million
in connection with the payment to the Internal Revenue Service (the "IRS") re-
lated to disputed prior year income taxes and interest. Cash flows and avail-
able cash and cash equivalents in excess of capital expenditures (including
acquisitions and divestitures) were used generally to reduce long-term debt.
In addition, such cash flows were also used in 1994 to fund $146 million of
self-insured professional liability risks related to prior years and, in 1993,
to finance a payment of $135 million to Humana in connection with the Spinoff.
Working capital totaled $783 million at December 31, 1994 compared to $573
million at December 31, 1993. Management believes that cash flows from opera-
tions and amounts available under Columbia/HCA's revolving credit facilities
and related commercial paper programs are sufficient to meet expected future
liquidity needs.
A substantial portion of the non-recurring transactions recorded during the
past three years relate to the writedown of recorded assets and, accordingly,
did not have a material adverse effect on cash flows from continuing opera-
tions.
Investments of Columbia/HCA's professional liability insurance subsidiary to
maintain statutory equity and pay claims totaled $973 million and $778 million
at December 31, 1994 and 1993, respectively.
32
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (CONTINUED)
In September 1993 the Board of Directors initiated the payment of a regular
quarterly cash dividend of $.03 per common share. Management anticipates that
this dividend policy will continue after consummation of the Healthtrust Merg-
er.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $975 million in 1994
compared to $836 million in 1993 and $668 million in 1992. Planned capital ex-
penditures in 1995 (excluding acquisitions and the effect of the Healthtrust
Merger) are expected to approximate $1 billion. Management believes that its
capital expenditure program is adequate to expand, improve and equip existing
health care facilities.
In addition, Columbia/HCA expended $213 million, $79 million and $36 million
for acquisitions and joint ventures (excluding the MCA, HCA and Galen Mergers)
during 1994, 1993 and 1992, respectively. See Note 8 of the Notes to Consoli-
dated Financial Statements for a description of these activities.
The MCA Merger consummated in September 1994 (accounted for under the pur-
chase method) at an aggregate cost of $912 million was financed through the
issuance of approximately 21.1 million shares of Columbia/HCA common stock.
As part of its business strategy, Columbia/HCA intends to acquire additional
health care facilities in the future. Since December 31, 1994, Columbia/HCA
has expended $334 million toward the purchase of seven hospitals (or a con-
trolling interest therein). These transactions, which will be accounted for
under the purchase method, were financed through the use of internally gener-
ated funds and issuance of long-term debt.
Columbia/HCA 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
December 31, 1994, there were projects under construction which had an esti-
mated additional cost to complete of approximately $263 million.
At December 31, 1993, Columbia/HCA was a party to certain interest rate swap
agreements covering $380 million of commercial paper classified as long-term
debt. These transactions were consummated in prior years in connection with
the refinancing of high-coupon debt with an average interest rate approximat-
ing 13% and provided a cost-effective source of fixed rate financing averaging
7.9%. As part of the previously discussed refinancing of $2.2 billion of long-
term debt in 1994, Columbia/HCA terminated all of its interest rate agreements
in advance of their scheduled maturities. The after-tax loss on refinancing of
long-term debt aggregating $115 million includes a loss of $13 million related
to the termination of these agreements. At December 31, 1994, Columbia/HCA was
not a party to any interest rate swap agreements. Subject to market conditions
and certain other factors, Columbia/HCA may enter into similar arrangements in
the future as a means of effecting fixed rate financing.
In connection with the Spinoff, common stockholder's 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 re-
financed in September 1993.
33
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES (CONTINUED)
Subject to consummation of the Healthtrust Merger, Columbia/HCA will amend
its revolving credit agreements from an aggregate amount of $2.25 billion to
$3.75 billion. In addition, Columbia/HCA intends to refinance approximately $1
billion of Healthtrust long-term debt and all outstanding borrowings under the
Healthtrust $1.2 billion bank credit agreement. Management anticipates that
losses resulting from these refinancing activities will reduce Columbia/HCA's
second quarter 1995 net income by approximately $70 million.
Columbia/HCA's credit facilities contain customary covenants which include
(i) limitations on additional debt, (ii) limitations on sales of assets, merg-
ers and changes of ownership and (iii) maintenance of certain interest cover-
age ratios. Columbia/HCA was in compliance with all such covenants at December
31, 1994.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain
cases, limit Columbia/HCA's ability to increase prices. Revenues for hospital
services rendered to Medicare patients are established under the federal gov-
ernment's prospective payment system. Medicare revenues approximated 34% of
total revenues in both 1994 and 1993, and 30% in 1992.
Management believes that hospital industry operating margins have been, and
may continue to be, under significant pressure because of deterioration in in-
patient volumes and changes in payer mix, and growth in operating expenses in
excess of the increase in prospective payments under the Medicare program.
Columbia/HCA expects that the average rate of increase in Medicare prospective
payments will approximate 2% in 1995. In addition, as a result of increasing
regulatory and competitive pressures, Columbia/HCA's ability to maintain oper-
ating margins through price increases to non-Medicare patients is limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been in-
troduced or proposed in Congress and in some state legislatures that would
significantly affect health care systems in Columbia/HCA's markets. Proposals
under consideration include cost controls on hospitals, insurance market re-
forms that increase the availability of group health insurance to small busi-
nesses, requirements that all businesses offer health insurance to their em-
ployees and creation of a single government health insurance plan that would
cover all citizens. The cost of certain proposals would be funded in signifi-
cant part by reductions in payments by government programs, including Medicare
and Medicaid, to health care providers such as hospitals. There can be no as-
surance that health care proposals adverse to the business of Columbia/HCA
will not be adopted.
OTHER INFORMATION
Columbia/HCA is contesting income taxes and related interest aggregating
$1.5 billion at December 31, 1994 proposed by the IRS for prior years. Manage-
ment believes that final resolution of these disputes will not have a material
adverse effect on the financial position, results of operations or liquidity
of Columbia/HCA. However, if all or a majority of the positions of the IRS are
upheld, the financial position, results of operations and liquidity of
Columbia/HCA would be materially adversely affected.
In March 1994 Columbia/HCA made an advance payment to the IRS of approxi-
mately $75 million in connection with certain disputed prior year income taxes
and related interest. This payment did not have a material effect on 1994
earnings.
34
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER INFORMATION (CONTINUED)
Resolution of various other loss contingencies, including litigation pending
against Columbia/HCA in the ordinary course of business, is not expected to
have a material adverse effect on its financial position or results of opera-
tions.
During 1992 Columbia/HCA adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which increased
net income by $51 million ($.16 per share).
Columbia/HCA expects to incur certain expenses related to the Healthtrust
Merger, the amounts of which have not been determined. These costs will in-
clude, among other things, amounts for investment advisory and professional
fees, expenses of printing and distributing proxy materials, severance pay-
ments and provisions for loss related to the consolidation of the operations
of Columbia/HCA and Healthtrust. Management anticipates that these expenses
will be recorded in the second quarter of 1995.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item 8 is contained in the Consolidated Fi-
nancial Statements and Financial Statement Schedules of the Company included
in the Index on Page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is set forth under the heading "Elec-
tion of Directors" in the definitive proxy materials of the Company to be
filed in connection with its 1995 Annual Meeting of Stockholders, except for
the information regarding executive officers of the Company, which is con-
tained in Item 1 of Part I of this Annual Report on Form 10-K. The information
required by this Item contained in such definitive proxy materials is incorpo-
rated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth under the heading "Execu-
tive Compensation" in the definitive proxy materials of the Company to be
filed in connection with its 1995 Annual Meeting of Stockholders, which infor-
mation is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth under the heading "Prin-
cipal Stockholders" in the definitive proxy materials of the Company to be
filed in connection with its 1995 Annual Meeting of Stockholders, which infor-
mation is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth under the heading "Cer-
tain Transactions" in the definitive proxy materials of the Company to be
filed in connection with its 1995 Annual Meeting of Stockholders, which infor-
mation is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. and 2. List of Financial Statements and Financial Statement Schedules.
The accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules on Page F-1 of this Annual Report on
Form 10-K is provided in response to this Item.
3. List of Exhibits
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Current Report on Form 8-K dated
February 11, 1994, and incorporated herein by reference).
3.2(a) By-laws of the Company (filed as Exhibit 2.2 to the Company's
Registration Statement on Form 8-A dated August 31, 1993, and
incorporated herein by reference).
36
<PAGE>
3.2(b) Amendment to By-laws of the Company (filed as Exhibit 3(b).1 to
the Company's Current Report on Form 8-K dated February 11,
1994, and incorporated herein by reference).
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 Convert-
ible 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 Com-
pany 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 in-
corporated herein by reference).
4.9(a) $750 Million Credit Agreement dated as of February 10, 1994,
among the Company, the Several Banks and Other Financial Insti-
tutions, 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).
4.9(b) Agreement and Amendment to $750 Million Credit Agreement dated
as of September 26, 1994 (filed as Exhibit 4.9 to the Company's
Registration Statement on Form S-4 (File No. 33-56803), and in-
corporated herein by reference).
4.10(a) $1.5 Billion Credit Agreement dated as of February 10, 1994,
among the Company, the Several Banks and Other Financial Insti-
tutions, 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).
37
<PAGE>
4.10(b) Agreement and Amendment to $1.5 Billion Credit Agreement dated
as of September 26, 1994 (filed as Exhibit 4.10 to the Company's
Registration Statement on Form S-4 (File No. 33-56803), and in-
corporated 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 refer-
ence).
10.1 Agreement and Plan of Merger among the Company, COL Acquisition
Corporation and Healthtrust, Inc.--The Hospital Company dated as
of October 4, 1994 (filed as Exhibit 2 to the Company's Regis-
tration Statement on Form S-4 (File No. 33-56803), and incorpo-
rated herein by reference).
10.2 Agreement and Plan of Merger among the Company, CHOS Acquisition
Corporation and HCA-Hospital Corporation of America dated as of
October 2, 1993 (filed as Exhibit 2 to the Company's Registra-
tion Statement on Form S-4 (File No. 33-50735), and incorporated
herein by reference).
10.3 Agreement and Plan of Merger between Galen Health Care, Inc. and
the Company dated as of June 10, 1993 (filed as Exhibit 2 to the
Company's Registration Statement on Form S-4 (File No. 33-
49773), and incorporated herein by reference).
10.4 Agreement and Plan of Merger among Hospital Corporation of Amer-
ica, HCA- Hospital Corporation of America and TF Acquisition,
Inc. dated November 21, 1988 plus a list identifying the con-
tents of all omitted exhibits to the Agreement and Plan of
Merger plus an agreement of Hospital Corporation of America to
furnish supplementally to the Securities and Exchange Commission
upon request a copy of all omitted exhibits (filed as Exhibit 2
to Hospital Corporation of America's Current Report on Form 8-K
dated November 21, 1988, and incorporated herein by reference).
10.5 Amendment No. 1 to Agreement and Plan of Merger dated as of Feb-
ruary 7, 1989, among Hospital Corporation of America, HCA-Hospi-
tal Corporation of America and TF Acquisition, Inc. (filed as
Exhibit 2(b) to Hospital Corporation of America's Annual Report
on Form 10-K for the year ended December 31, 1988, and incorpo-
rated herein by reference).
10.6 Columbia Hospital Corporation Stock Option Plan (filed as Ex-
hibit 10.13 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by
reference).*
10.7 Columbia Hospital Corporation 1992 Stock and Incentive Plan
(filed as Exhibit 10.14 to the Company's Registration Statement
on Form S-1 (Reg. No. 33-48886), and incorporated herein by ref-
erence).*
10.8 Columbia Hospital Corporation Outside Directors Nonqualified
Stock Option Plan (filed as Exhibit 28.1 to the Company's Regis-
tration Statement on Form S-8 (File No. 33-55272), and incorpo-
rated herein by reference).*
10.9 HCA-Hospital Corporation of America 1989 Nonqualified Stock Op-
tion Plan, as amended through December 16, 1991 (filed as Ex-
hibit 10(g) to HCA-Hospital Corporation of America's Registra-
tion Statement on Form S-1 (File No. 33-44906), and incorporated
herein by reference).*
10.10 Form of Stock Option Agreement under the HCA-Hospital Corpora-
tion of America 1989 Nonqualified Stock Option Plan (filed as
Exhibit 10(j) to HCA-Hospital Corporation of America's Annual
Report on Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference).*
38
<PAGE>
10.11 HCA-Hospital Corporation of America Nonqualified Initial Option
Plan (filed as Exhibit 4.6 to the Company's Registration State-
ment on Form S-3 (File No. 33-52379), and incorporated herein by
reference).*
10.12 Termination Agreement between the Company and Carl F. Pollard
dated December 16, 1993 (filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and incorporated herein by reference).*
10.13 Form of Indemnity Agreement with certain officers and directors
(filed as Exhibit 10(kk) to Galen Health Care, Inc.'s Registra-
tion Statement on Form 10, as amended, and incorporated herein
by reference).
10.14 Form of Severance Pay Agreement between Galen Health Care, Inc.
and certain executives (filed as Exhibit 10(jj) to Galen Health
Care, Inc.'s Registration Statement on Form 10, as amended, and
incorporated herein by reference).*
10.15 Form of Severance Agreement between HCA-Hospital Corporation of
America and certain executives dated as of November 1, 1993
(filed as Exhibit 10.15 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorpo-
rated herein by reference).*
10.16 Assumption Agreement among the Company, CHOS Acquisition Corpo-
ration and HCA-Hospital Corporation of America dated as of Feb-
ruary 10, 1994, relating to the Severance Agreements (filed as
Exhibit 10.16 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated herein
by reference).*
10.17 Form of Severance Pay Agreement between the Company and certain
executives dated as of June 10, 1993 (filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference).*
10.18 Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed as
Exhibit 4.15 to the Company's Registration Statement on Form S-8
(File No. 33-50147), and incorporated herein by reference).*
10.19 Columbia/HCA Healthcare Corporation Annual Incentive Plan (filed
as Exhibit 10.19 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated herein
by reference).*
10.20 Columbia/HCA Healthcare Corporation Directors' Retirement Policy
(filed as Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorpo-
rated herein by reference).*
10.21 HCA-Hospital Corporation of America 1992 Stock Compensation Plan
(filed as Exhibit 10(t) to HCA-Hospital Corporation of America's
Registration Statement on Form S-1 (File No. 33-44906), and in-
corporated herein by reference).*
11 Statement re Computation of Earnings Per Common and Common
Equivalent Share.
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
--------
* Management compensatory plan or arrangement.
(b) Reports on Form 8-K.
DATE OF CURRENT REPORT ITEM(S) REPORTED
---------------------- ----------------
October 4, 1994 Announced approval by the Board of Directors of the
Healthtrust Merger
December 13, 1994 Healthtrust Consolidated Financial Statements and
Pro Forma Condensed Combined Financial Statements of the
Company and Healthtrust
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1995
COLUMBIA/HCA HEALTHCARE CORPORATION
/s/ Richard L. Scott
By: _________________________________
RICHARD L. SCOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this re-
port has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Thomas F. Frist, Jr., M.D. Chairman of the March 31, 1995
------------------------------------- Board
THOMAS F. FRIST, JR., M.D.
/s/ Richard L. Scott President, Chief March 31, 1995
------------------------------------- Executive Officer
RICHARD L. SCOTT and Director
/s/ David C. Colby Senior Vice March 31, 1995
------------------------------------- President, Chief
DAVID C. COLBY Financial Officer
and Treasurer
(Principal
Financial Officer)
/s/ Richard A. Lechleiter Vice President and March 31, 1995
------------------------------------- Controller
RICHARD A. LECHLEITER (Principal
Accounting Officer)
/s/ Magdalena Averhoff, M.D. Director March 31, 1995
-------------------------------------
MAGDALENA AVERHOFF, M.D.
/s/ J. David Grissom Director March 31, 1995
-------------------------------------
J. DAVID GRISSOM
40
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Charles J. Kane Director March 31, 1995
-------------------------------------
CHARLES J. KANE
/s/ John W. Landrum Director March 31, 1995
-------------------------------------
JOHN W. LANDRUM
/s/ T. Michael Long Director March 31, 1995
-------------------------------------
T. MICHAEL LONG
/s/ Darla D. Moore Director March 31, 1995
-------------------------------------
DARLA D. MOORE
Director
-------------------------------------
RODMAN W. MOORHEAD, III
/s/ Carl F. Pollard Director March 31, 1995
-------------------------------------
CARL F. POLLARD
/s/ Carl E. Reichardt Director March 31, 1995
-------------------------------------
CARL E. REICHARDT
/s/ Frank S. Royal, M.D. Director March 31, 1995
-------------------------------------
FRANK S. ROYAL, M.D.
Director
-------------------------------------
ROBERT D. WALTER
Director
-------------------------------------
WILLIAM T. YOUNG
41
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Consolidated Statement of Income for the years ended December 31, 1994,
1993 and 1992.......................................................... F-3
Consolidated Balance Sheet, December 31, 1994 and 1993.................. F-4
Consolidated Statement of Common Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992................................. F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1994, 1993 and 1992.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Quarterly Consolidated Financial Information (Unaudited)................ F-27
Financial Statement Schedules (a):
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1994, 1993 and 1992....................................... F-28
</TABLE>
--------
(a) All other schedules have been omitted because the required information is
not present or not present in material amounts.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
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, 1994 and 1993, and the related con-
solidated statements of income, common stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the index on page F-1 of
this Form 10-K. These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Columbia/HCA
Healthcare Corporation at December 31, 1994 and 1993, and the consolidated re-
sults of its operations and cash flows for each of the three years in the pe-
riod ended December 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 10 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."
ERNST & YOUNG LLP
Louisville, Kentucky
February 28, 1995
F-2
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Revenues............................................. $11,132 $10,252 $9,932
------- ------- ------
Salaries, wages and benefits......................... 4,545 4,215 4,112
Supplies............................................. 1,686 1,664 1,613
Other operating expenses............................. 2,059 1,893 1,849
Provision for doubtful accounts...................... 628 542 515
Depreciation and amortization........................ 609 554 541
Interest expense..................................... 248 321 401
Investment income.................................... (62) (66) (81)
Non-recurring transactions........................... 159 151 439
------- ------- ------
9,872 9,274 9,389
------- ------- ------
Income from continuing operations before minority
interests and income taxes.......................... 1,260 978 543
Minority interests in earnings of consolidated
entities............................................ 29 9 10
------- ------- ------
Income from continuing operations before income
taxes............................................... 1,231 969 533
Provision for income taxes........................... 486 394 294
------- ------- ------
Income from continuing operations.................... 745 575 239
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment, net of income tax (benefit)
of $9 in 1993 and
($46) in 1992..................................... - 16 (108)
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 $72 in 1994 and $51 in 1993... (115) (84) -
Cumulative effect on prior years of a change in
accounting for income taxes......................... - - 51
------- ------- ------
Net income..................................... $ 630 $ 507 $ 165
======= ======= ======
Earnings per common and common equivalent share:
Income from continuing operations.................. $ 2.13 $ 1.70 $ .73
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment............................. - .04 (.33)
Costs associated with discontinuance of health
plan segment.................................... - - (.06)
Extraordinary loss on extinguishment of debt....... (.33) (.24) -
Cumulative effect on prior years of a change in
accounting for income taxes....................... - - .16
------- ------- ------
Net income..................................... $ 1.80 $ 1.50 $ .50
======= ======= ======
</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, 1994 AND 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 13 $ 224
Accounts receivable less allowance for loss of $604 --
1994 and $513 -- 1993................................ 1,747 1,566
Inventories............................................ 285 245
Other.................................................. 505 453
------- --------
2,550 2,488
Property and equipment, at cost:
Land................................................... 660 568
Buildings.............................................. 4,576 4,049
Equipment.............................................. 3,986 3,442
Construction in progress (estimated cost to complete
and equip after December 31, 1994 -- $263)............ 351 333
------- --------
9,573 8,392
Accumulated depreciation............................... (3,190) (2,792)
------- --------
6,383 5,600
Investments of professional liability insurance
subsidiary.............................................. 888 700
Intangible assets net of accumulated amortization of
$247 -- 1994 and $178 -- 1993........................... 2,269 1,232
Other.................................................... 249 196
------- --------
$12,339 $ 10,216
======= ========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 503 $ 445
Salaries, wages and other compensation................. 277 232
Other accrued expenses................................. 910 853
Income taxes........................................... - 22
Long-term debt due within one year..................... 77 363
------- --------
1,767 1,915
Long-term debt........................................... 3,853 3,335
Deferred credits and other liabilities................... 1,439 1,438
Minority interests in equity of consolidated entities.... 258 57
Contingencies
Common stockholders' equity:
Common stock $.01 par; authorized 800,000,000 voting
shares and 25,000,000 nonvoting shares; issued and
outstanding 347,849,200 voting shares and 14,119,000
nonvoting shares -- 1994 and 317,686,800 voting shares
and 18,990,000 nonvoting shares -- 1993............... 4 3
Capital in excess of par value......................... 3,162 2,164
Other.................................................. 23 59
Retained earnings...................................... 1,833 1,245
------- --------
5,022 3,471
------- --------
$12,339 $ 10,216
======= ========
</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, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK CAPITAL IN
----------- EXCESS OF RETAINED
PAR VALUE OTHER EARNINGS TOTAL
<CAPTION> ---------- ----- -------- ------
SHARES PAR
(000) VALUE
------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1991.. 260,407 $3 $ 821 $ 471 $1,527 $2,822
Net income................. 165 165
Cash dividends (Galen
Health Care, Inc. common
stock).................... (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
common stock)............. (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
Net income................. 630 630
Cash dividends
(Columbia/HCA Healthcare
Corporation common stock). (42) (42)
Issuance of common stock... 21,094 1 905 906
Stock options exercised and
related tax benefits, net
of 23,000 shares tendered
in partial payment
therefor.................. 1,751 42 (16) 26
Net unrealized losses on
investment securities..... (30) (30)
Other...................... 2,446 51 10 61
------- --- ---------- ----- -------- ------
Balances, December 31, 1994.. 361,968 $4 $ 3,162 $ 23 $1,833 $5,022
======= === ========== ===== ======== ======
</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, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash flows from continuing operations:
Net income........................................ $ 630 $ 507 $ 165
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations......................... - (16) 127
Minority interests in earnings of consolidated
entities....................................... 29 9 10
Non-recurring transactions...................... 159 151 439
Depreciation and amortization................... 609 554 541
Amortization of debt discounts and loan costs... 26 45 78
Deferred income taxes........................... (39) (28) 34
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable.... (91) 19 98
Increase in inventories and other assets...... (71) (7) (58)
Increase (decrease) in income taxes........... (9) 19 (160)
Increase (decrease) in other liabilities...... (108) (87) 83
Change in accounting for income taxes........... - - (51)
Extraordinary loss on extinguishment of debt.... 187 135 -
Other........................................... (21) (3) (19)
------- ------- -------
Net cash provided by continuing operations.... 1,301 1,298 1,287
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment................ (975) (836) (668)
Cash acquired in connection with Medical Care
America, Inc. merger transaction................. 106 - -
Acquisition of hospitals and health care
facilities....................................... (213) (79) (36)
Sale of assets.................................... 86 191 225
Investment in discontinued operations............. - - (71)
Change in investments............................. (226) 21 (35)
Other............................................. (116) (34) (8)
------- ------- -------
Net cash used in investing activities......... (1,338) (737) (593)
------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt........................ 1,190 1,586 240
Net change in commercial paper borrowings and
lines of credit.................................. 1,148 342 (176)
Repayment of long-term debt....................... (2,486) (2,325) (1,799)
Payment to Humana Inc. in spinoff transaction..... - (135) -
Payment of cash dividends......................... (36) (40) (143)
Issuance of common stock.......................... 18 43 741
Other............................................. (8) (25) (15)
------- ------- -------
Net cash used in financing activities......... (174) (554) (1,152)
------- ------- -------
Change in cash and cash equivalents................. (211) 7 (458)
Cash and cash equivalents at beginning of period.... 224 217 675
------- ------- -------
Cash and cash equivalents at end of period.......... $ 13 $ 224 $ 217
======= ======= =======
Interest payments................................... $ 281 $ 278 $ 319
Income tax payments, net of refunds................. 467 347 360
</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
Reporting Entity
Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corpora-
tion that operates hospitals and ancillary health care facilities through ei-
ther (i) wholly owned subsidiaries, (ii) joint ventures or (iii) ownership of
controlling interests in various partnerships in which subsidiaries of
Columbia/HCA serve as the managing general partner.
On September 16, 1994, Columbia/HCA completed a merger transaction with Med-
ical Care America, Inc. ("MCA") (the "MCA Merger"). See Note 2 for a descrip-
tion of the specific terms of the MCA Merger.
On February 10, 1994, Columbia Healthcare Corporation ("Columbia") merged
with HCA- Hospital Corporation of America ("HCA") (the "HCA Merger") to form
Columbia/HCA. See Note 3 for a description of the specific terms of the HCA
Merger.
Prior to the HCA Merger, Columbia was formed on September 1, 1993 as a re-
sult of a merger involving Columbia Hospital Corporation ("CHC") and Galen
Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 4 for a description
of the specific terms of the Galen Merger.
Basis of Presentation
The consolidated financial statements include all subsidiaries and less than
100% owned entities controlled by Columbia/HCA. Significant intercompany
transactions have been eliminated.
The MCA Merger and various other acquisitions and joint venture transactions
have been accounted for under the purchase method. Accordingly, the accounts
of these entities have been consolidated with those of Columbia/HCA since the
acquisition of controlling interest.
The HCA and Galen Mergers have been accounted for by the pooling-of-inter-
ests method. Accordingly, the consolidated financial statements included
herein give retroactive effect to these transactions and include the combined
operations of HCA, Galen and CHC 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 con-
form to Columbia/HCA's annual reporting period ending December 31.
On February 28, 1995, the stockholders of both Columbia/HCA and Healthtrust,
Inc. -- The Hospital Company ("Healthtrust") approved a tax-free stock-for-
stock merger transaction (the "Healthtrust Merger"). Management anticipates
that the Healthtrust Merger will be consummated in April 1995. Although the
Healthtrust Merger is expected to be treated as a pooling of interests for ac-
counting purposes, the accompanying consolidated financial statements do not
give retroactive effect to this transaction. See Note 5 for a description of
the specific terms of the Healthtrust Merger.
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.
F-7
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
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, com-
mercial 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 $547 million
in 1994, $504 million in 1993 and $493 million in 1992. Columbia/HCA uses com-
ponent depreciation for buildings. Depreciation rates for buildings are equiv-
alent to useful lives ranging generally from 20 to 25 years. Estimated useful
lives of equipment vary generally from 3 to 10 years.
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 generally over a period of 40 years. To the extent that
operating results indicate the probability that the carrying values of such
assets have been impaired, provisions for loss are recorded based upon the
undiscounted cash flows of the acquired entity over the remaining amortization
period.
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 actuari-
ally determined estimates. To the extent that subsequent claims information
varies from management's estimates, earnings are charged or credited.
F-8
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
Minority Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities, reve-
nues and expenses of less than 100% owned entities controlled by Columbia/HCA.
Accordingly, management has recorded minority interests in the earnings and
equity of such entities.
Generally, partnership agreements include provisions for the redemption of
minority shareholder interests using specified valuation techniques.
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. Fully di-
luted earnings per common and common equivalent share are not presented be-
cause such amounts approximate earnings per common and common equivalent
share.
NOTE 2 -- MCA MERGER
The MCA Merger was consummated on September 16, 1994. MCA was a national
provider of alternative-site health care services through the operation of
freestanding surgical centers and certain other outpatient ancillary facili-
ties.
In connection with the MCA Merger, all outstanding shares of MCA common
stock were converted on a tax-free basis into approximately 21,093,600 shares
of Columbia/HCA common stock (an exchange ratio of 0.7042 of a share of
Columbia/HCA common stock for each share of MCA common stock). The following
is a summary of the aggregate purchase price (dollars in millions, except per
share data):
<TABLE>
<S> <C>
Fair value of Columbia/HCA common stock ($42.25 per share) issued in
exchange for all outstanding MCA common stock....................... $891
Fair value of options to purchase Columbia/HCA common stock issued in
exchange for all outstanding options to purchase MCA common stock... 15
Transaction costs.................................................... 6
----
$912
====
</TABLE>
The MCA Merger has been accounted for by the purchase method and, according-
ly, the accounts of MCA have been consolidated with those of Columbia/HCA
since September 1, 1994. The excess of the aggregate purchase price over the
estimated fair value of net assets acquired (including property and equipment
of $217 million) approximated $891 million.
NOTE 3 -- HCA MERGER
The HCA Merger was completed on February 10, 1994. In connection with the
HCA Merger, Columbia stockholders approved an amendment to Columbia's Certifi-
cate 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 non-
voting common stock).
F-9
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- HCA MERGER (CONTINUED)
The HCA Merger has been accounted for as a pooling of interests, and accord-
ingly, the consolidated financial statements give retroactive effect to the
HCA Merger and include the combined operations of Columbia and HCA for all pe-
riods presented. The following is a summary of the results of operations of
the separate entities for periods prior to the HCA Merger (dollars in mil-
lions):
<TABLE>
<CAPTION>
COLUMBIA HCA COMBINED
-------- ------ --------
<S> <C> <C> <C>
One month ended January 31, 1994 (unaudited):
Revenues............................................. $ 480 $ 460 $ 940
Income from continuing operations.................... 33 44 77
Net income........................................... 33 44 77
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
</TABLE>
NOTE 4 -- GALEN MERGER
On August 31, 1993, the stockholders of both CHC and Galen approved the Ga-
len 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 com-
mon stock. Immediately subsequent thereto, a wholly owned subsidiary of Colum-
bia was merged into Galen, at which time Galen became a wholly owned subsidi-
ary of Columbia. In connection with this transaction, Columbia issued approxi-
mately 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 ac-
cordingly, the consolidated financial statements give retroactive effect to
the Galen Merger and include 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 mil-
lions):
<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
</TABLE>
F-10
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- HEALTHTRUST MERGER
On October 4, 1994, Columbia/HCA entered into a definitive agreement to
merge with Healthtrust. The Healthtrust Merger was approved by the stockhold-
ers of both companies on February 28, 1995 and is expected to be consummated
in April 1995. Under the terms of the merger agreement, Healthtrust stockhold-
ers will receive on a tax-free basis 0.88 of a share of Columbia/HCA common
stock in exchange for each Healthtrust share held. At December 31, 1994, ap-
proximately 90,896,000 shares of Healthtrust common stock were outstanding.
The Healthtrust Merger remains conditioned upon the finalization of a con-
sent agreement with the Federal Trade Commission and completion of final docu-
mentation.
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 tax-
free spinoff transaction (the "Spinoff") by Humana Inc. ("Humana"), which re-
tained 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 hospi-
tal 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 dis-
ruptive 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. Contract rates associated with this business
are comparable to other managed care plan contracts covering similar volumes.
Liabilities and indemnification -- Each entity assumed liability for speci-
fied claims. The entities will also share risks with respect to certain liti-
gation and other contingencies, both identified and unknown.
Income taxes -- Each entity entered into risk-sharing arrangements in con-
nection 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-11
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED)
Administration -- These arrangements relate to leasing of certain adminis-
trative 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 and $2.9 billion in 1992.
NOTE 7 -- NON-RECURRING TRANSACTIONS
1994
In the first quarter of 1994, the following pretax charges were recorded 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
Writedown of assets in connection with consolidation of duplicative
facilities........................................................... 53
Costs of information systems consolidations primarily related to the
writedown of assets.................................................. 42
Other................................................................. 12
----
$159
====
</TABLE>
1993
In the third quarter of 1993, the following pretax charges were recorded in
connection with the Galen Merger (dollars in millions):
<TABLE>
<S> <C>
Employee benefit and certain severance actions........................ $ 47
Investment advisory and professional fees............................. 15
Writedown of assets in connection with consolidation of duplicative
facilities........................................................... 63
Administrative facility asset writedowns and conversion costs associ-
ated with the transaction............................................ 16
Provision for loss on planned sales of assets......................... 10
----
$151
====
</TABLE>
1992
In the third quarter of 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 ac-
quired, and the costs associated with the replacement of certain credit agree-
ments.
Income from continuing operations in 1992 also includes a pretax gain of $93
million on the sale of an investment in Healthtrust common stock.
Income from continuing operations in 1992 includes $138 million of pretax
charges incurred primarily in connection with the Spinoff, including a provi-
sion for loss on the planned sale of
F-12
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- NON-RECURRING TRANSACTIONS (CONTINUED)
hospitals, writedowns of assets in markets with significant declines in opera-
tions, administrative facility asset writedowns and certain other costs asso-
ciated with the separation of the hospital and
health plan businesses. Non-recurring costs aggregating $171 million (before
income taxes) incurred by Humana primarily in connection with the Spinoff are
included in discontinued operations in 1992.
NOTE 8 -- 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 fa-
cilities), all of which have been accounted for by the purchase method. Ac-
cordingly, the aggregate purchase price of these transactions has been allo-
cated to tangible and identifiable intangible assets acquired and liabilities
assumed based upon their respective fair values. The consolidated financial
statements include the accounts of acquired entities since the respective ac-
quisition dates.
The following is a summary of acquisitions and joint ventures consummated
during the last three years under the purchase method of accounting (excluding
the MCA Merger) (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Number of hospitals........................................ 9 3 15
Number of licensed beds.................................... 2,535 903 2,345
Purchase price information:
Fair value of assets acquired............................ $ 443 $ 164 $ 490
Fair value of liabilities assumed........................ (55) (48) (279)
----- ----- -----
Net assets acquired.................................... 388 116 211
Issuance of common stock................................. - - (119)
Cash received from sale of certain acquired assets....... - - (40)
Net assets sold in exchange for acquired properties...... (45) - -
Contributions from minority partners..................... (124) (28) (1)
Other.................................................... (6) (9) (15)
----- ----- -----
Net cash paid.......................................... $ 213 $ 79 $ 36
===== ===== =====
</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 as-
sets of acquired entities included in the table above aggregated $100 million
in 1994, $7 million in 1993 and $97 million in 1992.
The pro forma effect of these acquisitions on Columbia/HCA's results of op-
erations prior to consummation was not significant.
F-13
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- PRO FORMA INFORMATION
The following unaudited pro forma information reflects the combined operat-
ing results of Columbia/HCA and MCA as if the MCA Merger had occurred at the
beginning of the periods indicated (dollars in millions, except per share da-
ta).
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Revenues..................................................... $11,430 $10,684
Income from continuing operations............................ 768 569
Net income................................................... 741 399
Earnings per common and common equivalent share:
Income from continuing operations.......................... 2.10 1.55
Net income................................................. 2.03 1.09
</TABLE>
NOTE 10 -- INCOME TAXES
Provision for income taxes consists of the following (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current:
Federal....................................................... $400 $357 $232
State......................................................... 71 69 34
---- ---- ----
471 426 266
---- ---- ----
Deferred:
Federal....................................................... 13 (36) 22
State......................................................... 2 4 6
---- ---- ----
15 (32) 28
---- ---- ----
$486 $394 $294
==== ==== ====
</TABLE>
Reconciliation of federal statutory rate to effective income tax rate fol-
lows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate........................................ 35.0% 35.0% 34.0%
State income taxes, net of federal income tax benefit......... 3.9 4.6 4.4
Merger costs.................................................. 0.4 0.6 -
Costs in excess of net assets acquired........................ 1.1 1.2 16.6
Tax exempt investment income.................................. (0.6) (0.9) (1.7)
Other items, net.............................................. (0.3) 0.1 1.8
---- ---- ----
Effective income tax rate..................................... 39.5% 40.6% 55.1%
==== ==== ====
</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.
F-14
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
A summary of deferred income taxes by source included in the consolidated
balance sheet at December 31 follows (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Depreciation.............................. $ - $591 $ - $ 766
Long-term debt............................ - 22 - 26
Professional liability risks.............. 205 - 329 -
Doubtful accounts......................... 91 - 91 -
Property losses........................... 46 - 87 -
Cash basis................................ - 37 - 60
Compensation.............................. 62 - 24 -
Capitalized leases........................ 19 - 11 -
Other..................................... 305 286 215 167
---- ---- ---- ------
$728 $936 $757 $1,019
==== ==== ==== ======
</TABLE>
Deferred income taxes totaling $271 million and $295 million at December 31,
1994 and 1993, respectively, are included in other current assets. Noncurrent
deferred income taxes, included in deferred credits and other liabilities, to-
taled $479 million and $557 million at December 31, 1994 and 1993, respective-
ly.
The Internal Revenue Service (the "IRS") has issued statutory notices of de-
ficiency in connection with its examinations of HCA's federal income tax re-
turns for 1981 through 1988. Columbia/HCA is currently contesting 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 dis-
puted items with respect to these years.
Method of Accounting
For years 1981 through 1986, most of HCA's hospital subsidiaries (the "Sub-
sidiaries") reported taxable income primarily using the cash method of ac-
counting. This method was prevalent within the hospital industry and the Sub-
sidiaries 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 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 pre-
vail 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 ac-
crual method. If the IRS were successful with respect to this issue,
Columbia/HCA would owe an additional $93 million in income taxes and $489 mil-
lion in interest as of December 31, 1994.
F-15
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
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 as-
certainable useful lives should be reclassified as nondeductible goodwill. If
the IRS ultimately prevails in this regard, Columbia/HCA would owe an addi-
tional $122 million in income taxes and $175 million in interest as of Decem-
ber 31, 1994.
Insurance Subsidiary
Based on a Sixth Circuit Court of Appeals decision (the Court having juris-
diction 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 actu-
ally paid. HCA has claimed the additional deductions in its Tax Court peti-
tions. Through December 31, 1994, Columbia/HCA is seeking a refund totaling
$63 million in income taxes and $120 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 fed-
eral income tax return. The IRS has disallowed the deduction and is claiming
an additional $4 million in income taxes and $17 million in interest. A final
determination that the premiums are not deductible either when paid to Parthe-
non 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 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 $73 million
through December 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 po-
sition is contrary to a Tax Court decision in a similar case. The IRS is
claiming additional income taxes of $79 million and interest of $81 million
through December 31, 1994.
In connection with the 1987 Healthtrust transactions, the IRS further as-
serts that, to the extent the Subsidiaries were properly on the cash method
through 1986, and therefore properly
F-16
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
recognizing taxable income over the ten-year transition period, HCA should
have additional income in 1987 equal to the unamortized portion of the de-
ferred 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 $9 million of additional income taxes and $22 million of interest through
December 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 ac-
counts. For years 1987 and 1988, the IRS is asserting that HCA was not enti-
tled to exclude from income amounts which are unlikely to be collected. Man-
agement believes that such exclusions are permissible under an accrual method
of accounting, and because HCA is a "service business" and not a "merchandis-
ing business," it is entitled to a special exclusion provided to service busi-
nesses 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 accor-
dance with the controlling statute. If the IRS prevails, Columbia/HCA would
owe additional income taxes of $104 million and interest of $62 million
through December 31, 1994.
Leveraged Buy-out Expenses
The IRS has asserted that no deduction is allowed for various expenses in-
curred in connection with HCA's leveraged buy-out transaction in 1989, includ-
ing the amortization of loan costs incurred to borrow funds to acquire the
stock of the former shareholders, certain fees incurred by the Special Commit-
tee of HCA's Board of Directors to evaluate the buy-out proposal, compensation
payments to cancel employee stock plans, and various other costs incurred af-
ter 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 pre-
vails on these issues, Columbia/HCA would owe income taxes of $104 million and
interest of $39 million through December 31, 1994.
Other Issues
Additional federal income tax issues primarily concern disputes over the de-
preciable lives utilized by HCA for constructed hospital facilities, invest-
ment tax credits, vacation pay deductions and income from foreign operations.
Many of these items, including depreciation, investment tax credits and for-
eign issues, have been resolved favorably in previous settlements. The IRS is
claiming an additional $38 million in income taxes and $20 million in interest
through December 31, 1994 with respect to these issues.
On March 24, 1994, Columbia/HCA made an advance payment to the IRS of ap-
proximately $75 million in connection with certain disputed prior years income
taxes and related interest. This payment did not have a material effect on
1994 earnings.
In September 1994 Columbia/HCA presented its case in Tax Court for all is-
sues other than the deductibility of insurance premiums paid to Parthenon
(which was presented in November
F-17
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
1994). A Tax Court decision is expected in 1995. Resolution of disputed income
tax issues by the Tax Court will not be affected by the Healthtrust Merger.
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 finan-
cial position of Columbia/HCA.
NOTE 11 -- PROFESSIONAL LIABILITY RISKS
Columbia/HCA insures a substantial portion of its professional liability
risks through a wholly owned insurance subsidiary. Provisions for such risks
underwritten by the subsidiary and deductibles at certain hospitals, including
expenses incident to claim settlements, were $84 million for 1994, $96 million
for 1993 and $102 million for 1992. Amounts funded to the insurance subsidiary
were $253 million for 1994 (including approximately $146 million of previously
unfunded risks related to prior years), $62 million for 1993 and $55 million
for 1992.
Allowances for professional liability risks, included principally in de-
ferred credits and other liabilities, were $852 million and $817 million at
December 31, 1994 and 1993, 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 (all held by the wholly owned insurance subsidiary) 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 secu-
rities were recorded at the lower of aggregate cost or fair value. The adop-
tion of SFAS 115 had no effect on earnings in 1993.
The provisions of SFAS 115 require that investments in debt and equity secu-
rities 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 subsidiary 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 in-
come and recorded as a separate component of common stockholders' equity.
F-18
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
A summary of the insurance subsidiary's investments at December 31 follows
(dollars in millions):
<TABLE>
<CAPTION>
1994
--------------------------------
UNREALIZED AMOUNTS
-------------------- FAIR
COST GAINS LOSSES VALUE
---- --------- --------- ---------
<S> <C> <C> <C> <C>
Held to maturity:
United States Government
obligations.............. $ 5 $ - $ - $ 5
Commercial paper.......... 192 - - 192
---- --------- --------- ----
197 - - 197
---- --------- --------- ----
Available for sale:
Bonds:
United States Govern-
ment................... 38 - (1) 37
States and municipali-
ties................... 360 3 (12) 351
Mortgage-backed securi-
ties................... 57 - (3) 54
Corporate and other..... 79 - (3) 76
Money market funds........ 58 - - 58
Redeemable preferred
stocks................... 16 - (1) 15
---- --------- --------- ----
608 3 (20) 591
---- --------- --------- ----
Equity securities:
Adjustable rate pre-
ferred stocks.......... 29 1 - 30
Common stocks........... 144 19 (8) 155
---- --------- --------- ----
173 20 (8) 185
---- --------- --------- ----
$978 $ 23 $ (28) 973
==== ========= =========
Amounts classified as cur-
rent assets................ (85)
----
Investment carrying value... $888
====
<CAPTION>
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 Govern-
ment................... 19 1 - 20
States and municipali-
ties................... 372 16 - 388
Mortgage-backed securi-
ties................... 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 pre-
ferred stocks.......... 13 1 - 14
Common stocks........... 133 27 (4) 156
---- --------- --------- ----
146 28 (4) 170
---- --------- --------- ----
$734 $ 49 $ (5) 778
==== ========= =========
Amounts classified as cur-
rent assets................ (78)
----
Investment carrying value... $700
====
</TABLE>
F-19
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
The cost and estimated fair value of debt and equity securities at December
31, 1994 by contractual maturity are shown below (dollars in millions). Ex-
pected 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......................................... $197 $197
---- ----
Available for sale:
Due in one year or less......................................... 95 95
Due after one year through five years........................... 126 122
Due after five years through ten years.......................... 141 136
Due after ten years............................................. 246 238
---- ----
608 591
Equity securities................................................. 173 185
---- ----
781 776
---- ----
$978 $973
==== ====
</TABLE>
The fair value of the subsidiary's investments is based generally on quoted
market prices.
The average life of the above investments (excluding common stocks) approxi-
mated four years at December 31, 1994 and five years at December 31, 1993, and
the tax equivalent yield on such investments averaged 8% for 1994 and 10% for
1993 and 1992. Tax equivalent yield is the rate earned on invested assets, ex-
cluding unrealized gains and losses, adjusted for the benefit of nontaxable
investment income.
Sales of securities for the years ended December 31 are summarized below
(dollars in millions):
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
TYPE OF SECURITY TYPE OF SECURITY
------------------ ------------------
DEBT EQUITY DEBT EQUITY
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Cash proceeds.......................... $ 134 $ 98 $ 185 $ 106
Gross realized gains................... 1 16 4 19
Gross realized losses.................. 2 5 - 10
</TABLE>
F-20
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- LONG-TERM DEBT
Capitalization
A summary of long-term debt at December 31 follows (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Senior collateralized debt, 5% to 16% (rates generally fixed)
payable in periodic installments through 2034................... $ 203 $ 211
Senior debt, 3.6% to 13.3% (rates generally fixed) payable in
periodic installments through 2024.............................. 1,522 1,158
Senior debt (floating rates averaging 6.7%) payable in periodic
installments through 1997....................................... 299 -
Fixed rate note agreement (13% rate)............................. - 100
Commercial paper (floating rates averaging 6.3%)................. 1,630 495
Commercial paper (rates fixed under interest rate agreements).... - 380
Bank credit agreement (floating rates averaging 6.3%)............ 3 1,172
Bank line of credit (floating rates averaging 6.3%).............. 149 100
Subordinated debt, 6.8% to 11.5% (rates generally fixed) payable
in periodic installments through 2015........................... 124 82
------ ------
Total debt, average life of six years (rates averaging 7.5%)..... 3,930 3,698
Amounts due within one year...................................... 77 363
------ ------
Long-term debt................................................... $3,853 $3,335
====== ======
</TABLE>
Credit Facilities
Subject to consummation of the Healthtrust Merger, Columbia/HCA will amend
its revolving credit agreements (the "Credit Facilities") from an aggregate
amount of $2.25 billion to $3.75 billion. The Credit Facilities will comprise
a $2 billion five-year revolving credit agreement and a $1.75 billion 364-day
revolving credit agreement. The Credit Facilities will support Columbia/HCA's
commercial paper programs and replace prior revolving credit agreements asso-
ciated with Columbia/HCA ($2.25 billion) and Healthtrust ($1.2 billion). In-
terest will be payable generally at either LIBOR plus .18% to .53% (depending
on Columbia/HCA's credit rating), the prime lending rate or a competitive bid
rate. The Credit Facilities will 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.
Significant Financing Activities
1994
During 1994 Columbia/HCA issued $175 million of 6.5% notes due 1999; $50
million of 7.6% notes due 2001; $50 million of 8.02% notes due 2002; $100 mil-
lion of 8.13% notes due 2003; $150 million of 7.15% notes due 2004; $55 mil-
lion of 8.05% notes due 2006; $150 million of 8.85% notes due 2007; and $150
million of 8.36% notes due 2024. Additionally, Columbia/HCA issued $100 mil-
lion and $200 million of LIBOR-based notes with final maturities of 1996 and
1997, respectively.
During 1994 a $40 million 9% subordinated mandatory convertible note due
1999 was converted into approximately 2.2 million shares of Columbia/HCA com-
mon stock.
F-21
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
1993
During 1993 Columbia/HCA issued $150 million of 6.13% notes due 2000 and
$150 million of 7.5% notes due 2023.
1992
During 1992 Columbia/HCA sold $100 million face amount of 10.88% senior sub-
ordinated notes due 2002 and $135 million face amount of 11.5% senior subordi-
nated 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 15.75% subordinated discount debentures and
related interest aggregating $444 million.
In connection with the acquisition of BAMI in 1992, Columbia/HCA assumed ap-
proximately $140 million of long-term debt, including approximately $64 mil-
lion 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.
General Information
Borrowings under the commercial paper programs are classified as long-term
debt due to the credit available under the revolving credit agreements dis-
cussed above and management's intention to refinance these borrowings on a
long-term basis.
Maturities of long-term debt in years 1996 through 1999 are $238 million,
$264 million, $115 million and $213 million, respectively. Such amounts re-
flect maturities of debt issued for refinancings through February 8, 1995 and,
as to short-term debt classified as long-term, are based upon maturities of
the revolving credit agreements. Approximately 5% 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 in-
terest rate debt, primarily through the use of existing cash and cash equiva-
lents and issuance of long-term debt, commercial paper and equity. Amounts re-
financed or prepaid totaled $2.2 billion in 1994, $787 million in 1993 and $1
billion in 1992. After-tax losses from refinancing activities aggregated $115
million in 1994 ($.33 per share) and $84 million in 1993 ($.24 per share).
The estimated fair value of Columbia/HCA's long-term debt was $3.9 billion
and $4.1 billion at December 31, 1994 and 1993, respectively, compared to car-
rying amounts aggregating $3.9 billion and $3.7 billion, respectively. The es-
timate of fair value is based upon the quoted market prices for the same or
similar issues of long-term debt.
At December 31, 1993, Columbia/HCA was a party to certain interest rate swap
agreements covering $380 million of commercial paper classified as long-term
debt. These transactions were consummated in prior years in connection with
the refinancing of high-coupon debt with an average interest rate approximat-
ing 13% and provided a cost-effective source of fixed rate financing averaging
7.9%. As part of the previously discussed refinancing of $2.2 billion of long-
term debt
F-22
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
in 1994, Columbia/HCA terminated all of its interest rate agreements in ad-
vance of their scheduled maturities. The after-tax loss on refinancing of
long-term debt aggregating $115 million includes a loss of $13 million related
to the termination of these agreements. At December 31, 1994, Columbia/HCA was
not a party to any interest rate swap agreements. Subject to market conditions
and certain other factors, Columbia/HCA may enter into similar arrangements in
the future as a means of effecting fixed rate financing.
NOTE 13 -- LEASES
Columbia/HCA leases real estate and equipment under cancelable and non-can-
celable arrangements. Future minimum payments under non-cancelable operating
leases follow (dollars in millions):
<TABLE>
<S> <C>
1995.................................................................. $132
1996.................................................................. 101
1997.................................................................. 87
1998.................................................................. 72
1999.................................................................. 59
Thereafter............................................................ 160
</TABLE>
Rent expense aggregated $235 million, $196 million and $190 million for the
years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 14 -- 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 reim-
bursements 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 ex-
tent necessary and that its assessment of contingencies is reasonable. Manage-
ment 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 is-
sues 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 provi-
sions for loss.
Income taxes -- Columbia/HCA is contesting adjustments proposed by the
IRS.
Spinoff -- Certain subsidiaries of Columbia/HCA are parties to risk-shar-
ing arrangements with Humana.
Regulatory review -- Federal regulators are investigating certain finan-
cial arrangements with physicians at two psychiatric hospitals.
F-23
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- CONTINGENCIES (CONTINUED)
Litigation -- Various suits and claims arising in the ordinary course of
business are pending against Columbia/HCA.
Columbia/HCA is a party to a class action lawsuit originally initiated
against certain subsidiaries, directors and officers of MCA alleging viola-
tion of various sections of the Securities Act of 1933 and Securities Ex-
change Act of 1934 as well as various provisions of state law. The litiga-
tion is generally based on claims that the defendants knew or should have
known earlier than reported that MCA's earnings for the quarter ended Sep-
tember 30, 1992 would be below analysts' published expectations and that
the defendants made false and misleading statements concerning MCA's earn-
ings prospects, leading to the subsequent loss in the value of MCA common
stock. In December 1994 the litigation was tentatively settled for $60 mil-
lion, subject to the approval of the court and a majority of the class mem-
bers. This settlement will not have any impact on earnings since this
amount was reflected in the purchase price allocation of the MCA Merger.
NOTE 15 -- CAPITAL STOCK
The terms and conditions associated with each class of Columbia/HCA common
stock are substantially identical except for voting rights. All nonvoting com-
mon stockholders may convert their shares on a one-for-one basis into voting
common stock, subject to certain limitations. In addition, certain voting com-
mon stockholders may convert their shares on a one-for-one basis into nonvot-
ing common stock.
The following shares of common stock were reserved at December 31, 1994
(amounts in thousands):
<TABLE>
<S> <C>
Stock option plans.................................................... 35,905
Retirement and savings plans.......................................... 5,135
Other................................................................. 690
------
41,730
======
</TABLE>
Columbia/HCA has plans under which options to purchase common stock may be
granted to officers, employees and directors. Generally options have been
granted at not less than market price on the date of grant. Exercise provi-
sions 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. Activ-
ity 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, 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
Granted........................................ 5,156 36.88 to 43.38
Conversion of MCA stock options................ 938 5.64 to 57.16
Exercised...................................... (1,774) 0.22 to 37.63
Cancelled or lapsed............................ (1,531) 0.22 to 57.16
-------
Balances, December 31, 1994...................... 12,819 $ 0.22 to $57.16
=======
</TABLE>
F-24
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- CAPITAL STOCK (CONTINUED)
At December 31, 1994, options for 4,003,900 shares were exercisable. Shares
of common stock available for future grants were 23,086,000 at December 31,
1994 and 10,088,000 at December 31, 1993.
In connection with the HCA Merger, Columbia/HCA stockholders voted to in-
crease 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 pre-
ferred stock (none of which are outstanding) were increased from 10 million to
25 million.
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 un-
less 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.
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.
NOTE 16 -- 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 em-
ployee service. Retirement plan expense was $72 million for 1994, $97 million
for 1993 and $102 million for 1992. Amounts equal to retirement plan expense
are funded annually.
Columbia/HCA maintains various contributory savings plans which are avail-
able to employees who meet certain minimum requirements. Certain of the plans
require that Columbia/HCA match 25% of a participant's contribution up to cer-
tain maximum levels. The cost of these plans totaled $21 million for 1994, $20
million for 1993 and $19 million for 1992. Columbia/HCA contributions are
funded periodically during the year.
NOTE 17 -- ACCRUED EXPENSES
A summary of other accrued expenses at December 31 follows (dollars in mil-
lions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Workers' compensation............................................ $126 $102
Taxes other than income.......................................... 153 143
Professional liability risks..................................... 106 89
Employee benefit plans........................................... 122 158
Interest......................................................... 138 181
Other............................................................ 265 180
---- ----
$910 $853
==== ====
</TABLE>
F-25
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 -- FAIR VALUE INFORMATION
A summary of fair value information at December 31 follows (dollars in mil-
lions):
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents (Note 1)............. $ 13 $ 13 $ 224 $ 224
Investments of professional liability insurance
subsidiary (Note 11).......................... 978 973 734 778
Long-term debt, including amounts due within
one year (Note 12)............................ 3,930 3,873 3,698 4,091
</TABLE>
F-26
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994
------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................... $2,778 $2,689 $2,728 $2,937
Net income:
Continuing operations (a)............ 137 205 176 227
Extraordinary loss on extinguishment
of debt............................. (92) - (23) -
Net income......................... 45 205 153 227
Per common share:
Earnings:
Continuing operations (a).......... .40 .60 .50 .62
Extraordinary loss on extinguish-
ment of debt...................... (.27) - (.06) -
Net income....................... .13 .60 .44 .62
Cash dividends....................... .03 .03 .03 .03
Market prices (b):
High............................... 45 1/4 43 44 43 3/4
Low................................ 33 1/4 36 1/2 38 1/4 33 1/2
<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 (c)............ 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 (c).......... .61 .49 .08 .52
Discontinued operations............ .04 - - -
Extraordinary loss on extinguish-
ment of debt...................... - - (.24) -
Net income (loss)................ .65 .49 (.16) .52
Cash dividends....................... - - .03 .03
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
</TABLE>
--------
(a) First quarter results include $102 million ($.30 per share) of costs re-
lated to the HCA Merger. See Note 7 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 results include $98 million ($.29 per share) of costs re-
lated to the Galen Merger. See Note 7 of the Notes to Consolidated Finan-
cial Statements.
F-27
<PAGE>
COLUMBIA/HCA HEALTHCARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
OF PERIOD EXPENSES OR PAYMENTS OF PERIOD
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Allowances for loss on accounts
receivable:
Year ended December 31, 1992.... $447 $515 $(487) $475
Year ended December 31, 1993.... 475 542 (504) 513
Year ended December 31, 1994.... 513 628 (537) 604
</TABLE>
F-28
<PAGE>
EXHIBIT 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE:
Earnings:
Income from continuing operations................. $ 745 $ 575 $ 239
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment, net of income tax
(benefit)...................................... - 16 (108)
Costs associated with discontinuance of health
plan segment, net of income tax benefit........ - - (17)
Extraordinary loss on extinguishment of debt, net
of income tax benefit............................ (115) (84) -
Cumulative effect on prior years of a change in
accounting for income taxes...................... - - 51
------- ------- -------
Net income.................................... $ 630 $ 507 $ 165
======= ======= =======
Shares used in the computation (in thousands):
Weighted average common shares outstanding........ 346,219 334,160 301,921
Dilutive effect of common stock equivalents....... 3,856 5,062 26,643
------- ------- -------
Shares used in earnings per common and common
equivalent share computations................ 350,075 339,222 328,564
======= ======= =======
Primary earnings per common and common equivalent
share:
Income from continuing operations................. $ 2.13 $ 1.70 $ .73
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment............................ - .04 (.33)
Costs associated with discontinuance of health
plan segment................................... - - (.06)
Extraordinary loss on extinguishment of debt...... (.33) (.24) -
Cumulative effect on prior years of a change in
accounting for income taxes...................... - - .16
------- ------- -------
Net income.................................... $ 1.80 $ 1.50 $ .50
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 11
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Earnings:
Income applicable to common stock................. $ 745 $ 575 $ 239
Interest addback on convertible securities, net of
income taxes..................................... 2 3 2
------- ------- -------
Adjusted income applicable to common stock...... 747 578 241
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment, net of income tax
(benefit)...................................... - 16 (108)
Costs associated with discontinuance of health
plan segment, net of income tax benefit........ - - (17)
Extraordinary loss on extinguishment of debt, net
of income tax benefit............................ (115) (84) -
Cumulative effect on prior years of a change in
accounting for income taxes...................... - - 51
------- ------- -------
Net income.................................... $ 632 $ 510 $ 167
======= ======= =======
Shares used in the computation (in thousands):
Weighted average common shares outstanding........ 346,219 334,160 301,921
Dilutive effect of common stock equivalents and
other dilutive securities........................ 5,157 7,995 29,218
------- ------- -------
Shares used in earnings per common and common
equivalent share computations................ 351,376 342,155 331,139
======= ======= =======
Fully diluted earnings per common and common
equivalent share:
Income from continuing operations................. $ 2.13 $ 1.69 $ .73
Discontinued operations:
Income (loss) from operations of discontinued
health plan segment............................ - .04 (.33)
Costs associated with discontinuance of health
plan segment................................... - - (.06)
Extraordinary loss on extinguishment of debt...... (.33) (.24) -
Cumulative effect on prior years of a change in
accounting for income taxes...................... - - .16
------- ------- -------
Net income.................................... $ 1.80 $ 1.49 $ .50
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before
minority interests and income taxes...... $1,260 $ 978 $ 543 $ 551 $ 641
Fixed charges, exclusive of capitalized
interest................................. 327 387 465 655 737
------ ------ ------ ------ ------
$1,587 $1,365 $1,008 $1,206 $1,378
====== ====== ====== ====== ======
Fixed charges:
Interest charged to expense............... $ 248 $ 321 $ 401 $ 597 $ 694
One-third of rent expense and amortization
of deferred loan costs (a)............... 79 66 64 58 43
------ ------ ------ ------ ------
Fixed charges, exclusive of capitalized
interest................................. 327 387 465 655 737
Capitalized interest...................... 12 12 12 9 8
------ ------ ------ ------ ------
$ 339 $ 399 $ 477 $ 664 $ 745
====== ====== ====== ====== ======
Ratio of earnings to fixed charges.......... 4.68 3.42 2.11 1.82 1.85
====== ====== ====== ====== ======
</TABLE>
--------
(a) One-third of rent expense is considered representative of the underlying
interest.
<PAGE>
EXHIBIT 21
COLUMBIA/HCA HEALTHCARE CORPORATION
SUBSIDIARY-PARTNERSHIP LIST/HOSPITAL AND OTHER
STATE OF NAME OF SUBSIDIARY AND TRADE NAMES UNDER WHICH
INCORPORATION SUCH SUBSIDIARY OPERATES
ALABAMA
Birmingham Outpatient Surgery Center, Ltd. - Doing Business As:
Birmingham Outpatient CareCenter
Birmingham Outpatient Surgical Center, Inc.
Columbia/HCA Montgomery Healthcare System, Inc.
East Montgomery Medical Center, Inc. - Doing Business As:
East Montgomery Medical Center (Montgomery, AL)
Florence Hospital, Inc. - Doing Business As:
Florence Hospital (Florence, AL)
Colonial Manor Professional Building (Florence, AL)
Galen Medical Corporation - Doing Business As:
Metropolitan Hospital (Atlanta, GA)
HCA Health Services of Alabama, Inc.
Huntsville Physical Therapy, Inc. - Doing Business As:
Sports Therapy & Rehabilitation of Huntsville
Huntsville Surgery Center, Ltd.
Maynor Eye Center, Inc.
Medical Center Shoals, Inc. - Doing Business As:
Medical Center Shoals (Muscle Shoals, AL)
Shoals Medical Building (Muscle Shoals, AL)
Montgomery Regional Medical Center, Inc. - Doing Business As:
Montgomery Regional Medical Center (Montgomery, AL)
Montgomery Regional Medical Center Allied Health Institutes
(Montgomery, AL)
Montgomery Surgical Center, Ltd.- Doing Business As:
<PAGE>
ALABAMA CONTINUED
Montgomery Surgical Center
North Alabama Healthcare System, Inc.
Northwest Medical Center, Inc. - Doing Business As:
Northwest Medical Center (Russellville, AL)
Surgicare of Huntsville, Inc.
Surgicare of Mobile, Inc.
Surgicare of Mobile, Ltd.- Doing Business As:
Surgicare of Mobile
Surgicare of Montgomery, Inc.
The Surgery Center JV - Doing Business As:
The Surgery Center of Huntsville
ALASKA
Alaska Surgery Center, Inc.
Alaska Surgery Center, Ltd.- Doing Business As:
Alaska Surgery Center
Chugach Physical Therapy, Inc. - Doing Business As:
Chugach Physical Therapy & Fitness Center
ARKANSAS
Central Arkansas Provider Network, Inc.
Columbia Health System of Arkansas, Inc.
HCA Health Services of Arkansas, Inc.
Surgicare Outpatient Center of Ft. Smith, Inc.
ARIZONA
Galen of Arizona, Inc. - Doing Business As:
Healthwest Regional Medical Center (Phoenix, AZ)
Paradise Valley Hospital (Phoenix, AZ)
Columbia HomeCare (Phoenix, AZ)
Doctors Medical Plaza South (Phoenix, AZ)
Paradise Valley HomeCare (Phoenix, AZ)
-2-
<PAGE>
ARIZONA CONTINUED
HCA Health Services of Arizona, Inc.
Osborn Ambulatory Surgery Group, Ltd.- Doing Business As:
Osborn Ambulatory Surgical Center
Paradise Valley Psychiatric Services, Inc.
Phoenix Surgical Facilities, Ltd.
Surgicare of Phoenix, Inc.
Surgicenter of Glendale, Inc. - Doing Business As:
Glendale Surgicenter
Surgicenters of America, Inc. - Doing Business As:
Surgicenter Pain Unit
Surgicenter
CALIFORNIA
Arcadia Outpatient Surgery Center, LP - Doing Business As:
Arcadia Outpatient Surgery Center
Birthing Facility of Beverly Hills, Inc.
Galen-Soch, Inc.
HCA Allied Health Services of San Diego, Inc.
HCA Health Services of California, Inc.
HCA Hospital Services of San Diego, Inc.
Hospital Corporation of California
Huntington Associates
Huntington Beach Diagnostic Imaging Associates, Ltd.
Huntington Intercommunity Hospital - Doing Business As:
Huntington Beach Medical Center (Huntington Beach, CA)
Huntington Beach Diagnostics Imaging Center
Kingsbury Capital Partners, Inc.
LE Corporation - Doing Business As:
The Oaks Retirement Center (Pasadena, CA)
Las Encinas Hospital - Doing Business As:
Las Encinas Hospital (Pasadena, CA)
-3-
<PAGE>
CALIFORNIA CONTINUED
Los Gatos Surgical Center, a California Limited Partnership - Doing
Business As:
Los Gatos Surgical Center
Los Robles Regional Medical Center - Doing Business As:
Los Robles Regional Medical Center - (Thousand Oaks, CA)
Los Robles Surgicenter
MCA Investment Company
MCA Management Partnership, Ltd.
Meditrina Medical Center, Ltd.- Doing Business As:
Surgicenter of South Bay
Neuro Affiliates Company
North Anaheim Surgicenter, Ltd.- Doing Business As:
North Anaheim Surgery Center
North Coast Surgery Center, Ltd.- Doing Business As:
North Coast Surgery Center
Orange Surgical Services, Ltd. - Doing Business As:
Orange Surgical Services, Inc.
Psychiatric Company of California, Inc.
SLCO, Inc. - Doing Business As:
San Leandro Hospital (San Leandro, CA)
Saddleback Outpatient Surgery Center, Ltd. - Doing Business As:
Saddleback Valley Outpatient Surgery Center
San Joaquin Surgery Center, Ltd.
San Joaquin Surgical Center, Inc.
San Leandro Surgery Center, Ltd.
Southwest Center Surgery, Ltd.- Doing Business As:
Southwest Surgical Clinic
Southwest Surgical Clinic, Inc.
Surgical Centers of Southern California, Inc.
Surgicare of Anaheim, Inc.
Surgicare of Beverly Hills, Inc.
Surgicare of La Veta, Inc.
-4-
<PAGE>
CALIFORNIA CONTINUED
Surgicare of La Veta, Ltd.- Doing Business As:
La Veta Surgery Center
Surgicare of Laguna Hills, Inc.
Surgicare of Los Gatos, Inc.
Surgicare of Montebello, Inc.
Surgicare of North Anaheim, Inc.
Surgicare of Oceanside, Inc.
Surgicare of Orange, Inc.
Surgicare of San Leandro, Inc.
Sutter Corporation
Tri-City Ambulatory Surgical Investors, Ltd.
West Anaheim Community Hospital - Doing Business As:
West Anaheim Medical Center (Anaheim, CA)
West Hills Hospital - Doing Business As:
West Hills Regional Medical Center (Canoga Park, CA)
Westminster Community Hospital
Woodward Park Surgicenter, Inc.
Woodward Park Surgicenter, Ltd - Doing Business As:
Woodward Park Surgicenter
COLORADO
Centrum Surgery Center, Ltd.
Colorado Healthcare Management, Inc.
Columbine Psychiatric Center, Inc. - Doing Business As:
Columbine Psychiatric Center (Littleton, CO)
Denver Mid-Town Surgery Center, Ltd.
-5-
<PAGE>
COLORADO CONTINUED
Galen of Aurora, Inc. - Doing Business As:
Aurora Regional Medical Center (Aurora, CO)
Aurora Physicians Building
HCA Health Services of Colorado, Inc.
Health Care Indemnity, Inc.
Lakewood Outpatient Surgical Center, Ltd.
Lakewood Surgery Center JV - Doing Business As:
Lakewood Surgical Center
Lakewood Surgicare, Inc.
Mountainview MRI Associates, Ltd.
MOVCO, Inc.
Surgicare of Denver Mid-Town, Inc.
Surgicare of Southeast Denver, Inc.
DELAWARE
AlternaCare Corp. - Doing Business As:
Diablo Valley Surgery Center
Amedicorp, Inc. - Doing Business As:
Southwest Dual Diagnostic Center
American Medicorp Development Co. - Doing Business As:
Columbia County Medical Plaza (GA)
Cypress Medical Office Building (FL)
Doctors Medical Plaza-North (Phoenix, AZ)
Duluth Medplus (Duluth, GA)
East Ridge Doctors Building (TN)
East Ridge Professional Building (TN)
Lilburn Medplus (Lilburn, GA)
MetroImaging (San Antonio, TX)
Roswell Medplus (Roswell, GA)
Sunrise Medical Tower I (3201 S. Maryland Parkway) (NV)
Sunrise Medical Tower II (3121 S. Maryland Parkway) (NV)
Bowling Green MRI, L.P.
Central Texas Lithotripter Associates, L.P.
CHC Finance Co.
CHC Holdings, Inc.
CHC Payroll Agent, Inc.
-6-
<PAGE>
DELAWARE CONTINUED
Columbia/HCA Healthcare Corporation - Doing Business As:
Healthcare Symposium (KY)
Columbia Hospital Corporation - Delaware
Columbia Hospital Corporation of Fort Worth
Columbia Hospital Corporation of Houston
Critical Care America, Inc.
Critical Care America-East, Inc.
Critical Care America-West, Inc.
Creekwood Surgery Center, L.P.
Delaware Psychiatric Company, Inc. - Doing Business As:
Rockford Center (Newark, DE)
Doctors Hospital of Augusta, Inc. - Doing Business As:
Augusta Regional Medical Center (Augusta, GA)
Augusta Diagnostic Associates (Augusta, GA)
Columbia County Urgent Care Center (GA)
West Augusta Imaging Center (GA)
West Augusta Radiation Oncology Center (GA)
Edison Homes-Southeast, Inc.
Extendicare Properties, Inc.
Galen BH, Inc.
Galendeco, Inc.
Galen Health Care, Inc. - Doing Business As:
North Suburban Medical Center (Thornton, CO)
Southwest Hospital (Louisville, KY)
Southwest Medical Plaza (Louisville, KY)
San Leandro Medical Center Professional Building (San Leandro, CA)
Galen Health Institutes, Inc. - Doing Business As:
The Health Institute of Louisville (Louisville, KY)
The Health Institute of San Antonio (San Antonio, TX)
The Health Institute of Tampa Bay (Tampa Bay, FL)
-7-
<PAGE>
DELAWARE CONTINUED
Galen Hospital Alaska, Inc. - Doing Business As:
Alaska Regional Hospital (Anchorage, AK)
Galen Hospital Corporation, Inc. - Doing Business As:
The Women's Hospital - Indianapolis (Indianapolis, IN)
HCA - Hospital Corporation of America
HCA Health Alliance, Inc.
HCA Health Services of Midwest, Inc. - Doing Business As:
Columbia Doctors Hospital (Little Rock, AR)
Columbia Health Clinic (Little Rock, AR)
Columbia Health Services of Arkansas
Columbia Weber Clinic (Jacksonville, AR)
HCA Holding Corporation
HCA International, Inc.
HCA Investments, Inc.
HCA Psychiatric Company
HCA, Inc.
Health Services (Delaware), Inc.
Health Services Acquisition Corp.
H.H.U.K., Inc.
Healthcare Technology Assessment Corporation
Managed Prescription Network, Inc.
Mecklenburg Surgical Land Development, Ltd.
Medical Care America, Inc.
Medical Care Financial Services Corp.
Medical Care International, Inc.
Medical Care Real Estate Finance, Inc.
Medical Corporation of America
MediPurchase, Inc.
-8-
<PAGE>
DELAWARE CONTINUED
Medical Specialties, Inc. - Doing Business As:
Argyle Family Practice Center (FL)
Coral Springs Family Medicine (FL)
Parkway Medical Associates (FL)
MediVision of Mecklenburg County, Inc.
MediVision of Tampa, Inc.
MediVision, Inc. - Doing Business As:
Omni Eye Services (Atlanta, GA)
MediVision of Charlotte (Charlotte, NC)
Omni Eye Services of Chattanooga (Chattanooga, TN)
MediVision of Greensboro (Greensboro, NC)
MediVision of Hickory (Hickory, NC)
MediVision/John Kenyon Eye Center (Jeffersonville, IN)
Lake Worth Surgical Center (Lake Worth, FL)
MediVision of Southern Pines (Southern Pines, NC)
The Eye Institute of Southern Arizona (Tucson, AZ)
The Eye Surgery Center of the Rio Grande Valley (Weslaco, TX)
Mobile Corps., Inc.
North Miami Beach Surgery Center, Inc.
Northwest Surgicare, Inc.
Orlando Outpatient Surgical Center, Inc.
PMM, Inc. - Doing Business As:
Augusta Womens Medical Group (Augusta, GA)
Plum Creek Medical Corporation (Aurora, CO)
Paces Property L.P.
Paragon SDS, Inc.
Paragon WSC, Inc.
Plano Imaging Associates L.P.
Primary Medical Management, Inc. - Doing Business As:
Agoura Hills Medical Group (Los Angeles County, CA)
Biltmore Women's Health Center (Phoenix, AZ)
Desoto Family Practice (Desoto, KS)
Mount Oread Family Care, P.A. (Lawrence, KS)
Park Medical Center
Saguaro Medical Center (Scottsdale, AZ)
The Carrollton Center for Family Health Care (Carrollton, TX)
Westbrook Medical Practice (Shawnee, KS)
Westlake Women's Health Management Center (West Lakes Village, CA)
Suburban Medical Center at Hoffman Estates, Inc. - Doing Business As:
Hoffman Estates Medical Center (Hoffman Estates, IL)
Chicago Home Health Services, (Chicago, IL)
-9-
<PAGE>
DELAWARE CONTINUED
Sun Bay Medical Office Building, Inc.
Surgicare Corporation
Tampa Podiatry Center, Ltd. - Doing Business As:
Tampa Podiatry Center
FLORIDA
Ambulatory Surgery Center Group, Ltd.- Doing Business As:
Ambulatory Surgery Center
Bay Hospital, Inc. - Doing Business As:
Gulf Coast Hospital (Panama City, FL)
Bellaire Surgi-Center, Ltd.- Doing Business As:
Bellaire Surgi-Center
Brandon Surgicenter Joint Venture - Doing Business As:
Brandon Surgi-Center
Broward Healthcare System, Inc.
Cape Coral Surgery Center, Ltd.
Cedarcare, Inc.
Cedars BTW Program, Inc.
Cedars Health Care Group, Ltd. - Doing Business As:
Cedars Medical Center (Miami, FL)
Florida Home Health Services - Broward (Ft. Lauderdale, FL)
Florida Home Health Services - (Dade) (Miami, FL)
Olsten Kimberly Quality Care (Miami, FL)
Central Florida Regional Hospital, Inc. - Doing Business As:
Central Florida Regional Hospital (Sanford, FL)
Charlotte Community Hospital, Inc.
Collier County Home Health Agency, Inc.
Columbia/HCA of Treasure Coast, Inc.
Columbia Hospital Corporation of Central Miami
-10-
<PAGE>
FLORIDA CONTINUED
Columbia Hospital Corporation of Kendall
Columbia Hospital Corporation of Miami
Columbia Hospital Corporation of Miami Beach
Columbia Hospital Corporation of North Miami Beach
Columbia Hospital Corporation of South Broward - Doing Business As:
Westside Regional Medical Center (Plantation, FL)
Olsten Kimberly Quality Care (Plantation, FL)
Columbia Hospital Corporation of South Dade
Columbia Hospital Corporation of South Florida - Doing Business As:
Florida Physicians Group
Columbia Hospital Corporation of South Miami
Columbia Hospital Corporation of Tamarac
Columbia Hospital Corporation-SMM
Columbia Jacksonville Healthcare System, Inc.
Columbia Midtown Joint Venture
Columbia Park Healthcare System, Inc.
Columbia Park Medical Center, Inc. - Doing Business As:
Columbia Park Medical Center (Orlando, FL)
Community Hospital of the Palm Beaches, Inc. - Doing Business As:
Columbia Hospital (West Palm Beach, FL)
Olsten Kimberly Quality Care (West Palm Beach, FL)
The Arthritis Center at Palm Beaches Medical Center (West Palm
Beach, FL)
Community Hospitals of Galen, Inc. - Doing Business As:
Pompano Beach Medical Center (Pompano Beach, FL)
Coral Springs Surgi-Center, Ltd. - Doing Business As:
Outpatient Surgery Center at Coral Springs (Coral Springs, FL)
Countryside Surgery Center, Ltd.- Doing Business As:
Countryside Surgi-Center
-11-
<PAGE>
FLORIDA CONTINUED
Daytona Medical Center, Inc. - Doing Business As:
Daytona Medical Center (Daytona Beach, FL) f/k/a HH-Daytona Beach
NSB Medical Associates
Ormond Beach Medical Associates
Deering Hospital, Inc.
Deering Marketing and Communication Services, Inc.
Deland Surgery Center, Ltd.
Doctors Osteopathic Medical Center, Inc.
Doctors Specialty Surgery Center of Jacksonville, Ltd.
Englewood Community Hospital, Inc. - Doing Business As:
Englewood Community Hospital (Englewood, FL)
Able Care (Englewood, FL)
Fawcett Memorial Hospital, Inc. - Doing Business As:
Fawcett Memorial Hospital (Port Charlotte, FL)
Able Care (Port Charlotte, FL)
Olsten Kimberly Quality Care (Port Charlotte, FL)
Florida Home Health Services-Private Care, Inc. - Doing Business As:
Florida Home Health-Private Care
Columbia Staffing Services
Florida Home Health Registry
Florida Medical Collection Services, Inc.
Florida MRI Services, Inc.
Florida Outpatient Surgery Center, Ltd.- Doing Business As:
Florida Outpatient Surgery Center, Ltd.
Florida Psychiatric Company, Inc.
Fort Walton Beach Medical Center, Inc. - Doing Business As:
Fort Walton Beach Medical Center (Ft. Walton Beach, FL)
Advanced Home Health Care
-12-
<PAGE>
FLORIDA CONTINUED
Galencare, Inc. - Doing Business As:
Brandon Hospital (Brandon, FL)
Northside Hospital (St. Petersburg, FL)
Olsten Kimberly Quality Care
West Central Florida-Shared Services (St. Petersburg, FL)
Galen Hospital-Pembroke Pines, Inc. - Doing Business As:
Pembroke Pines Hospital (Pembroke Pines, FL)
P & L Associates (Pembroke Pines, FL)
Galen of Florida, Inc. - Doing Business As:
Dade City Hospital (Dade City, FL)
Orange Park Medical Center (Orange Park, FL)
St. Petersburg General Hospital (St. Petersburg, FL)
Bushnell Family Practice Center (Bushnell, FL)
Dade City Professional Building (Dade City, FL)
Normandy Manor Transitional Living Facility (Orlando, FL)
Olsten Kimberly Quality Care
West Central Florida OB/GYN (Dade City, Fl)
Grant Center Hospital of Ocala, Inc.
Hamilton Memorial Hospital, Inc. - Doing Business As:
Our Home Care (Jasper, FL)
HCA Development Corporation of Florida
HCA Family Care Center, Inc.
HCA Health Services of Florida, Inc. - Doing Business As:
Bayonet Point/Hudson Medical Center (Hudson, FL)
L.W. Blake Hospital (Bradenton, FL)
Medical Center of Port St. Lucie (Port St. Lucie, FL)
North Florida Regional Medical Center (Gainesville, FL)
Oak Hill Hospital (Brooksville, FL)
Community Home Health Care
Olsten Kimberly Quality Care
HCA Healthcare - Florida, Inc.
HCA of Florida, Inc.
HCA Physician Services of Tamarac, Inc.
Home Health of Lee County, Inc.
-13-
<PAGE>
FLORIDA CONTINUED
Imaging and Surgery Centers of Florida, Inc. - Doing Business As:
Clearwater Imaging
Kissimmee Imaging
Imaging Center of Kissimmee
Jacksonville Surgery Center, Ltd.
Kendall Healthcare Group, Ltd. - Doing Business As:
Kendall Regional Medical Center (Miami, FL)
First Health Center (Miami, FL)
Kendall Therapy Center (Miami, FL)
Olsten Kimberly Quality Care (Miami, FL)
The Atrium at Kendall Regional Medical Center (Miami, FL)
Kendall Therapy Center, Ltd.
Kissimmee Surgicare, Ltd. - Doing Business As:
Kissimmee Surgery Center
Lake Forest Utilities, Inc.
Largo Medical Center, Inc. - Doing Business As:
Largo Medical Center - Largo, FL (Largo, FL)
Olsten Kimberly Quality Care (Largo, FL)
Lawnwood Medical Center, Inc. - Doing Business As:
Harbour Shores Hospital of Lawnwood (Ft. Pierce, FL)
Lawnwood Regional Medical Center (Ft. Pierce, FL)
Lawnwood Regional Cancer Center Limited Partnership
M & M of Ocala, Inc.
Manatee Surgicare, Ltd.- Doing Business As:
Gulf Coast Surgery Center
Marion Community Hospital, Inc. - Doing Business As:
Marion Community Hospital (Ocala, FL)
Medical Center of Port St. Lucie, Inc.
Medical Imaging Center of Ocala
Medical Park Diagnostic Multicenter, Ltd. - Doing Business As:
Medical Park Diagnostic Center (Miami, FL)
Medical Imaging Center of Ocala
MediVision Properties of Hillsborough County, LP
MedPlan, Inc.
-14-
<PAGE>
FLORIDA CONTINUED
Miami Beach Healthcare Group, Ltd. - Doing Business As:
Aventura Hospital and Medical Center (Miami, FL)
Miami Heart Institute-North (Miami Beach, FL)
Miami Heart Institute-South (Miami Beach, FL)
Hallandale Health Center of Aventura Hospital and Medical Center
(Miami, FL)
North Miami Beach Surgical Center (North Miami Beach, FL)
Olsten Kimberly Quality Care (Miami, FL)
Naples Rehabilitative Services, Inc. - Doing Business As:
Naples Rehab Center (Naples, FL)
New Port Richey Hospital, Inc. - Doing Business As:
New Port Richey Hospital (New Port Richey, FL)
Olsten Kimberly Quality Care (New Port Richey, FL)
New Port Richey Surgery Center, Ltd.- Doing Business As:
New Port Richey Surgi-Center
North Central Florida Health System, Inc.
North Florida Immediate Care Center, Inc.
North Florida Infusion Corporation
North Florida Regional Investments, Inc.
North Florida Regional Medical Center, Inc.
North Miami Beach Surgical Center, Ltd.
North Palm Beach County Surgery Center, Inc.
North Palm Beach County Surgery Center, Ltd. - Doing Business As:
North County Surgicenter
Northwest Florida Healthcare Systems, Inc.
Northwest Medical Center, Inc. - Doing Business As:
Northwest Medical Center (Margate, FL)
Olsten Kimberly Quality Care
Northwest Regional Investment, Inc.
Oak Hill Acquisition, Inc.
-15-
<PAGE>
FLORIDA CONTINUED
Okaloosa Hospital, Inc. - Doing Business As:
Twin Cities Hospital (Niceville, FL)
Okeechobee Hospital, Inc. - Doing Business As:
Raulerson Hospital (Okeechobee, FL)
Orange Park Medical Center, Inc.
Orlando Depression Center, Inc. - Doing Business As:
Orlando Depression Center (Orlando, FL)
Orlando Surgicare, Ltd.- Doing Business As:
Same Day Surgery of Orlando
Osceola Regional Hospital, Inc. - Doing Business As:
Osceola Regional Hospital (Kissimmee, FL)
Osceola Home Care
TRICO Home Health Agency
Outpatient Surgical Services, Ltd.- Doing Business As:
Outpatient Surgical Services
P. and L. Associates
Palm Beach Healthcare System, Inc.
Park South Imaging Center II, Ltd.
Park South Imaging Center, Ltd.
Physical Therapy of Orlando, Inc. - Doing Business As:
Kissimmee Physical Therapy
Orlando Hand & Microvascular
Central Florida Physical Therapy
Pinellas Surgery Center, Ltd.
Plantation Physicians, Ltd.
Premier Tropic Staffing, Inc.
Pulmonary Care Services, Inc.
Putnam Hospital, Inc. - Doing Business As:
Putnam Community Hospital (Palatka, FL)
San Pablo Surgery Center, Ltd.
Sarasota Cadiovascular Lab Associates, Ltd.
Sarasota Doctors Hospital, Inc. - Doing Business As:
Doctors Hospital of Sarasota (Sarasota, FL)
-16-
<PAGE>
FLORIDA CONTINUED
South Dade Healthcare Group, Ltd. - Doing Business As:
Deering Hospital (Miami, FL)
Grant Center of Deering (Miami, FL)
Southwest Florida Health System, Inc.
Southwest Florida Magnetic Imaging Services, Inc.
Southwest Florida Regional Medical Center, Inc. - Doing Business As:
Southwest Florida Regional Medical Center (Fort Myers, FL)
Able Care (Fort Myers, FL)
Olsten Kimberly Quality Care
Space Coast Surgicare, Ltd. - Doing Business As:
Space Coast Surgical Center
Summer Associates, Ltd.
Surgical Center Associates, Ltd.- Doing Business As:
Winter Park Ambulatory Surgery Center
Surgical Park Center, Ltd. - Doing Business As:
Central Florida Surgery Center (Lakeland, FL)
Radial Keratomy Institute of Surgical Park
Surgical Park Center (Miami, FL)
Surgiscopic Center at Surgical Park (Miami, FL)
Surgicare America - Winter Park, Inc.
Surgicare of Altamonte Springs, Inc.
Surgicare of Brandon, Inc.
Surgicare of Central Florida, Inc.
Surgicare of Central Florida, Ltd.
-17-
<PAGE>
FLORIDA CONTINUED
Surgicare of Countryside, Inc.
Surgicare of Deland, Inc.
Surgicare of Florida, Inc. - Doing Business As:
Tampa Bay Area Anesthesia
Surgicare of Kissimmee, Inc.
Surgicare of Manatee, Inc.
Surgicare of Merritt Island, Inc.
Surgicare of New Port Richey, Inc.
Surgicare of Orlando, Inc.
Surgicare of Pinellas, Inc.
Surgicare of Plantation, Inc.
Surgicare of Tallahassee, Inc.
Stuart Outpatient Surgery Center, Ltd.
Surgical Park Center, Ltd.
Systems Medical Management, Inc. - Doing Business As:
The Health Advantage Network (Orlando, FL)
TSI Investments, Inc.
Tallahassee Medical Center, Inc. - Doing Business As:
Tallahassee Community Hospital (Tallahassee, FL)
Advanced Home Health Care
Tallahassee Orthopedic Surgery Partners, Ltd.- Doing Business As:
Tallahassee Orthopedic Surgery Center
Tamarac Acquisition Corporation
Tamarac Hospital Corporation, Inc.
Tampa Bay Health System, Inc.
-18-
<PAGE>
FLORIDA CONTINUED
Tampa Surgi-Centre, Inc.
The West Florida Professionals, Inc. (formerly known DBPCO, Inc.)
University Hospital, Ltd. - Doing Business As:
University Hospital (Tamarac, FL)
University Pavilion (Tamarac, FL)
University Psychiatric Center, Inc.
Victoria Hospital Partnership
Visual Health and Surgical Center, Inc.
Volusia Healthcare Network, Inc.
West Florida Regional Medical Center, Inc. - Doing Business As:
West Florida Regional Medical Center (Pensacola, FL)
Advanced Home Health Care
Okaloosa Cancer Care Center (Crestview, FL)
West Lake Joint Venture Investments, Inc.
West Palm Beach Surgery Center, Ltd.- Doing Business As:
Surgicenter of the Palm Beaches
Westside Surgery Center, Ltd.- Doing Business As:
Parkside Surgery Center
Winter Park Healthcare Group, Ltd. - Doing Business As:
Winter Park Memorial Hospital
GEORGIA
AOA Gulf Coast Partners, Inc.
AOSC Sports Medicine, Inc. - Doing Business As:
Northside Sports Medicine and Rehabilitation Center
Atlanta Home Care
Atlanta Outpatient Surgery Center, Inc.
Atlanta Rehabilitation Medicine Management, Inc.
Atlanta Surgery Center, Ltd.- Doing Business As:
Atlanta Outpatient Surgery Center
Atlanta Outpatient Peachtree Dunwoody Center
Center for Health and Management at W.P.F., L.P.
CMC Ventures, Inc.
-19-
<PAGE>
GEORGIA CONTINUED
Chatsworth Hospital Corp.
Coliseum Associates, Inc.
Coliseum Park Hospital, Inc. - Doing Business As:
Coliseum Medical Centers (Macon, GA)
Dublin Community Hospital, Inc. - Doing Business As:
Fairview Park Hospital (Dublin, GA)
Georgia Psychiatric Company, Inc. - Doing Business As:
Coliseum Psychiatric Hospital (Macon, GA)
Gwinnett Community Hospital, Inc. - Doing Business As:
Eastside Medical Center (Snellville, GA)
HCA Health Services of Georgia, Inc. - Doing Business As:
Hughston Sports Medicine Hospital (Columbus, GA)
Northlake Regional Medical Center (Atlanta, GA)
HCA Health Services of Gwinnett County, Inc.
HCA Parkway Investments, Inc.
Health Care Management Corporation
Health Care Providers, Inc.
MOSC Sports Medicine Center, Inc. - Doing Business As:
SportsSouth Sports Medicine & Rehabilitation
MOSC Sports Medicine Center, L.P.
Marietta Outpatient Medical Building, Inc.
Marietta Outpatient Surgery, Ltd. - Doing Business As:
Marietta Surgical Center
Marietta Surgical Center, Inc.
Med Corp., Inc.
MedFirst, Inc.
Medical Center-West, Inc. - Doing Business As:
Parkway Medical Center (Lithia Springs, GA)
-20-
<PAGE>
GEORGIA CONTINUED
North Cobb Physical Therapy, Inc. - Doing Business As:
North Cobb Physical Therapy
Palmyra Park Hospital, Inc. - Doing Business As:
Palmyra Medical Centers (Albany, GA)
Redmond Oncology Services, Inc.
Redmond Park Health Services, Inc.
Redmond Park Hospital, Inc. - Doing Business As:
Redmond Regional Medical Center (Rome, GA)
Surgicare of Augusta, Inc. - Doing Business As:
Augusta Surgical Center
Surgicare Outpatient Center of Brunswick, Inc.
The Rankin
The Surgery Center of Rome - Doing Business As:
The Surgery Center of Rome
West Paces Ferry Hospital, Inc. - Doing Business As:
West Paces Medical Center (Atlanta, GA)
West Paces Services, Inc.
IDAHO
HCA Health Services of Idaho, Inc.
Surgery Center of Des Moines, Inc.
Surgery Centers of Des Moines, Ltd.- Doing Business As:
Surgery Center of Des Moines - West
Surgery Center of Des Moines - East
ILLINOIS
Belleville Surgical Center, Ltd.- Doing Business As:
Notre Dame Hills Surgical Center
-21-
<PAGE>
ILLINOIS CONTINUED
Chicago Grant Hospital, Inc. - Doing Business As:
Grant Hospital of Chicago
Total Home Health Care of Chicago (Chicago, IL)
Galen Hospital Illinois, Inc. - Doing Business As:
Michael Reese Hospital and Medical Center (Chicago, IL)
f/k/a HH-Michael Reese
Hardy Home Health Services (Chicago, IL)
Michael Reese - North
Michael Reese - One Day Surgery
Michael Reese Sears Tower
Galen of Illinois, Inc.
Illinois Psychiatric Hospital Company, Inc. - Doing Business As:
Chicago Lakeshore Hospital (Chicago, IL)
Riveredge Hospital (Forest Park, IL)
Woodland Hospital (Hoffman Estates, IL)
Joliet Surgery Center Limited Partnership - Doing Business As:
AmSurg
Marion Surgery Center, Ltd.- Doing Business As:
Surgery Center of Southern Illinois
Midwest Surgery Center, L.P.
Northwest Surgicare, Ltd. - Doing Business As:
Northwest Surgicare
Smith Laboratories, Inc.
Surgicare of 25 E. Washington, L.P.
Surgicare of 25 E. Washington, Inc.
Surgicare of Belleville, Inc.
Surgicare of Joliet, Inc.
Surgicare of Palos Heights, Inc.
INDIANA
BAMI-COL, Inc.
-22-
<PAGE>
INDIANA CONTINUED
Basic American Medical, Inc.
F & E Community Developers of Florida, Inc.
Thomasville Hospital, Inc.
KANSAS
Day Surgery, Inc.
Dodge City Healthcare Group, L.P.
Galen of Kansas, Inc. - Doing Business As:
Independence Regional Health Center (Independence, MO)
Overland Park Regional Medical Center (Overland Park, KS)
Columbia School - Adult Day Care Center (Independence, MO)
Development Properties (Independence, MO)
LaCygne Rural Health Clinic (LaCygne, KS)
Medical Billing Specialists (Independence, MO)
Prompt Care (Lawrence, KS)
Women's Healthcare Group (Lawrence, KS)
Galichia Laboratories, Inc.
HCA Health Services of Kansas, Inc. - Doing Business As:
Wesley Medical Center (Wichita, KS)
Total HomeCare (Wichita, KS)
OB-GYN Diagnostics, Inc.
Overland Park Homecare Services, Inc.
Surgicare of Wichita, Inc.
Surgicare of Wichita, Ltd. - Doing Business As:
Surgicare of Wichita
Surgicenter of Johnson County, Inc.
Surgicenter of Johnson County, Ltd. - Doing Business As:
Surgicenter of Johnson County
Western Plains Regional Hospital, Inc. - Doing Business As:
Western Plains Regional Hospital (Dodge City, KS)
Quickcare (Dodge City, KS)
-23-
<PAGE>
KENTUCKY
A. C. Medical, Inc.
B.G. MRI, Inc.
Frankfort Hospital, Inc. - Doing Business As:
Bluegrass Regional Medical Center (Frankfort, KY)
GALENCO, Inc.
Galen International Holdings, Inc.
Galen of Kentucky, Inc. - Doing Business As:
Audubon Regional Medical Center (Louisville, KY)
Lake Cumberland Regional Hospital (Somerset, KY)
Suburban Medical Center (Louisville, KY)
Advanced Cardiovascular Institute (Louisville, KY)
Audubon Medical Plaza (Louisville, KY)
J. Graham Brown Cancer Center (Louisville, KY)
Caretenders (Louisville, KY)
Lake Cumberland Home Health Agency
Regional Hospital Services
Suburban Medical Plaza (Louisville, KY)
Greenview Hospital, Inc. - Doing Business As:
Greenview Hospital (Bowling Green, KY)
Same Day Surgery (Bowling Green, KY)
LACO, Inc.
Owensboro Ambulatory Surgical Facility, Ltd.
South Central Kentucky Corp.
Subco of Kentucky, Inc.
Surgicare of Owensboro, Inc.
The Owensboro Surgery Center, Inc. - Doing Business As:
Owensboro Ambulatory Surgical Facility
Tri-County Community Hospital, Inc.
LOUISIANA
BRASS East Surgery Center Partnership in Commendam - Doing Business As:
The Outpatient Center of Baton Rouge
The Outpatient Surgery Center for Sight
-24-
<PAGE>
LOUISIANA CONTINUED
BRASS Partnership, I.C. - Doing Business As:
Baton Rouge Ambulatory Surgicare Services
Central Louisiana Healthcare System Limited Partnership - Doing Business
As:
Avoyelles Hospital (Marksville, LA)
Oakdale Community Hospital (Oakdale, LA)
Rapides Regional Medical Center
Rapides General Hospital
Rapides Womens Hospital
Rapides Womens Adult Psychiatric Center
Ville Platte Medical Center (Ville Platte, LA)
Winn Parish Medical Center (Winnfield, LA)
Columbia/HCA Healthcare Corporation of Central Louisiana, Inc.
Galen of Louisiana, Inc. - Doing Business As:
Springhill Medical Center (Springhill, LA)
HCA Health Services of Louisiana, Inc. - Doing Business As:
North Monroe Hospital (Monroe, LA)
HCA Highland Hospital, Inc. - Doing Business As:
Highland Hospital (Shreveport, LA)
Houma Plaza One, a Louisiana general partnership
Houma Surgical Center Investors, Ltd.
Lake Area Medical Center, Inc.
Lake Charles Surgery Center, Inc. - Doing Business As:
Surgicare of Lake Charles
Lakeside Associates, Inc.
Louisiana Psychiatric Company, Inc. - Doing Business As:
Cypress Hospital (Lafayette, LA)
DePaul Hospital (New Orleans, LA)
New Orleans Surgicare, Inc. - Doing Business As:
The Greater New Orleans Surgery Center
Surgicare Outpatient Center of Baton Rouge, Inc.
Surgicare Outpatient Center of Houma, Inc.
-25-
<PAGE>
LOUISIANA CONTINUED
Surgicare Outpatient Center of Lake Charles, Inc.
Surgicare Outpatient Center of West Jefferson, Inc.
Surgicenter of East Jefferson, Inc.
WGH, Inc.
MASSACHUSETTS
Health Imaging Center of Boston, Inc.
Orlando Outpatient Surgical Center, Ltd.- Doing Business As:
MediVision of Orlando
Same Day Surgicare of New England, Inc. - Doing Business As:
Same Day Surgey Center New England
Suburban Surgicare Limited Partnership
Surgicare of Suburban, Inc.
Waltham Outpatient Surgicare Limited Partnership
Waltham Surgicare, Inc.
MICHIGAN
Critical Care America Pharmacy, Inc.
Surgicare of Saginaw, Inc.
MINNESOTA
St. Cloud Outpatient Surgery, Ltd. - Doing Business As:
St. Cloud Surgical Center
St. Cloud Surgical Center, Inc.
Surgicare of Minneapolis, Inc.
Surgicare of Minneapolis, Ltd.- Doing Business As:
Surgicare of Minneapolis
Centennial Lakes Same Day Surgery Center
Surgicare of Minneapolis, Ltd.
Surgicenter Limited Partnership
-26-
<PAGE>
MISSISSIPPI
Galen of Mississippi, Inc.
Gulf South Outpatient Center, L.P. - Doing Business As:
Gulf South Outpatient Center
Lakeland Physicians Medical Building, Inc.
Mississippi Surgical Center Limited Partnership - Doing Business As:
Mississippi Surgical Center
Surgicare of Gulfport, Inc.
Surgicare of Jackson, Inc.
Surgicare of Jackson, Ltd. - Doing Business As:
Surgicare of Jackson
Surgicare of Mississippi, Inc.
MISSOURI
Business Health Services, Inc.
Clinical Management Services, Inc.
Clinical Specialties, Inc.
Comprehensive Care Clinics, Inc.
HCA Health Services of Missouri, Inc.
HEI Missouri, Inc.
HEI Sullivan, Inc.
Kansas City Surgicenter, Ltd. - Doing Business As:
Surgicenter of Kansas City
Kensington Care Services, Inc.
M.W.A., Inc.
Midwest Psychiatric Center, Inc. - Doing Business As:
Research Psychiatric Center (Kansas City, MO)
Oak Grove Medical Clinic, Inc.
Physical Therapy Affiliates, Inc.
-27-
<PAGE>
MISSOURI CONTINUED
Precise Imaging, Inc.
PRI-MED, Inc.
Regional Multicare Group, Inc.
Surgicare of Antioch Hills, Inc.
Truman-Forest Pharmacy, Inc.
NEBRASKA
Omaha Healthcare System, Inc.
NEVADA
CHC Venture Co.
Chiron, Inc.
Columbia Hospital Corporation of West Houston
Consolidated Las Vegas Medical Centers
Desert Physical Therapy, Inc. - Doing Business As:
Desert Physical Therapy
HCA Health Services of Nevada, Inc.
Las Vegas Physical Therapy, Inc. - Doing Business As:
Lynn Maguire Physical Therapy, Inc.
Las Vegas Surgical Center, Ltd.
Las Vegas Surgicare, Inc.
Las Vegas Surgicare, Ltd. - Doing Business As:
Las Vegas Surgicare
National Care Services Corp. of Nevada - Doing Business As:
Sunrise Diagnostic Center
Sunrise Medical Tower III (NV)
Sunrise Medical Tower IV (NV)
Sunrise Professional Pharmacy
Nevada Psychiatric Company, Inc.
Reno Outpatient Surgery Center, Ltd. - Doing Business As:
Reno Medical Plaza
Sahara Outpatient Surgery Center, Ltd.
-28-
<PAGE>
NEVADA CONTINUED
Sunrise Hospital - Doing Business As:
Sunrise Hospital and Medical Center (Las Vegas, NV)
The Women's Hospital (Las Vegas, NV)
Sunrise Children's Hospital (Las Vegas, NV)
Sunrise Outpatient Services, Inc.
Surgicare of Las Vegas, Inc.
Surgicare of Reno, Inc.
NEW HAMPSHIRE
HCA Health Services of New Hampshire, Inc. - Doing Business As:
Parkland Medical Center (Derry, NH)
Portsmouth Hospital (Portsmouth, NH)
Portsmouth Pavilion (Portsmouth, NH)
Health Imaging Asset Management, Inc.
Health Imaging Centers of Columbus, Inc.
Health Imaging Centers, Inc.
Regional Psychiatric Company, Inc.
Salem Surgery Center
Work Performance Center Limited Partnership
NEW JERSEY
HCA Health Services of New Jersey, Inc.
NEW MEXICO
Guadalupe Medical Center, Inc. - Doing Business As:
Guadalupe Medical Center (Carlsbad, NM)
HCA Health Services of New Mexico, Inc.
Hobbs Community Hospital, Inc. - Doing Business As:
Lea Regional Hospital (Hobbs, NM)
New Mexico Psychiatric Company, Inc. - Doing Business As:
Heights Psychiatric Hospital (Albuquerque, NM)
NEW YORK
Critical Care America of New York, Incorporated
-29-
<PAGE>
NORTH CAROLINA
Cumberland Medical Center, Inc. - Doing Business As:
Highsmith-Rainey Memorial Hospital (Fayetteville, NC)
Galen of North Carolina, Inc.
HCA-Raleigh Community Hospital, Inc. - Doing Business As:
Raleigh Community Hospital (Raleigh, NC)
Optical Shop, Inc. - Doing Business As:
The Optical Shop, Inc.
Medical Arts Imaging Center Limited Partnership
Raleigh Community Medical Office Building, Ltd.
Raleigh Community Physical Therapy And Sports Medicine Center
Salem Optical Company, Inc. - Doing Business As:
Salem Optical Co., Inc.
Southeastern Eye Center, Inc.
Wake Psychiatric Hospital, Inc. - Doing Business As:
Holly Hill Hospital (Raleigh, NC)
OHIO
E.N.T. Services, Inc.
Middleburg Heights Surgical Center, Inc.
The Surgery Center, an Ohio Limited Partnership - Doing Business As:
The Surgery Center
OKLAHOMA
HCA Affiliated Services of Oklahoma, Inc.
HCA Health Services of Oklahoma, Inc. - Doing Business As:
Presbyterian Hospital (Oklahoma City, OK)
St. Mary's Medical Center (Enid, OK)
Rogers Occupational Clinic (Enid, OK)
-30-
<PAGE>
OKLAHOMA CONTINUED
Oklahoma Outpatient Surgery Limited Partnership - Doing Business As:
Oklahoma Surgicare
Oklahoma Surgicare, Inc.
Surgicare of Tulsa, Inc. - Doing Business As:
Surgicare of Tulsa
OREGON
Salem Surgery Center, Ltd. - Doing Business As:
Northbank Surgical Center
Surgicare of Salem, Inc.
PENNSYLVANIA
Basic American Medical Equipment Company, Inc.
Chestnut Hill Hospital Surgical Center, JV - Doing Business As:
Chestnut Hill Hospital Outpatient Surgical Center
Chestnut Hill Surgical Investors, Ltd.
Surgicare of Philadelphia, Inc.
RHODE ISLAND
Blackstone Valley Surgicare, Inc. - Doing Business As:
Blackstone Valley Surgicare
HCA Health Services of Rhode Island, Inc.
Pawtucket Outpatient Medical Building, Inc.
Wayland Square Surgicare, Inc. - Doing Business As:
Wayland Square Surgicare
SOUTH CAROLINA
Aiken Health Services, Inc.
C/HCA Development, Inc. - Doing Business As:
Aiken Regional Medical Center (Aiken, SC)
The Aurora Pavilion (Aiken, SC)
-31-
<PAGE>
SOUTH CAROLINA CONTINUED
Coastal Carolina Home Care, Inc.
HCA Healthcare - South Carolina, Inc.
HCA South Carolina Health Services, Inc.
Low Country Health Services, Inc. of the Southeast
Myrtle Beach Hospital, Inc. - Doing Business As:
Grand Strand Regional Medical Center (Myrtle Beach, SC)
North Trident Regional Hospital, Inc. - Doing Business As:
Trident Regional Medical Center (Charleston, SC)
Trident Ambulatory Surgery Center, L.P. (See Partnership Section)
Trident Ambulatory Surgery Center (North Charleston, SC)
TENNESSEE
Athens Community Hospital, Inc. - Doing Business As:
Athens Community Hospital (Athens, TN)
Atrium Memorial Surgical Center, Ltd. - Doing Business As:
Atrium Memorial Surgery Center
Chattanooga Health Systems, Inc.
Chattanooga Healthcare Network, L.P.
Chattanooga Healthcare Network Partner, Inc.
Columbia/HCA Information Services, Inc.
Community and Occupational Health Services, Inc.
Diagnostic Center Hospital Corporation
Galen of Tennessee, Inc. - Doing Business As:
East Ridge Hospital (East Ridge, TN)
Care Plus Home Health Services of Chattanooga
General Care Corp. - Doing Business As:
Regional Hospital of Jackson (Jackson, TN)
Greenview Surgery Center, Ltd.
HCA Capital Corporation
HCA Crossroads Residential Centers, Inc.
-32-
<PAGE>
TENNESSEE CONTINUED
HCA Development Company, Inc.
HCA Donelson Investments, Inc.
HCA Health Services of Tennessee, Inc. - Doing Business As:
Centennial Medical Center (Nashville, TN)
Centennial Medical Center/Parthenon Pavilion (Nashville, TN)
Summit Medical Center (Nashville, TN)
Smyrna Medical Center (Smyrna, TN)
Southern Hills Medical Center (Nashville, TN)
Summit Medical Center (Nashville, TN)
HCA Home and Clinical Services, Inc.
HCA International Company
HCA Medical Services, Inc.
HCA Physician Services, Inc.
HCA Properties, Inc.
HCA Psychiatric Company
HCA Realty, Inc.
HCA Southern Hills Investments, Inc.
HSC Surgical Associates of Nashville, L.P. - Doing Business As:
Heritage Surgery Center
Health Enterprises, Inc.
Hospital Corporation of Tennessee - Doing Business As:
Volunteer General Hospital (Martin, TN)
Hospital Realty Corporation
Indian Path Hospital, Inc. - Doing Business As:
Indian Path Medical Center (Kingsport, TN)
IPH, Inc.
Judy's Foods, Inc.
Knoxville Surgicare, Ltd. - Doing Business As:
The Surgery Center/Pain Control Center
-33-
<PAGE>
TENNESSEE CONTINUED
Medical Center Surgery Associates, L.P.
Medical Plaza Ambulatory Surgery Center Associates, L.P.
Nashville Psychiatric Company, Inc.
Park Plaza Realty, Inc.
Parkridge Hospital, Inc. - Doing Business As:
Parkridge Medical Center (Chattanooga, TN)
Parkside Surgery Center, Inc.
Parthenon Financial Services, Inc.
Parthenon Insurance Company
Parthenon Travel Services, Inc.
Plano Ambulatory Surgery Associates, L.P.
Rio Grande Surgery Center Associates, L.P.- Doing Business As:
Rio Grande Surgery Center (McAllen, TX)
St. Mark's Ambulatory Surgery Associates, L.P.
Sullins Surgical Center, Inc.
TCPN, Inc.
Tennessee Healthcare Management, Inc.
Tennessee Psychiatric Company, Inc. - Doing Business As:
Indian Path Pavilion (Kingsport, TN)
The Center for Health Services, Inc.
Valley Psychiatric Hospital Corporation - Doing Business As:
Valley Psychiatric Hospital (Chattanooga, TN)
The Psychiatric Hospital at Vanderbilt, Ltd. - Doing Business As:
The Psychiatric Hospital at Vanderbilt (Nashville, TN)
Trident Ambulatory Surgery Center, L.P.
WDC, Inc.
TEXAS
Arlington Diagnostic South, Inc.
BMSH, Inc.
Bailey Square Ambulatory Surgical Center, Ltd.
-34-
<PAGE>
TEXAS CONTINUED
Bailey Square Outpatient Surgical Center, Inc.
Bay Area Healthcare Group, Ltd. - Doing Business As:
Bay Area Medical Center (Corpus Christi, TX)
Bayview Hospital (Corpus Christi, TX)
Doctors Regional Medical Center (Corpus Christi, TX)
Rehabilitation Hospital of South Texas (Corpus Christi, TX)
Columbia/HCA Home Health (Corpus Christi, TX)
Bay Area Surgical Center Investors, Ltd.
Bay Area Surgicare Center, Inc. - Doing Business As:
Bay Area Surgicare Center
Beaumont Healthcare System, Inc.
Beaumont Hospital, Inc. - Doing Business As:
Beaumont Regional Medical Center (Beaumont, TX)
Fannin Pavilion
Beaumont Medical Arts, Inc.
Bellaire Imaging, Inc.
Brazos Acquisition Corp.
CHC Management, Ltd.
CHC Payroll Company
CHC Realty Corporation
CHC-DC, Inc.
CHC-El Paso Corporation
CHC-Miami Corporation
CHC-Psychiatric Management Ltd.
Central San Antonio Surgery Center, Ltd.
Central San Antonio Surgical Center Investors, Ltd. - Doing Business As:
Surgicare of San Antonio
Clear Lake Regional Medical Center, Inc. - Doing Business As:
Clear Lake Regional Medical Center (Webster, TX)
Columbia/HCA of Houston, Inc.
-35-
<PAGE>
TEXAS CONTINUED
Columbia/HCA of North Texas, Inc.
Columbia/HCA of San Angelo, Inc.
Columbia Bay Area Realty, Ltd.
Columbia/HCA Healthcare Corporation of Central Texas
Columbia Hospital Corporation At The Medical Center
Columbia Hospital Corporation of Arlington
Columbia Hospital Corporation of Bay Area
Columbia Hospital Corporation of Corpus Christi
Columbia Hospital Securities Corporation
Columbia Hospital-Arlington (WC), Ltd.
Columbia Hospital-El Pasco, Ltd.
Columbia Hospital-Miami, Ltd.
Columbia Psychiatric Management Co.
Corpus Christi Healthcare Group, Ltd.
Corpus Christi Surgery, Ltd. - Doing Business As:
Surgicare Specialty Hospital (Corpus Christi, TX)
Cy-Fair Surgery Center, Ltd. - Doing Business As:
Cy-Fair Surgery Center
Doctors Hospital of Corpus Christi, Inc.
E.P. Physical Therapy Centers, Inc.
El Paso Healthcare Systems, Ltd. - Doing Business As:
Columbia Behavioral Center (El Paso, TX)
Columbia Medical Center-East (El Paso, TX)
Columbia Medical Center-West (El Paso, TX)
Columbia Rehabilitation Hospital (El Paso, TX)
Columbia Back Institute (El Paso, TX)
Columbia Diagnostic Centers (El Paso, TX)
Columbia Healthcare System (El Paso, TX)
Columbia LifeCare Center (El Paso, TX)
Columbia Regional Oncology Center (El Paso, TX)
Columbia Sports Medicine Center (El Paso, TX)
Columbia Wound Care Center (El Paso, TX)
El Paso Infusion Therapy (El Paso, TX)
El Paso Nurses Unlimited
-36-
<PAGE>
TEXAS CONTINUED
El Paso Nurses Unlimited, Inc. - Doing Business As:
Nurses Unlimited of El Paso (El Paso, TX)
El Paso Pathology Group, P.A.
El Paso Physical Therapy Center, Ltd. - Doing Business As:
Columbia Physical Therapy Center
El Paso Surgicenter, Inc. - Doing Business As:
Surgical Center of El Paso
Endoscopy Clinic of Dallas, Inc.
Fort Worth Investments, Inc.
Fort Worth Medical Plaza, Inc. - Doing Business As:
Plaza Medical Hospital (Ft. Worth, TX)
Plaza Medical Center East (Ft. Worth, TX)
Saint Joseph's Hospital (Ft. Worth, TX)
Galen Hospital of Baytown, Inc.
Galen Hospitals of Texas, Inc. - Doing Business As:
Brazos Valley Medical Center (College Station, TX)
Dunwoody Medical Center (Atlanta, GA) (
Medical City Dallas Hospital (Dallas, TX)
Bryan Professional Building
Brazos Valley Medical Center - Bremond
Brazos Valley Surgical Center
Medical City Dallas - Ambulatory Surgery Center
WellHealth Center
West Texas Professional Building
Greater Houston Preferred Provider Option Inc. - Doing Business As:
Greater Houston PPO
Gramercy Surgery Center, Ltd. - Doing Business As:
Gramercy Outpatient Surgery Center
Gulf Coast Provider Network, Inc.
HCA Health Services of Texas, Inc. - Doing Business As:
Denton Community Hospital (Denton, TX)
Lewisville Medical Center (Lewisville, TX)
-37-
<PAGE>
TEXAS CONTINUED
HCA Health Services of Texas, Inc. - Doing Business As: (Continued)
North Hills Hospital (North Richland Hills, TX)
Rio Grande Regional Hospital (McAllen, TX)
HCA Alliance Airport Clinic
HCA-Arlington, Inc. - Doing Business As:
HCA Arlington Medical Center (Arlington, TX)
HCA Physician Services of North Texas, Inc.
HCA Plano Imaging, Inc.
HCA-Arlington, Inc.
Heart Center of Forth Worth, Ltd.
HEI Construction, Inc.
HEI Orange, Inc.
HEI Publishing, Inc.
HEI Sealy, Inc.
HSP of Texas, Inc. - Doing Business As:
Medical Center of Plano (Plano, TX)
Impact Healthcare Consultants, Ltd.
Las Colinas Surgery Center, Ltd.
Lockhart Acquisition Corp.
MGH Medical, Inc. - Doing Business As:
Metropolitan Hospital (San Antonio, TX)
Floresville Medical Clinic (Floresville, TX)
Metropolitan Transitional Care Unit (San Antonio, TX)
MCA Sports of Amarillo, Inc.
Sports Therapy and Rehabilitation of Amarillo
Med-Center Hospital/Houston, Inc. - Doing Business As:
Medical Center Hospital - Houston, TX (Houston, TX)
Med Plus of El Paso, Inc.
Medical Center Del Oro Hospital, Inc.
-38-
<PAGE>
TEXAS CONTINUED
Medical City Dallas Hospital, Inc.
Mid-Cities Surgi-Center, Inc. - Doing Business As:
Mid-Cities Surgicenter
Navarro Memorial Hospital, Inc. - Doing Business As:
Navarro Regional Hospital (Corsicana, TX)
North Texas Surgicenter, JV
One Forest Plaza, Inc.
Orthopedic Hospital, Ltd. - Doing Business As:
Texas Orthopedic Hospital (Houston, TX)
Paragon of Texas Health Property, PNC
Paragon Surgery Center of Texas, Inc.
Park Central Surgical Center, Ltd. - Doing Business As:
Park Central Surgical Center
Physicians MRI Services, Inc.
Quantum/Bellaire Imaging, Ltd.
Rim Building Partners, L.P.
Rio Grande Development Corp.
Rio Grande Regional Hospital, Inc.
Rio Grande Regional Investments, Inc.
Rosewood Professional Office Building, Ltd.
S.A. Medical Center, Inc.
San Antonio Regional Hospital, Inc. - Doing Business As:
San Antonio Regional Hospital (San Antonio, TX) f/k/a HH-San
Antonio
-39-
<PAGE>
TEXAS CONTINUED
San Antonio Regional Hospital, Inc. (Continued)
Bandera Medical Clinic (Bandera, TX)
Silsbee Hospital, Inc. - Doing Business As:
Silsbee Doctors Hospital (Silsbee, TX)
Jasper Home Care (Jasper, TX)
Silsbee Home Care (Silsbee, TX)
South Texas Ambulatory Surgery Hospital, Ltd. - Doing Business As:
South Texas Ambulatory Surgery Hospital
South Texas Surgicare, Inc.
Southwest Houston Surgicare, Inc.
Spring Branch Medical Center, Inc. - Doing Business As:
Spring Branch Medical Center (Houston, TX)
Sam Houston Memorial Hospital (Houston, TX)
Sun Towers/Vista Hills Holding Co.
Surgical Center of Irving, Inc.
Surgical Center of Southeast Texas, Ltd. - Doing Business As:
Surgical Center of Southeast Texas
Surgical Center of Wichita Falls, Inc.
Surgical Facility of West Houston, L.P. - Doing Business As:
West Houston Surgicare
Surgicare of Amarillo, Inc.
Surgicare of Central San Antonio, Inc.
Surgicare of Gramercy, Inc.
Surgicare of North San Antonio, Inc.
Surgicare of Southeast Texas, Inc.
Surgicare of Travis Center, Inc. - Doing Business As:
Travis Centre Outpatient Surgery
Surgicare of Victoria, Inc.
-40-
<PAGE>
TEXAS CONTINUED
Surgicare of Victoria, Ltd. - Doing Business As:
Surgicare Outpatient Center of Victoria
TOPS Specialty Hospital, Ltd. - Doing Business As:
TOPS Surgical Specialty Hospital
Texas Outpatient Surgicare Center, Inc.
Texas Psychiatric Company, Inc. - Doing Business As:
Turtle Creek of Florida Self-Insurance Trust
Village Oaks Medical Center, Inc. - Doing Business As:
Village Oaks Medical Center (San Antonio, TX)
McQueeney Medical Clinic (McQueeney, TX)
W & C Hospital, Inc. - Doing Business As:
Women's and Children's Hospital (San Antonio, TX)
Southwest Fertility Institute (San Antonio, TX)
The Woman's Place (San Antonio, TX)
WHMC, Inc. - Doing Business As:
West Houston Medical Center (Houston, TX)
Waco Hospital Corp. - Doing Business As:
Waco Outpatient Surgical Center, Inc.
Waco Surgical Center, Ltd. - Doing Business As:
Waco Medical Group Surgical Center
West Houston ASC, Inc.
West Houston Healthcare Group, Ltd. - Doing Business As:
Bellaire General Hospital (Houston, TX)
Rosewood Medical Center (Houston, TX)
Champions Treatment Center (Houston, TX)
Houston Imaging Center (Houston, TX)
MRI Southwest (Houston, TX)
West Houston Outpatient Medical Facility, Inc.
-41-
<PAGE>
TEXAS CONTINUED
West Houston Surgicare, Inc.
Willow Creek Hospital, Ltd.
Woman's Hospital of Texas, Incorporated - Doing Business As:
Woman's Hospital of Texas (Houston, TX)
UTAH
General Hospitals of Galen, Inc. - Doing Business As:
Cartersville Medical Center (Cartersville, GA)
Creekside Home Care of Northern Utah (Layton, UT)
Davis Hospital and Medical Center (Layton, UT)
Peachtree Regional Hospital (Newnan, GA)
Peachtree Health and Fitness Center (Newnan, GA)
HCA Health Services of Utah, Inc. - Doing Business As:
St. Mark's Hospital (Salt Lake City, UT)
St. Mark's Ambulatory Surgery Associates, L.P. - Doing Business As:
St. Mark's Ambulatory Surgery Center (Salt Lake City, UT)
St. Mark's Investments, Inc.
VIRGINIA
Ambulatory Services Management Corp. of Chesterfield Co
Brandermill Medical Ancillaries, Inc.
Brandermill Medical Associates
Central Virginia Radiation Therapy Partners
Chicago Medical School Hospital, Inc.
Chippenham Hospital, Inc. - Doing Business As:
Chippenham Hospital (Richmond, VA)
Tucker Pavilion (Richmond, VA)
Circle Terrace Hospital Corporation
Columbia/HCA John Randolph, Inc.
Columbia/HCA Retreat Hospital, Inc.
Fairfax Surgery Center Associates, Ltd. - Doing Business As:
Fairfax Surgical Center
-42-
<PAGE>
VIRGINIA CONTINUED
Galen-Med, Inc. - Doing Business As:
Clinch Valley Medical Center (Richlands, VA)
Lake Area Medical Center (Lake Charles, LA)
Lakeland Medical Center (New Orleans, LA)
Galen of Virginia, Inc. - Doing Business As:
University of Louisville Hospital (Louisville, KY)
Galen Virginia Hospital Corporation
HCA Ambulatory Surgery Investments, Inc.
HCA Health Services of Virginia, Inc. - Doing Business As:
Henrico Doctors Hospital (Richmond, VA)
Lewis-Gale Psychiatric Center (Salem, VA)
Reston Hospital Center (Reston, VA)
Health Resource Productions, Inc.
Imaging and Surgery Centers of Virginia, Inc. - Doing Business As:
Fairfax City Imaging
Johnston-Willis Limited - Doing Business As:
Johnston-Willis Hospital (Richmond, VA)
Lewis-Gale Hospital, Incorporated - Doing Business As:
Lewis-Gale Hospital, (Salem, VA)
NOCO, Inc.
Preferred Care of Richmond, Inc.
Reston Hospital Lithotriftol, J.V.
Richmond West End Real Estate, Inc.
Skipfor, Inc.
Surgicare of Virginia, Inc.
United Ambulance Service, Inc.
Virginia Psychiatric Company, Inc. - Doing Business As:
Dominion Hospital (Falls Church, VA)
Peninsula Center for Behavioral Health (Hampton, VA)
Poplar Springs Hospital (Petersburg, VA)
WASHINGTON
ACH, Inc.
-43-
<PAGE>
WEST VIRGINIA
Charleston Hospital, Inc.
Galen of West Virginia, Inc. - Doing Business As:
Greenbrier Valley Medical Center (Ronceverte, WV)
St. Luke's Hospital (Bluefield, WV)
Galen Shared Services
HCA Health Services of West Virginia, Inc.
Hospital Corporation of America
Raleigh General Hospital - Doing Business As:
Raleigh General Hospital (Beckley, WV)
Teays Valley Health Services, Inc. - Doing Business As:
Putnam General Hospital (Hurricane, WV)
Tri Cities Health Services Corp. - Doing Business As:
River Park Hospital (Huntington, WV)
WISCONSIN
Psychiatric Company of Dane County, Inc.
BERMUDA
Parthenon Insurance Company, Limited
SWITZERLAND
Societe Anonyme de l'Exploitation de l'Hopital de la Tour - Doing
Business as:
Hopital de la Tour
Permanence de l'Hopital de la Tour S.A. - Doing Business As:
Geneva Out-Patient Clinic
UNITED KINGDOM
The Wellington Private Hospital Limited - with the following
unincorporated division - Doing Business As:
The Wellington Hospital
-44-
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Forms S-3 (File Nos. 33-53661, 33-53409, 33-52379 and 33-50985) and Forms S-8
(File Nos. 33-55511, 33-55509, 33-55272, 33-55270, 33-52253, 33-51114, 33-51082,
33-51052, 33-50151, 33-50147, 33-49783 and 33-36571) of Columbia/HCA Healthcare
Corporation (including its predecessors) and in the related Prospectus of our
report dated February 28, 1995, with respect to the consolidated financial
statements and schedules of Columbia/HCA Healthcare Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Louisville, Kentucky
March 29, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 1,747
<ALLOWANCES> 604
<INVENTORY> 285
<CURRENT-ASSETS> 2,550
<PP&E> 9,573
<DEPRECIATION> 3,190
<TOTAL-ASSETS> 12,339
<CURRENT-LIABILITIES> 1,767
<BONDS> 3,853
<COMMON> 4
0
0
<OTHER-SE> 5,018
<TOTAL-LIABILITY-AND-EQUITY> 12,339
<SALES> 0
<TOTAL-REVENUES> 11,132
<CGS> 0
<TOTAL-COSTS> 6,231
<OTHER-EXPENSES> 2,059
<LOSS-PROVISION> 628
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> 1,231
<INCOME-TAX> 486
<INCOME-CONTINUING> 745
<DISCONTINUED> 0
<EXTRAORDINARY> (115)
<CHANGES> 0
<NET-INCOME> 630
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
