<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-82219
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO AMENDMENT AND COMPLETION.
Preliminary Prospectus Supplement (to Prospectus Dated August 5, 1999)
Subject to completion, dated October 12, 2000
L. 150,000,000
HCA - THE HEALTHCARE COMPANY
--% NOTES DUE --
MATURITY
- The Notes will mature on --.
INTEREST
- Interest on the Notes is payable on --, and --, of each year, beginning --,
2001.
- Interest will accrue from --, 2000.
REDEMPTION
- We may at our option redeem the Notes at any time after --, 2003 at the price
described under "Description of the Notes" at page S-34 of this prospectus
supplement. We may also redeem the Notes prior to --, 2003 at our option in
the limited circumstances described at page S-35 of this prospectus
supplement.
- We may at our option redeem the Notes upon the occurrence of certain events
relating to United States taxation as described under "Description of the
Notes" at page S-34 of this prospectus supplement.
- There is no sinking fund.
RANKING
- The Notes are senior unsecured obligations. The Notes rank equally with all of
our existing and future unsecured senior debt and senior to all of our
existing and future subordinated debt.
LISTING
- Application has been made to list the Notes on the Luxembourg Stock Exchange
in accordance with their rules.
THE COMPANY
- Our principal office is located at One Park Plaza, Nashville, Tennessee 37203,
United States of America. Our telephone number is + 1 (615) 344-9551.
----------------------------------------------------------------------------
NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Per Note Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Initial Price to Public --% L--
Underwriting Discount --% L--
Proceeds to Us (Before Expenses) --% L--
----------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- The Notes will be delivered in book-entry - The Underwriters listed below will purchase
form through the facilities of Clearstream the Notes from us on a firm commitment basis
Banking, societe anonyme ("Clearstream, and offer them to you, subject to certain
Luxembourg") and Euroclear against payment conditions.
on or about --, 2000.
</TABLE>
Sole Book-Running Manager
DEUTSCHE BANK
DEUTSCHE BANC ALEX. BROWN
Co-Managers
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER , 2000.
<PAGE> 2
On May 25, 2000, Columbia/HCA Healthcare Corporation changed its name to
HCA - The Healthcare Company.
In this prospectus supplement and the accompanying prospectus, unless we
otherwise specify or the context otherwise requires, references to:
"HCA" and "we" refer to HCA - The Healthcare Company and its
affiliates. The term "affiliates" includes our direct and indirect
subsidiaries and partnerships and joint ventures in which our subsidiaries
are partners;
"Sterling" and "L" are to pounds Sterling, "dollars" and "$" are to
United States dollars and "euro" are to the single currency introduced on
January 1, 1999 at the start of the third stage of the European Economic
and Monetary Union;
"government" are to the United States government; and "states" are to
the states of the United States of America.
You should read this prospectus supplement along with the prospectus that
follows. Both documents contain information that you should consider when making
your investment decision. You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the attached
prospectus. We have not, and the Underwriters have not, authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. We are not,
and the Underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the attached
prospectus is accurate as of the date on the front cover of this prospectus
supplement only. Our business, financial condition, results of operations and
prospects may have changed since that date.
----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Forward-Looking Statements............. S-3
Prospectus Supplement Summary.......... S-4
Ratio of Earnings to Fixed Charges..... S-11
Use of Proceeds........................ S-11
Capitalization......................... S-12
Selected Consolidated Financial Data... S-13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... S-15
Description of Business................ S-27
Management............................. S-33
Description of the Notes............... S-34
Taxation............................... S-43
Underwriting........................... S-49
Listing and General Information........ S-51
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
Where You Can Find More Information.... 2
The Company............................ 3
Ratio of Earnings to Fixed Charges..... 3
Use of Proceeds........................ 3
Description of the Debt Securities..... 4
Plan of Distribution................... 11
Legal Opinions......................... 11
Experts................................ 11
</TABLE>
S-2
<PAGE> 3
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the attached prospectus contain, or will
contain, disclosures which are "forward-looking statements." Forward-looking
statements include all statements that do not relate solely to historical or
current facts, and can be identified by the use of words such as "may,"
"believe," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements address, among other things,
strategic objectives and the anticipated effects of the offering. See
"Prospectus Supplement Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of
Business -- Our Business Strategy" and "-- Investigations and Litigation." These
forward-looking statements are based on our current plans and expectations and
are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations and future financial condition and
results. These factors include, but are not limited to,
- the highly competitive nature of the health care business,
- the efforts of insurers, health care providers and others to contain
health care costs,
- possible changes in the Medicare program that may further limit
reimbursements to health care providers and insurers,
- changes in federal, state or local regulation affecting the health care
industry,
- the ability to increase patient volumes and control the costs of
providing services,
- the ability to attract and retain qualified management and personnel,
including physicians,
- liabilities and other claims asserted against us,
- changes in accounting practices,
- changes in general economic conditions,
- future divestitures which may result in additional charges,
- the ability to enter into managed care provider arrangements on
acceptable terms,
- the availability and terms of capital to fund the expansion of our
business,
- changes in business strategy or development plans,
- slowness of reimbursement,
- the ability to implement our shared services and e-health initiatives,
- the outcome of the known and unknown governmental investigations and
litigation involving our business practices, including the ability to
negotiate and execute definitive settlement agreements in the
government's civil cases and judicial approval thereof,
- the outcome of pending and any future tax audits and litigation
associated with our tax positions,
- the outcome of our continuing efforts to monitor, maintain and comply
with appropriate laws, regulations, policies and procedures and our
anticipated corporate integrity agreement with the government, and
- other risk factors described in this prospectus supplement, the attached
prospectus or the documents incorporated by reference in this prospectus
supplement and the attached prospectus.
As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements we make. You should not unduly rely on these forward-looking
statements when evaluating the information presented in this prospectus
supplement, the attached prospectus or the documents incorporated by reference
in this prospectus supplement and the attached prospectus.
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
You should read the following summary information together with the
detailed information included in this prospectus supplement, the attached
prospectus and the documents incorporated by reference in this prospectus
supplement and the attached prospectus.
HCA
OVERVIEW
We operate the largest chain of general acute care hospitals in the United
States along with an expansive network of outpatient surgery centers and other
related health care operations. At August 31, 2000, our affiliates owned and
operated 190 hospitals and 76 outpatient surgery centers. Our affiliates are
also partners in several 50/50 joint ventures that own and operate nine
hospitals and three outpatient surgery centers, which are accounted for using
the equity method. Our facilities are located in 24 states, England and
Switzerland.
Our hospitals provide a comprehensive array of services including internal
medicine, cardiology, oncology, obstetrics, general surgery, neurosurgery and
orthopedics, as well as diagnostic and emergency services. We also provide
outpatient and ancillary services through our acute care hospitals and
outpatient facilities, including outpatient surgery and diagnostic centers,
rehabilitation and other facilities. We operate preferred provider organizations
in 47 states and the District of Columbia.
RESTRUCTURING AND REORGANIZATION
In 1997 we encountered significant challenges and changes. The hospital
industry in the United States was adversely affected by Medicare reimbursement
reductions resulting from the Balanced Budget Act of 1997 (which became
effective October 1, 1997), increased managed care penetration and increased
government scrutiny of hospital operations. In addition, we learned that we were
the subject of a federal investigation related to government reimbursement
programs. The investigation was subsequently expanded in July 1997 to include
outpatient laboratory billing issues, home health issues, relationships with
physicians, diagnosis related group, or DRG, coding and Medicare cost report
issues.
In response to these industry and governmental challenges, we installed new
senior management, redefined our objectives and business practices and initiated
a substantial restructuring plan designed to properly align HCA in this new
environment. Dr. Thomas F. Frist, Jr., who was serving as our Vice Chairman, was
named Chairman of the Board and Chief Executive Officer. Dr. Frist implemented a
new corporate strategy emphasizing a renewed focus on a values-based corporate
culture, operations rather than acquisitions, local communities and the highest
quality care.
Based on a comprehensive review of our business portfolio, we developed a
restructuring plan in which we identified non-strategic segments and assets for
divestiture. Since 1997, we have reduced the number of our hospitals by more
than 40%, or 146 hospitals, and the number of surgery centers by 74, and sold
substantially all of our home health operations and various other non-core
assets, for total proceeds of approximately $5.0 billion. We used the proceeds
to repay a portion of our outstanding indebtedness and to repurchase shares of
our common stock.
S-4
<PAGE> 5
OUR BUSINESS STRATEGY
Our primary objective is to provide the communities we serve with a
comprehensive array of quality health care services in the most cost-effective
manner. We also seek to enhance financial performance by increasing utilization
of, and improving operating efficiencies in, our facilities, consistent with our
ethics and compliance program and governmental regulations. To achieve these
objectives, we pursue the following strategies:
- reinforce our "patients first" philosophy and our commitment to ethics
and compliance;
- focus on strong assets in select, core communities;
- develop comprehensive local health care networks with a broad range of
health care services;
- grow through increased patient volume, expansion of specialty and
outpatient services and selective acquisitions;
- improve operating efficiencies through enhanced cost management, shared
services and resource utilization;
- recruit and develop strong relationships with physicians;
- streamline and decentralize management consistent with our local focus;
and
- effectively allocate capital in order to maximize return.
INVESTIGATIONS AND LITIGATION
We are currently the subject of several federal investigations into some of
our business practices, as well as governmental investigations by various
states. We are cooperating in these investigations and understand, through
written notice and other means, that we are a target in these investigations.
Given the breadth of the ongoing investigations, we expect additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future.
In May 2000, we reached an understanding with attorneys of the Civil
Division of the Department of Justice to recommend an agreement to settle,
subject to certain conditions, civil claims actions against us relating to DRG
coding, outpatient laboratory billing and home health issues. The understanding
provides that we will compensate the government $745 million with respect to the
issues covered by the agreement, with interest accruing from May 18, 2000 at a
rate of 6.5%. The settlement is subject to approval by additional officials at
the Department of Justice and other federal agencies, as well as state
officials; execution of a corporate integrity agreement; execution of definitive
settlement documents for the three issues included in the understanding;
execution of agreements to resolve all pending criminal investigations; and
court approval. The civil issues that are not included as part of the
understanding are claims related to cost reports and physician relations issues.
We are also a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed. The
actions allege, in general, that we violated the False Claims Act by submitting
improper claims to the government for reimbursement. To our knowledge, the
government has intervened in six unsealed qui tam actions. We are aware of
additional qui tam actions that remain under seal and believe that there may be
other sealed qui tam cases of which we are unaware. We are also a defendant in a
number of other suits which allege, in general, improper and fraudulent billing,
overcharging, coding and physician referrals, as well as other violations of
law. Some of the suits have been conditionally certified as class actions.
We remain the subject of a formal order of investigation by the Securities
and Exchange Commission. We understand that the SEC investigation relates to the
anti-fraud, insider trading, periodic reporting and internal accounting control
provisions of the federal securities laws.
S-5
<PAGE> 6
We are not able to predict the outcome or quantify the effects that the
ongoing investigations or the initiation of additional investigations, if any,
will have on our financial condition or results of operations in future periods.
The amounts claimed in the qui tam and other actions are substantial, and we
could be subject to substantial costs resulting from an adverse outcome of one
or more of these actions. Any sanctions or losses arising from these
investigations or actions could have a material adverse effect on our financial
position and results of operations. See "Description of
Business -- Investigations and Litigation" as well as our Annual Report on Form
10-K for the year ended December 31, 1999 and our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 for a more detailed discussion of the risks
and potential impact of the investigations and litigation.
S-6
<PAGE> 7
THE OFFERING
TERMS OF THE NOTES:
Notes offered............... L. 150,000,000 aggregate principal amount of
--% Notes due --.
Maturity date............... The Notes will mature on --.
Interest payment dates...... -- and -- of each year, beginning -- 2001.
Interest calculations....... Actual/Actual
Ranking..................... The Notes are senior unsecured obligations.
The Notes rank equally with all of our
existing and future unsecured senior debt
and are senior to all of our existing and
future subordinated debt.
Redemption and sinking
fund........................ We may at our option redeem the Notes at
any time after -- 2003 at the price
described under "Description of the Notes"
at page S-34 of this prospectus supplement.
We may also at our option redeem the Notes
prior to 2003 in the limited circumstances
described at page S-35 of this prospectus
supplement. We may redeem the Notes upon
the occurrence of certain events relating
to United States taxation as described
under "Description of the Notes" at page
S-34 of this prospectus supplement. There
is no sinking fund.
Form of Notes............... The Notes will be in registered form in the
denominations of L1,000, L10,000 and
L. 100,000. A single global security
registered in the name of a common
depositary for Clearstream, Luxembourg and
Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the
Euroclear system, will be delivered to the
common depositary. Investors may hold
book-entry interests in the global security
through organizations that participate,
directly or indirectly, in the Clearstream,
Luxembourg and Euroclear systems.
Settlement and payment...... Same-day -- immediately available funds.
Use of proceeds............. We estimate that the net proceeds from the
offering will be approximately L148.1
million. We intend to use all or
substantially all of the net proceeds to
repay the existing Sterling-denominated
indebtedness of our United Kingdom
subsidiary, Columbia U.K. Holdings Limited,
and for general corporate purposes.
For additional information with respect to the Notes, see "Description of the
Notes."
S-7
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
You should read the following summary consolidated financial data together
with "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus supplement, the consolidated financial statements and the
related Notes included in our Annual Report on Form 10-K for the year ended
December 31, 1999 and the condensed consolidated financial statements and the
related Notes included in our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
SAME FACILITY FINANCIAL DATA
The following table sets forth our same facility financial information and
operating data for the twelve months ended June 30, 2000, the six-month periods
ended June 30, 2000 and 1999 and the year ended December 31, 1999. Same facility
information excludes the operations of hospitals and their related facilities
which we either acquired or divested during the current or prior period.
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED SIX MONTHS YEAR ENDED
JUNE 30, ENDED JUNE 30, DECEMBER 31,
---------- ----------------------- ------------
2000 2000 1999 1999
---------- ---------- ---------- ------------
(UNAUDITED; DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 15,816 $ 8,207 $ 7,756 $ 15,032
OPERATING DATA:
EBITDA (a)................................... $ 2,958 $ 1,652 $ 1,520 $ 2,782
Number of hospitals at end of period (b)..... 186 186 186 192
Number of licensed beds at end of period
(c)........................................ 41,253 41,253 41,253 42,053
Admissions (d)............................... 1,506,400 774,100 754,600 1,463,300
Equivalent admissions (e).................... 2,233,900 1,141,700 1,112,300 2,170,000
Revenue per equivalent admission............. $ 7,080 $ 7,188 $ 6,973 $ 6,927
PERCENTAGE CHANGE FROM PRIOR YEAR PERIOD:
Revenues..................................... 6.4% 5.8% 6.5% 5.3%
Admissions (d)............................... 3.4 2.6 4.4 2.7
Equivalent admissions (e).................... 3.2 2.6 4.4 2.5
Revenue per equivalent admission............. 3.1 3.1 2.0 2.7
</TABLE>
---------------
(a) EBITDA is defined as income from continuing operations before
depreciation and amortization, interest expense, settlement with federal
government, gains on sales of facilities, impairment of long-lived assets,
restructuring of operations and investigation-related costs, minority interests
and income taxes. EBITDA is commonly used as an analytical indicator within the
health care industry, and also serves as a measure of leverage capacity and debt
service ability. You should not consider EBITDA as a measure of financial
performance under generally accepted accounting principles. The items excluded
from EBITDA are significant components in understanding and assessing financial
performance. You should not consider EBITDA in isolation or as an alternative to
net income, cash flows generated by operating, investing or financing activities
or other financial statement data presented in the financial statements as an
indicator of financial performance or liquidity. Because EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles and is thus susceptible to varying calculations, EBITDA as presented
may not be comparable to other similarly titled measures of other companies.
(b) Excludes nine facilities at June 30, 2000, 16 facilities at June 30,
1999 and 12 facilities at December 31, 1999 that are not consolidated (accounted
for using the equity method) for financial reporting purposes.
(c) Licensed beds are those beds for which a facility has been granted
approval to operate from the applicable state licensing agency.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals. Management and certain investors
use admissions as a general measure of inpatient volume.
(e) Management and certain investors use equivalent admissions as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing the resulting
amount by gross inpatient revenue. The equivalent admissions computation
"equates" outpatient revenue to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
S-8
<PAGE> 9
HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical consolidated
financial data for the years ended December 31, 1999, 1998 and 1997 and the
six-month periods ended June 30, 2000 and 1999, certain selected ratios for the
years ended December 31, 1999, 1998 and 1997 and the twelve-month periods ended
June 30, 2000 and 1999 and our financial position at June 30, 2000. This
financial data has been derived from, and should be read in conjunction with,
our audited consolidated financial statements and the related Notes filed as
part of our Annual Report on Form 10-K for the year ended December 31, 1999 and
the unaudited condensed consolidated financial statements and the related Notes
filed as part of our Quarterly Report on Form 10-Q for the quarter ended June
30, 2000. Financial data for the six-month periods ended June 30, 2000 and 1999
and at June 30, 2000 and the selected ratios for the twelve-month periods ended
June 30, 2000 and 1999 are unaudited and, in the opinion of our management,
include all adjustments necessary for a fair presentation of the data. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 8,404 $ 8,816 $ 16,657 $ 18,681 $ 18,819
Interest expense.................................... 255 229 471 561 493
Income from continuing operations................... 24 428 657 532 182
Net income (loss)................................... 24 428 657 379 (305)
OPERATING DATA:
EBITDA (a).......................................... $ 1,705 $ 1,584 $ 2,888 $ 2,868 $ 2,851
Number of hospitals at end of period (b)............ 195 204 195 281 309
Number of licensed beds at end of period (c)........ 42,240 43,969 42,484 53,693 60,643
Admissions (d)...................................... 788,700 873,200 1,625,400 1,891,800 1,915,100
Equivalent admissions (e)........................... 1,166,500 1,300,200 2,425,100 2,875,600 2,901,400
Average length of stay (days) (f)................... 5.0 5.0 4.9 5.0 5.0
Average daily census (g)............................ 21,611 23,992 22,002 25,719 26,006
PERCENTAGE CHANGE FROM PRIOR YEAR PERIOD:
Revenues............................................ (4.7)% (8.9)% (10.8)% (0.7)% 0.2%
Admissions (d)...................................... (9.7) (11.2) (14.1) (1.4) 1.0
Equivalent admissions (e)........................... (10.3) (12.7) (15.7) (1.1) 2.7
Revenue per equivalent admission.................... 6.3 4.4 5.7 0.3 (2.4)
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Ratio of EBITDA to interest expense................. 6.1x 5.6x 6.1x 5.1x 5.8x
Ratio of total debt to EBITDA....................... 2.3x 2.4x 2.2x 2.4x 3.3x
Ratio of total debt to total capitalization......... 53% 52% 50% 45% 54%
Ratio of earnings to fixed charges.................. 2.0x 2.9x 3.1x 2.6x 1.8x
</TABLE>
<TABLE>
<CAPTION>
AT
JUNE 30, 2000
-------------
(UNAUDITED)
<S> <C>
FINANCIAL POSITION:
Assets.............................................. $17,692
Working capital..................................... 407
Long-term debt, including amounts due within one
year.............................................. 6,967
Minority interests in equity of consolidated
entities.......................................... 739
Stockholders' equity................................ 5,379
</TABLE>
---------------
(a) EBITDA is defined as income before depreciation and amortization,
interest expense, gains on sales of facilities, impairment of long-lived assets,
settlement with federal government, restructuring of operations and
investigation-related costs, minority interests and income taxes. EBITDA is
commonly used as an analytical indicator within the health care industry, and
also serves as a measure of leverage capacity and debt service ability. You
should not consider EBITDA as
S-9
<PAGE> 10
a measure of financial performance under generally accepted accounting
principles. The items excluded from EBITDA are significant components in
understanding and assessing financial performance. You should not consider
EBITDA in isolation or as an alternative to net income, cash flows generated by
operating, investing or financing activities or other financial statement data
presented in the financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(b) Excludes nine facilities at June 30, 2000, 16 facilities at June 30,
1999, 12 facilities in 1999, 24 facilities in 1998 and 27 facilities in 1997
that are not consolidated (accounted for using the equity method) for financial
reporting purposes.
(c) Licensed beds are those beds for which a facility has been granted
approval to operate from the applicable state licensing agency.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals. Management and certain investors
use admissions as a general measure of inpatient volume.
(e) Management and certain investors use equivalent admissions as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing the resulting
amount by gross inpatient revenue. The equivalent admissions computation
"equates" outpatient revenue to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
(f) Represents the average number of days admitted patients stay in our
hospitals.
(g) Represents the average number of patients in our hospital beds each day.
S-10
<PAGE> 11
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of our consolidated earnings to
fixed charges for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------ ------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1.52x 3.70x 3.11x 2.58x 1.81x 4.99x 3.94x
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before minority
interests, income taxes and fixed charges. "Fixed charges" consist of interest
expense, debt amortization costs and one-third of rent expense, which
approximates the interest portion of rent expense.
USE OF PROCEEDS
We estimate that the net proceeds from the offering of the Notes, after
deducting the estimated underwriting discount and expenses of the offering, will
be approximately L. 148.1 million. We intend to use all or substantially all of
the net proceeds from the sale of the Notes to repay the existing
Sterling-denominated indebtedness of our United Kingdom subsidiary, Columbia
U.K. Holdings Limited, and for general corporate purposes.
S-11
<PAGE> 12
CAPITALIZATION
The following table sets forth our total consolidated capitalization as of
June 30, 2000 and as adjusted to give effect to (i) on a pro forma basis, the
offering of $750,000,000 of our 8.750% Notes due 2010 completed on August 18,
2000 and the use of net proceeds from that offering; (ii) on a pro forma basis,
the offering of $500,000,000 of our Floating Rate Senior Notes due September 19,
2002 completed on September 14, 2000 and the use of net proceeds from that
offering; and (iii) the offering of Notes by this prospectus supplement and the
use of net proceeds from this offering(1). You should read this table in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere in this prospectus supplement.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-------------------------
PRO FORMA
AS
HISTORICAL ADJUSTED
---------- ---------
(UNAUDITED;
DOLLARS IN MILLIONS)
<S> <C> <C>
Long-term debt due within one year.......................... $ 691 $ 522
------- -------
Long-term debt:
Senior collateralized debt due through 2034............... 176 176
Senior debt due through 2095.............................. 3,576 5,045(2)
Bank term loans........................................... 1,700 1,200
Bank credit agreement..................................... 700 --
Subordinated debt due through 2015........................ 124 124
------- -------
Total long-term debt.............................. 6,276 6,545
------- -------
Total debt........................................ 6,967 7,067
------- -------
Minority interests in equity of consolidated entities....... 739 739
------- -------
Stockholders' equity:
Common stock $.01 par value per share; authorized
1,600,000,000 voting shares and 50,000,000 nonvoting
shares; outstanding 536,491,600 voting shares and
21,000,000 nonvoting shares............................ 6 6
Capital in excess of par.................................. 722 722
Other..................................................... 8 8
Accumulated other comprehensive income.................... 43 43
Retained earnings......................................... 4,600 4,600
------- -------
Total stockholders' equity........................ 5,379 5,379
------- -------
Total capitalization.............................. $13,085 $13,185
======= =======
</TABLE>
---------------
(1) As of -- 2000, we are not aware of any material changes since June 30, 2000
in our capitalization, except as described above.
(2) Calculated using the exchange rate for Sterling of $1.46 per pound Sterling
as of the close of business on October 11, 2000.
S-12
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data for
the years ended December 31, 1999, 1998, 1997, 1996 and 1995 and the six-month
periods ended June 30, 2000 and 1999 and selected ratios for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995 and for the twelve-month periods
ended June 30, 2000 and 1999. This financial data has been derived from, and
should be read in conjunction with, our audited consolidated financial
statements and the related Notes filed as part of our Annual Report on Form 10-K
for the year ended December 31, 1999 and the unaudited condensed consolidated
financial statements and the related Notes filed as part of our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000. Financial data for the
six-month periods ended June 30, 2000 and 1999 and at June 30, 2000 and 1999 and
the selected ratios for the twelve-month periods ended June 30, 2000 and 1999
are unaudited and, in the opinion of our management, include all adjustments
necessary for a fair presentation of the data. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the entire year.
You should read the following selected consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus supplement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.......................... $ 8,404 $ 8,816 $ 16,657 $ 18,681 $ 18,819 $ 18,786 $ 17,132
Income from continuing
operations...................... 24 428 657 532 182 1,461 1,025
Net income (loss)................. 24 428 657 379 (305) 1,505 961
Diluted income from continuing
operations per share............ .04 .70 1.11 .82 .27 2.15 1.52
Diluted net income (loss) per
share........................... .04 .70 1.11 .59 (.46) 2.22 1.43
Cash dividends per share.......... .04 .04 .08 .08 .08 .08 .08
SAME FACILITY PERCENTAGE CHANGE FROM
PRIOR YEAR PERIOD (a):
Revenues.......................... 5.8% 3.4% 5.3% (0.2)% 1.1% 6.6% 10.2%
Admissions (b).................... 2.6 1.8 2.7 0.4 1.7 3.8 4.6
Equivalent admissions (c)......... 2.6 1.8 2.5 1.4 3.5 5.8 8.6
Revenue per equivalent admission.. 3.1 1.6 2.7 (1.5) (2.3) 0.7 1.5
FINANCIAL POSITION (AT END OF
PERIOD):
Assets............................ $ 17,692 $ 16,650 $ 16,885 $ 19,429 $ 22,002 $ 21,116 $ 19,805
Working capital................... 407 357 265 304 1,650 1,389 1,409
Net assets of discontinued
operations...................... -- -- -- -- 841 212 142
Long-term debt, including amounts
due within one year............. 6,967 6,660 6,444 6,753 9,408 6,982 7,380
Minority interests in equity of
consolidated entities........... 739 768 763 765 836 836 722
Stockholders' equity.............. 5,379 5,434 5,617 7,581 7,250 8,609 7,129
CASH FLOW DATA:
Cash provided by operating
activities...................... $ 693 $ 401 $ 1,223 $ 1,916 $ 1,483 $ 2,589 $ 2,264
Capital expenditures.............. 876 690 1,287 1,470 1,833 2,139 2,991
OPERATING DATA:
EBITDA (d)........................ $ 1,705 $ 1,584 $ 2,888 $ 2,868 $ 2,851 $ 4,214 $ 3,648
Number of hospitals at end of
period (e)...................... 195 204 195 281 309 319 319
Number of licensed beds at end of
period (f)...................... 42,240 43,969 42,484 53,693 60,643 61,931 61,347
Weighted average licensed beds
(g)............................. 42,053 49,454 46,291 59,104 61,096 62,708 61,617
Admissions (b).................... 788,700 873,200 1,625,400 1,891,800 1,915,100 1,895,400 1,774,800
Equivalent admissions (c)......... 1,166,500 1,300,200 2,425,100 2,875,600 2,901,400 2,826,000 2,598,300
Average length of stay (days)
(h)............................. 5.0 5.0 4.9 5.0 5.0 5.1 5.3
Average daily census (i).......... 21,611 23,992 22,002 25,719 26,006 26,538 25,917
Occupancy rate (j)................ 51% 49% 48% 44% 43% 42% 42%
</TABLE>
S-13
<PAGE> 14
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Ratio of EBITDA to interest
expense................... 6.1x 5.6x 6.1x 5.1x 5.8x 8.6x 8.0x
Ratio of total debt to
EBITDA.................... 2.3x 2.4x 2.2x 2.4x 3.3x 1.7x 2.0x
Ratio of total debt to total
capitalization............ 53% 52% 50% 45% 54% 43% 49%
Ratio of earnings to fixed
charges................... 2.0x 2.9x 3.1x 2.6x 1.8x 5.0x 3.9x
</TABLE>
---------------
(a) Same facility information excludes the operations of hospitals and their
related facilities that we either acquired or divested during the current and
prior period.
(b) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals. Management and certain investors
use admissions as a general measure of inpatient volume.
(c) Management and certain investors use equivalent admissions as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing the resulting
amount by gross inpatient revenue. The equivalent admissions computation
"equates" outpatient revenue to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
(d) EBITDA is defined as income before depreciation and amortization,
interest expense, gains on sales of facilities, impairment of long-lived assets,
settlement with federal government, restructuring of operations and
investigation-related costs, merger, facility, consolidation and other costs,
minority interests and income taxes. EBITDA is commonly used as an analytical
indicator within the health care industry, and also serves as a measure of
leverage capacity and debt service ability. You should not consider EBITDA as a
measure of financial performance under generally accepted accounting principles.
The items excluded from EBITDA are significant components in understanding and
assessing financial performance. You should not consider EBITDA in isolation or
as an alternative to net income, cash flows generated by operating, investing or
financing activities or other financial statement data presented in the
financial statements as an indicator of financial performance or liquidity.
Because EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is thus susceptible to varying calculations,
EBITDA as presented may not be comparable to other similarly titled measures of
other companies.
(e) Excludes nine facilities at June 30, 2000, 16 facilities at June 30,
1999, 12 facilities in 1999, 24 facilities in 1998, 27 facilities in 1997, 22
facilities in 1996 and 19 facilities in 1995 that are not consolidated
(accounted for using the equity method) for financial reporting purposes.
(f) Licensed beds are those beds for which a facility has been granted
approval to operate from the applicable state licensing agency.
(g) Weighted average licensed beds represent the average number of licensed
beds, weighted based on periods owned.
(h) Represents the average number of days admitted patients stay in our
hospitals.
(i) Represents the average number of patients in our hospital beds each day.
(j) Represents the percentage of hospital licensed beds occupied by
patients. Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.
S-14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INVESTIGATIONS AND LITIGATION
We are currently the subject of several federal investigations into some of
our business practices, as well as governmental investigations by various
states. We are cooperating in these investigations and understand, through
written notice and other means, that we are a target in these investigations.
Given the breadth of the ongoing investigations, we expect additional
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future.
In May 2000, we reached an understanding with attorneys of the Civil
Division of the Department of Justice to recommend an agreement to settle,
subject to certain conditions, the civil claim actions against us relating to
DRG coding, outpatient laboratory billing and home health issues. The
understanding provides that we will compensate the government $745 million with
respect to the issues covered by the agreement, with interest accruing from May
18, 2000 at a rate of 6.5%. The settlement is subject to approval by additional
officials at the Department of Justice and other federal agencies, as well as
state officials; execution of a corporate integrity agreement; execution of
definitive settlement documents for the three issues included in the
understanding; execution of agreements to resolve all pending criminal
investigations; and court approval. The civil issues that are not included as
part of the understanding are claims related to cost reports and physician
relations issues.
We are also a defendant in several qui tam actions brought by private
parties on behalf of the United States of America, which have been unsealed. The
actions allege, in general, that we violated the False Claims Act by submitting
improper claims to the government for reimbursement. To our knowledge, the
government has intervened in six unsealed qui tam actions. We are aware of
additional qui tam actions that remain under seal and believe that there may be
other sealed qui tam cases of which we are unaware. We are also a defendant in a
number of other suits which allege, in general, improper and fraudulent billing,
overcharging, coding and physician referrals, as well as other violations of
law. Some of the suits have been conditionally certified as class actions.
We remain the subject of a formal order of investigation by the Securities
and Exchange Commission. We understand that the SEC investigation relates to the
anti-fraud, insider trading, periodic reporting and internal accounting control
provisions of the federal securities laws.
We are not able to predict the outcome or quantify the effects that the
ongoing investigations or the initiation of additional investigations, if any,
will have on our financial condition or results of operations in future periods.
The amounts claimed in the qui tam and other actions are substantial, and we
could be subject to substantial costs resulting from an adverse outcome of one
or more of these actions. Any sanctions or losses arising from these
investigations or actions could have a material adverse effect on our financial
position and results of operations. See "Description of
Business -- Investigations and Litigation" as well as our Annual Report on Form
10-K for the year ended December 31, 1999 and our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 for a more detailed discussion of the risks
and potential impact of the investigations and litigation.
RESULTS OF OPERATIONS
Revenue/Volume Trends
Our revenues continue to be affected by an increasing proportion of revenue
being derived from fixed payment, higher discount sources, including government
payers, managed care providers and others. Under the Balanced Budget Act of
1997, our reimbursement from the Medicare and Medicaid programs was reduced by
significant changes that were phased in through October 1, 1998, and will
continue to be reduced as certain changes continue to be phased in during 2000
and 2001. The Balanced Budget Act of 1997 contains a requirement that the Health
Care Financing Administration adopt a prospective payment system for outpatient
hospital services, which is currently anticipated to be implemented in August
2000. As of the date
S-15
<PAGE> 16
of this prospectus supplement, we are not able to quantify the effect, if any,
that the outpatient prospective payment system will have on our financial
results. We continue to experience a shift in our payer mix as patients move
from traditional indemnity insurance and Medicare coverage to medical coverage
that is provided under managed care plans. We generally receive lower payments
per patient under managed care plans than under traditional indemnity insurance
plans or traditional Medicare. With an increasing proportion of services being
reimbursed based upon fixed payment amounts (where the payment is based upon the
diagnosis, regardless of the cost incurred or level of service provided),
revenues, earnings and cash flows are being reduced. Revenues from capitation
arrangements (prepaid health service agreements) are less than 1% of
consolidated revenues.
We expect reductions in the rate of increase in Medicare and Medicaid
reimbursement, and increasing percentages of patient volume related to patients
participating in managed care plans to present ongoing challenges. The
challenges presented by these trends are enhanced by our inability to control
these trends and the associated risks. To maintain and improve our operating
margins in future periods, we must increase patient volumes while controlling
the cost of providing services. If we are not able to achieve reductions in the
cost of providing services through operational efficiencies, and the trend of
declining reimbursements and payments continues, results of operations and cash
flows will deteriorate.
Management believes that the proper response to these challenges includes
the delivery of a broad range of quality health care services to physicians and
patients, with operating decisions being made by the local management teams and
local physicians, and a focus on reducing operating costs through implementation
of our shared services initiatives.
Operating Results Summary
The following tables summarize our results from continuing operations for
the six months ended June 30, 2000 and 1999 and the years ended December 31,
1999, 1998 and 1997 (dollars in millions):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------------------
2000 1999
--------------- ---------------
AMOUNT RATIO AMOUNT RATIO
------- ----- ------- -----
<S> <C> <C> <C> <C>
Revenues.................................................... $8,404 100.0 $8,816 100.0
Salaries and benefits....................................... 3,306 39.3 3,514 39.9
Supplies.................................................... 1,325 15.8 1,376 15.6
Other operating expenses.................................... 1,532 18.2 1,740 19.6
Provision for doubtful accounts............................. 601 7.2 667 7.6
Depreciation and amortization............................... 521 6.2 574 6.5
Interest expense............................................ 255 3.0 229 2.6
Equity in earnings of affiliates............................ (65) (0.8) (65) (0.7)
Settlement with federal government.......................... 745 8.9 -- --
Gains on sales of facilities................................ (18) (0.2) (257) (2.9)
Impairment of long-lived assets............................. -- -- 160 1.8
Restructuring of operations and investigation-related
costs..................................................... 25 0.3 60 0.7
------ ----- ------ -----
8,227 97.9 7,998 90.7
------ ----- ------ -----
Income before minority interests and income taxes........... 177 2.1 818 9.3
Minority interests in earnings of consolidated entities..... 55 0.7 28 0.3
------ ----- ------ -----
Income before income taxes.................................. 122 1.4 790 9.0
Provision for income taxes.................................. 98 1.1 362 4.1
------ ----- ------ -----
Net income.................................................. $ 24 0.3 $ 428 4.9
====== ===== ====== =====
Percentage change from prior year period:
Revenues.................................................. (4.7)% (8.9)%
Income before income taxes................................ (84.6) 17.5
Net income................................................ (94.4) 9.1
Admissions (a)............................................ (9.7) (11.2)
Equivalent admissions (b)................................. (10.3) (12.7)
Revenue per equivalent admission.......................... 6.3 4.4
Same facility percentage change from prior year period (c):
Revenues.................................................. 5.8 3.4
Admissions (a)............................................ 2.6 1.8
Equivalent admissions (b)................................. 2.6 1.8
Revenue per equivalent admission.......................... 3.1 1.6
</TABLE>
S-16
<PAGE> 17
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues......................................... $16,657 100.0 $18,681 100.0 $18,819 100.0
Salaries and benefits............................ 6,694 40.2 7,766 41.6 7,631 40.6
Supplies......................................... 2,645 15.9 2,901 15.5 2,722 14.5
Other operating expenses......................... 3,251 19.5 3,816 20.4 4,263 22.6
Provision for doubtful accounts.................. 1,269 7.6 1,442 7.7 1,420 7.5
Depreciation and amortization.................... 1,094 6.6 1,247 6.7 1,238 6.6
Interest expense................................. 471 2.8 561 3.0 493 2.6
Equity in earnings of affiliates................. (90) (0.5) (112) (0.6) (68) (0.4)
Gains on sales of facilities..................... (297) (1.8) (744) (4.0) -- --
Impairment of long-lived assets.................. 220 1.3 542 2.9 442 2.4
Restructuring of operations and investigation
related costs.................................. 116 0.7 111 0.6 140 0.7
------- ----- ------- ----- ------- -----
15,373 92.3 17,530 93.8 18,281 97.1
------- ----- ------- ----- ------- -----
Income from continuing operations before minority
interests and income taxes..................... 1,284 7.7 1,151 6.2 538 2.9
Minority interests in earnings of consolidated
entities....................................... 57 0.3 70 0.4 150 0.8
------- ----- ------- ----- ------- -----
Income from continuing operations before income
taxes.......................................... 1,227 7.4 1,081 5.8 388 2.1
Provision for income taxes....................... 570 3.5 549 3.0 206 1.1
------- ----- ------- ----- ------- -----
Income from continuing operations................ $ 657 3.9 $ 532 2.8 $ 182 1.0
======= ===== ======= ===== ======= =====
Basic earnings per share from continuing
operations..................................... $ 1.12 $ .82 $ .28
Diluted earnings per share from continuing
operations..................................... $ 1.11 $ .82 $ .27
% changes from prior year:
Revenues....................................... (10.8)% (0.7)% 0.2%
Income from continuing operations before income
taxes........................................ 13.5 178.8 (84.1)
Income from continuing operations.............. 23.6 191.2 (87.5)
Basic earnings per share from continuing
operations................................... 36.6 192.9 (87.1)
Diluted earnings per share from continuing
operations................................... 35.4 203.7 (87.4)
Admissions (a)................................. (14.1) (1.4) 1.0
Equivalent admissions (b)...................... (15.7) (1.1) 2.7
Revenue per equivalent admission............... 5.7 0.3 (2.4)
Same facility % changes from prior year (c):
Revenues....................................... 5.3 (0.2) 1.1
Admissions (a)................................. 2.7 0.4 1.7
Equivalent admissions (b)...................... 2.5 1.4 3.5
Revenue per equivalent admission............... 2.7 (1.5) (2.3)
</TABLE>
---------------
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals. Management and certain investors
use admissions as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the sum
of gross inpatient revenue and gross outpatient revenue and then dividing the
resulting amount by gross inpatient revenue. The equivalent admissions
computation "equates" outpatient revenue to the volume measure (admissions) used
to measure inpatient volume resulting in a general measure of combined inpatient
and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their
related facilities that we either acquired or divested during the current and
prior year.
S-17
<PAGE> 18
Six Months Ended June 30, 2000 and 1999
Income before income taxes decreased 84.6% to $122 million in 2000 from
$790 million in 1999 and pretax margins decreased to 1.4% in 2000 from 9.0% in
1999. The decrease in pretax income was primarily attributable to the accrual of
an estimated settlement with the federal government in the second quarter of
2000. Excluding the settlement charge, income before income taxes increased 9.8%
to $867 million in 2000.
Revenues decreased 4.7% to $8.4 billion in 2000 compared to $8.8 billion in
1999. Inpatient admissions decreased 9.7% from 1999 and equivalent admissions
(adjusted to reflect combined inpatient and outpatient volume) decreased 10.3%.
Revenues, admissions and equivalent admissions declined primarily as a result of
our restructuring of operations. During 1999, we completed the spin-offs of
LifePoint Hospitals, Inc. and Triad Hospitals, Inc. and the sales of 24 hospital
facilities. On a same facility basis, revenues increased 5.8% and admissions and
equivalent admissions increased 2.6% from 1999. Revenue per equivalent admission
increased 6.3% from 1999 to 2000 and on a same facility basis increased 3.1%.
The increase in revenue per equivalent admission on a same facility basis
primarily resulted from successes achieved in renegotiating and renewing certain
managed care contracts on more favorable terms to HCA. The increase in revenue
per equivalent admission on a consolidated basis resulted from the combination
of the same facility improvement and the benefit from the restructuring of
operations transactions. While we achieved some successes in managed care
pricing, attaining revenue increases continues to present a challenge due to
decreases in Medicare rates of reimbursement mandated by the Balanced Budget Act
of 1997 (which lowered 2000 revenues by approximately $20 million), and a
continuing shift in revenues away from traditional Medicare and indemnity payers
to managed care (managed care as a percentage of total admissions increased to
42.2% in 2000 compared to 39.9% in 1999).
Salaries and benefits, as a percentage of revenues, decreased to 39.3% in
2000 from 39.9% in 1999 due to the restructuring of operations. Salaries and
benefits as a percentage of revenues for the facilities included in the
spin-offs of Triad and LifePoint were 42.4% for 1999, and salaries and benefits
as a percentage of revenues for the facilities included in our National Group
(our operating segment which includes nine consolidating hospitals at June 30,
2000 that we intend to sell or close and the operations of some other hospitals
which have been sold) were 46.0% for 1999. During 1999, we divested 24
hospitals.
Supply costs increased as a percentage of revenues to 15.8% in 2000 from
15.6% in 1999, due to an increase in the cost of supplies per equivalent
admission of 7.4% related to the increasing costs of new technology and
pharmaceuticals.
Other operating expenses (primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes) as a percentage of revenues decreased to 18.2%
in the second quarter of 2000 from 19.6% in 1999, due primarily to the
restructuring of operations. The other operating expenses as a percentage of
revenues for the facilities included in the spin-offs of Triad and LifePoint
were 22.4% for 1999, and the other operating expenses as a percentage of
revenues for the facilities included in our National Group were 26.4% for 1999.
Also, some insurance subsidiary funds were reallocated among investment
managers, resulting in the recognition of previously unrealized gains that
decreased other operating expenses by approximately $27 million during the
second quarter of 2000.
Provision for doubtful accounts, as a percentage of revenues, decreased to
7.2% in 2000 from 7.6% in 1999; however, we continue to experience trends that
make it difficult to maintain or reduce the provision for doubtful accounts as a
percentage of revenues. These trends include payer mix shifts to managed care
plans (resulting in increased amounts of patient co-payments and deductibles),
delays in payments and the denial of claims by managed care payers and increases
in the volume of health care services provided to uninsured patients in some
facilities.
S-18
<PAGE> 19
Equity in earnings of affiliates remained basically flat as a percentage of
revenues at 0.8% in 2000 as compared to 0.7% in 1999.
Depreciation and amortization decreased as a percentage of revenues to 6.2%
in 2000 from 6.5% in 1999, primarily due to the restructuring of operations.
Depreciation and amortization as a percentage of revenues for the facilities
included in the spin-offs of Triad and LifePoint was 7.0% in 1999.
Interest expense increased to $255 million in 2000 compared to $229 million
in 1999, primarily as a result of an increase in interest rates during 2000
compared to 1999 and the interest expense, beginning May 2000, related to the
settlement with the federal government. The average rates for our bank
borrowings increased from 6.24% during the six months ended June 30, 1999 to
7.60% during the six months ended June 30, 2000.
During 2000 and 1999, respectively, we incurred $25 million and $60 million
of restructuring of operations and investigation-related costs. In 2000, these
costs included $20 million of professional fees (legal and accounting) related
to the governmental investigations and $5 million of other costs. In 1999,
restructuring of operations and investigation-related costs included $42 million
of professional fees (legal and accounting) related to the governmental
investigations, $2 million of severance and $16 million of other costs.
During 2000, we recognized a pretax gain of $18 million ($8 million
after-tax) on the sale of one hospital. During 1999, we recognized a pretax gain
of $257 million ($151 million after-tax) on the sale of three hospitals and some
related health care facilities. We used proceeds from the sales to repay bank
borrowings.
During 1999, we also identified and initiated, or revised, plans to divest
or close during 1999 and 2000, 15 consolidating hospitals and four
non-consolidating hospitals. The carrying value for the hospitals and other
assets expected to be sold was reduced to fair value based upon estimates of
sales values, for a total non-cash, pretax charge of approximately $160 million.
Minority interests increased as a percentage of revenues to 0.7% in 2000
from 0.3% in 1999 due to improved operations at some joint ventures.
The effective income tax rate was 80.3% in 2000, due to a valuation
allowance recorded in the second quarter, and was 45.8% in 1999, due to
nondeductible intangible assets related to gains on sales of facilities and
impairment of long-lived assets. If we excluded the effect of the valuation
allowance, the nondeductible intangible assets and the related amortization, the
effective income tax rate would have been approximately 39% for both 2000 and
1999.
We have completed a restructuring of our operations. Assuming the
restructuring was completed as of the beginning of the period, our remaining
core facilities had combined net income which decreased 86.8% from $402 million
in 1999 to $53 million in 2000. Excluding gains on sales of facilities,
impairment of long-lived assets, settlement with federal government and
restructuring of operations and investigation-related costs, combined net income
for our remaining core facilities increased 18.5% to $567 million in 2000 from
$479 million in 1999.
Years Ended December 31, 1999 and 1998
Income from continuing operations before income taxes increased 13.5% to
$1.2 billion in 1999 from $1.1 billion in 1998 and pretax margins increased to
7.4% in 1999 from 5.8% in 1998. The increase in pretax income primarily resulted
from reductions from 1998 to 1999 in salaries and benefits and other operating
expenses as a percentage of revenues.
Revenues decreased 10.8% to $16.7 billion in 1999 from $18.7 billion in
1998 due to the reduction from 281 hospitals at December 31, 1998 to 195
hospitals at December 31, 1999. During 1999, we restructured our operations by
completing the spin-offs of LifePoint and Triad and the sale of 24 hospital
facilities. On a same facility basis, both admissions and revenues per
equivalent admission increased 2.7% from 1998 to 1999, resulting in a 5.3%
increase in revenues. The increases in revenue per equivalent admission of 5.7%
on a consolidated basis and 2.7% on
S-19
<PAGE> 20
a same facility basis from 1998 to 1999 primarily resulted from successes
achieved during 1999 in renegotiating and renewing certain managed care
contracts on more favorable terms. While we achieved some successes in managed
care pricing, attaining revenue increases continues to present a challenge due
to decreases in Medicare rates of reimbursement mandated by the Balanced Budget
Act of 1997 (which lowered 1999 revenues by approximately $124 million), and a
continuing shift in revenues away from traditional Medicare and indemnity payers
to managed care (managed care as a percentage of total admissions increased to
41% in 1999 compared to 39% in 1998).
Salaries and benefits, as a percentage of revenues, decreased from 41.6% in
1998 to 40.2% in 1999. The increase in revenues per equivalent admission was a
primary factor for the decrease. In addition, we were more successful in
adjusting staffing levels to correspond with the equivalent admission growth
rates (man hours per equivalent admission decreased approximately 3% compared to
1998).
Supply costs increased as a percentage of revenues to 15.9% in 1999 from
15.5% in 1998 due to an increase in the cost of supplies per equivalent
admission related to the increasing costs of new technology and pharmaceuticals.
Other operating expenses (primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes) decreased as a percentage of revenues from 20.4%
to 19.5% due to certain fixed costs such as contract services, rents, leases,
and utilities remaining relatively flat while revenue per equivalent admission
was increasing. A decline in professional fees, due to the sales of certain
teaching facilities that had costs for medical directorships, also contributed
to the decrease.
Provision for doubtful accounts, as a percentage of revenues, decreased
slightly to 7.6% in 1999 from 7.7% in 1998. We continue to experience trends
that make it difficult to maintain or reduce the provision for doubtful accounts
as a percentage of revenues. These trends include payer mix shifts to managed
care plans (resulting in increased amounts of patient co-payments and
deductibles), delays in payments and the denial of claims by managed care payers
and increases in the volume of health care services provided to uninsured
patients in certain facilities.
Depreciation and amortization remained relatively flat as a percentage of
revenues at 6.6% in 1999 versus 6.7% in 1998.
Interest expense decreased to $471 million in 1999 compared to $561 million
in 1998 primarily as a result of a decrease in average outstanding debt during
1999 compared to 1998. The spin-offs and facility sales resulted in the receipt
of cash proceeds in 1999 and in the third and fourth quarters of 1998 which were
used to pay down borrowings.
Equity in earnings of affiliates remained relatively flat as a percentage
of revenues at 0.5% in 1999 and 0.6% in 1998.
During 1999, we recognized a pretax gain of $297 million ($164 million
after-tax) on the sale of three hospitals and some related health care
facilities. We used proceeds from the sales to repay bank borrowings.
During 1999, we also identified and initiated, or revised, plans to divest
or close during 1999 and 2000, 23 consolidating hospitals and four
non-consolidating hospitals. The carrying value for the hospitals and other
assets expected to be sold was reduced to fair value based upon estimates of
sales values, for a total non-cash, pretax charge of approximately $220 million.
During 1999 and 1998, respectively, we incurred $116 million and $111
million of restructuring of operations and investigation-related costs. In 1999,
these costs included $77 million of professional fees (legal and accounting)
related to the governmental investigations, $5 million of severance costs and
$34 million of other costs. In 1998, restructuring of operations and
investigation-related costs included $96 million of professional fees (legal and
accounting)
S-20
<PAGE> 21
related to the governmental investigations, $5 million of severance costs and
$10 million of other costs.
Minority interests decreased slightly as a percentage of revenues to 0.3%
in 1999 from 0.4% in 1998.
The effective income tax rates were 46.5% in 1999 and 50.8% in 1998 due to
non-deductible intangible assets related to gains on sales of facilities and
impairments of long-lived assets. If we excluded the effect of the
non-deductible intangible assets and the related amortization, the effective
income tax rate would have been approximately 39% for both 1999 and 1998.
We have substantially completed a restructuring of our operations. Assuming
the restructuring was completed as of the beginning of the period, our remaining
core facilities had combined net income from continuing operations of $669
million in 1999 versus $452 million in 1998, an increase of 48.1%. Excluding
gains on sales of facilities, impairment of long-lived assets and restructuring
of operations and investigation-related costs, combined net income for our
remaining core facilities increased 13.1% to $838 million in 1999 from $741
million in 1998.
Years Ended December 31, 1998 and 1997
Revenues decreased 0.7% to $18.7 billion in 1998 compared to $18.8 billion
in 1997, primarily as a result of the sales of facilities and declines in
volumes. Inpatient admissions decreased 1.4% from 1997 to 1998 and equivalent
admissions (adjusted to reflect combined inpatient and outpatient volume)
decreased 1.1%. The small decline in revenues compared to the decline in
equivalent admissions resulted in a slight increase in revenues per equivalent
admission of 0.3%. On a same facility basis, revenues decreased 0.2%, admissions
increased 0.4% and equivalent admissions increased 1.4% from 1997 to 1998. On a
same facility basis, the decline in revenues combined with an increase in
equivalent admissions resulted in a decline in revenues per equivalent admission
of 1.5%.
The decline in revenues was due to several factors, including decreases in
Medicare reimbursement rates mandated by the Balanced Budget Act of 1997 (which
lowered 1998 revenues by approximately $215 million), continued increases in
discounts from the growing number of managed care payers (managed care as a
percentage of total admissions increased to 39% in 1998 compared to 35% in 1997)
and a net decrease in the number of consolidating hospitals and surgery centers
since 1997 due to the sales of several facilities during 1998. We had 281
consolidating hospitals and 102 surgery centers at December 31, 1998, compared
to 309 hospitals and 140 surgery centers at December 31, 1997.
Income from continuing operations before income taxes increased 178.8% to
$1.1 billion in 1998 from $388 million in 1997. Pretax margins increased to 5.8%
in 1998 from 2.1% in 1997. The increase in pretax income was primarily
attributable to gains on the sales of facilities and a small increase in the
operating margin. Excluding the gains on sales of facilities, asset impairment
charges and restructuring of operations and investigation-related costs, income
from continuing operations before income taxes increased 2.0% to $990 million in
1998 from $970 million in 1997 and the pretax margin increased to 5.3% in 1998
from 5.2% in 1997. These increases were primarily attributable to a decrease in
other operating expenses as a percentage of revenues.
Operating expenses increased as a percentage of revenues in almost every
expense category, except other operating expenses, which declined 2.2% from
1997. The increases were primarily attributable to our inability to adjust
expenses in line with the decreases experienced in revenues and reimbursement
trends. Management's attention to the investigations, reactions by certain
physicians and patients to the negative media coverage and management changes at
several levels and locations throughout HCA contributed to our inability to
implement changes to reduce operating expenses in response to the revenue
declines.
Salaries and benefits, as a percentage of revenues, increased to 41.6% in
1998 from 40.6% in 1997. The increase was due to a 3.4% increase in salaries and
benefits per equivalent
S-21
<PAGE> 22
admission, which can be attributed to a 2.7% increase in labor cost per hour and
a 0.5% increase in man-hours per equivalent admission.
Supply costs increased as a percentage of revenues to 15.5% in 1998 from
14.5% in 1997 due to a 7.7% increase in the cost of supplies per equivalent
admission, while revenues per equivalent admission increased only 0.3%.
Other operating expenses (which includes contract services, professional
fees, repairs and maintenance, rents and leases, utilities, insurance, marketing
and non-income taxes) decreased as a percentage of revenues to 20.4% in 1998
from 22.6% in 1997. The decrease resulted from small decreases in several of
these expense categories as a percentage of revenues, including lower marketing
costs due to the cancellation of a national branding campaign.
Provision for doubtful accounts, as a percentage of revenues, increased to
7.7% in 1998 from 7.5% in 1997 due to internal factors such as computer
information system conversions (including patient accounting systems), which
diverted some of the time of business office employees from their billing and
collection functions to assist with the system conversions at some facilities,
and external factors such as payer mix shifts to managed care plans (resulting
in increased amounts of patient co-payments and deductibles) and increases in
claim audits and remittance denials from some payers. Management is unable to
quantify the effects of each of these factors because the data to support the
classification of writeoffs to these categories is not accumulated due to
volume, standardization and cost constraints. The shift in payer mix is expected
to continue and the provision for doubtful accounts is likely to remain at
higher levels than in past years (1996 and prior).
Equity in earnings of affiliates increased slightly as a percentage of
revenues to 0.6% in 1998 from 0.4% in 1997.
Depreciation and amortization increased as a percentage of revenues to 6.7%
in 1998 from 6.6% in 1997, primarily due to the slowdown in revenue growth and
increased capital expenditures related to ancillary services (such as outpatient
services) and information systems. Capital expenditures in these areas generally
result in shorter depreciation and amortization lives for the assets acquired
than typical hospital acquisitions.
Interest expense increased to $561 million in 1998 compared to $493 million
in 1997. A primary reason for the increased interest expense is an increase in
the average interest rate on our borrowings. Our credit ratings were downgraded
in both 1998 and 1997 and this caused a shift in credit sources from the
commercial paper market to bank debt.
During 1998, we recognized a pretax gain of $744 million ($365 million
after-tax) on the sale of some hospitals and surgery centers. The gain includes
a pretax gain of $570 million ($335 million after-tax) on the sale of 21
hospitals to a consortium of not-for-profit entities, a pretax gain of $203
million ($50 million after-tax) on the sale of 34 surgery centers, and a loss of
$29 million ($20 million after-tax) on the sale of six hospitals and other
facilities.
During 1998, management approved a plan to divest a group of our medical
office buildings. The divestiture is expected to be completed through the
transfer of the medical office buildings to a joint venture in which we will
maintain a minority interest. The carrying value for these medical office
buildings, along with certain hospitals and other facilities expected to be
sold, was reduced to fair value, based upon estimates of sales values resulting
in a non-cash, pretax impairment charge of $542 million ($175 million of the
total impairment charge was related to the medical office buildings).
During 1997, we recorded $442 million of asset impairment charges. The
charges primarily related to hospital and surgery center facilities to be sold
or closed ($402 million) and physician practices ($40 million) where projected
future cash flows were less than the carrying value of the related assets.
S-22
<PAGE> 23
We incurred $111 million and $140 million of costs during 1998 and 1997,
respectively, of restructuring of operations and investigation-related costs. In
1998, these costs included $96 million of professional fees (legal and
accounting) related to the governmental investigations, $5 million of severance
costs and $10 million of other costs. In 1997, these costs included $61 million
of severance costs, $44 million of professional fees (legal and accounting)
related to the governmental investigations and $35 million of other costs.
Minority interests decreased as a percentage of revenues to 0.4% in 1998
from 0.8% in 1997. The decrease in minority interest expense was attributable to
declines in profitability in certain operations that have minority ownership and
the sales during 1998 of certain minority-owned operations (the majority of the
34 surgery centers that were sold during 1998 had minority owners).
Income from continuing operations increased 191.2% to $532 million ($.82
per diluted share) during 1998 compared to $182 million ($.27 per diluted share)
in 1997. Excluding the gains on sales of facilities, asset impairment charges,
and restructuring of operations and investigation-related costs, income from
continuing operations increased 4.3% to $590 million ($.91 per diluted share) in
1998 from $565 million ($.85 per diluted share) in 1997.
We substantially completed a restructuring of our operations (including the
spin-offs of LifePoint and Triad and the divestiture of some facilities).
Assuming the completion of the restructuring, as of the beginning of the period
our remaining core facilities had combined net income from continuing operations
which increased 84.0% to $452 million in 1998 from $246 million in 1997.
Excluding gains on sales of facilities, impairment of long-lived assets and
restructuring of operations and investigation-related costs, combined net income
for our remaining core facilities increased 50.4% to $741 million in 1998 from
$493 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operating activities improved to $693 million
during the first six months of 2000 compared to $401 million in 1999. The
improvement was primarily due to an increase in net income, excluding gains on
sales of facilities, impairment of long-lived assets and the settlement with
federal government, to $513 million in 2000 from $408 million in 1999. Also
during the first six months of 2000, we made tax payments of $378 million versus
$452 million in 1999. Cash provided by continuing operating activities totaled
$1.2 billion in 1999 compared to $1.9 billion in 1998 and $1.5 billion in 1997.
The decrease in cash provided by continuing operating activities during 1999
primarily resulted from an increase in tax payments and increases in accounts
receivable and other current assets. During 1998, we applied for and received a
refund of approximately $350 million, resulting from excess estimated tax
payments made in 1997 based upon more profitable prior periods. The increase
from 1997 to 1998 was primarily due to the loss incurred from continuing
operations during 1997.
Cash used in investing activities was $785 million during the first six
months of 2000, compared to cash provided of approximately $1.4 billion during
1999. The decrease was due primarily to proceeds from the disposition of
hospitals and other health care facilities of $624 million in 1999 compared with
$263 million in 2000, cash flows from changes in investments of $548 million in
1999 (including repayment by a nonconsolidating joint venture of advances of
approximately $330 million) compared with cash used of $96 million in 2000, and
the $886 million in proceeds in 1999 related to the spin-offs. In 2000, we also
used $290 million to acquire hospitals and health care entities, and we had no
acquisitions in 1999. Cash provided by investing activities was approximately
$0.9 billion in 1999 and approximately $1.0 billion in 1998, compared to cash
used in investing activities of $2.7 billion in 1997. Our restructuring of
operations resulted in the receipt of cash proceeds of approximately $1.8
billion in 1999 and $2.8 billion in 1998. In 1997, we used $1.2 billion of cash
to complete the acquisition of Value Health, Inc., a provider of specialty
managed care benefit programs.
S-23
<PAGE> 24
Cash flows provided by financing activities totaled $194 million in the
first six months of 2000 compared to cash used of approximately $2.0 billion in
1999. The primary financing cash flow activities included the repurchases of our
common stock (approximately $255 million and $1.9 billion during 2000 and 1999,
respectively) and the receipt of net proceeds from debt issuances of $448
million in 2000. Cash flows used in financing activities totaled approximately
$2.3 billion in 1999 and $2.7 billion during 1998, compared to cash provided by
financing activities of $1.3 billion in 1997. We primarily used the cash flows
provided by continuing operating activities and investing activities to
repurchase approximately 82 million shares of our common stock in 1999 and to
pay down debt during 1998. During 1997, we used approximately $1 billion of cash
to repurchase approximately 29 million shares of our common stock. We funded the
repurchase in 1997 with the issuance of long-term debt, commercial paper and
bank borrowings.
Working capital totaled $407 million as of June 30, 2000, compared to $265
million at December 31, 1999. At December 31, 1999 current liabilities included
$500 million outstanding under our senior interim term loan. In March 2000, we
repaid the $500 million using proceeds from a new $1.2 billion senior term loan.
Management believes that cash flows from operations, amounts available under our
revolving credit facility, proceeds from our senior term loan and our access to
debt markets (including the net proceeds from the Notes offered hereby) are
sufficient to meet expected liquidity needs during 2000.
Excluding acquisitions, capital expenditures were $586 million during the
first six months of 2000 compared to $690 million for the same period in 1999.
We expect planned capital expenditures in 2000 to approximate $1.3 billion.
Management believes that its capital expenditure program is adequate to expand,
improve and equip its existing health care facilities.
Investments of our professional liability insurance subsidiary to maintain
statutory equity and pay claims totaled $1.7 billion at June 30, 2000 and at
December 31, 1999 and $1.8 billion at December 31, 1998.
During 1997, we announced both the cessation of sales of interests in our
hospitals to physicians and our intention to repurchase physician ownership
interests in our hospitals. We paid approximately $8 million and $41 million to
repurchase some physician interests in 1999 and 1998, respectively.
We have various agreements with joint venture partners whereby the partners
have an option to sell or "put" their interests in the joint venture back to HCA
within specific periods at fixed prices or prices based on specific formulas.
The combined put price under all such agreements was approximately $400 million
at June 30, 2000. During 2000, one of our joint venture partners exercised its
put option, whereby HCA purchased the partner's interest in the joint venture
for approximately $47 million. We cannot predict if, or when, other joint
venture partners will exercise such options.
During the first quarter of 1998, the Internal Revenue Service issued
guidance regarding certain tax consequences of joint ventures between for-profit
and not-for-profit hospitals. As a result of the tax ruling, the IRS may propose
to revoke the tax-exempt or public charity status of certain not-for-profit
entities that participate in such joint ventures or to treat joint venture
income as unrelated business taxable income. We are continuing to review the
impact of the tax ruling on our existing joint ventures and the development of
future ventures, and are consulting with our joint venture partners and tax
advisers to develop appropriate courses of action. The tax ruling or any adverse
determination by the IRS regarding the tax-exempt or public charity status of a
not-for-profit partner, or the characterization of joint venture income as
unrelated business taxable income, could limit joint venture development with
not-for-profit hospitals, require the restructuring of some existing joint
ventures with not-for-profits and influence the exercise of the put agreements
by some existing joint venture partners.
In November 1999, we announced that our Board of Directors authorized the
repurchase of up to $1 billion of our common stock. During the first quarter of
2000, we settled forward
S-24
<PAGE> 25
purchase contracts associated with our November 1999 authorization for
approximately 8.5 million shares at a cost of $250 million and during the second
quarter of 2000, settled forward purchase contracts associated with the same
authorization for approximately 1.8 million shares at a cost of approximately
$53 million. In accordance with the terms of the forward purchase contracts, the
shares purchased remain outstanding until the forward purchase contracts are
settled by HCA. Forward purchase contracts totaling approximately 24.1 million
shares at a cost of approximately $697 million remain outstanding until settled
by HCA.
In March 2000, we announced that our Board of Directors authorized the
repurchase of up to $1 billion of additional common stock. Some financial
organizations purchased approximately 5.3 million shares of HCA's common stock
for approximately $119 million during the first quarter of 2000 and
approximately 11.3 million shares for approximately $322 million during the
second quarter of 2000 utilizing forward purchase contracts. In accordance with
the terms of the contracts, these shares remain outstanding until settled by
HCA. We expect to repurchase the remaining stock associated with the March 2000
repurchase authorization through open market purchases, privately negotiated
transactions or forward purchase contracts.
During the first quarter of 1999, as part of the agreement related to our
share repurchase programs, we entered into a Letter of Credit Agreement with the
United States Department of Justice. We provided the government with letters of
credit totaling $1 billion. The understanding reached with the government in May
2000 provides that the letters of credit will be reduced from $1 billion to $250
million at the time of the settlement payment. In addition, the understanding is
that any future civil payments on cost reports or physician relations will
reduce the remaining amount of the letters of credit dollar for dollar.
The resolution of the governmental investigations and the various lawsuits
and legal proceedings that have been asserted could result in substantial
liabilities to HCA. At this time, we cannot reasonably estimate the timing or
amounts of the ultimate liabilities; however, it is possible that the resolution
of certain of the contingencies could have a material adverse effect on our
results of operations, financial position and liquidity.
IMPACT OF YEAR 2000 COMPUTER ISSUES
We experienced no material adverse effect to our results of operations,
financial condition or ability to provide for our patients' safety and health as
a result of the Year 2000 date conversion in our computer systems and programs
and those of third parties.
MARKET RISK
We are exposed to market risk related to changes in interest rates and
market values of securities. We currently do not use derivative instruments to
offset the market risk exposure of the investments in debt or equity securities
of our wholly-owned insurance subsidiary or to alter the interest rate
characteristics of our debt instruments.
Our investments in debt and equity securities were $1.2 billion and $510
million, respectively, at June 30, 2000. These investments are carried at fair
value, with changes in unrealized gains and losses recorded as adjustments to
stockholders' equity. The fair value of investments is generally based on quoted
market prices. We do not expect changes in interest rates and market values of
securities to be material in relation to our financial position and operating
results.
With respect to our interest-bearing liabilities, approximately $2.9
billion of long-term debt at June 30, 2000 is subject to variable rates of
interest, while the remaining balance in long-term debt of $4.1 billion at June
30, 2000 is subject to fixed rates of interest. Our variable interest rate is
affected by both the general level of U.S. interest rates and our credit rating.
Our variable rate debt is comprised of our credit facility, on which interest is
payable generally at LIBOR plus 0.45% to 1.5% (depending on our credit ratings),
and bank term loans on which interest is payable generally at LIBOR plus 0.75%
to 2.5%. Due to increases in LIBOR, the average rate for our credit facility
increased from 5.81% for the quarter ended June 30, 1999 to 7.44% for the
S-25
<PAGE> 26
quarter ended June 30, 2000, and the average rate for our term loans increased
from 6.50% for the quarter ended June 30, 1999 to 7.98% for the quarter ended
June 30, 2000. The estimated fair value of our total long-term debt was $6.6
billion at June 30, 2000. The estimates of fair value are based upon the quoted
market prices for the same or similar issues of long-term debt with the same
maturities. Based on a hypothetical 1% increase in interest rates, the potential
annualized losses in future pretax earnings would be approximately $29 million.
The impact of such a change in interest rates on the carrying value of long-term
debt would not be significant. The estimated changes to interest expense and the
fair value of long-term debt are determined considering the impact of
hypothetical interest rates on our borrowing cost and long-term debt balances.
To mitigate the impact of fluctuations in interest rates, we generally target a
portion of our debt portfolio at a fixed rate, either by borrowing on a fixed or
floating rate basis or entering into interest rate swap transactions. We have
not, during 2000 or 1999, participated in any interest rate swap agreements.
Foreign operations and the related market risks associated with foreign
currency are currently insignificant to our results of operations and financial
position.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that may limit our
ability to increase prices. Revenues for acute care hospital services rendered
to Medicare patients are established under the federal government's prospective
payment system. Total Medicare revenues as a percentage of our total revenues
approximated 29% in 1999, 30% in 1998 and 34% in 1997.
Management believes that hospital industry operating margins have been, and
may continue to be, under significant pressure because of changes in payer mix
and growth in operating expenses in excess of the increase in prospective
payments under the Medicare program. Management expects that the average rate of
adjustment for Medicare prospective payments for inpatient hospital services
will range from (0.3%) to 0.0% in 2000. In addition, as a result of increasing
regulatory and competitive pressures, our ability to maintain operating margins
through price increases to non-Medicare patients is limited.
IRS DISPUTES
We are contesting income taxes and related interest proposed by the IRS for
prior years aggregating approximately $191 million as of June 30, 2000.
Management believes that final resolution of these disputes will not have a
material adverse effect on our results of operations or liquidity.
During the first quarter of 2000, HCA and the IRS filed a Stipulated
Settlement with the Tax Court regarding the proposed disallowance by the IRS of
certain acquisition-related costs, executive compensation and systems conversion
costs, which were deducted in calculating taxable income, and the methods of
accounting used by some subsidiaries for calculating taxable income related to
vendor rebates and governmental receivables. As a result of the settlement, we
paid additional tax and interest of approximately $156 million during 2000. The
settlement had no impact on our results of operations.
S-26
<PAGE> 27
DESCRIPTION OF BUSINESS
OVERVIEW
HCA - The Healthcare Company (which, until May 25, 2000, was called
"Columbia/HCA Healthcare Corporation") is a holding company whose affiliates own
and operate hospitals and related health care entities. At August 31, 2000,
these affiliates owned and operated 190 hospitals and 76 outpatient surgery
centers and provided extensive outpatient and ancillary services. Our affiliates
are also partners in several 50/50 joint ventures that own and operate nine
hospitals and three outpatient surgery centers, which are accounted for using
the equity method. Our facilities are located in 24 states, England and
Switzerland.
Our hospitals provide a comprehensive array of services including internal
medicine, cardiology, oncology, obstetrics, general surgery, neurosurgery and
orthopedics, as well as diagnostic and emergency services. We also provide
outpatient and ancillary services through our acute care hospitals and
outpatient facilities, including outpatient surgery and diagnostic centers,
rehabilitation and other facilities. We operate preferred provider organizations
in 47 states and the District of Columbia.
RESTRUCTURING AND REORGANIZATION
In 1997 we encountered significant challenges and changes. The hospital
industry in the United States was adversely affected by Medicare reimbursement
reductions resulting from the Balanced Budget Act of 1997, increased managed
care penetration and increased government scrutiny of hospital operations. In
addition, we learned that we were the subject of a federal investigation related
to government reimbursement programs. The investigation was subsequently
expanded in July 1997 to include billing practices, home health operations,
relationships with physicians, DRG coding and Medicare cost report preparation.
In response to these industry and governmental challenges, we installed new
senior management, redefined our objectives and business practices and initiated
a substantial restructuring plan designed to properly align HCA in this new
environment. Dr. Thomas F. Frist, Jr., who was serving as our Vice Chairman, was
named Chairman of the Board and Chief Executive Officer. Dr. Frist implemented a
new corporate strategy emphasizing a renewed focus on a values-based corporate
culture, operations rather than acquisitions, local communities and the highest
quality care.
Based on a comprehensive review of our business portfolio, we developed a
restructuring plan in which we identified non-strategic segments and assets for
divestiture. Since 1997, we have reduced the number of our hospitals by more
than 40%, or 146 hospitals, and the number of surgery centers by 74, and sold
substantially all of our home health operations and various other non-core
assets, for total proceeds of approximately $5.0 billion. We used the proceeds
to repay a portion of our outstanding indebtedness and to repurchase shares of
our common stock.
OUR BUSINESS STRATEGY
Our primary objective is to provide the communities we serve with a
comprehensive array of quality health care services in the most cost-effective
manner. We also seek to enhance financial performance by increasing utilization
of, and improving operating efficiencies in, our facilities. We expect to
accomplish these objectives by implementing the following strategies:
- REINFORCE OUR "PATIENTS FIRST" PHILOSOPHY AND OUR COMMITMENT TO ETHICS
AND COMPLIANCE: We are committed to a values-based corporate culture that
prioritizes the care and improvement of human life above all else. The
values highlighted by our corporate culture - compassion, honesty,
integrity, fairness, loyalty, respect and kindness - are the cornerstone
of our company. To reinforce our dedication to these values and to ensure
integrity in all that we do, we have developed and implemented a
comprehensive ethics and compliance program that articulates a high set
of values and behavioral standards. We believe that this program has
reinforced our dedication to excellent patient care in a concrete way.
S-27
<PAGE> 28
- FOCUS ON STRONG ASSETS IN SELECT, CORE COMMUNITIES: We are focusing on
communities where we are or can be the number one or number two health
care provider. To achieve this goal, management initiated a comprehensive
restructuring process in 1997 that has transformed us into a smaller,
more focused company. This restructuring allows us to focus our efforts
on our core communities, which are typically located in urban areas
characterized by highly integrated health care facility networks. Since
1997, we have reduced the number of our hospitals by more than 40%, or
146 hospitals, and the number of surgery centers by 74, and sold
substantially all of our home health operations and various other
non-core assets. We intend to continue to optimize core assets through
selected divestitures and acquisitions and capital expenditures.
- DEVELOP COMPREHENSIVE LOCAL HEALTH CARE NETWORKS WITH A BROAD RANGE OF
HEALTH CARE SERVICES: We seek to operate each of our facilities as part
of a network with other health care facilities that we own or operate
within a common region. We believe that by being a comprehensive provider
of quality health care services in selected communities, we will be
better able to attract and serve patients and physicians.
- GROW THROUGH INCREASED PATIENT VOLUME, EXPANSION OF SPECIALTY AND
OUTPATIENT SERVICES AND SELECTIVE ACQUISITIONS: We intend to identify
opportunities in areas where demand for comprehensive health services is
not adequately met. We believe that expansion of specialty services will
strengthen our health care delivery networks and attract new patients. To
support this expansion, we plan to actively recruit additional
specialists. Recognizing that the shift from inpatient to outpatient care
is likely to continue, we intend to enhance the access to and the
capabilities of our outpatient services by devoting additional capital
resources to outpatient facilities.
- IMPROVE OPERATING EFFICIENCIES THROUGH ENHANCED COST MANAGEMENT, SHARED
SERVICES AND RESOURCE UTILIZATION: We have initiated several measures to
improve the financial performance of our facilities. To reduce labor
costs, we implemented in many communities a flexible staffing model
whereby hospital units are staffed at the lowest demand level and
additional staff is accessed through shared pools of caregivers. To
curtail supply cost, we formed a new group purchasing organization that
allows us to achieve better pricing in negotiating purchasing and supply
contracts. In addition, as we grow in our select core markets, we believe
that we will continue to benefit from economies of scale, including
supply chain efficiencies and volume discount cost savings. Also, we
expect to be able to reduce operating costs and to be better positioned
to work with health maintenance organizations, preferred provider
organizations and employers, by sharing certain services among several
facilities in the same market.
- RECRUIT AND DEVELOP STRONG RELATIONSHIPS WITH PHYSICIANS: We plan to
actively recruit physicians to enhance patient care and fulfill the needs
of the communities we serve. We believe that recruiting and retaining
motivated physicians is essential to being a premier provider of health
care services. We believe our quality initiatives enhance our competitive
position when recruiting and attracting physicians.
- STREAMLINE AND DECENTRALIZE MANAGEMENT CONSISTENT WITH OUR LOCAL
FOCUS: Our strategy to streamline and decentralize our management
structure affords management of our remaining core facilities greater
flexibility to make decisions that are specific to their respective local
communities. This, in turn, leads to a smoother, less hierarchical
operating structure and creates a more nimble, responsive organization.
- EFFECTIVELY ALLOCATE CAPITAL IN ORDER TO MAXIMIZE RETURN: We carefully
evaluate investment opportunities and invest in projects that add to our
primary objective of providing comprehensive, high-quality health care
services in the most cost-effective manner. We maintain and replace
equipment, renovate and construct replacement facilities and add
S-28
<PAGE> 29
new services to increase the attractiveness of our hospitals and other
facilities to patients and physicians. In addition, we evaluate
acquisitions that complement our strategies and assess opportunities to
enhance stockholder value, including repayment of indebtedness and stock
repurchases.
HEALTH CARE FACILITIES
We currently own, manage or operate hospitals, outpatient surgery centers,
diagnostic centers, cardiac rehabilitation centers, physical therapy centers,
radiation oncology centers, comprehensive outpatient rehabilitation centers and
various other programs.
At June 30, 2000, we, either directly or through joint ventures, operated
204 hospitals with 44,937 licensed beds. Most of our 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 hospitals also provide outpatient services such as outpatient
surgery, laboratory, 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 conform to established standards. When we acquire a hospital, we
establish quality assurance programs to support and monitor quality of care
standards and to meet accreditation and regulatory requirements. We monitor
patient care evaluations and other quality of care assessment activities on a
continuing basis.
Like most hospitals, our hospitals do not engage in extensive medical
research and medical education programs. However, some of our hospitals have an
affiliation with medical schools, including the clinical rotation of medical
students.
We also operate other outpatient or related health care facilities
including outpatient surgery centers, diagnostic centers, outpatient physical
therapy/rehabilitation centers, outpatient radiation therapy centers, cardiac
rehabilitation centers and skilled nursing services. These outpatient and
related services are an integral component of our strategy to develop a
comprehensive health care network in each of our target markets.
In addition to providing capital resources, we make available a variety of
management services to our health care facilities, most significantly ethics and
compliance programs, national supply and equipment purchasing and leasing
contracts, accounting, financial and clinical systems, governmental
reimbursement assistance, construction planning and coordination, information
systems, legal counsel, personnel management and internal auditing services.
SOURCES OF REVENUE
Hospital revenues depend upon inpatient occupancy levels, the ancillary
services and therapy programs 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 geographic location of
the hospital.
S-29
<PAGE> 30
We receive payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, HMOs, PPOs and other private insurers, as well as directly
from patients. The approximate percentages of patient revenues from continuing
operations of our facilities from these sources during the periods specified
below were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------- ------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Medicare.................................... 29% 30% 29% 30% 34%
Medicaid.................................... 7 6 7 6 6
Managed care and other discounted........... 39 35 37 32 28
Other sources............................... 25 29 27 32 32
--- --- --- --- ---
Total............................. 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Medicare is a federal program that provides certain hospital and medical
insurance 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 our hospitals are certified as
providers of Medicare and Medicaid services. Amounts received under 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 our hospitals offer discounts from
established charges to certain large group purchasers of health care services,
including Blue Cross, other private insurance companies, employers, 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 our ability to increase charges in response to
increasing costs. Patients are generally not responsible for any difference
between customary hospital charges and amounts reimbursed for such services
under 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 generally been increasing each year. Collection of amounts due
from individuals is typically more difficult than from governmental or business
payers.
INVESTIGATIONS AND LITIGATION
We are the subject of various federal and state investigations, qui tam
actions, shareholder derivative and class action suits filed in federal court,
shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims.
In March 1997, federal authorities searched various facilities of our El
Paso, Texas operations pursuant to search warrants, and the government removed
various records and documents. In February 1998, also in El Paso, an additional
warrant was executed and a single computer was seized. In July 1997, numerous
facilities and offices affiliated with HCA were searched pursuant to search
warrants issued by the United States District Court in various states. During
July, September and November 1997, we were also served with subpoenas requesting
records and documents related to laboratory billing and DRG coding in various
states and home health operations in various jurisdictions, including, but not
limited to, Florida. In January 1998, we received a subpoena which requested
records and documents relating to physician relationships. In June 1999,
Columbia Home Care Group received a subpoena seeking records related to home
health operations. In March 2000, we received a subpoena that requested records
relating to wound care centers.
In July 1997, the United States District Court for the Middle District of
Florida, in Fort Myers, issued an indictment against three employees of one of
our subsidiaries. The indictment related
S-30
<PAGE> 31
to the alleged false characterization of interest payments on certain debt
resulting in Medicare and TRICARE (formerly CHAMPUS) overpayments since 1986 to
Fawcett Memorial Hospital, a Port Charlotte, Florida hospital that we acquired
in 1992. We were served with subpoenas for various records and documents. A
fourth employee of one of our subsidiaries was indicted in July 1998 by a
superseding indictment. The trial on this matter commenced on May 3, 1999. On
July 2, 1999, the jury returned a mixed verdict, finding two such employees
guilty and acquitting one. The jury was unable to reach a verdict as to the
fourth employee. The government and the fourth employee executed an agreement to
defer prosecution for 18 months, after which charges will be dismissed. The two
convicted employees were sentenced in December 1999 and both have appealed to
the 11th Circuit.
In addition, several affiliated hospital facilities in various states have
received individual federal and/or state government inquiries, both informal and
formal, requesting information related to reimbursement from government
programs.
In general, we believe that the United States Department of Justice and
other federal and state governmental authorities are investigating certain acts,
practices or omissions in which we are alleged to have engaged with respect to
Medicare, Medicaid and CHAMPUS patients regarding (a) allegedly improper DRG
coding (commonly referred to as "upcoding") relating to bills submitted for
medical services, (b) allegedly improper outpatient laboratory billing (e.g.,
unbundling of services and medically unnecessary tests), (c) inclusion of
allegedly improper items in cost reports submitted as a basis for reimbursement
under Medicare, Medicaid and similar government programs, (d) arrangements with
physicians and other parties that allegedly violate certain federal and state
laws governing fraud and abuse, anti-kickback and "Stark" laws and (e) allegedly
improper acquisitions of home health care agencies and allegedly excessive
billing for home health care services.
We are cooperating in these investigations and understand, through written
notice and other means, that we are a target in these investigations. Given the
scope of the ongoing investigations, we expect additional subpoenas and other
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future.
In May 2000, we reached an understanding with attorneys of the Civil
Division of the Department of Justice to recommend an agreement to settle,
subject to certain conditions, civil claims actions against us relating to DRG
coding, outpatient laboratory billing and home health issues. The understanding
provides that we will compensate the government $745 million with respect to the
issues covered by the agreement, with interest accruing commencing May 18, 2000
at a rate of 6.5%. The settlement is subject to approval by additional officials
at the Department of Justice and other federal agencies, as well as state
officials; execution of a corporate integrity agreement; execution of definitive
settlement documents for the three issues included in the understanding;
execution of agreements to resolve all pending criminal investigations; and
court approval. The civil issues that are not included as part of the
understanding are claims related to cost reports and physician relations issues.
We are a defendant in several qui tam actions brought by private parties on
behalf of the United States of America, which have been unsealed. The actions
allege, in general, that we and certain subsidiaries and/or affiliated
partnerships violated the False Claims Act, 31 U.S.C. sec. 3729 et seq., for
improper claims submitted to the government for reimbursement, as well as
improper payments for physician referrals. The lawsuits generally seek three
times the amount of damages caused to the United States by the submission of any
Medicare or Medicaid false claims presented by the defendants to the federal
government, civil penalties of not less than $5,000 nor more than $10,000 for
each such Medicare or Medicaid claim, attorneys' fees and costs. To our
knowledge, the government has intervened in six unsealed qui tam actions. We are
aware of additional qui tam actions that remain under seal and believe that
there may be other sealed qui tam cases of which we are unaware. We are also a
defendant in a number of other suits, which allege, in general, improper and
fraudulent billing, overcharging, coding and physician referrals,
S-31
<PAGE> 32
as well as other violations of law. Some of the suits have been conditionally
certified as class actions.
We remain the subject of a formal order of investigation by the SEC. We
understand that the SEC investigation relates to the anti-fraud, insider
trading, periodic reporting and internal accounting control provisions of the
federal securities laws.
We are also subject to claims and suits by patients and others arising in
the ordinary course of business, including claims for personal injuries or for
wrongful restriction of, or interference with, physicians' staff privileges.
We are not able to predict the outcome or quantify the effects that the
ongoing investigations or the initiation of additional investigations, if any,
will have on our financial condition and results of operations in future
periods. If we are found to have violated federal or state laws relating to
Medicare, Medicaid or similar programs, we could be subject to substantial
monetary fines, civil and criminal penalties and exclusion from participation in
the Medicare and Medicaid programs. Similarly, the amounts claimed in the qui
tam and other actions are substantial, and we could be subject to substantial
costs resulting from an adverse outcome of one or more of these actions. Any
sanctions or losses could have a material adverse effect on our financial
position and results of operations.
For more information regarding these investigations and suits, see our
Annual Report on Form 10-K for the year ended December 31, 1999 and "Part II,
Item 1: Legal Proceedings" contained in our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000, incorporated by reference in this prospectus
supplement and the attached prospectus.
S-32
<PAGE> 33
MANAGEMENT
The following are certain key members of our management:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Thomas F. Frist, Jr., M.D............ 62 Chairman of the Board and Chief
Executive Officer
Jack O. Bovender, Jr................. 55 President and Chief Operating Officer
David G. Anderson.................... 53 Senior Vice President - Finance and
Treasurer
Richard M. Bracken................... 48 President - Western Group
Victor L. Campbell................... 53 Senior Vice President
Jay F. Grinney....................... 49 President - Eastern Group
R. Milton Johnson.................... 43 Senior Vice President and Controller
Robert A. Waterman................... 46 Senior Vice President and General
Counsel
</TABLE>
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board and Chief
Executive Officer since July 1997. Previously, he served as Vice Chairman of the
Board from April 1995 until July 1997. From February 1994 to April 1995, he was
Chairman of the Board. Dr. Frist was Chairman of the Board, President and Chief
Executive Officer of HCA - Hospital Corporation of America from 1988 to February
1994.
Jack O. Bovender, Jr. has served as President and Chief Operating Officer
since August 1997. From April 1994 to August 1997, he was retired after serving
as Chief Operating Officer of HCA - Hospital Corporation of America from 1992
until 1994. Prior to 1992, Mr. Bovender held several senior level positions with
HCA - Hospital Corporation of America.
David G. Anderson has served as Senior Vice President - Finance and
Treasurer since July 1999. From September 1993 until July 1999, he served as
Vice President - Finance and was elected to the additional position of Treasurer
in November 1996. From March 1993 until September 1993, Mr. Anderson served as
Vice President - Finance and Treasurer of Galen Health Care, Inc. From July 1988
to March 1993, Mr. Anderson served as Vice President - Finance and Treasurer of
Humana Inc.
Richard M. Bracken has served as President - Western Group since August
1997. From January 1995 to August 1997, Mr. Bracken served as President of the
Pacific Division. From July 1993 to December 1994, he served as President of
Nashville Healthcare Network, Inc. From December 1981 to June 1993, he served in
various hospital Chief Executive Officer and Administrator positions with
HCA - Hospital Corporation of America.
Victor L. Campbell has served as Senior Vice President since February 1994.
Prior to that time, Mr. Campbell served as HCA - Hospital Corporation of
America's Vice President for Investor, Corporate and Government Relations. Mr.
Campbell joined HCA - Hospital Corporation of America in 1972. Mr. Campbell is
currently a director of the Federation of American Hospitals and a member of the
Operations Committee of the American Hospital Association.
Jay F. Grinney has served as President - Eastern Group since March 1996.
From October 1993 to March 1996, Mr. Grinney served as President of the Greater
Houston Division. From November 1992 to October 1993, Mr. Grinney served as
Chief Operating Officer of the Houston Region.
R. Milton Johnson has served as Senior Vice President and Controller since
July 1999. From November 1998 until July 1999 he served as Vice President and
Controller. Prior to that time, Mr. Johnson served as Vice President - Tax from
April 1995 to October 1998 and as Director of Tax of Healthtrust, Inc. - The
Hospital Company from September 1987 to April 1995.
Robert A. Waterman has served as Senior Vice President and General Counsel
since November 1997. Mr. Waterman served as a partner in the law firm of Latham
& Watkins from September 1993 to October 1997; he was also Chair of the firm's
healthcare group during 1997.
S-33
<PAGE> 34
DESCRIPTION OF THE NOTES
The Notes being offered will be issued under an indenture, dated as of
December 16, 1993, as supplemented on May 25, 2000, between HCA and The First
National Bank of Chicago. Bank One Trust Company, N.A., the successor of The
First National Bank of Chicago, will act as the Trustee. A form of the indenture
is filed as an exhibit to the registration statement, of which the accompanying
prospectus is a part. The following is a summary of certain provisions of the
indenture and of the Notes (or debt securities, as they are referred to in the
accompanying prospectus). This summary does not purport to be complete and is
subject to, and qualified by, the indenture.
The Notes will mature on --. The Notes will bear interest at the rate per
year shown on the cover of this prospectus supplement. If interest is required
to be calculated for any period other than from one scheduled interest payment
date to the next interest payment date, it will be calculated on the basis of
the actual number of days elapsed from and including the previous interest
payment date or if none the date of issue, divided by 365 (or, if any of the
days elapsed fall in a leap year, by 366). The period during which the Notes
will earn interest will begin on --, 2000 or from the most recent interest
payment date to which interest has been paid or provided. The interest will be
payable twice a year on -- and --, beginning on --, 2001. Interest payable on
any Note that is punctually paid or duly provided for on any interest payment
date shall be paid to the person in whose name such Note is registered at the
close of business on -- and --, as the case may be, preceding such interest
payment date. We may pay interest, at our option, by checks mailed to the
registered holders of the Notes. If the interest payment date is not a Business
Day at the relevant place of payment, payment of interest will be made on the
next Business Day at such place of payment. "Business Day" means any day that is
not a Saturday or Sunday and that is not a day on which banking institutions are
generally authorized or obligated by law to close in The City of New York or
London and, for any place of payment outside of The City of New York and London,
in such place of payment.
The Notes will be issued in book-entry form only.
If the United Kingdom adopts the euro as its lawful currency in accordance
with the Treaty establishing the European Communities, as amended by the Treaty
on European Union prior to the maturity of the Notes, the Notes will be
redenominated into euro, and the regulations of the European Commission relating
to the euro shall apply to the Notes. The circumstances and consequences
described in this paragraph entitle neither HCA, the Trustee nor any holder of
the Notes to early redemption, recission, notice or repudiation of the terms of
the Notes or the indenture or to raise any other defense or to request any
compensation claim, nor will they affect any of the other obligations of HCA
under the Notes or the indenture.
Several banks and other financial institutions have provided us with a $1.2
billion credit facility under a term loan agreement dated as of March 13, 2000,
as amended. We will be in default under the Notes if a default occurs under that
agreement (as it may be amended, modified, extended, renewed or replaced from
time to time) and that default results in an acceleration of the maturity of our
indebtedness under that agreement. A declaration of the acceleration of the
maturity of the Notes for this reason is subject to annulment if the default
that caused acceleration of the indebtedness under the term loan agreement is
cured or waived and the Trustee is given notice of the cure or waiver within
sixty (60) days of the declaration. We do not need the consent of the holders of
the Notes to enter into any amendment, modification, extension, renewal or
replacement of the term loan agreement. An acceleration of the indebtedness
under the term loan agreement will cease to constitute a default following the
time, if ever, as the Notes are rated Baa3 (or the equivalent) or higher by
Moody's and BBB- (or the equivalent) or higher by Standard & Poor's. "Moody's"
means Moody's Investors Service, Inc. and its successors. "Standard & Poor's"
means Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. and its successors.
S-34
<PAGE> 35
You can find more detailed information regarding the terms of the Notes in
the prospectus under the heading "Description of the Debt Securities."
OPTIONAL REDEMPTION
The Notes will be redeemable as a whole or in part, at our option, at any
time after -- , 2003, at a redemption price equal to the greater of (i)
100% of the principal amount of such Notes and (ii) as determined by the
Calculation Agent, the price at which the Gross Redemption Yield on the
outstanding principal amount of the Notes on the Reference Date is equal to the
Gross Redemption Yield (determined by reference to the middle-market price) at
3:00 p.m. (London time) on that date on the Benchmark Gilt, plus 50 basis
points. In either case, accrued and unpaid interest on the Notes up to, but
excluding, the date specified as the redemption date (the "Redemption Price").
The Notes will be redeemable as a whole or in part, at our option, at any
time before -- , 2003, at the Redemption Price, if as a result of any
change in or amendment to English law, the limitations on redemption of longer
term debt securities (as defined in the UK Banking Act 1987 (Exempt
Transactions) Regulations 1997 (the "Regulations")) set forth in the Regulations
are no longer applicable to the Notes. To exercise our option under this
section, we will deliver to the Trustee:
(1) a certificate signed by one of our duly authorized officers stating
that we are entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to our right so to redeem have
occurred, and
(2) a written opinion of an independent legal counsel of recognized
standing to the effect that the limitations under the Regulations with respect
to redemption of longer term debt securities are no longer applicable to the
Notes.
"Gross Redemption Yield" means a yield calculated on the basis indicated by
the Joint Index and Classification Committee of the Institute and Faculty of
Actuaries as reported in the Journal of the Institute of Actuaries, Vol. 105,
Part 1, 1978, page 18 or on such other basis as the Trustee may approve.
"Reference Date" means the date which is the first dealing day in London
prior to the publication of the notice of redemption referred to below.
"Benchmark Gilt" means the -- % Treasury Stock -- or such other United
Kingdom government stock as the Calculation Agent may, with the advice of three
brokers and/or United Kingdom gilt-edged market makers or such other three
persons operating in the United Kingdom gilt-edged market as the Calculation
Agent may determine from time to time to be the most appropriate benchmark
United Kingdom government stock for the Notes.
"Calculation Agent" means Deutsche Bank AG London or any successor entity.
We will give notice of any redemption between 30 and 60 days preceding the
redemption date to each holder of the Notes to be redeemed in accordance with
"Notices" below.
Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the Notes or portions called
for redemption.
ADDITIONAL AMOUNTS
All payments of principal and interest in respect of the Notes will be made
without deduction or withholding for or on account of any present or future
taxes, duties, assessments or other governmental charges of whatsoever nature
imposed, levied, collected, withheld or assessed by the United States or any
political subdivision or taxing authority of or in the United States, unless
such withholding or deduction is required by law (see "Taxation -- United States
Tax Considerations" below).
S-35
<PAGE> 36
In the event such withholding or deduction is required by law, subject to
the limitations described below, we will pay as additional interest on the Notes
to the holder or beneficial owner of any Note who is a non-U.S. holder (as
defined under "Taxation -- United States Tax Considerations -- Non-U.S. Holders"
below) such additional amounts ("Additional Amounts") as may be necessary in
order that every net payment by us or any paying agent of principal of or
interest on the Notes (including upon redemption), after deduction or
withholding for or on account of any present or future tax, duty, assessment or
other governmental charge imposed upon or as a result of such payment by the
United States or any political subdivision or taxing authority of or in the
United States, will not be less than the amount provided for in such Note to be
then due and payable before any such tax, duty, assessment or other governmental
charge.
However, our obligation to pay Additional Amounts shall not apply to:
(a) any tax, duty, assessment or other governmental charge which would
not have been so imposed but for:
(1) the existence of any present or former connection between such
holder or beneficial owner (or between a fiduciary, settlor,
beneficiary, member or shareholder or other equity owner of, or a person
having a power over, such holder or beneficial owner, if such holder or
beneficial owner is an estate, a trust, a limited liability company, a
partnership, a corporation or other entity) and the United States,
including, without limitation, such holder or beneficial owner (or such
fiduciary, settlor, beneficiary, member, shareholder or other equity
owner or person having such a power) being or having been a citizen or
resident or treated as a resident of the United States or being or
having been engaged in a trade or business in the United States or being
or having been present in the United States or having had a permanent
establishment in the United States;
(2) the failure of such holder or beneficial owner to comply with
any requirement under United States tax laws and regulations to
establish entitlement to a partial or complete exemption from such tax,
duty, assessment or other governmental charge (including, but not
limited to, the requirement to provide Internal Revenue Service Forms
W-8BEN, Forms W-8ECI, or any subsequent versions thereof or successor
thereto); or
(3) such holder's or beneficial owner's present or former status as
a personal holding company or a foreign personal holding company with
respect to the United States, as a controlled foreign corporation with
respect to the United States, as a passive foreign investment company
with respect to the United States, as a private foundation or other tax
exempt organization with respect to the United States or as a
corporation which accumulates earnings to avoid United States federal
income tax;
(b) any tax, duty, assessment or other governmental charge imposed by
reason of the holder or beneficial owner:
(1) owning or having owned, directly or indirectly, actually or
constructively, 10% or more of the total combined voting power of all
classes of HCA's stock,
(2) being a bank receiving interest described in section
881(c)(3)(A) of the Internal Revenue Code (as defined in "Taxation --
United States Tax Considerations" below), or
(3) being a controlled foreign corporation with respect to the
United States that is related to HCA by stock ownership;
(c) any tax, duty, assessment or other governmental charge which would
not have been so imposed but for the presentation by the holder or
beneficial owner of such Note for payment on a date more than 30 days after
the date on which such payment became due and payable or the date on which
payment of the Note is duly provided for and notice is given to holders,
whichever occurs later, except to the extent that the holder or beneficial
S-36
<PAGE> 37
owner would have been entitled to such additional amounts on presenting
such Note on any date during such 30-day period;
(d) any estate, inheritance, gift, sales, transfer, personal property,
wealth, interest equalization or similar tax, assessment or other
governmental charge;
(e) any tax, duty, assessment or other governmental charge which is
payable otherwise than by withholding from payment of principal of or
interest on such Note;
(f) any tax, duty, assessment or other governmental charge which is
payable by a holder that is not the beneficial owner of the Note, or a
portion of the Note, or that is a fiduciary, partnership, limited liability
company or other similar entity, but only to the extent that a beneficial
owner, a beneficiary or settlor with respect to such fiduciary or member of
such partnership, limited liability company or similar entity would not
have been entitled to the payment of an additional amount had such
beneficial owner, settlor, beneficiary or member received directly its
beneficial or distributive share of the payment;
(g) any tax, duty, assessment or other governmental charge required to
be withheld by any paying agent from any payment of principal of or
interest on any Note, if such payment can be made without such withholding
by any other paying agent; or
(h) any combination of items (a), (b), (c), (d), (e), (f) and (g).
For purposes of this section, the holding of or the receipt of any payment
with respect to a Note will not constitute a connection (1) between the holder
or beneficial owner and the United States or (2) between a fiduciary, settlor,
beneficiary, member or shareholder or other equity owner of, or a person having
a power over, such holder or beneficial owner, if such holder or beneficial
owner is an estate, a trust, a limited liability company, a partnership, a
corporation or other entity, and the United States.
Any reference in this prospectus supplement and the prospectus, in the
indenture or in the Notes to principal or interest shall be deemed to refer also
to Additional Amounts which may be payable under the provisions of this section.
HCA will pay all stamp and other duties, if any, which may be imposed by
the United States or any political subdivision thereof or taxing authority
therein with respect to the insurance of the Notes.
Except as specifically provided in the Notes, HCA will not be required to
make any payment with respect to any tax, duty, assessment or other governmental
charge imposed by any government or any political subdivision or taxing
authority of or in the United States.
Unless previously redeemed or repurchased and cancelled, the Notes will be
payable at par, including Additional Amounts, if any, on -- or such earlier date
on which the applicable Notes shall be due and payable in accordance with the
terms and conditions of the applicable Notes. However, if the maturity date of
the applicable Notes is not a Business Day, the Notes will be payable on the
next succeeding Business Day and no interest shall accrue for the period from
the maturity date to such payment date.
TAX REDEMPTION
The Notes may be redeemed at our option, in whole but not in part, at a
redemption price equal to 100% of the principal amount of the Notes to be
redeemed, together with interest accrued and unpaid to the date fixed for
redemption, at any time, on giving not less than 30 nor more than 60 days'
notice in accordance with "Notices" below, which notice shall be irrevocable,
if:
(a) we have or will become obliged to pay Additional Amounts as a
result of any change in or amendment to the laws, regulations or rulings of
the United States or any political subdivision or any taxing authority of
or in the United States affecting taxation, or any change in or amendment
to an official application, interpretation, administration or
S-37
<PAGE> 38
enforcement of such laws, regulations or rulings, which change or amendment
is announced or becomes effective on or after --, 2000, or
(b) any action shall have been taken by a taxing authority, or any
action has been brought in a court of competent jurisdiction, in the United
States or any political subdivision or taxing authority of or in the United
States, including any of those actions specified in (a) above, whether or
not such action was taken or brought with respect to HCA, or any change,
clarification, amendment, application or interpretation of such laws,
regulations or rulings shall be officially proposed, in any such case on or
after the date of this prospectus supplement, which results in a
substantial likelihood that we will be required to pay Additional Amounts
on the next interest payment date.
However, no such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which we would be, in the case of a redemption for
the reasons specified in (a) above, or there would be a substantial likelihood
that we would be, in the case of a redemption for the reasons specified in (b)
above, obligated to pay such Additional Amounts if a payment in respect of the
Notes were then due.
Prior to the publication of any notice of redemption pursuant to this
section, we will deliver to the Trustee:
(1) a certificate signed by one of our duly authorized officers
stating that we are entitled to effect such redemption and setting forth a
statement of facts showing that the conditions precedent to our right so to
redeem have occurred, and
(2) in the case of a redemption for the reasons specified in (a) or
(b) above, a written opinion of independent legal counsel of recognized
standing to the effect that we have or will become obligated to pay such
Additional Amounts as a result of such change or amendment or that there is
a substantial likelihood that we will be required to pay such Additional
Amounts as a result of such action or proposed change, clarification,
amendment, application or interpretation, as the case may be. Such notice,
once delivered by us to the Trustee, will be irrevocable.
BOOK-ENTRY SYSTEM
We will issue the Notes as a global Note registered in the name of a common
depositary for Clearstream, Luxembourg Banking, societe anonyme, ("Clearstream,
Luxembourg") and Morgan Guaranty Trust Company of New York, Brussels Office, as
operator of the Euroclear system ("Euroclear"). Investors may hold book-entry
interests in the global Note through organizations that participate, directly or
indirectly, in Clearstream, Luxembourg and/or the Euroclear system. Book-entry
interests in the Notes and all transfers relating to the Notes will be reflected
in the book-entry records of Euroclear and Clearstream, Luxembourg.
The distribution of the Notes will be cleared through Clearstream,
Luxembourg and Euroclear. Any secondary market trading of book-entry interests
in the Notes will take place through Euroclear and Clearstream, Luxembourg
participants and will settle in same-day funds. Owners of book-entry interests
in the Notes will receive payments relating to their Notes in pounds Sterling.
Clearstream, Luxembourg and Euroclear have established electronic securities and
payment transfer, processing, depositary and custodial links among themselves
and others, either directly or through custodians and depositaries. These links
allow securities to be issued, held and transferred among the clearing systems
without the physical transfer of certificates. Special procedures to facilitate
clearance and settlement have been established among these clearing systems to
trade securities across borders in the secondary market.
The policies of Clearstream, Luxembourg and Euroclear will govern payments,
transfers, exchange and other matters relating to the investor's interest in
securities held by them. We have no responsibility for any aspect of the records
kept by Clearstream, Luxembourg or Euroclear or any of their direct or indirect
participants. We also do not supervise these systems in any way.
S-38
<PAGE> 39
Clearstream, Luxembourg and Euroclear and their participants perform these
clearance and settlement functions under agreements they have made with one
another or with their customers. You should be aware that they are not obligated
to perform or continue to perform these procedures and may modify them or
discontinue them at any time.
Except as provided below, owners of beneficial interests in the Notes will
not be entitled to have the Notes registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or holders of the Notes under the indenture,
including for purposes of receiving any reports delivered by us or the Trustee
pursuant to the indenture. Accordingly, each person owning a beneficial interest
in a Note must rely on the procedures of the depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, in order to exercise any rights of a holder of Notes.
The description of the clearing systems in this section reflects our
understanding of the rules and procedures of Clearstream, Luxembourg and
Euroclear as they are currently in effect. These systems could change their
rules and procedures at any time. We have obtained the information in this
section concerning Clearstream, Luxembourg and Euroclear and their book-entry
systems and procedures from sources that we believe to be reliable, but we take
no responsibility for the accuracy of this information.
CLEARSTREAM, LUXEMBOURG
Clearstream, Luxembourg is incorporated as a bank under Luxembourg law.
Clearstream, Luxembourg holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream,
Luxembourg customers through electronic book-entry changes in accounts of
Clearstream, Luxembourg customers, thus eliminating the need for physical
movement of certificates. Clearstream, Luxembourg provides to its customers,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Clearstream, Luxembourg interfaces with domestic markets in a number
of countries. Clearstream, Luxembourg has established an electronic bridge with
Euroclear, to facilitate settlement of trades between Clearstream, Luxembourg
and Euroclear.
As a registered bank in Luxembourg, Clearstream, Luxembourg is subject to
regulation by the Luxembourg Commission for the Supervision of the Financial
Sector. Clearstream, Luxembourg customers are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. In the United States, Clearstream,
Luxembourg customers are limited to securities brokers and dealers. Clearstream,
Luxembourg customers may include the Underwriters. Other institutions that
maintain a custodial relationship with a Clearstream, Luxembourg customer may
obtain indirect access to Clearstream, Luxembourg.
THE EUROCLEAR SYSTEM
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thus eliminating the need for physical movement of
certificates and the risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in many currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries.
The Euroclear System is operated by the Brussels office of Morgan Guaranty
Trust Company of New York, which is known as the Euroclear Operator, under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation. The Euroclear Operator conducts all operations, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
S-39
<PAGE> 40
the Euroclear Operator, not the cooperative. The cooperative establishes policy
for the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. The Board of
Governors of the Federal Reserve System, the New York State Banking Department
and the Belgian Banking Commission regulate and examine the Euroclear Operator.
The "Terms and Conditions Governing Use of Euroclear" and the related
"Operating Procedures of the Euroclear System" and applicable Belgian law govern
securities clearance accounts and cash accounts with the Euroclear Operator.
Specifically, these terms and conditions govern:
- transfers of securities and cash within the Euroclear System;
- withdrawal of securities and cash from the Euroclear System; and
- receipts of payments with respect to securities in the Euroclear System.
All securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons holding
securities through Euroclear participants.
CLEARANCE AND SETTLEMENT PROCEDURES
We understand that investors that hold their debt securities through
Euroclear or Clearstream, Luxembourg accounts will follow the settlement
procedures that are applicable to conventional Eurobonds in registered form.
Debt securities will be credited to the securities custody accounts of Euroclear
and Clearstream, Luxembourg participants on the business day following the
settlement date, for value on the settlement date. They will be credited either
free of payment or against payment for value on the settlement date.
We understand that secondary market trading between Euroclear and/or
Clearstream, Luxembourg participants will occur in the ordinary way following
the applicable rules and operating procedures of Euroclear and Clearstream,
Luxembourg. Secondary market trading will be settled using procedures applicable
to conventional Eurobonds in registered form.
You should be aware that investors will only be able to make and receive
deliveries, payments and other communications involving the debt securities
through Clearstream, Luxembourg and Euroclear on days when those systems are
open for business. Those systems may not be open for business on days when
banks, brokers and other institutions are open for business in the United
States.
In addition, because of time-zone differences, there may be problems with
completing transactions involving Clearstream, Luxembourg and Euroclear on the
same business day as in the United States. U.S. investors who wish to transfer
their interests in the debt securities, or to make or receive a payment or
delivery of the debt securities, on a particular day, may find that the
transactions will not be performed until the next business day in Luxembourg or
Brussels, depending on whether Clearstream, Luxembourg or Euroclear is used.
Clearstream, Luxembourg or Euroclear will credit payments to the cash
accounts of Clearstream, Luxembourg customers or Euroclear participants in
accordance with the relevant systemic rules and procedures, to the extent
received by its depositary. Clearstream, Luxembourg or the Euroclear Operator,
as the case may be, will take any other action permitted
S-40
<PAGE> 41
to be taken by a holder under the indenture on behalf of a Clearstream,
Luxembourg customer or Euroclear participant only in accordance with its
relevant rules and procedures.
Clearstream, Luxembourg and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the Notes among participants of
Clearstream, Luxembourg and Euroclear. However, they are under no obligation to
perform or continue to perform those procedures, and they may discontinue those
procedures at any time.
SAME-DAY SETTLEMENT AND PAYMENT
The Underwriters will settle the Notes in immediately available funds. We
will make principal and interest payments on the Notes in immediately available
funds or the equivalent. Secondary market trading between Clearstream,
Luxembourg customers and Euroclear participants will occur in accordance with
the applicable rules and operating procedures of Clearstream, Luxembourg and
Euroclear and will be settled using the procedures applicable to conventional
Eurobonds in immediately available funds. We can give no assurance as to the
effect, if any, of settlement in immediately available funds on trading activity
(if any) in the Notes.
CERTIFICATED NOTES
We will issue Notes to you or your nominees, in fully certificated
registered form, only if (1) we advise the Trustee in writing that the
depositary is no longer willing or able to discharge its responsibilities
properly, and the Trustee or we are unable to locate a qualified successor
within 90 days; (2) an event of default has occurred and is continuing under the
indenture; or (3) we, at our option, elect to terminate the book-entry system.
If any of the three above events occurs, the Trustee will reissue the Notes in
fully certificated registered form and will recognize the registered holders of
the certificated Notes as holders under the indenture.
In the event individual certificates for the Notes are issued, the holders
of such Notes will be able to receive payment on the Notes and effect transfers
of the Notes at the offices of the Luxembourg paying agent and transfer agent.
We have appointed Credit Agricole Indosuez Luxembourg S.A. as paying agent and
transfer agent in Luxembourg with respect to the Notes in individual
certificated form, and as long as the Notes are listed on the Luxembourg Stock
Exchange, we will maintain a paying agent in Luxembourg. In the event individual
certificates for the Notes are issued in definitive form, we will publish
notices which contain a description of the modalities of payments, of transfers
and of exchange in Luxembourg.
We have also appointed Bank One, NA, London branch as a paying agent and
registrar.
Unless and until we issue the Notes in fully certificated, registered form,
(1) you will not be entitled to receive a certificate representing your interest
in the Notes; (2) all references in this prospectus supplement or in the
accompanying prospectus to actions by holders will refer to actions taken by the
depositary upon instructions from their direct participants; and (3) all
references in this prospectus supplement or the accompanying prospectus to
payments and notices to holders will refer to payments and notices to the
depositary, as the registered holder of the Notes, for distribution to you in
accordance with its policies and procedures.
NOTICES
While the Notes are represented by a global Note deposited with the common
depositary for Euroclear and Clearstream, Luxembourg, notices to holders may be
given by delivery to Clearstream, Luxembourg and Euroclear and such notices
shall be deemed to be given on the date of delivery to Clearstream, Luxembourg
and Euroclear. The Trustee will mail notices by first class mail, postage
prepaid, to each registered holder's last known address as it appears in the
security register that the Trustee maintains. The Trustee will only mail these
notices to the registered holder of the Notes, unless we reissue the Notes to
you or your nominees in fully certificated form.
S-41
<PAGE> 42
In addition, if the Notes are listed on the Luxembourg Stock Exchange, and
the rules of the Luxembourg Stock Exchange require notice by publication, the
Trustee will publish notices regarding the Notes in a daily newspaper of general
circulation in Luxembourg. We expect that this newspaper will be the Luxemburger
Wort. If publication in Luxembourg is not practical, the Trustee will publish
these notices elsewhere in Europe. Published notices will be deemed to have been
given on the date they are published. If publication as described above becomes
impossible, then the Trustee may publish sufficient notice by alternate means
that approximate the terms and conditions described in this paragraph.
REPLACEMENT OF NOTES
If any mutilated Note is surrendered to the Trustee, we will execute and
the Trustee will authenticate and deliver in exchange for such mutilated Note a
new Note of the same series and principal amount. If the Trustee and we receive
evidence to our satisfaction of the destruction, loss or theft of any Note and
such security or indemnity as may be required by them, then we shall execute and
the Trustee shall authenticate and deliver, in lieu of such destroyed, lost or
stolen Note, a new Note of the same series and principal amount. All expenses
associated with issuing the new Note shall be borne by the owner of the
mutilated, destroyed, lost or stolen Note.
PRESCRIPTION
Under New York's statute of limitations, any legal action to enforce our
payment obligations evidenced by the Notes must be commenced within six years
after payment is due. Thereafter our payment obligations will generally become
unenforceable.
FURTHER ISSUES
We may from time to time, without notice to or the consent of the
registered holders of the Notes, create and issue further Notes ranking equally
with the Notes in all respects (or in all respects other than the payment of
interest accruing prior to the issue date of such further Notes or except for
the first payment of interest following the issue date of such further Notes).
Such further Notes may be consolidated and form a single series with the Notes
and have the same terms as to status, redemption or otherwise as the Notes.
GOVERNING LAW
The Indenture and the Notes for all purposes shall be governed by and
construed in accordance with the laws of the State of New York.
S-42
<PAGE> 43
TAXATION
UNITED STATES TAX CONSIDERATIONS
General
The following is a summary of the material United States federal income tax
consequences to U.S. holders of purchasing, holding and selling Notes. This
description is based on (1) the Internal Revenue Code of 1986, as amended (the
"Code"), (2) income tax regulations (proposed and final) issued under the Code,
and (3) administrative and judicial interpretations of the Code and regulations,
each as in effect and available as of the date of this prospectus supplement.
These income tax laws, regulations, and interpretations, however, may change at
any time, and any change could be retroactive to the issuance date of the Notes.
Except as otherwise stated, this summary deals only with Notes held as
capital assets (as defined in the Code) by a holder who acquires Notes as part
of the initial distribution at their initial issue price.
A U.S. holder is a beneficial owner of Notes that for United States federal
income tax purposes is:
- a United States citizen or lawful permanent resident individual;
- a corporation or partnership created or organized in or under the laws of
the United States or any State thereof (including the District of
Columbia);
- an estate if its income is subject to United States federal income
taxation regardless of its source; or
- a trust (1) that validly elects to be treated as a United States person
for United States federal income tax purposes or (2)(a) the
administration over which a U.S. court can exercise primary supervision
and (b) all of the substantial decisions of which one or more United
States persons have the authority to control.
A non-U.S. holder is a beneficial owner of Notes that is not a U.S. holder.
This summary does not address all of the tax consequences that may be
relevant to a holder of Notes. Moreover, except as stated below, this summary
does not address any of the tax consequences to (1) holders that may be subject
to special tax treatment such as financial institutions, grantor trusts, real
estate investment trusts, tax-exempt organizations, regulated investment
companies, insurance companies and brokers and dealers or traders in securities
or currencies, (2) persons whose functional currency is not the United States
dollar and (3) persons that will hold Notes as part of a position in a straddle
or as part of a hedging, conversion or other integrated investment transaction.
Further, except where otherwise stated, this summary does not address:
- the United States federal estate and gift or alternative minimum tax
consequences of the purchase, ownership or sale of Notes; or
- any state, local or foreign tax consequences of the purchase, ownership
and sale of Notes.
Prospective investors are advised to consult with their own tax advisors in
light of their own particular circumstances as to the United States federal
income tax consequences of purchasing, holding and disposing of Notes, as well
as the effect of any state, local or foreign tax laws.
U.S. Holders
Interest
In general, interest (including any additional amounts) paid on a Note will
be includible in your gross income as ordinary interest income in accordance
with your usual method of tax accounting. Any such interest paid in pounds
Sterling or euros will be included in the gross income of a U.S. holder in an
amount equal to the U.S. dollar value of pounds Sterling or euros,
S-43
<PAGE> 44
as the case may be, regardless of whether the pounds Sterling or euros are
converted into U.S. dollars. Generally, a U.S. holder that uses the cash method
of tax accounting, will determine such U.S. dollar value using the spot rate of
exchange on the date of receipt. Generally, a U.S. holder that uses the accrual
method of tax accounting will determine the U.S. dollar value of accrued
interest income using the average rate of exchange for the accrual period or, at
the U.S. holder's election, at the spot rate of exchange on the last day of the
accrual period or the spot rate on the date of receipt, if that date is within
five days of the last day of the accrual period. A U.S. holder that uses the
accrual method of accounting for tax purposes will recognize foreign currency
gain or loss on the receipt of an interest payment if the exchange rate in
effect on the date the payment is received differs from the rate applicable to
an accrual of that interest.
Sale, Exchange or Retirement of Notes
If you sell your Notes (including their being redeemed for cash), you will
recognize gain or loss equal to the difference between your adjusted tax basis
in such Notes and the amount realized on the sale of such Notes. Your adjusted
tax basis in the Notes generally will be your initial purchase price. If you are
not a corporation and your holding period for a Note exceeds one year, the
maximum United States federal income tax rate applicable to such gain will be
lower than the maximum United States federal income tax rate applicable to your
ordinary income. A change in currency under which payments on the Notes are
denominated from pounds Sterling to euros will not be treated as a taxable
exchange for United States federal income tax purposes.
Non-U.S. Holders
Subject to the discussion of backup withholding below, under United States
federal income tax law:
- payments of principal of, and interest on, the Notes to a non-U.S. holder
will not be subject to withholding of United States federal income tax if
(i) such payment is effectively connected with a trade or business within
the United States by such non-U.S. holder (and, if a tax treaty applies
and so provides, is attributable to a U.S. permanent establishment of the
non-U.S. holder), or (ii) under the portfolio interest exemption, both
(a) the holder does not actually or constructively own 10% or more of the
combined voting power of all classes of stock of HCA and is not a
controlled foreign corporation related to HCA through stock ownership and
(b) the beneficial owner provides a statement (on an IRS Form W-8BEN or a
substantially similar substitute form) signed under penalties of perjury
that includes its name and address and certifies that it is a non-U.S.
person in compliance with applicable requirements. Interest on the Notes
that is effectively connected with the conduct of a trade or business in
the United States by a non-U.S. holder (and, if a tax treaty applies and
so provides, is attributable to a U.S. permanent establishment of the
non-U.S. holder), although exempt from the withholding tax (assuming
appropriate certification is provided), is subject to graduated United
States federal income tax on a net income basis and also, in the case of
a corporate holder, an additional branch profits tax at 30% (or a lower
rate provided in an appropriate treaty) as if such amounts were earned by
a U.S. holder;
- any gain or income realized by any non-U.S. holder upon the sale or
redemption of the Notes will not be subject to United States income or
withholding tax unless (1) such gain is effectively connected with the
conduct by such non-U.S. holder of a trade or business in the United
States or (2) in the case of any gain realized by an individual non-U.S.
holder, such holder is present in the United States for 183 days or more
in the taxable year of such sale, exchange or retirement and certain
other conditions are met or (3) the non-U.S. holder is a former citizen
or resident of the United States subject to certain rules related to that
status; and
S-44
<PAGE> 45
- a Note that is held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of such individual's death,
provided that such individual is not actually or constructively a 10% (or
more) shareholder of HCA and, at the time of such individual's death,
payments of interest with respect to such Notes would not have been
effectively connected with the conduct by such individual of a trade or
business in the United States.
Backup Withholding And Information Reporting
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by HCA or any paying agent of HCA (in
its capacity as such) to you if you have provided the required certification
that you are a non-U.S. holder as described in "United States Tax
Considerations -- Non-U.S. Holders -- United States Federal Withholding Tax"
above, and provided that neither HCA nor any paying agent of HCA has actual
knowledge that you are a United States holder (as described in "United States
Tax Considerations -- United States Holders" above). HCA or any paying agent of
HCA may, however, report payments of interest on the Notes. Payments to you of
the proceeds from your disposition of a Note will not be subject to information
reporting or backup withholding, provided that you have made the required
certification that you are a non-U.S. holder as described in "United States Tax
Considerations -- Non-U.S. Holders -- United States Federal Withholding Tax"
above. In addition, in the case of payments made to you after December 31, 2000,
payments to you of the proceeds from the disposition of your Note made to or
through the foreign office of a broker will not be subject to information
reporting or backup withholding unless the broker is:
- a United States person (as defined in the Internal Revenue Code);
- a controlled foreign corporation for United States federal income tax
purposes;
- a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified
three-year period; or
- with respect to payments made after December 31, 2000, a foreign
partnership, if at any time during its tax year, one or more of its
partners are United States persons, as defined in Treasury regulations,
who in the aggregate hold more than 50% of the income or capital interest
in the partnership or if, at any time during its tax year, the foreign
partnership is engaged in a United States trade or business.
Payment of the proceeds from your disposition of a Note made to or through
the United States office of a broker is subject to information reporting and
backup withholding unless you certify as to your taxpayer identification number
or otherwise establish an exemption from information reporting and backup
withholding.
You should consult your own tax advisor regarding application of backup
withholding in your particular circumstance and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations and the Treasury regulations that will become effective
after December 31, 2000. Any amounts withheld under the backup withholding rules
from a payment to you will be allowed as a refund or a credit against your
United States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL
TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF THE NOTES. PROSPECTIVE PURCHASERS
OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE TAX
CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
UNITED KINGDOM TAXATION
The following is a summary of the United Kingdom withholding taxation
treatment at the date hereof in relation to payments of principal and interest
in respect of the Notes. The comments do
S-45
<PAGE> 46
not deal with other United Kingdom tax aspects of acquiring, holding or
disposing of the Notes. The comments relate only to the position of persons who
are absolute beneficial owners of the Notes. The following is a general guide
and should be treated with appropriate caution. Noteholders who are in any doubt
as to their tax position should consult their professional advisers.
A. UK Withholding Tax on UK paying agents
Where any interest on the Notes is payable to any person in the United
Kingdom and is entrusted to any person in the United Kingdom ("the UK paying
agent") for payment or distribution, the UK paying agent will be obliged to
withhold United Kingdom income tax at the lower rate (currently 20%), subject to
certain exceptions, including the following:
(a) the relevant Notes are held in a recognized clearing system
(Clearstream, Luxembourg and Euroclear have each been designated as
recognized clearing systems) and either:
(i) payment is made direct to the recognized clearing system; or
(ii) payment is made to, or at the direction of, a depositary for
the recognized clearing system and the UK paying agent has obtained a
valid declaration PA3 from a depositary for the recognized clearing
system; or
(iii) the UK paying agent has obtained a notice from the Inland
Revenue instructing the UK paying agent to pay the interest with no tax
deducted; or
(b) the person who is beneficially entitled to the interest and is the
beneficial owner of the Notes is not resident in the United Kingdom and
either:
(1) the UK paying agent obtains a valid declaration PA1 from the
said person on the occasion of each payment; or
(2) the UK paying agent obtains on the occasion of each payment a
valid declaration PA2 from another person who holds the Notes for the
non-resident person and who is entitled to arrange for the interest to
be paid with no United Kingdom tax deducted; or
(c) interest arises to Trustees of certain trusts (called "qualifying
discretionary and accumulation trusts"), where essentially neither the
Trustees nor the beneficiaries are resident in the United Kingdom and the
UK paying agent obtains a valid declaration PA1 from the Trustee; or
(d) the person entitled to the interest is eligible for certain
relief, for example a United Kingdom bank, charity or approved pension
scheme and the UK paying agent obtains a valid declaration PA1 or PA2 from
the appropriate person (which must be obtained on the occasion of each
payment); or
(e) the interest fails to be treated as income of, or of the
government of, a sovereign power or of an international organization and
the UK paying agent obtains a valid declaration PA1 or PA2 from the
appropriate person (which must be obtained on the occasion of each
payment); or
(f) the UK paying agent has obtained a notice from the Inland Revenue
instructing the UK paying agent to pay the interest with no tax deduction.
The UK Finance Act 2000 provides that the specific rules set out above requiring
UK paying agents to withhold UK income tax from payments of interest will not
apply to payments of interest on or after April 6, 2001.
S-46
<PAGE> 47
B. UK Withholding Tax on UK Collecting Agents
A person in the United Kingdom who in the course of a trade or profession:
(i) by means of coupons, warrants or bills of exchange, collects or
secures payment of or receives interest on the Notes for a Noteholder; or
(ii) arranges to collect or secure payment of interest on the Notes
for a Noteholder; or
(iii) acts as a custodian of the Notes and receivers interest on the
Notes or directs that interest on the Notes be paid to another person or
consents to such payment
(except, in any such case, solely by means of clearing a check or arranging for
the clearing of a check) may be required to withhold United Kingdom income tax
at the lower rate (currently 20%), subject to certain exceptions, including the
following:
(a) the Notes are held in a recognized clearing system and either:
(i) the collecting agent pays or accounts for the interest directly
or indirectly to the recognized clearing system and where such payment
or account is made to, or at the direction of, a depositary for the
recognized clearing system, the collecting agent holds a valid
declaration CA3 from the depositary; or
(ii) the collecting agent is acting as depositary for the
recognized clearing system in respect of the Notes;
(b) the person beneficially entitled to the interest owns the Notes
and is not resident in the United Kingdom or is a United Kingdom bank and
the collecting agent either:
(i) holds a valid declaration CA1 from the said person; or
(ii) holds a valid declaration CA2 from a person (other than the
beneficial owner of the Notes) to whom the interest is payable or who is
entitled to arrange for the interest to be collected without deduction
of United Kingdom tax and who is not a collecting agent in the United
Kingdom; or
(c) the interest is payable to Trustees of certain trusts, (called
"qualifying discretionary and accumulation trusts") where essentially
neither the Trustees nor the beneficiaries are resident in the United
Kingdom and the collecting agent has obtained a valid declaration CA1 from
the Trustee;
(d) the person beneficially entitled to the interest is eligible for
certain reliefs, for example a United Kingdom charity, approved United
Kingdom pension fund, United Kingdom authorized or unauthorized unit trust
or foreign diplomat, foreign consular employee or member of foreign armed
forces and the collecting agent has obtained a valid declaration CA1 or CA2
from the appropriate person;
(e) the interest is payable by the collecting agent to another UK
collecting agent who has agreed with the first-mentioned collecting agent
to take over responsibility for operating these provisions and has given a
notice in the prescribed form to the first-mentioned collecting agent;
(f) the interest fails to be treated as income of, or of the
government of, a sovereign power or of an international organization and
the collecting agent has obtained a valid declaration CA1 or CA2 from the
appropriate person;
(g) the person beneficially entitled to the interest and the relevant
Notes is an Issuer within the same 51% group as the collecting agent; or
(h) the collecting agent has obtained a notice from the Inland Revenue
directing the collecting agent to pay the interest with no tax deducted.
The UK Finance Act 2000 provides that the specific rules set out above requiring
UK paying agents to withhold UK income tax from payments of interest will not
apply to payments of interest on or after April 6, 2001.
S-47
<PAGE> 48
C. Other Rules Relating to United Kingdom Withholding Tax
1. Any discount element on the Notes will not be subject to any United
Kingdom withholding tax pursuant to the provisions mentioned in A and B above.
2. Where interest has been paid under deduction of United Kingdom income
tax, holders who are not resident in the United Kingdom may be able to recover
all or part of the tax deducted if there is an appropriate provision in any
applicable double taxation treaty.
3. The references to "interest" in A and B above mean "interest" as
understood in United Kingdom tax law. The statements in A and B above do not
take any account of any different definitions of "interest" or "principal" which
may prevail under any other law or which may be created by the Notes or any
related documentation.
D. Foreign Tax Credits
The amount of tax for which a UK paying agent or UK collecting agent is
liable to account as described in A to D above may be reduced by foreign tax
credits which are available in respect of the relevant income under United
Kingdom tax law.
E. Proposed European Directive on the Taxation of Savings
In May 1998, the European Commission presented to the Council of Ministers
of the European Union a proposal for a Directive on the taxation of savings
which would oblige Member States to adopt either a "withholding tax system" or
an "information reporting system" in relation to interest, discounts and
premiums. The "withholding tax system" would require a UK paying agent
established in a Member State to withhold tax from any interest, discount or
premium paid to an individual resident in another Member State unless such an
individual presents a certificate obtained from the tax authorities of the
Member State in which he is resident confirming that those authorities are aware
of the payment due to that individual. The "information reporting system" would
require a Member State to supply to other Member States details of any payment
of interest, discount or premium made be UK paying agents within its
jurisdiction to an individual resident in another Member State. For these
purposes, the term "UK paying agent" is widely defined to include an agent who
collects interest, discounts or premiums on behalf of an individual beneficially
entitled thereto.
In June 2000 the Council of Ministers of Finance and Economics (ECOFIN)
agreed that the proposal for the Directive should be revised on the basis of a
number of principles, including the following:
(a) exchange of information (that is, an information reporting system)
should be the ultimate objective of the European Union, in order to ensure
that all citizens resident in a Member State pay the tax due on all their
savings income;
(b) there may however be an interim period (not to exceed seven years
from implementation of the Directive) during which Member States may either
exchange information on savings income with other Member States or operate
a withholding tax (currently expected to be at the rate of at least 20 to
25 per cent.);
(c) discussions are to be held with key third countries to promote the
adoption of equivalent measures in those countries, and Member States are
to promote the adoption of the same measures in their dependent or
associated territories; and
(d) subject to a satisfactory outcome of the discussions described in
paragraph (c), ECOFIN will decide on the implementation of the Directive no
later than 31 December 2002.
ECOFIN and the European Commission have committed themselves to seeking
agreement on the substantial content of the Directive, including the rate of the
withholding tax referred to in paragraph (b) above, by the end of the year 2000.
Pending agreement on the scope and precise text of the Directive, it is not
possible to say what effect, if any, the adoption of the proposed Directive
would have on the Notes or payment in respect thereof.
S-48
<PAGE> 49
UNDERWRITING
We and the Underwriters have entered into an Underwriting Agreement
relating to the offering and sale of the Notes dated -- 2000. In the
Underwriting Agreement, we have agreed to sell to each Underwriter, and each
Underwriter has severally agreed to purchase from us, the principal amount of
the Notes that appears opposite its name in the table below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Deutsche Bank AG London..................................... L --
Morgan Stanley & Co. Incorporated........................... --
Salomon Smith Barney, Inc................................... --
------------
Total............................................. L150,000,000
============
</TABLE>
The obligations of the Underwriters under the Underwriting Agreement,
including their agreement to purchase Notes from us, are several and not joint.
Those obligations are also subject to certain conditions in the Underwriting
Agreement being satisfied. The Underwriters have agreed to purchase all of the
Notes if any of them are purchased. All offers and sales by Deutsche Bank AG
London and Morgan Stanley & Co. Incorporated in the United States will be made
through their selling agents, Deutsche Bank Securities Inc. and Morgan Stanley &
Co. Incorporated, respectively.
The Underwriters have advised us that they propose to offer the Notes to
the public at the public offering price that appears on the cover page of this
prospectus supplement. The Underwriters may offer the Notes to selected dealers
at the public offering price minus a selling concession of up to --% of the
principal amount of the Notes. In addition, the Underwriters may allow, and
those selected dealers may reallow, a selling concession of up to --% of the
principal amount of the Notes to certain other dealers. After the initial public
offering, the Underwriters may change the public offering price and any other
selling terms.
In the Underwriting Agreement, we have agreed that:
- we will pay our expenses related to this offering, which we estimate will
be --; and
- we will indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Notes are a new issue of securities, and there is currently no
established trading market for the Notes. We have applied for the Notes to be
listed on the Luxembourg Stock Exchange. The Underwriters have advised us that
they intend to make a market in the Notes, but they are not obligated to do so.
The Underwriters may discontinue any market making in the Notes at any time in
their sole discretion.
In connection with the offering of the Notes, Deutsche Bank AG London may
engage in overallotment, stabilizing and syndicate-covering transactions in
accordance with Regulation M under the Securities Exchange Act of 1934, as
amended. Overallotment involves sales in excess of the offering size, which
creates a short position for Deutsche Bank AG London. Stabilizing transactions
involve bids to purchase the Notes in the open market for the purpose of
pegging, fixing or maintaining the price of the Notes. Syndicate-covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover short positions. Stabilizing
transactions and syndicate-covering transactions may cause the price of the
Notes to be higher than it would otherwise be in the absence of those
transactions. If Deutsche Bank AG London engage in stabilizing or
syndicate-covering transactions, they may discontinue them at any time.
Each Underwriter has represented and agreed that: (i) it has not offered or
sold, and will not offer or sell any Notes to persons in the United Kingdom
prior to the expiry of six months from the date of issue of the Notes, except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the
S-49
<PAGE> 50
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in offers to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Notes
in, from or otherwise involving, the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Notes to a person
who is of a kind described in article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, as amended, or is a person
to whom the document may otherwise lawfully be issued or passed on.
Each Underwriter has represented and agreed that it has not, prior to the
submission of the prospectus supplement and the accompanying prospectus as
approved by the Luxembourg Stock Exchange, offered, sold or transferred any
Notes or distributed any offering or promotional materials in respect of the
Notes, whether directly or indirectly, other than to individuals or legal
entities who or which trade or invest in securities in the conduct of their
profession or trade (which includes banks, securities firms, investment
institutions, insurance companies, pension funds, other institutional investors
and commercial enterprises which regularly, as an ancillary activity, invest in
securities).
Some of the Underwriters and their affiliates engage in various general
financing and banking transactions with us and our affiliates. Certain other
affiliates of the Underwriters also are lenders under our senior credit
facilities and will receive a portion of the amounts repaid under the
Sterling-denominated indebtedness of our United Kingdom subsidiary, Columbia
U.K. Holdings Limited, with the net proceeds of the offering. Because more than
10% of the net proceeds will be paid to affiliates of the Underwriters, the
offering is being conducted in compliance with Rule 2710(c)(8) of the Conduct
Rules of the National Association of Securities Dealers, Inc. In accordance with
that rule, Morgan Stanley Dean Witter is acting as the "qualified independent
underwriter" for the offering. That rule requires that the initial public
offering price can be no higher than that recommended by the qualified
independent underwriter. In acting as the qualified independent underwriter,
Morgan Stanley Dean Witter has performed due diligence investigations and
reviewed and participated in the preparation of the registration statement of
which this prospectus supplement forms a part. Morgan Stanley Dean Witter has
received $1,000 from us for this role.
S-50
<PAGE> 51
LISTING AND GENERAL INFORMATION
1. The Notes have been accepted for clearance through Euroclear and
Clearstream, Luxembourg under Common Code No. --. The ISIN for the Notes is --.
2. The issue of the Notes was authorized pursuant to an Action by Unanimous
Written Consent of the Board of Directors of HCA dated as of July 1, 1999.
3. Except as disclosed herein or in the documents incorporated by
reference, neither HCA nor any of its subsidiaries is involved in any litigation
or arbitration proceeding relating to claims or amounts which is, in HCA's
judgment, material in the context of the issue of the Notes, nor so far as HCA
is aware, is any such litigation or arbitration pending or threatened.
4. Except as disclosed herein or in the documents incorporated by
reference, there has been no adverse change, or development reasonably likely to
involve a material adverse change, in the condition (financial or otherwise) or
general affairs of HCA, or its consolidated subsidiaries taken as a whole since
December 31, 1999 that is material in the context of the issue of the Notes.
5. Copies of HCA's Articles of Incorporation and Bylaws, the Indenture, the
Officer's Certificate related to the issue of the Notes and each of the
documents listed under "Where You Can Find More Information" in the accompanying
prospectus as well as all present and future published annual and quarterly
consolidated financial statements of HCA, will be available free of charge at
the specified office of the paying agent and transfer agent in Luxembourg during
the term of the Notes. Deutsche Bank Luxembourg S.A., as listing agent, will act
as intermediary between the Luxembourg Stock Exchange and HCA. HCA does not make
publicly available non-consolidated financial statements.
6. Copies of the Indenture and HCA's annual audited financial statements
and any auditors' reports relating thereto, commencing with the financial year
ended December 31, 2000, are obtainable (and, with respect to such annual
audited financial statements and any reports relating thereto, will be
obtainable after March 31, 2001) during normal business hours at the specified
office of the Trustee and at the office of the Paying Agent in Luxembourg from
time to time.
7. Application has been made to list the Notes on the Luxembourg Stock
Exchange. Prior to the listing, the constitutive documents of HCA and a legal
notice relating to the Notes will be deposited with the Greffier en Chef du
Tribunal d'Arrondissement de et a Luxembourg, where copies thereof may be
obtained upon request.
8. As long as the Notes are listed on the Luxembourg Stock Exchange, HCA
will maintain a Paying Agent and a Transfer Agent in the City of Luxembourg. The
name of the Paying Agent initially appointed in the City of Luxembourg and the
listing agent in the City of Luxembourg is set forth at the end of this
prospectus supplement.
9. HCA's independent auditors are Ernst & Young LLP. HCA's consolidated
financial statements for the years ended December 31, 1999, 1998 and 1997 were
audited by Ernst & Young LLP. On March 24, 2000, Ernst & Young LLP gave their
consent to the incorporation by reference in the Annual Report on Form 10-K of
their report dated February 11, 2000 with respect to the consolidated financial
statements of HCA.
10. The Notes will be issued pursuant to an exempt transaction under
regulation 13(1) or (3) of the United Kingdom's Banking Act 1987 (Exempt
Transactions) Regulations 1997 (the "Regulations") and will constitute longer
term debt securities (as defined in the Regulations), in each case issued in
accordance with regulations made under Section 4 of the Banking Act 1987. HCA is
not an authorized institution or a European authorized institution (as such
terms are defined in the Regulations) and repayment of the principal and payment
of any interest or premium in connection with such Notes will not be guaranteed.
S-51
<PAGE> 52
11. HCA has represented and warranted to the Underwriters that this
prospectus supplement and the accompanying prospectus do not contain any untrue
statements of a material fact or omit any material fact necessary to make the
statements in this prospectus supplement and the accompanying prospectus not
misleading in light of the circumstances under which these statements were made.
HCA has taken all reasonable care to ascertain the facts and to verify the
accuracy of these statements.
12. HCA has confirmed that we:
(a) have complied with, and will comply with, our obligations under the
relevant rules in relation to the admission to listing of the Notes by the time
when such Notes are so admitted;
(b) having made all reasonable inquiries, have not become aware of any
change in circumstances which could reasonably be regarded as significantly and
adversely affecting our ability to meet our obligations as issuer in respect of
the Notes as they fall due; and
(c) have complied and will continue to comply with our obligations under
the Regulations to lodge all relevant information (as defined in the
Regulations) in relation to any such Notes with the Financial Services
Authority.
S-52
<PAGE> 53
PROSPECTUS
COLUMBIA/HCA HEALTHCARE
CORPORATION
$1,500,000,000
DEBT SECURITIES
---------------------
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a "shelf " registration process.
Under this shelf process, we may, from time to time, sell the debt securities
described in this prospectus in one or more offerings up to a total dollar
amount of $1,500,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. A prospectus supplement may also add, update or change information
contained in this prospectus.
You should rely only on the information incorporated by reference or
provided in this prospectus and the prospectus supplement. Neither we nor any
underwriter has authorized anyone else to provide you with different
information. This prospectus is not an offer to sell and it is not soliciting an
offer to buy these debt securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or the
prospectus supplement is accurate as of any date other than the date on the
front of the document.
We will provide specific terms of these debt securities in supplements to
this prospectus. You should read this prospectus and any supplement carefully
before you invest.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
August 5, 1999
<PAGE> 54
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 and file reports and other information with the SEC. You may read
and copy these reports at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the public reference room by calling the SEC at (800) 732-0330.
You may also inspect these reports at the SEC's New York Regional Office, Seven
World Trade Center, New York, New York 10048, at its Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at the New
York Stock Exchange, 20 Broad Street, New York, New York 10005, on which our
common stock trades. In addition, the SEC maintains an Internet site that
contains reports and other information regarding us (http://www.sec.gov).
We have registered these securities with the SEC on Form S-3 under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the Registration Statement. You may obtain copies of the
Registration Statement, including exhibits, as discussed in the first paragraph.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with it, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the following documents:
- our Annual Report on Form 10-K for the year ended December 31, 1998;
- our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- our Current Reports on Form 8-K dated February 23, 1999, April 21, 1999,
May 11, 1999 and July 28, 1999; and
- any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 until our offering is
completed.
You may obtain copies of the above information (including exhibits), upon
written or oral request, without charge. You should direct requests to John M.
Franck II, Corporate Secretary, Columbia/HCA Healthcare Corporation, One Park
Plaza, Nashville, Tennessee 37203 or by telephone at (615) 344-9551. Our web
site address is www.columbia-hca.com.
2
<PAGE> 55
THE COMPANY
Columbia/HCA Healthcare Corporation is a holding company whose affiliates
own and operate hospitals and related health care entities. The term
"affiliates" includes our direct and indirect subsidiaries and partnerships and
joint ventures in which our subsidiaries are partners. At June 30, 1999, these
affiliates owned and operated 204 hospitals and 81 freestanding surgery centers
and provided extensive outpatient and ancillary services. Our affiliates are
also partners in several 50/50 joint ventures that own and operate 16 hospitals
and four freestanding surgery centers, which are accounted for using the equity
method. Our facilities are located in 24 states, England and Switzerland.
Our primary objective is to provide a comprehensive array of quality health
care services in the most cost-effective manner possible. Our hospitals provide
a full range of medical services including such medical specialties as internal
medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and
obstetrics, as well as diagnostic and emergency services. We also provide
outpatient and ancillary health care services at both our general acute care
hospitals and at our freestanding facilities, including outpatient surgery and
diagnostic centers, rehabilitation facilities, home health care agencies and
other facilities. In addition, we operate psychiatric hospitals which generally
provide a full range of mental health care services in inpatient, partial
hospitalization and outpatient settings.
We were formed in January 1990 as a Nevada corporation and reincorporated
in Delaware in September 1993. Our principal executive offices are located at
One Park Plaza, Nashville, Tennessee 37203, and our telephone number at that
address is (615) 344-9551.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of our consolidated earnings to
fixed charges for the periods presented.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------- -------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
3.70x 2.86x 2.58x 1.81x 4.99x 3.94x 4.09x
</TABLE>
For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of income from continuing operations before minority
interests, income taxes and fixed charges. "Fixed charges" consist of interest
expense, debt amortization costs and one-third of rent expense, which
approximates the interest portion of rent expense.
USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement accompanying this
prospectus, we intend to use the net proceeds from the sale of the debt
securities for general corporate purposes. We intend to offer the debt
securities periodically when prevailing interest rates and other market
conditions are advantageous.
3
<PAGE> 56
DESCRIPTION OF THE DEBT SECURITIES
GENERAL
The description below of the general terms of the debt securities will be
supplemented by the more specific terms in the prospectus supplement.
We will issue the debt securities in one or more series under an indenture
dated as of December 16, 1993 between us and The First National Bank of Chicago,
which we will call the "Trustee." The indenture describes the terms of the debt
securities and does not limit the amount of debt securities or other unsecured,
senior debt that we may issue.
The debt securities will be unsecured and will rank equally with all of our
other unsecured and unsubordinated indebtedness. The indenture limits our
ability and that of our subsidiaries under certain circumstances to secure debt
by mortgages on our principal properties, by entering into sale and lease-back
transactions or by issuing subsidiary debt or preferred stock. In a liquidation
or reorganization of any of our subsidiaries, the right of holders of the debt
securities to participate in any distribution is subject to the prior claims of
creditors of that subsidiary, except to the extent that we are a creditor.
In addition to the following description of the debt securities, you should
refer to the detailed provisions of the indenture, a copy of which is filed as
an exhibit to the Registration Statement. The article and section numbers refer
to those in the indenture.
The prospectus supplement will specify the following terms of the issue of
debt securities:
- the title of the debt securities;
- any limit on the aggregate principal amount of the debt securities;
- the date or dates on which the debt securities may be issued and are or
will be payable;
- the rate or rates at which the debt securities will bear interest, if
any, or the method by which such rate or rates shall be determined, and
the date or dates from which such interest, if any, will accrue;
- the date or dates on which such interest, if any, will be payable, the
method of determining holders to whom any of the interest shall be
payable and the manner in which any interest payable on a global debt
security will be paid if other than book-entry;
- each office or agency where the principal, premium and interest on the
debt securities will be payable and where the debt securities may be
presented for registration of transfer or exchange;
- the period or periods within which, the price or prices at which, and the
terms and conditions upon which, the debt securities may be redeemed at
our option;
- our obligation, if any, to redeem, repay or purchase the debt securities
pursuant to any sinking fund or analogous provisions or at the option of
a holder, and the period or periods within which, the price or prices at
which, and the terms and conditions upon which, the debt securities will
be redeemed, repaid or purchased pursuant to any such obligation;
- whether the debt securities are to be issued with original issue discount
within the meaning of Section 1273(a) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder;
- whether the debt securities are to be issued in whole or in part in the
form of one or more global notes and, if so, the identity of the
depositary, if any, for such global note or notes;
4
<PAGE> 57
- if other than dollars, the foreign currency or currencies or foreign
currency units in which the principal, premium and interest on the debt
securities shall or may be paid and, if applicable, whether at our
election and/or that of the holder, and the conditions and manner of
determining the exchange rate or rates;
- any index used to determine the amount of payment of principal, premium
and interest on the debt securities;
- any addition to, or modification or deletion of, any events of default or
covenants provided for with respect to the debt securities;
- any other detailed terms and provisions of the debt securities that are
not inconsistent with the indenture (Section 301); and
- any special provisions for the payment of additional amounts with respect
to the debt securities.
The debt securities may be issued at a substantial discount below their
stated principal amount. The prospectus supplement will describe any federal
income tax consequences and other special considerations applicable to discount
securities. Discount securities may provide for the declaration or acceleration
of the maturity of an amount less than the principal amount if an event of
default occurs and continues.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless we state otherwise in a prospectus supplement, we will issue the
debt securities in registered form and in denominations of $1,000 or any
multiple thereof (Section 302). You will be able to exchange the debt securities
of any series (other than a global note) for an equal aggregate principal amount
of registered debt securities of the same series having the same maturity date,
interest rate and other terms, as long as the debt securities are issued in
authorized denominations. You may exchange the debt securities at the office of
the Security Registrar or co-Security Registrar that we designate in a
prospectus supplement. We will not impose any service charge for the exchange of
any debt security; however, we may ask you to pay any taxes and other
governmental charges as described in the indenture. The Security Registrar or
co-Security Registrar will effect the exchange when satisfied with your
documents of title and identity. We have appointed the Trustee as Security
Registrar (Section 305).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in a prospectus supplement, we will make
principal, premium, and interest payments at the office of our Paying Agent. We
may determine to pay any interest, including any installment of interest, (i) by
check mailed to you at the address in the register or (ii) by wire transfer to
the holder's account (Section 307).
Unless otherwise indicated in a prospectus supplement, the Trustee will act
as our sole Paying Agent with respect to the debt securities, through its
principal office in the Borough of Manhattan, The City of New York. We will name
any additional Paying Agents in a prospectus supplement. We may at any time
rescind the designation of any Paying Agent or approve a change in the office
through which any Paying Agent acts, but we must maintain a Paying Agent in each
place of payment for a series of the debt securities.
If we have paid any moneys to the Trustee or a Paying Agent for the
principal, premium, and interest on any debt securities, and those moneys remain
unclaimed two years after due and payable, the moneys will be repaid to us and
the holder of the debt securities may thereafter look only to us for any payment
(Section 1103).
5
<PAGE> 58
BOOK-ENTRY SYSTEM
We may issue the debt securities in whole or in part in book-entry only
form, which means that they will be represented by one or more permanent global
notes that will be deposited with a depositary located in the United States. We
will identify the depositary and describe the specific terms of the depositary
arrangement in the prospectus supplement relating to each series. We will refer
to this form here and in the prospectus supplement as "book-entry only." The
following discussion pertains to securities that are issued in book-entry only
form.
One or more global notes will be issued to and registered in the name of
the depositary or its nominee. The depositary will keep a computerized record of
its participants (for example, your broker) whose clients have purchased the
securities. The participant will then keep a record of its clients who purchased
the securities. Beneficial interests in global notes will be shown on, and
transfers of global notes will be made only through, records maintained by the
depositary and its participants.
So long as a depositary or its nominee is the registered owner of a global
note, it will be considered the sole owner of the debt securities under the
indenture. Except as provided below, you will not be entitled to have debt
securities registered in your name, will not receive or be entitled to receive
physical delivery of the debt securities in definitive form and will not be
considered the owner under the indenture. Certain jurisdictions that require
purchasers of securities to take physical delivery of securities in definitive
form may impair the ability to transfer beneficial interests in a global note.
Neither we, the Trustee, any Paying Agent nor the Security Registrar will have
any responsibility or liability for payments on account of, or for maintaining,
supervising or reviewing any records relating to, the beneficial ownership
interests.
We will make payments of principal, premium and interest on debt securities
to the depositary or its nominee, as the registered owner of the global note. We
expect that the depositary for debt securities of a series, upon receipt of any
payment of principal, premium or interest in respect of a global note, will
credit immediately participants' accounts with payments according to their
respective holdings of beneficial interests in the global note as shown on the
records of the depositary. We also expect that standing instructions and
customary practices will govern payments by participants to owners of beneficial
interests in the global note held through the participants, as is now the case
with securities held for the accounts of customers registered in "street name."
These payments will be the responsibility of the participants.
A global note may not be transferred, except that the depositary, its
nominees and their successors may transfer an entire global note to one another.
Debt securities represented by a global security would be exchangeable for
certificates in definitive registered form with the same terms in authorized
denominations only if:
- a depositary of a series is at any time unwilling or unable to continue
as depositary and we do not appoint a successor depositary within 90
days; or
- we determine at any time not to have any debt securities represented by
one or more global notes.
In either instance, an owner of beneficial interests in a global note will be
entitled to have debt securities equal in principal amount to the beneficial
interest registered in its name and to physical delivery in definitive form
(Section 304).
LIMITATIONS ON US AND OUR SUBSIDIARIES
Limitations on Mortgages
The indenture provides that neither we nor any of our subsidiaries will
issue, assume or guarantee any indebtedness or obligation secured by mortgages,
liens, pledges or other encumbrances upon any principal property (which means
each of our acute care hospitals that
6
<PAGE> 59
provides general medical and surgical services), unless the debt securities
shall be secured equally and ratably with (or prior to) such debt (Section
1105). This restriction will not apply to:
- mortgages securing the purchase price or cost of construction of property
or additions, substantial repairs, alterations or improvements, if the
debt and the mortgages are incurred within 18 months of the acquisition
or completion of construction and full operation or additions, repairs,
alterations or improvements;
- mortgages existing on property at the time of its acquisition by us or
our subsidiary or on the property of a corporation at the time of the
acquisition of such corporation by us or our subsidiary;
- mortgages to secure debt on which the interest payments are exempt from
federal income tax under Section 103 of the Internal Revenue Code;
- mortgages in favor of us or a consolidated subsidiary;
- mortgages existing on the date of the indenture;
- certain mortgages to governmental entities;
- mortgages incurred in connection with the borrowing of funds used to
repay debt within 120 days in the same principal amount secured by other
mortgages on principal property with at least the same appraised fair
market value;
- mortgages incurred within 90 days (or any longer period, not in excess of
one year, as permitted by law) after acquisition of the related property
or equipment arising solely in connection with the transfer of tax
benefits in accordance with Section 168(f)(8) of the Internal Revenue
Code; and
- any extension, renewal or replacement of any mortgage referred to above,
provided the amount secured is not increased and it relates to the same
property.
Limitations on Sale and Lease-Back
The indenture provides that neither we nor any subsidiary will enter into
any sale and lease-back transaction with respect to any principal property with
another person unless either:
- we or our subsidiary could incur indebtedness secured by a mortgage on
the property to be leased; or
- within 120 days, we apply the greater of the net proceeds of the sale of
the leased property or the fair value of the leased property, net of all
debt securities delivered under the indenture, to the voluntary
retirement of our funded debt or the acquisition or construction of a
principal property (Section 1106).
Limitations on Subsidiary Debt and Preferred Stock
The indenture provides that none of our restricted subsidiaries may,
directly or indirectly, create, incur, issue, assume or otherwise become liable
with respect to, extend the maturity of, or become responsible for the payment
of, any debt or preferred stock except:
- debt outstanding on the date of the indenture;
- debt representing the assumption by one restricted subsidiary of debt of
another;
- debt or preferred stock of any corporation or partnership existing when
it becomes a subsidiary;
- debt of a restricted subsidiary arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations or
from guarantees, letters of credit,
7
<PAGE> 60
surety bonds or performance bonds securing any of our obligations or
those of our subsidiaries incurred or assumed in connection with the
disposition of any business, property or subsidiary, except for the
purpose of financing an acquisition, provided that the maximum aggregate
liability does not exceed the gross proceeds from the disposition;
- debt of a restricted subsidiary in respect of performance, surety and
other similar bonds, bankers acceptances and letters of credit provided
in the ordinary course of business;
- debt secured by a mortgage incurred to finance the purchase price or cost
of construction of property or additions, substantial repairs,
alterations or improvements, if the mortgage and debt are incurred within
18 months of the later of the acquisition or completion of construction
and full operation or additions, repairs, alterations or improvements and
the mortgage does not relate to any other property;
- permitted subsidiary refinancing debt (as defined in the indenture);
- debt of a restricted subsidiary to us or another subsidiary as long as we
hold it; or
- any obligation pursuant to a permitted sale and lease-back transaction
(Section 1107).
Exempted Transactions
Even if otherwise prohibited by these limitations, if the aggregate
outstanding principal amount of all our other debt and that of our subsidiaries
subject to these limitations does not exceed 15% of our consolidated net
tangible assets, then:
- we or any of our subsidiaries may issue, assume or guarantee debt secured
by mortgages;
- we or any of our subsidiaries may enter into any sale and lease-back
transaction; and
- any restricted subsidiary may issue, assume or become liable for any debt
or preferred stock (Section 1108).
EVENTS OF DEFAULT
Under the indenture, an event of default applicable to the debt securities
of any series means:
- failure to pay the principal or any premium on any debt security of that
series when due;
- failure to pay any interest on any debt security of that series when due,
continued for 30 days;
- failure to deposit any sinking fund payment in respect of any debt
security of that series when due;
- failure to perform, or the breach of, any of our other applicable
covenants or warranties in the indenture, continued for 60 days after
written notice;
- events in bankruptcy, insolvency or reorganization; and
- any other event of default provided with respect to debt securities of
that series (Section 501).
If any event of default with respect to debt securities of any series
occurs and is continuing, either the Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding debt securities of that series may
declare the principal amount, or in the case of discount securities, a portion
of the principal amount, of all the debt securities of that series to be due and
payable immediately. The holders may, under certain circumstances, rescind and
annul this acceleration prior to obtaining a judgment or decree (Section 502).
8
<PAGE> 61
Other than the duties of the Trustee during a default to act with the
required standard of care, the Trustee is not obligated to exercise any of its
rights or powers under the indenture at the request or direction of any of the
holders unless the holders shall have offered to the Trustee reasonable
indemnity (Section 603). Subject to these indemnification provisions, the
holders of a majority in aggregate principal amount of the outstanding debt
securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, with respect to the debt securities of that
series (Section 512).
We will furnish the Trustee annually with a statement as to our performance
of certain obligations under the indenture and as to any default in our
performance (Section 1109).
MODIFICATION AND WAIVER
We and the Trustee may modify and amend the indenture with the consent of
the holders of a majority in aggregate principal amount of the outstanding debt
securities of each series affected. We must have the consent of the holder of
each outstanding debt security affected to:
- change the stated maturity of the principal of, or any installment of
interest on, any debt security;
- reduce the principal, premium or interest on any debt security;
- reduce the amount of principal of discount securities payable upon
acceleration of the maturity;
- change the currency of payment of principal, premium or interest on any
debt security;
- impair the right to institute suit for the enforcement of any payment on
or with respect to any debt security; or
- reduce the percentage of holders whose consent is required for
modification or amendment of the indenture or for waiver of compliance
with certain provisions of the indenture or certain defaults (Section
1002).
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series may, on behalf of all holders of that series,
waive any past default under the indenture with respect to debt securities of
that series. However, such holders may not waive a past default in the payment
of principal, premium or interest, or any sinking fund installment with respect
to the debt securities, or waive a covenant or provision that cannot be modified
or amended, without the consent of the holders of each outstanding debt security
affected (Section 513).
CONSOLIDATION, MERGER, SALE OR LEASE OF ASSETS
We may consolidate with or merge into, or transfer or lease our assets to,
any corporation without the consent of the holders of any of the outstanding
debt securities under the indenture if:
- the successor corporation assumes our obligations on the debt securities
and under the indenture;
- after giving effect to the transaction, no event of default, and no event
which, after notice or lapse of time or both, would become an event of
default, shall have occurred and be continuing; and
- other conditions are met (Section 901).
9
<PAGE> 62
DEFEASANCE
If so specified in a prospectus supplement, we may be discharged from all
obligations under the debt securities of any series, and we will not be subject
to the limitations in the indenture discussed in the above sections, if we
deposit with the Trustee trust money or U.S. government obligations that are
sufficient to pay all principal, premium and interest on the debt securities of
the series. We would deliver to the Trustee an opinion of counsel to the effect
that the deposit and related defeasance would not (1) cause the holders of the
debt securities of the series to recognize income, gain or loss for United
States income tax purposes or (2) result in the delisting of the debt securities
from any national securities exchange (if so listed) (Article Fourteen).
NOTICES
Notices to holders will be mailed to the addresses of the holders listed in
the security register (Sections 101, 105).
GOVERNING LAW
We will construe the indenture and the debt securities in accordance with
the laws of the State of New York (Section 111).
CONCERNING THE TRUSTEE
The Trustee has normal banking relationships with us.
10
<PAGE> 63
PLAN OF DISTRIBUTION
GENERAL
We may sell the debt securities directly to purchasers or through
underwriters, dealers or agents. We may distribute the debt securities in one or
more transactions, either at a fixed price or varying prices, at prevailing
market prices, at prices related to prevailing market prices or at negotiated
prices. The prospectus supplement will identify the terms of the offering, the
names of the underwriters or agents, the purchase price, any underwriting
discounts, the method of distribution and the time and place of delivery of the
debt securities.
In connection with the sale of debt securities, underwriters, dealers or
agents may receive discounts, concessions or commissions from us or from
purchasers for whom they act as agents. Underwriters, dealers and agents that
participate in the distribution of debt securities may qualify as underwriters
under the Securities Act of 1933. The prospectus supplement will identify any
such underwriter, dealer or agent and describe any compensation paid by us.
We may agree to indemnify underwriters, dealers and agents that participate
in the distribution of debt securities against liabilities, including
liabilities under the Securities Act of 1933.
Since each issuance of a series of these debt securities will have no
established trading market, broker-dealers may make a market in the debt
securities. We cannot assure the liquidity of the trading market for the debt
securities.
DELAYED DELIVERY ARRANGEMENT
If so indicated in a prospectus supplement, we will authorize dealers or
agents to solicit offers by certain institutions to purchase debt securities
from us pursuant to contracts providing for payment and delivery on a future
date, if so permitted by the purchaser's jurisdiction. We must approve all
institutions, which may include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others. The dealers and other agents will not be responsible
for the validity or performance of these contracts.
LEGAL OPINIONS
John M. Franck II, our Senior Counsel and Corporate Secretary, is passing
upon the validity of the debt securities for us. As of June 30, 1999, Mr. Franck
owned approximately 6,556 shares and had options to purchase 125,620 shares of
our common stock. Jenkens & Gilchrist, a Professional Corporation, is passing
upon legal matters in connection with the offering of the debt securities for
any underwriters, dealers or agents. Jenkens & Gilchrist has rendered, and
continues to render, legal services to us.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
11
<PAGE> 64
REGISTERED OFFICE OF THE ISSUER
One Park Plaza
Nashville, TN 37203
USA
AUDITORS OF THE ISSUER
Ernst & Young LLP
414 Union Street
2100 Nations Bank Plaza
Nashville, TN 37219
USA
LEGAL ADVISERS
<TABLE>
<S> <C> <C>
To the Underwriters as to United States law To the Issuer as to United States law
WHITE & CASE JENKENS & GILCHRIST BASS, BERRY & SIMS PLC
7-11 Moorgate A professional corporation 315 Deaderick Street
London 1445 Ross Avenue Suite 2700
EC2R 6HH Suite 3200 Nashville, TN 37238
England Dallas, TX 75202 USA
USA
</TABLE>
TRUSTEE, TRANSFER AND PAYING AGENT
BANK ONE TRUST COMPANY, N.A.
153 West 51st Street
New York, NY 10019
USA
<TABLE>
<S> <C>
PAYING AGENT AND REGISTRAR LUXEMBOURG TRANSFER AND PAYING AGENT
BANK ONE, N.A., LONDON BRANCH CREDIT AGRICOLE INDOSUEZ LUXEMBOURG
27 Leadenhall Street S.A.
London EC2A 1AA 39 Allee Scheffer
England L-2520 Luxembourg
</TABLE>
LUXEMBOURG LISTING AGENT
DEUTSCHE BANK LUXEMBOURG S.A.
Boulevard Konrad Adenauer 2
L-1115 Luxembourg
(LOGO)
U42943
