-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OfPiFVL+847lY5K+n/FRB1O7RqYLFFdMbK6vDEprU0uTl8ktSsYJ79xgZNL8APRv jUKhoZfKNVHTYQcdT9Ogsw== 0000826490-94-000015.txt : 19941206 0000826490-94-000015.hdr.sgml : 19941206 ACCESSION NUMBER: 0000826490-94-000015 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHTRUST INC THE HOSPITAL CO CENTRAL INDEX KEY: 0000826490 STANDARD INDUSTRIAL CLASSIFICATION: 8062 IRS NUMBER: 621234332 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10915 FILM NUMBER: 94562683 BUSINESS ADDRESS: STREET 1: 4525 HARDING RD CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6153834444 10-K/A 1 ITEM 11 AND ITEM 14 (A)(1) AND (2) ARE AMENDED Item 11. Executive Compensation Directors who are not officers receive a fee of $20,000 per year together with $1,000 plus expenses for each Board or Committee meeting attended and are eligible for participation in the Company's Amended and Restated 1990 Directors Stock Compensation Plan (the "Directors Plan"). Messrs. Hanselman and Hjorth were each awarded 28,290 shares under the Directors Plan in 1990 and 1991, respectively, Mr. Dee and Ms. Caldwell were each awarded stock options for 15,000 shares under such Plan in 1992 and Dr. Beaty was awarded stock options for 15,000 shares under such Plan in 1993. Such shares or options generally vest or become exercisable in five annual increments of 20% each. The Directors Plan is of unlimited duration and is administered by a committee of the Board of Directors, which has discretion to select participants and to determine the size of awards at the time of grant. To enable the granting of awards tailored to changing business conditions, the Directors Plan provides for awards payable in stock options, stock appreciation rights, restricted stock, restricted units, other equity based units or cash, either singly or in any combination thereof. Awards may be granted with an exercise price of less than the fair market value of the underlying Common Stock on the date of grant. Shares will vest upon the participant's death, disability or retirement and as otherwise determined by the committee at the time of grant. The Directors Plan authorized awards of up to 188,600 shares of Common Stock. Mr. MacNaughton, Chairman of the Executive Committee of the Board of Directors of the Company entered into a consulting agreement with the Company pursuant to which Mr. MacNaughton agreed to serve as a consultant to the Company following his retirement as an employee. The agreement provides that Mr. MacNaughton will receive consulting fees of $11,250 per month plus reimbursement of expenses and certain personal benefits for services rendered and in lieu of director's fees. During fiscal year 1994 Mr. MacNaughton received cash payments aggregating $135,000 pursuant to such consulting agreement. In February, 1994, Ms. Caldwell entered into a consulting agreement with the Company pursuant to which Ms. Caldwell agreed to provide consulting services to the Company in connection with the further development of the Company's strategic planning. The Agreement provides that Ms. Caldwell will receive consulting fees of $1,000 per day plus reimbursement of expenses for services rendered. During fiscal year 1994 Ms. Caldwell received payments aggregating $23,000 pursuant to such Consulting Agreement. Compensation of Officers The following table sets forth information concerning the annual and long-term cash compensation paid or to be paid by the Company to the Company's Chief Executive Officer and the four most highly- compensated executive officers of the Company for services rendered to Healthtrust in all capacities during the fiscal year ending August 31, 1994 as well as the total compensation paid to each individual during the Company's three previous fiscal years:
Summary Compensation Table Long Term Compensation Annual Compensation Awards Payouts Name Other Restricted All Other and Annual Stock LTIP Compen- Principal Fiscal Salary Bonus Compen- Award(s) Options/ ayouts sation Position Year ($) ($) sation($)(1) ($) SARs(#) ($) ($)(2) R. Clayton McWhorter 1994 $800,000 $400,000 - $400,000(3)333,333 0 $ 33,029(2) Chairman of the 1993 750,000 375,000 - 0 100,000 0 24,190 Board, CEO 1992 750,000 150,000 - 0 565,800(4) 0 -- and President W. Hudson Connery, Jr. 1994 $491,667 $200,000 - $200,000(3) 16,667 0 $25,806(2) Senior Vice President 1993 441,667 175,000 - 0 60,000 0 20,590 and COO 1992 375,000 100,000 - 0 200,000 0 -- Richard E Francis, Jr. 1994 $306,667 $108,500 - $108,500(3) 9,042 0 $24,188(2) Senior Vice President 1993 267,167 100,000 - 0 70,000 0 17,392 1992 192,666 75,000 - 0 30,000 0 -- Michael A. Koban, Jr. 1994 $295,000 $130,000 - $130,000(3) 10,833 0 $22,285(2) Senior Vice President 1993 218,334 135,000 - 0 65,000 0 17,587 1992 171,666 75,000 - 0 35,000 0 - Robert M. Martin 1994 $226,667 $271,400 - $149,270(3) 5,750 0 $22,878(2) Vice President 1993 213,834 118,500 - 0 30,000 0 18,292 1992 192,666 80,000 - 0 30,000 0 -
(1) In accordance with the Securities and Exchange Commission's rules, perquisites and other personal benefits, securities or property which, in the aggregate, do not exceed the lesser of $50,000 or 10% of the annual salary and bonus for each named executive are excluded and amounts for 1992 have been omitted. (2) In accordance with certain transition rules adopted by the Securities and Exchange Commission amounts for 1992 have been omitted. Includes contributions made by the Company during fiscal year 1994 under certain defined contribution plans and the amount of premiums paid by the Company under term life insurance and long-term disability arrangements in the following amounts respectively: McWhorter, $18,438, $6,300 and $8,291; Mr. Connery, $18,438, $2,700, and $4,668; Mr. Francis, $18,438, $2,700, and $3,050; Mr. Koban, $16,535, $2,700 and $3,050; and Mr. Martin, $16,473, $2,700 and $3,705. (3) Pursuant to the Company's compensation program, participants may elect to defer receipt of their annual cash bonus and use up to 100% of such amount to purchase restricted stock at a 50% discount to the market price on the date of grant of such restricted stock. Messrs. McWhorter, Connery, Francis and Koban each deferred 100% and Mr. Martin deferred 55% of their respective 1994 annual cash bonuses and were granted 22,858, 11,429, 6,200, 7,429 and 8,530 restricted shares, respectively, all of which shares will vest on August 31, 1996. The value of such restricted shares on the grant date were respectively: Mr. McWhorter, $800,000; Mr. Connery, $400,000; Mr. Francis, $200,000; Mr. Koban, $260,000; and Mr Martin, $298,540. Dividends, if and when declared, will be paid on such restricted stock. (4) Mr. McWhorter was awarded an option to purchase 565,800 shares of Common Stock at an option price per share of $14.00 in fiscal year 1992. In connection with such award Mr. McWhorter forfeited 282,900 unvested shares of Restricted Stock previously awarded to him. The following table sets forth certain information concerning options granted during fiscal year 1994 to the named executives:
Option/SAR Grants in Last Fiscal Year Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term(2) Number of % of Total Securities Options Underlying Granted to Exercise Options Employees in Base Price Expiration Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($) R. Clayton McWhorter 333,333 39.50% $23.75 12/31/03 $4,999,995 $12,624,987 W. Hudson Connery, Jr. 16,667 1.97% 23.75 12/31/03 250,005 631,263 Richard E. Francis, Jr. 9,042 1.07% 23.75 12/31/03 135,630 342,466 Michael A. Koban, Jr. 10,833 1.28% 23.75 12/31/03 162,495 410,300 Robert M. Martin 5,750 0.68% 23.75 12/31/03 86,250 217,781
(1) All such options vest and become exercisable on August 31, 1997 except 300,000 for Mr. McWhorter vest on August 31, 1996. (2) Potential realizable value is based on an assumption that the stock price of the Company's common stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. These numbers are calculated based on the requirements promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price growth. The following table summarizes options exercised during fiscal year 1994 and presents the value of unexercised options held by the named executives at fiscal year end:
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options/ Options/ Shares at Fiscal at Fiscal Acquired Value Year-End(#) Year-End($)* on Exercise Realized* Exercisable(E)/ Exercisable(E)/ Name (#) ($) Unexercisable(U) Unexercisable (U) R. Clayton McWhorter 0 0 565,800/433,333 $9,477,150/$3,570,831 W. Hudson Connery, Jr. 0 0 100,000/176,667 $1,600,000/$2,459,169 Richard E. Francis, Jr. 0 0 20,000/89,042 $ 247,500/$1,162,044 Michael A. Koban, Jr. 0 0 20,000/90,833 $ 247,500/$1,192,706 Robert M. Martin 0 0 0/65,750 $ 0/$ 891,500
* For all unexercised in-the-money options, values are calculated using the difference between fair market value per share of the stock at the close of business on August 31, 1994 of $30.75 and the exercise price of the option. Employment Agreement In December, 1993, the Company entered into an employment agreement (the "Employment Agreement") with Mr. McWhorter providing for a three-year term of employment commencing September 1, 1993 and ended August 31, 1996. Under the Employment Agreement, Mr. McWhorter is entitled to an annual base salary of $800,000, subject to increases by the Board of Directors, and is eligible to participate in all executive compensation and employee benefit plans or programs applicable to senior management employees of the Company including such incentive bonuses as the Board of Directors may determine from time to time. Under the Employment Agreement, Mr. McWhorter's employment may be terminated by the Company for cause, in which event the Company's obligation to pay Mr. McWhorter's salary after termination would cease. In the event Mr. McWhorter becomes disabled or dies during the term of the Employment Agreement, the Company could terminate his employment and pay to him or his estate, as the case may be, disability or death benefits, equal to his salary then in effect, until the later of (i) August 31, 1996 and (ii) one year from the date of such termination. Severance Protection Agreements The Company's Board of Directors has authorized the Company to enter into Severance Protection Agreements with approximately 70 employees ("Executives"), including the named executives. Such agreements are expected to provide that if, within 24 months following a Change of Control (as defined therein), the Executive's employment is terminated by the Company without Cause (as defined therein) or due to a Disability (as defined therein) or by the Executive with Good Reason (as defined therein), the Executive will be entitled to receive a lump sum severance payment equal to one, two or three times annual base salary (two times annual base salary for Mr. Martin and three times annual base salary for each of the other named executives) plus a pro rata bonus for the fiscal year in which termination occurs. In addition, the Executive would be entitled to continued coverage under the Company's medical benefit plans for up to 18 months (or until such earlier date as the Executive obtains comparable medical coverage from a new employer). The Severance Protection Agreements are expected to provide that if any payment made thereunder would be subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, such payment will be reduced to the extent necessary such that the remaining payment would not be subject to the excise tax. It is anticipated that each Severance Protection Agreement will have a two-year term, provided that no agreement will expire earlier than two years after the occurrence of a Change in Control. Compensation Committee Interlocks and Insider Participation. Directors Hanselman, Hjorth and MacNaughton comprise the Committee. Mr. MacNaughton is a former employee of the Company and currently performs consulting services for the Company. The Company intends to retain the services of Mr. MacNaughton in the next fiscal year. Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K (a)(1) and (2) List of Financial Statements and Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. See page A-1. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of November, 1994. HEALTHTRUST, INC. - THE HOSPITAL COMPANY By:s/ Michael A. Koban, Jr. Michael A. Koban, Jr. Senior Vice President (Principal Financial Officer) Director ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(1) and (2) HEALTHTRUST, INC. - THE HOSPITAL COMPANY INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of the Company are included in response to Item 8: Page No. Report of Independent Auditors........................... A-2 Consolidated Balance Sheets - August 31, 1994 and 1993... A-3 Consolidated Statements of Operations - Years Ended August 31, 1994, 1993 and 1992................. A-5 Consolidated Statements of Stockholders' Equity - Years Ended August 31, 1994, 1993 and 1992.. A-6 Consolidated Statements of Cash Flows - Years Ended August 31, 1994, 1993 and 1992........... A-7 Notes to Consolidated Financial Statements............... A-9 The following financial statement schedules of the Company are included in Item 14(d): Schedule V - Property, Plant and Equipment............... A-29 Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment........ A-30 Schedule VIII - Valuation and Qualifying Accounts........ A-31 All other schedules of the Company for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or have been disclosed in the notes to financial statements and therefore have been omitted. Audited Consolidated Financial Statements Healthtrust, Inc. - The Hospital Company Years Ended August 31, 1994, 1993 and 1992 with Report of Independent Auditors Report of Independent Auditors Board of Directors Healthtrust, Inc.-The Hospital Company We have audited the accompanying consolidated balance sheets of Healthtrust, Inc.-The Hospital Company as of August 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1994. Our audits also included the financial statement schedules listed in the Index at item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Healthtrust, Inc.-The Hospital Company at August 31, 1994 and 1993, and the consolidated results of operations and cash flows for each of the three years in the period ended August 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP Nashville, Tennessee October 14, 1994 Healthtrust, Inc. - The Hospital Company Consolidated Balance Sheets August 31, 1994 1993 (In Thousands) Assets Current assets: Cash and cash equivalents $ 92,327 $ 151,346 Accounts receivable, less allowances for doubtful accounts of $175,838 in 1994 and $107,758 in 1993 549,554 346,491 Receivables from hospital sales - 95,653 Supplies 86,576 51,740 Other current assets 113,752 25,692 Total current assets 842,209 670,922 Property, plant and equipment: Land 214,536 141,148 Buildings and improvements 1,495,829 987,372 Equipment 1,168,015 895,190 Construction in progress 112,179 144,655 2,990,559 2,168,365 Less accumulated depreciation 736,863 600,853 2,253,696 1,567,512 Excess of purchase price over net assets acquired 736,189 178,549 Unamortized loan costs 26,768 16,978 Investments in affiliates 58,404 56,154 Other assets 50,016 46,598 $3,967,282 $ 2,536,713 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 153,821 $ 109,545 Employee compensation and benefits 189,317 118,545 Interest payable 43,373 29,229 Income taxes payable - 26,047 Other accrued liabilities 128,011 67,848 Current maturities of long-term debt 44,543 100,605 Total current liabilities 559,065 451,819 Long-term debt 1,740,872 948,604 Deferred income taxes 91,230 133,385 Deferred professional liability risks 215,503 140,124 Other liabilities 335,008 207,124 Stockholders' equity: Common stock, $.001 par value - authorized 400,000,000 shares, issued and outstanding 90,733,447 in 1994 and 81,065,074 in 1993 91 81 Paid-in capital 1,021,929 826,350 Deferred compensation - (1,162) Retained earnings (deficit) 3,584 (169,612) 1,025,604 655,657 $3,967,282 $ 2,536,713 See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Operations
Year Ended August 31, 1994 1993 1992 (In Thousands, except per share data) Net operating revenue $ 2,970,036 $ 2,394,567 $ 2,265,265 Costs and expenses: Hospital service costs: Salaries and benefits 1,121,496 886,645 850,723 Supplies 404,734 346,972 325,874 Fees 321,973 270,063 259,745 Other expenses 317,395 239,333 222,582 Bad debt expense 196,013 145,538 137,074 2,361,611 1,888,551 1,795,998 Depreciation and amortization 166,001 132,688 127,509 Interest 113,741 99,787 119,556 ESOP/pension expense 44,497 38,991 38,725 Deferred compensation expense 1,162 4,279 8,104 Other income (net) (15,686) (7,553) (4,617) 2,671,326 2,156,743 2,085,275 Income before minority interests, income taxes and extraordinary charges 298,710 237,824 179,990 Minority interests 9,440 11,958 15,316 Income before income taxes and extraordinary charges 289,270 225,866 164,674 Income tax expense 116,074 90,675 71,432 Income before extraordinary charges 173,196 135,191 93,242 Extraordinary charges on early extinguishments of debt (net of tax benefits of $7,723 and $27,959) - 13,633 136,352 Net income (loss) 173,196 121,558 (43,110) Dividends paid and discount accretion on preferred stock - - 24,582 Net income (loss) to common stockhold $ 173,196 $ 121,558 $ (67,692) Weighted average common shares 87,444,065 83,540,815 76,769,481 Income (loss) per common share: Income before extraordinary charges $ 1.98 $ 1.62 $ 0.90 Extraordinary charges - 0.16 1.78 Net income (loss) $ 1.98 $ 1.46 $ (0.88)
See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Stockholders' Equity
Notes Retained Common Paid-In Receivable Deferred Earnings Stock Capital From ESOP Compensation (Deficit) (In Thousands) Balances at September 1, 1991 $ 60 $ 748,612 $(392,739) $ (19,890) $ (248,060) Issuance of common stock 40 525,209 Purchase of common stock (3) (31,291) Receipt and retirement of common stock in satisfaction of notes receivable from ESOP (24) (384,728) 384,752 Shares forfeited under stock benefit plans (6,264) 6,264 Deferred compensation accrual 8,104 ESOP accrual 7,987 Dividends paid and discount accretion on preferred stock (24,582) Other 8 491 Net loss (43,110) Balances at August 31, 1992 81 827,447 0 (5,522) (291,170) Deferred compensation accrual 4,279 Other (1,097) 81 Net income 121,558 Balances at August 31, 1993 81 826,350 0 (1,162) (169,612) Issuance of common stock 10 196,535 Deferred compensation accrual 1,162 Other (956) Net income 173,196 Balances at August 31, 1994 $ 91 $1,021,929 $ 0 $ 0 $ 3,584
See accompanying notes. Healthtrust, Inc. - The Hospital Company Consolidated Statements of Cash Flows
Year Ended August 31, 1994 1993 1992 (In Thousands) Operating activities Net income (loss) $ 173,196 $ 121,558 $ (43,110) Adjustments to reconcile net income (loss) to cash flows provided by operating activities: Depreciation 151,955 124,781 119,993 Extraordinary charges - 21,356 164,311 Noncash ESOP/pension expense 32,413 13,467 38,725 Noncash professional liability expense 15,570 12,112 21,079 Amortization 14,046 7,907 7,516 Deferred tax expense (benefit) 71,231 (31,735) 35,300 Decrease in accounts and agency receivables 7,683 10,151 41,605 Increase (decrease) in accounts payable and accrued liabilities (89,725) 78,413 19,302 Other (7,618) 6,529 25,386 Net cash provided by operating activities 368,751 364,539 430,107 Investing activities Acquisition of hospital facilities (380,916) (101,935) - Purchases of property, plant and equipment (220,975) (219,506) (178,138) Proceeds from sales of property, plant and equipment 97,349 38,583 24,282 Other (5,054) (7,977) (1,250) Net cash used in investing activities $ (509,596) $ (290,835) $ (155,106) Financing activities Principal payments on long-term debt $ (452,682) $ (628,750) $ (613,521) Proceeds from long-term borrowings 1,128,000 832,000 1,440,000 Proceeds from common stock issuances 172,849 - 525,249 Purchase of common stock - (4,498) (31,294) Purchase of preferred stock and warrants - - (600,000) Purchase of long-term debt securities (754,081) (283,483) (1,070,411) Payment of debt issuance costs (12,260) (10,227) (50,039) Net cash provided by (used in) financing activities 81,826 (94,958) (400,016) Increase (decrease) in cash and cash equivalents (59,019) (21,254) (125,015) Cash and cash equivalents at beginning of year 151,346 172,600 297,615 Cash and cash equivalents at end of year $ 92,327 $ 151,346 $ 172,600 Cash paid during the year for: Interest $ 101,481 $ 103,236 $ 97,096 Income taxes $ 90,585 $ 83,931 $ 9,996
See accompanying notes. 1. Accounting Policies Healthtrust, Inc. - The Hospital Company (the "Company") is engaged primarily in the operation of hospitals and other medical facilities. The majority of the Company's hospitals and other medical facilities were acquired from a subsidiary of Hospital Corporation of America ("HCA") during September 1987. HCA merged with Columbia Hospital Corporation to form Columbia/HCA Healthcare Corporation ("Columbia") during 1994. The Company is structured so that employees of the Company have a significant beneficial ownership of the Company's common stock through their participation in the Company's benefit plans. Principles of Consolidation The consolidated financial statements of the Company include the accounts of the Company and all its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in affiliates (20% to 50% ownership) are recorded using the equity method of accounting. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates fair value. Accounts Receivable The Company receives payment for services rendered from federal and state agencies (under the Medicare, Medicaid and Champus programs), private insurance carriers, employers, managed care programs and patients. During the years ended August 31, 1994 and 1993, approximately 45% and 42%, respectively, of the Company's net operating revenue related to patients participating in the Medicare and Medicaid programs. The Company recognizes that revenue and receivables from government agencies are significant to the Company's operations, but the Company does not believe that there are any significant credit risks associated with these government agencies. 1. Accounting Policies (continued) The Company does not believe that there are any other significant concentrations of revenue from any particular payor that would subject the Company to any significant credit risks in the collection of its accounts receivable. Supplies Supplies are recorded at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the buildings and improvements (principally 20 to 40 years) and equipment (principally 4 to 20 years). Interest incurred during the construction or improvement of a facility is capitalized as part of the cost of the constructed assets. Interest capitalized totaled $4.7 million, $8.4 million and $5.0 million for fiscal 1994, 1993, and 1992, respectively. Intangible Assets The excess of purchase price over the fair value of net assets of purchased subsidiaries is being amortized over periods of 5 to 40 years using the straight-line method. Accumulated amortization of the excess of purchase price over net assets acquired was $50.1 million and $37.8 million at August 31, 1994 and 1993, respectively. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill is reduced by the estimated shortfall of cash flows. Costs incurred in obtaining long-term financing are deferred and amortized by the interest method over the term of the related debt and such amortization is included in interest expense. Accumulated amortization of deferred financing costs was $4.5 million and $2.0 million at August 31, 1994 and 1993, respectively. 1. Accounting Policies (continued) Net Operating Revenue Net operating revenue is based on established billing rates less allowances and discounts for patients covered by Medicare, Medicaid and other contractual programs. Payments received under these programs, which are based on either predetermined rates or the costs of services, are generally less than the established billing rates of the Company's hospitals, and the differences are recorded as contractual adjustments or policy discounts. Net operating revenue is net of contractual adjustments and policy discounts of $1,864.9 million, $1,409.6 million and $1,227.4 million for fiscal 1994, 1993, and 1992, respectively. The provision for bad debts is included in operating expenses. Income Taxes The Company files a consolidated federal income tax return which includes all of its eligible subsidiaries. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and/or liabilities are determined by multiplying the difference between the financial reporting and tax reporting bases of assets and liabilities by the tax rate, determined in accordance with enacted tax laws, that will be effective when such differences reverse. Income (Loss) Per Common Share Income (loss) per share of common stock is based upon the net income (loss) applicable to common stockholders and the weighted average number of shares and share equivalents outstanding during each period. Fully diluted per common share data is not presented since the effect would be antidilutive or dilute earnings per share by less than three percent (3%). 2. Acquisitions, Dispositions, and Joint Ventures 1994 Activities Acquisition of EPIC Holdings The Company completed its acquisition of EPIC Holdings, Inc. (EPIC) on May 5, 1994 (effective May 1, 1994 for accounting purposes). EPIC currently owns and operates 32 hospitals in 10 states. EPIC shareholders received $7.00 for each share of EPIC common stock (approximately $249.4 million in the aggregate) and the Company refinanced approximately $681 million and assumed approximately $32 million of EPIC indebtedness. The acquisition was financed through the public offering of 5,980,000 shares of Healthtrust common stock at $28.25 per share, the public offering of $200 million of 10 1/4% Subordinated Notes, borrowings under the Company's bank credit agreement and cash on hand. The acquisition was recorded using the purchase method of accounting and EPIC's results of operations are included in the Company's consolidated financial statements for periods subsequent to April 30, 1994. The purchase price was allocated to the assets acquired and liabilities assumed based upon their respective fair values. Goodwill resulting from the purchase price allocation (approximately $545.8 million) is being amortized over 40 years using the straight-line method. The following unaudited pro forma information has been prepared assuming the acquisition occurred at the beginning of the periods presented (dollars in millions, except per share data). Year Ended August 31 1994 1993 Net operating revenue $ 3,718.4 $3,413.7 Net income before extraordinary charge $ 166.3 $ 125.9 Net income $ 166.3 $ 90.4 Earnings per share: Net income before extraordinary charge $ 1.82 $ 1.42 Net income $ 1.82 $ 1.02 2. Acquisitions, Dispositions, and Joint Ventures (continued) The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any operational efficiencies that might be obtained from combined operations. Other Acquisitions and Dispositions The Company acquired three other hospital facilities during fiscal 1994 for an aggregate purchase price of approximately $156.7 million. These acquisitions were recorded using the purchase method of accounting and the aggregate purchase price in excess of the fair value of net assets acquired was approximately $17.7 million. The results of operations of the acquired facilities subsequent to the acquisition dates have been included in the consolidated statements of operations. The Company did not renew the lease on one of the facilities acquired from EPIC that terminated in July 1994 and one of the facilities acquired from EPIC was sold during August 1994. No gain or loss was recognized on either of these transactions. 1993 Activities During August 1993, the Company sold one facility for approximately $85.1 million (recognizing a pretax gain of approximately $38.3 million) and sold its 40% interest in a two-hospital joint venture for approximately $14.3 million (recognizing a pretax loss of approximately $3.0 million). The Company also recorded reserves of approximately $38.5 million related to certain facilities that were expected to be sold or closed. These transactions were all recorded in other income (net). Approximately $95.7 million of the proceeds from the hospital sales was not received until September 1993 and such amount was recorded as a receivable at August 31, 1993. The Company acquired five hospital facilities during fiscal 1993 for an aggregate purchase price of approximately $90.1 million. These acquisitions were recorded using the purchase method of accounting and the aggregate purchase price in excess of the fair value of net assets acquired was approximately $11.2 million. The results of operations of the acquired facilities subsequent to the acquisition dates have been included in the consolidated statements of operations. 2. Acquisitions, Dispositions, and Joint Ventures (continued) Three of the Company's hospitals entered into joint venture alliances with other health care providers during the 1993 fiscal year. The Company does not own a majority interest in these ventures and is using the equity method of accounting to record its share of their operations. 1992 Activities During fiscal 1992, the Company completed the sale of four hospitals. The losses incurred on three of these facilities had been recorded during fiscal 1991. The loss incurred on the fourth facility sold during fiscal 1992 of approximately $0.5 million is included in other income (net). 3. Long-Term Debt The Company's long-term debt is summarized below: August 31 1994 1993 (In Thousands) Bank credit agreements, interest is paid at fluctuating rates (7.25% effective August 31, 1994) $ 747,000 $ 232,000 Subordinated Notes, interest is paid semiannually at 10.75% 500,000 500,000 Subordinated Debentures, interest is paid semiannually at 8.75% 300,000 300,000 Subordinated Notes, interest is paid semiannually at 10.25% 200,000 --- Other debt 38,415 17,209 1,785,415 1,049,209 Less current portion 44,543 100,605 $1,740,872 $ 948,604 3. Long-Term Debt (continued) Bank Credit Agreements During April 1994, the Company entered into a new bank credit agreement (the "1994 Credit Agreement") with the Bank of Nova Scotia, acting as administrative agent for the lenders. The 1994 Credit Agreement provides for an aggregate of up to $1.2 billion in credit available to the Company, consisting of up to $415 million in term loans, up to $385 million of delayed term loans and up to $400 million of revolving loans (including up to $150 million of letters of credit). The Company used $202 million of proceeds from the 1994 Credit Agreement to repay all the outstanding loans under 1992 Credit Agreement. At August 31, 1994, the Company had $415 million of term loans, $277 million of delayed term loans and $55 million of revolving loans outstanding and had approximately $429 million (net of outstanding letters of credit) of credit available under the delayed term loan and revolving loan facilities. Loans under the 1994 Credit Agreement bear interest at fluctuating rates, as selected by the Company at specified times, equal to either (i) an alternate base rate (the higher of the Bank of Nova Scotia's base rate for dollar loans or the Federal Funds rate plus 50 basis points) plus 50 basis points or (ii) LIBO plus 150 basis points. The term loans and delayed term loans are subject to mandatory semiannual principal reductions (beginning December 1, 1994 for the term loans and June 1, 1995 for the delayed term loans) and are payable in full on June 1, 2001. The revolving loan commitment amount will be payable in full on June 1, 2001. 10.75% Subordinated Notes During May 1992, the Company completed an offering of $500 million of Subordinated Notes due May 1, 2002 (the "Notes"). The Notes are unsecured subordinated obligations of the Company and bear interest at 10.75%, payable semiannually on May 1 and November 1 of each year. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 1, 1997 at 104% of par (declining to 102% of par on May 1, 1998 and 100% of par on May 1, 1999 and thereafter). 3. Long-Term Debt (continued) 8.75% Subordinated Debentures During March 1993, the Company completed an offering of $300 million of Subordinated Debentures due March 15, 2005 (the "Debentures"). The Debentures are unsecured subordinated obligations of the Company and bear interest at 8.75%, payable semiannually on March 15 and September 15 of each year. The Debentures are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 1998 at 104.375% of par (declining to 100% of par on March 15, 2001 and thereafter). 10.25% Subordinated Notes During May 1994, the Company completed an offering of $200 million of Subordinated Notes due April 15, 2004 (the "1994 Notes"). The 1994 Notes are unsecured subordinated obligations of the Company and bear interest at 10.25%, payable semiannually on April 15 and October 15 of each year, commencing October 15, 1994. The 1994 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 1999 at 103.84% of par (declining to 102.56% of par on April 15, 2000, 101.28% of par on April 15, 2001 and 100% of par on April 15, 2002 and thereafter). Extraordinary Charges - Early Extinguishments of Debt Fiscal 1993 Transactions During 1993, the Company recorded an extraordinary charge of $13.6 million (net of tax benefits of $7.7 million) due to premiums paid and the write-off of unamortized loan costs related to the early extinguishment of $569.2 million of debt. The debts extinguished included $300.0 million of term loans under the 1992 Credit Agreement, the Guaranteed Subordinated Debentures ($240.0 million) and Senior Subordinated Debentures ($29.2 million). Fiscal 1992 Transactions The Company completed a recapitalization plan (the "Recapitalization Plan") that included the initial public offering of 40 million shares of its common stock, the reacquisition of certain preferred stock and warrants from HCA and the termination of future contributions to the ESOP. 3. Long-Term Debt (continued) In association with the Recapitalization Plan transactions and certain related transactions, the Company incurred extraordinary charges of $136.4 million (net of $28.0 million in net tax benefits) due to the premiums and consent fees paid, expenses incurred and the write-off of the unamortized loan costs related to the completion of the tender offers for certain debt securities and prepaying the loans outstanding under the bank credit agreements. The net tax benefit of $28.0 million represents a tax benefit of $63.9 million and a $35.9 million tax charge due to the early extinguishment of the ESOP debt and termination of contributions to the ESOP resulting in a permanent difference between ESOP expense for financial and tax reporting purposes. Other Debt Information At August 31, 1994, all the shares of common stock of the Company's subsidiaries have been pledged as collateral for certain outstanding debt agreements. Maturities of long-term debt for the fiscal years subsequent to August 31, 1994 are as follows: 1995--$44.5 million; 1996--$66.4 million; 1997--$96.6 million; 1998--$115.4 million; 1999--$117.9 million; and thereafter--$1,344.6 million. The credit agreements and/or debt indentures require the Company to (1) maintain net worth at specific levels, (2) pay no cash dividends on common stock and limit other restricted payments, (3) limit additional debt, liens and material acquisitions, (4) meet certain ratios related to operations, and (5) limit the use of funds derived from the sale of assets and business segments. At August 31, 1994, the fair value (based upon quoted market prices) of the Company's publicly traded $500 million, 10.75% Subordinated Notes, $300 million, 8.75% Subordinated Debentures and $200 million, 10.25% Subordinated Notes was $517.5 million, $276.8 million and $202.0 million, respectively. The carrying amount of the Company's indebtedness under the 1994 Credit Agreement approximates fair value. 4. Income Taxes The Company's income tax expense, net of the effect of extraordinary items, consisted of the following: Year Ended August 31 1994 1993 1992 (In Thousands) Current expense: Federal $ 38,664 $ 95,283 $ 3,838 State 6,179 19,404 4,335 Deferred expense (benefit): Federal 60,817 (25,667) 32,731 State 10,414 (6,068) 2,569 Income tax expense $116,074 $ 82,952 $ 43,473 The net income tax expense includes tax benefits of approximately $7.7 million and $28.0 million for the years ended August 31, 1993 and 1992, respectively, related to the extraordinary charges incurred on early extinguishments of debt. During the years ended August 31, 1994 and 1993, certain tax benefits were recorded as increases to paid-in capital ($3.6 million and $1.6 million, respectively) and reductions to the excess of purchase price over net assets acquired ($139.3 million and $6.7 million, respectively). On August 10, 1993, the Revenue Reconciliation Act of 1993 was enacted. As a result, the Company's federal statutory rate was increased to 34.67% for the fiscal year ended August 31, 1993 and 35% thereafter. The effect of this rate increase was a $2.0 million increase to current federal tax expense and a $3.0 million increase to deferred federal tax expense for the year ended August 31, 1993. 4. Income Taxes (continued) The Company's consolidated effective tax rate differed from the federal statutory rate as set forth in the following table: Year Ended August 31 1994 1993 1992 (In Thousands) Tax expense computed at federal statutory rate (35% for 1994, 34.67% for 1993 and 34% for 1992 ) $101,225 $ 78,309 $ 55,990 State and local income taxes, net of federal taxes 10,785 9,031 8,619 Goodwill amortization 2,962 3,051 2,451 Extraordinary charges on early extinguishments of debt --- (7,723) (27,959) Other, net 1,102 284 4,372 Income tax expense $116,074 $ 82,952 $ 43,473 At August 31, 1994, net operating loss carryforwards from various states (expiring in years 1995 through 2009) of approximately $435 million (including $98 million from EPIC) are available to offset future state taxable income. In addition, EPIC has approximately $105 million of federal net operating loss carryforwards (expiring in years 2002 through 2008). For financial reporting purposes, the tax benefits of the preacquisition EPIC federal and state net operating loss carryforwards were used to reduce the Company's deferred tax liability by approximately $43 million. During 1994, the Company established a valuation allowance of approximately $5 million to offset the deferred tax asset related to the preacquistion state net operating loss carryforwards due to the uncertainty of realizing these benefits. If the state net operating loss carryforwards of EPIC are realized, the tax benefits from the utilization of such losses will be used to reduce the excess of purchase price over net assets acquired. 4. Income Taxes (continued) For federal income tax purposes, as a result of the change in ownership of EPIC, the utilization of the federal net operating loss carryforwards is limited to approximately $11 million per year. If the full amount of the limitation is not used in any year, the amount not used increases the allowable limit in subsequent years. The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets are as follows: August 31 1994 1993 (In Thousands) Deferred tax liabilities: Property, plant and equipment $268,110 $257,642 Deferred gain 16,090 --- Change in tax accounting method 4,466 7,962 Bad debt reserve --- 8,077 Other, net 48,502 39,466 Total deferred tax liabilities 337,168 313,147 Deferred tax assets: Insurance reserves 114,777 77,738 Agency receivables 85,138 75,350 State net operating loss carryforwards 25,150 22,307 Federal net operating loss carryforwards 30,876 --- Bad debt reserve 23,164 --- Deferred compensation 5,348 1,863 Accrued vacation 14,279 10,365 Other, net 18,201 28,189 Total deferred tax assets 316,933 215,812 Valuation allowance (31,198) (25,818) Net deferred tax assets 285,735 189,994 Net deferred tax liability $ 51,433 $123,153 The net deferred tax liabilities at August 31, 1994 and 1993 of $51.4 million and $123.2 million, respectively, are comprised of current assets of $39.8 million and $10.2 million and noncurrent liabilities of $91.2 million and $133.4 million, respectively. 5. Preferred Stock The Company has 78 million authorized shares of $.001 par value preferred stock of which 46 million shares were originally designated Class A Preferred Stock and 26 million shares were originally designated Class B Preferred Stock. No preferred stock was outstanding at August 31, 1994 or 1993. 6. Preferred Stock Purchase Rights On July 8, 1993, the Company declared a dividend distribution of one preferred stock purchase right (a "Right") for each outstanding share of common stock. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15% or more of the outstanding shares of common stock. In the event that the Rights become exercisable, each right (except for Rights beneficially owned by the acquiring person or group, which become null and void) would entitle the holder to purchase from the Company, one one-hundredth (1/100) of a share of preferred stock of the Company (designated as Series A Junior Preferred Stock) at a price of $75 per one one- hundredth (1/100) of a share, subject to adjustments. Each share of preferred stock will have 100 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which the Company's common stock is exchanged, each share of preferred stock will be entitled to receive 100 times the amount received per common share. In the event that the Company is acquired in a transaction that has not been approved by the Board of Directors, the Rights Agreement provides that each Right holder of record will receive (upon payment of the exercise price) shares of common stock of the acquiring company having a market value at the time of such transaction equal to two times the exercise price. The Rights may be redeemed by the Board of Directors in whole, but not in part, at a price of $.01 per Right. The Rights have no voting or dividend privileges and are attached to and do not trade separately from, the common stock. The Rights expire on July 8, 2003. 7. Common Stock Warrants Warrants to purchase 814,979 shares of the Company's common stock are outstanding at August 31, 1994. The warrants may be exercised at any time through September 17, 2007. The exercise price after October 1, 1993 is $5.30 per warrant and is reduced to $3.18 per warrant if the market value of the Company's common stock exceeds certain per share values ($30.75 through September 30, 1995) for certain periods. Warrants for 2,588,770, and 3,772 shares were exercised during fiscal 1994 and 1992, respectively. 8. Stock Benefit Plans The Company has adopted the 1988 Supplemental Stock Plan (the "Supplemental Plan"), the Amended and Restated 1990 Stock Compensation Plan (the "1990 Plan") and the Amended and Restated 1990 Directors Stock Compensation Plan (the "Directors Plan") to promote the long-term growth of the Company by enabling officers, other key employees and directors who are not employees of the Company to acquire shares of common stock. Supplemental Plan The Supplemental Plan authorized awards of up to 9,503,707 shares of common stock. At August 31, 1994 all shares that had been awarded under the Supplemental Plan (8,483,381 shares) had been distributed to the plan participants. Shares of common stock reserved for issuance under the Supplemental Plan, but not awarded, will be transferred to the 1990 Plan. During fiscal 1994, vesting was accelerated with respect to 384,879 shares awarded under the Supplemental Plan that would otherwise have vested September 30, 1994. During fiscal 1993, vesting was accelerated with respect to 520,673 shares and 197,087 shares awarded under the Supplemental Plan that would otherwise have vested on September 30, 1993 and 1994, respectively. During fiscal 1992, as part of the Recapitalization Plan, vesting was accelerated with respect to 5,185,573 shares of common stock awarded under the Supplemental Plan that otherwise would have vested on September 30, 1992. The distribution of vested shares results in the recognition of income to the beneficiaries. To satisfy the beneficiaries' federal and state income tax liabilities resulting from such distributions of vested shares, the Company withheld 142,565, 218,524 and 2,195,169 of the vested shares of common stock designated to be distributed for the accelerated vesting in fiscal 1994, 1993 and 1992, respectively, and remitted amounts equal to the value of those shares to the relevant tax authorities. 8. Stock Benefit Plan (continued) Supplemental Plan transactions are as follows: Year Ended August 31 1994 1993 1992 Shares issued at September 1 384,879 1,108,294 8,926,591 Awarded --- --- --- Fully vested and distributed (384,879) (717,757) (7,380,745) Surrendered --- (5,658) (437,552) Shares issued at August 31 --- 384,879 1,108,294 Stock Option Plans - 1990 Plan and Directors Plan The 1990 Plan presently authorizes distributions of up to 6,601,000 shares to officers and other key employees, to enable the granting of awards payable in stock options (nonqualified and incentive), stock appreciation rights, restricted stock, restricted units, performance shares, performance units, other equity based units or cash, either singly or in any combination thereof. The 1990 Plan is of unlimited duration and is administered by a committee of the Board of Directors. The committee has discretion to (i) select the participants to whom awards will be granted and to determine the form and terms of each award, (ii) modify within certain limits the terms of any award that has been granted, (iii) establish and modify performance objectives and (iv) make all other determinations that it deems necessary or desirable in the interpretation and administration of the 1990 Plan. Awards may be granted with an exercise price less than the fair market value of the underlying common stock on the date of grant. 8. Stock Benefit Plans (continued) The Directors Plan authorizes awards of up to 188,600 shares of common stock. Nonemployee directors are eligible to participate in the Directors Plan. The Directors Plan is of unlimited duration and is administered by a committee of the Board of Directors, which has discretion to select participants and to determine the size of awards. To enable the granting of awards tailored to changing business conditions, the Directors Plan provides for awards payable in stock options, stock appreciation rights, restricted stock, restricted units, other equity based units or cash, either singly or in any combination thereof. Awards may be granted with an exercise price of less than the fair market value of the underlying common stock on the date of grant. The options granted generally vest over periods of three to five years. Information with respect to options under the plans is summarized as follows: Year Ended August 31 1994 1993 1992 Options outstanding at September 1 3,689,700 2,641,700 --- Granted 930,683 1,113,000 2,671,700 Surrendered (161,585) (65,000) (30,000) Exercised (223,788) --- --- Options outstanding at August 31 4,235,010 3,689,700 2,641,700 Options available for grant at August 31 2,474,222 3,243,320 4,091,320 Options exercisable at August 31 847,488 200,000 --- Option prices per share: Outstanding at September 1 $14.00-$18.38 $14.00-$17.88 --- Granted $ 0.01-$30.13 $17.88-$18.38 $14.00-$17.88 Surrendered $14.75-$23.75 $14.75-$15.25 $14.75 Exercised $0.01-$18.38 --- --- Outstanding at August 31 $0.01-$30.13 $14.00-$18.38 $14.00-$17.88 9. Employee Benefit Plans Retirement Plan The Company adopted its retirement plan (the "Retirement Plan"), effective January 1, 1992. The Retirement Plan is designed to provide retirement income to employees, an incentive for employees to remain at Healthtrust and an opportunity for employees to save for retirement on a tax-advantaged basis. All employees of the Company who have completed three months of service are eligible to participate in the Retirement Plan. Participants may make salary deferral (pretax) contributions of up to 10% of their compensation to the Retirement Plan. The Company will make a matching contribution equal to the participant's salary deferral contribution (up to 3% of the participant's compensation) if the participant has 1,000 hours of service during the plan year and is employed by the Company on the last day of the plan year. In addition, the Company, at its discretion, may make profit sharing contributions to the Retirement Plan. If profit sharing contributions are made for a plan year, such contributions will be allocated to each participant who has completed 1,000 hours of service and is employed by the Company on the last day of the plan year, on the basis that the participant's compensation bears to the compensation of all participants in the Retirement Plan. Under the Retirement Plan, participants are fully vested in their salary deferral contributions and, after five years of vesting service, will fully vest in Company matching and profit sharing contributions. Vesting service includes service with Healthtrust prior to adoption of the Retirement Plan and service with Columbia for those employees who became Healthtrust employees during September 1987. During the 1994, 1993 and 1992 fiscal years, the Company recorded expense of approximately $37.9 million, $39.0 million and $30.7 million, respectively, pursuant to the Retirement Plan. The Retirement Plan provides for payment of benefits at retirement, death or disability. In addition, account balances may be withdrawn after age 59 1/2 and distributions of salary deferral contributions and certain 401(k) accounts may be made on account of hardship. The Company's matching and profit sharing contributions may be made in cash or stock, at the election of the Company. Cash balances are invested in mutual funds at the participant's direction. Participants are entitled to liquidate up to 25% of the Company stock held in their plan accounts in each of the first four years following attainment of age 55 and ten years of vesting service and up to 50% of such stock in the fifth year. 9. Employee Benefit Plans (continued) Healthtrust ESOP The Company adopted the Healthtrust, Inc. - The Hospital Company Employee Stock Ownership Plan (the "ESOP") on September 17, 1987. All employees were eligible to participate in the ESOP, except for employees who were covered by a collective bargaining agreement (unless the collective bargaining agreement provided for participation) or who were nonresident aliens. As a result of the termination of future contributions to the ESOP due to the Recapitalization Plan, ESOP participants became fully vested in shares of common stock allocated to their accounts (26,715,646 shares). The participants' ESOP account balances were transferred to the Retirement Plan. Distributions of allocated shares for retirement, disability or death generally will commence within one year after the close of the year in which retirement, death or disability occurs. The Company recorded ESOP expense (and corresponding reductions in the ESOP notes receivable) of $8.0 million for fiscal 1992. Interest expense incurred on ESOP debt totaled $12.1 million during fiscal 1992 and is included in interest expense. EPIC ESOP In connection with the acquisition of EPIC and the related Amended and Restated ESOP Agreement, all shares of EPIC common stock not allocated or allocatable to EPIC ESOP participants were returned to EPIC in full satisfaction of certain loans granted by EPIC to the EPIC ESOP. Subsequent to the acquisition, the Company has agreed to provide certain minimum retirement benefits to the former EPIC ESOP participants. These benefits include a profit sharing contribution by the Company on behalf of EPIC ESOP participants who participate in the Company retirement plan of 4% of aggregate compensation from the May 5, 1994 through December 31, 1994 and a matching contribution by the Company of 100% of participants' salary deferrals (up to a maximum of 3% of compensation) for the period from May 5, 1994 through December 31, 1998. During fiscal 1994, the Company recorded expense of approximately $6.6 million pursuant to the retirement plan for the former EPIC ESOP participants. 10. Relationship with Columbia The Company purchases computer time and services from Columbia. Rates for the data processing services rendered (approximately $18.6 million, $15.5 million and $15.8 million for fiscal 1994, 1993 and 1992, respectively) are based on customary and reasonable rates for such services. 11. Commitments and Contingencies The Company is self-insured for a substantial portion of its professional and general liability risks. The Company recorded self-insurance expense of $38.1 million, $29.5 million and $33.9 million during fiscal 1994, 1993 and 1992, respectively. At August 31, 1994, the reserve for professional and general liability risks was $245.4 million, of which $29.9 million is included in current liabilities. The reserves for self-insured professional and general liability losses and loss adjustment expenses are based on actuarially projected estimates discounted to their present value using a rate of 6%. Columbia retains the liability for all professional liability claims and claims which would be covered by a policy of comprehensive general liability insurance with a date of occurrence prior to September 1, 1987. Final determination of amounts earned under prospective payment and cost reimbursement activities is subject to review by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from such reviews. The Company and its subsidiaries are currently, and from time to time are expected to be, subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material effect on the Company's financial position or results of operations. 12. Supplementary Statement of Operations Information Maintenance and repairs expense was $57.5 million, $44.4 million and $40.6 million during fiscal 1994, 1993 and 1992, respectively. Taxes other than payroll and income taxes, were $38.6 million, $30.6 million and $29.3 million during fiscal 1994, 1993 and 1992, respectively. 13. Subsequent Event On October 4, 1994 the Company and Columbia/HCA Healthcare Corporation jointly announced the signing of a definitive merger agreement under which the Company's shareholders will receive 0.88 shares of Columbia common stock in exchange for each share of Healthtrust common stock they hold. The proposed transaction is expected to be accounted for as a pooling of interests. The completion of the transaction is subject to the approval of the shareholders of both companies and regulatory approvals. The shareholders meetings to vote on the proposed merger transaction are expected to be scheduled for the first quarter of calendar 1995. Healthtrust, Inc. - The hospital Company Schedule V - Property, Plant and Equipment Three Years Ended August 31, 1994
Beginning End of of Period Additions Other Period Description Balance at Cost Retirements Changes Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Land $ 141,148 $ 5,962 $ 1,697 $ 65,121 (A) $ 214,536 2,002 (B) 2,000 (E) Buildings and improvements 987,372 30,040 2,862 372,488 (A) 1,495,829 108,791 (B) Equipment 895,190 99,341 14,019 128,573 (A) 1,168,015 58,930 (B) Construction in progress 144,655 85,632 212 51,827 (A) 112,179 (169,723)(B) $ 2,168,365 $ 220,975 $ 18,790 $ 620,009 $ 2,990,559 YEAR ENDED AUGUST 31, 1993: Land $ 150,760 $ 1,837 $ 15,893 $ 8,421 (A) $ 141,148 1,008 (B) (4,985)(C) Buildings and improvements 1,013,483 9,411 53,532 24,256 (A) 987,372 38,145 (B) (17,182)(C) (27,209)(D) Equipment 844,119 69,140 40,145 42,850 (A) 895,190 19,124 (B) (23,860)(C) (16,038)(D) Construction in progress 66,203 139,118 324 63 (A) 144,655 (58,277)(B) (2,128)(C) $ 2,074,565 $ 219,506 $109,894 $(15,812) $2,168,365 YEAR ENDED AUGUST 31, 1992: Land $ 149,483 $ 2,542 $ 1,648 $ 383 (B) $ 150,760 Buildings and improvement 948,642 20,904 16,310 51,294 (B) 1,013,483 12,445 (E) (3,492)(D) Equipment 776,183 65,003 23,106 23,839 (B) 844,119 2,200 (E) Construction in progress 53,552 89,689 1,527 (75,516)(B) 66,203 5 (E) $1,927,860 $ 178,138 $ 42,591 $ 11,158 $2,074,565
(A) Fixed assets of acquired facilities. (B) Reclassification of completed construciton to property, plantand equipment. (C) Assets contributed to/from joint ventures. (D) Reserves for losses on dispositions. (E) Reclassification from/to other assets. Healthtrust, Inc. - The Hospital Company Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Three Years Ended August 31, 1994
Beginning Additions End of of Period Charged to Other Period Description Balance Expense Retirements Charges Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Buildings and improvements $ 183,869 $ 47,177 $ 2,385 $ 228,661 Equipment 416,984 104,778 13,560 508,202 $ 600,853 $ 151,955 $ 15,945 $ -0- $ 736,863 YEAR ENDED AUGUST 31, 1993: Buildings and improvements $ 157,651 $ 38,213 $ 11,995 $ 183,869 Equipment 362,756 86,568 32,340 416,984 $ 520,407 $ 124,781 $ 44,335 $ -0- $ 600,853 YEAR ENDED AUGUST 31, 1992: Buildings and improvements $ 130,488 $ 36,010 $ 8,847 $ 157,651 Equipment 287,210 83,983 8,437 362,756 $ 417,698 $ 119,993 $ 17,284 $ -0- $ 520,407
Healthtrust, Inc. - The Hospital Company Schedule VIII - Valuation and Qualifying Accounts Three Years Ended August 31, 1994
Additions Beginning Charged End of of Period Bad Debt to Other Period Description Balance Expense Accounts Deductions Balance (Dollars in Thousands) YEAR ENDED AUGUST 31, 1994: Allowance for doubtful accounts $ 107,758 $ 196,013 $ 44,800 (B) $ 172,733 (A) $ 175,838 YEAR ENDED AUGUST 31, 1993: Allowance for doubtful accounts $ 102,564 $ 145,538 $ -0- $ 140,344 (A) $ 107,758 YEAR ENDED AUGUST 31, 1992: Allowance for doubtful accounts $ 108,082 $ 137,074 $ -0- $ 142,592 (A) $ 102,564
(A) Accounts written off. (B) Reserves of acquired facilities. EX-15 2 [ARTICLE] 5 [MULTIPLIER] 1000 [PERIOD-TYPE] YEAR YEAR [FISCAL-YEAR-END] AUG-31-1994 AUG-31-1993 [PERIOD-END] AUG-31-1994 AUG-31-1993 [CASH] 92327 151346 [SECURITIES] 0 0 [RECEIVABLES] 725392 454249 [ALLOWANCES] 175838 107758 [INVENTORY] 86576 51740 [CURRENT-ASSETS] 842209 670922 [PP&E] 2990559 2168365 [DEPRECIATION] 736863 600853 [TOTAL-ASSETS] 3967282 2536713 [CURRENT-LIABILITIES] 559065 451819 [BONDS] 1740872 948604 [COMMON] 91 81 [PREFERRED-MANDATORY] 0 0 [PREFERRED] 0 0 [OTHER-SE] 1025513 655576 [TOTAL-LIABILITY-AND-EQUITY] 3967282 2536713 [SALES] 0 0 [TOTAL-REVENUES] 2970036 2394567 [CGS] 0 0 [TOTAL-COSTS] 2211257 1786283 [OTHER-EXPENSES] 159755 137093 [LOSS-PROVISION] 196013 145538 [INTEREST-EXPENSE] 113741 99787 [INCOME-PRETAX] 289270 225866 [INCOME-TAX] 116074 90675 [INCOME-CONTINUING] 173196 135191 [DISCONTINUED] 0 0 [EXTRAORDINARY] 0 13633 [CHANGES] 0 0 [NET-INCOME] 173196 121558 [EPS-PRIMARY] 1.98 1.46 [EPS-DILUTED] 1.98 1.45
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