-----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, P0IZs0Zq7oOpjvWeaFAlO9KcXoVa4tY0wrCj0AFcXCP/16/MvcIy4HNpsamS0hzk uVP3dluFhHkTDFh6nc6sWg== 0000912057-94-001774.txt : 19940518 0000912057-94-001774.hdr.sgml : 19940518 ACCESSION NUMBER: 0000912057-94-001774 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA HCA HEALTHCARE CORP/ CENTRAL INDEX KEY: 0000860730 STANDARD INDUSTRIAL CLASSIFICATION: 8062 IRS NUMBER: 752497104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-53661 FILM NUMBER: 94529010 BUSINESS ADDRESS: STREET 1: 201 WEST MAIN STREET CITY: LOUISVILLE STATE: KY ZIP: 40202- BUSINESS PHONE: (502)-572-2000 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HEALTHCARE CORP DATE OF NAME CHANGE: 19930830 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HOSPITAL CORP DATE OF NAME CHANGE: 19930328 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1994 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ COLUMBIA/HCA HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 8062 75-2497104 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
201 WEST MAIN STREET LOUISVILLE, KENTUCKY 40202 (502) 572-2000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) STEPHEN T. BRAUN SENIOR VICE PRESIDENT AND GENERAL COUNSEL COLUMBIA/HCA HEALTHCARE CORPORATION 201 WEST MAIN STREET LOUISVILLE, KENTUCKY 40202 (502) 572-2000 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: Bruce L. Lieb Richard J. Sandler Proskauer Rose Goetz & Mendelsohn Davis Polk & Wardwell 1585 Broadway 450 Lexington Avenue New York, New York 10036 New York, New York 10017 (212) 969-3320 (212) 450-4224
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT. ------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION SECURITIES REGISTERED(1)(2) PER SHARE(3) PRICE(3) FEE(3) Common Stock, $.01 par 6,900,000 value........................ shares $38.1875 $263,493,750 $90,860 (1) Includes 900,000 shares which may be purchased by the Underwriters pursuant to an overallotment option. See "Underwriting." (2) Also includes associated Preferred Stock Purchase Rights. (3) The registration fee has been computed pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low prices for shares of the Common Stock on May 13, 1994.
------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement contains two forms of Prospectus: one to be used in connection with a United States and Canadian offering (the "U.S. Offering") and one to be used in connection with a concurrent international offering outside the United States and Canada (the "International Offering," together with the U.S. Offering, the "Offering"). The complete Prospectus for the U.S. Offering follows immediately. Following such Prospectus is an alternate front cover page for the International Offering. All of the other pages of the Prospectus for the U.S. Offering are to be used for the U.S. Offering and the International Offering. The complete Prospectus for the U.S. Offering and the International Offering in the forms in which they are to be used will be filed with the Securities and Exchange Commission pursuant to Rule 424 or in an amendment to the Registration Statement. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS SUBJECT TO COMPLETION DATED MAY 16, 1994 6,000,000 SHARES Columbia/HCA Healthcare Corporation COMMON STOCK ($.01 PAR VALUE) All of the shares of Common Stock offered hereby are being sold by the Selling Stockholders of Columbia/HCA Healthcare Corporation (the "Company"). See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares. Of the 6,000,000 shares of Common Stock offered hereby, 4,800,000 shares initially are being offered in the United States and Canada by the U.S. Underwriters (the "U.S. Underwriters") and 1,200,000 shares initially are being offered outside of the United States and Canada by the International Underwriters (the "International Underwriters," together with the U.S. Underwriters, the "Underwriters"). The Company's Common Stock is listed on the New York Stock Exchange under the symbol "COL." On May 13, 1994, the last reported sale price for the Common Stock, as reported on the New York Stock Exchange Composite Tape, was $38.00 per share. See "Price Range of Common Stock and Dividend Policy." SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) STOCKHOLDERS(2) - --------------------------------------------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------------------------------------------- Total(3) $ $ $ - --------------------------------------------------------------------------------------------------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) The Company will pay the expenses of the offering estimated at $ . (3) Certain Selling Stockholders have granted to the U.S. Underwriters an option, exercisable within 30 days of the date of this Prospectus, to purchase up to an additional 900,000 shares of Common Stock, solely to cover overallotments, if any. If such overallotment option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Selling Stockholders will be $ , $ and $ , respectively. See "Underwriting."
The shares offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to the approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the shares will be made against payment therefor on or about , 1994 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260. J.P. MORGAN SECURITIES INC. DEAN WITTER REYNOLDS INC. MORGAN STANLEY & CO. INCORPORATED , 1994 [MAP] IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. No person has been authorized in connection with any offering made hereby to give any information or to make any representation not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company, any Selling Stockholder or any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the shares of Common Stock offered hereby, nor does it constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which it is unlawful to make such an offer or solicitation to such person. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company subsequent to the date hereof. TABLE OF CONTENTS
Page Incorporation of Certain Documents By Reference..... 3 Prospectus Summary.................................. 4 Investment Considerations........................... 7 Price Range of Common Stock and Dividend Policy..... 10 Use of Proceeds..................................... 11 Capitalization...................................... 11 Selected Consolidated Financial Data................ 12 Page Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 14 Selling Stockholders................................ 20 Underwriting........................................ 22 Legal Matters....................................... 24 Experts............................................. 24 Available Information............................... 24 Index to Consolidated Financial Statements.......... F-1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission (the "Commission") are incorporated herein by reference: 1. Annual Report on Form 10-K for the year ended December 31, 1993 (the "Form 10-K"). 2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. 3. The portions of the Proxy Statement for the Annual Meeting of Stockholders which was held May 12, 1994 that have been incorporated by reference in the Form 10-K. 4. Current Reports on Form 8-K dated April 25, 1994 and May 16, 1994. 5. The description of the Common Stock contained in the Registration Statement on Form 8-A dated August 31, 1993, as amended. All reports and other documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, after the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such reports and documents. Any statement set forth herein or in a document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, will be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement set forth herein or in a subsequently filed document deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified and superseded, to constitute a part of this Prospectus. THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN BY REFERENCE OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE THEREIN). REQUESTS FOR SUCH DOCUMENTS SHOULD BE SUBMITTED IN WRITING TO JOAN O. KROGER, SECRETARY, COLUMBIA/HCA HEALTHCARE CORPORATION, 201 WEST MAIN STREET, LOUISVILLE, KENTUCKY 40202 OR BY TELEPHONE AT (502) 572-2259. 3 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE OFFERING OF 4,800,000 SHARES INITIALLY BEING OFFERED IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING") AND THE OFFERING OF 1,200,000 SHARES INITIALLY BEING OFFERED OUTSIDE THE UNITED STATES AND CANADA (THE "INTERNATIONAL OFFERING") ARE COLLECTIVELY REFERRED TO AS THE "OFFERING." UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE U.S. UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE "COMPANY" MEANS COLUMBIA/HCA HEALTHCARE CORPORATION, ITS SUBSIDIARIES AND ALL PREDECESSORS OF COLUMBIA/HCA HEALTHCARE CORPORATION AND ITS SUBSIDIARIES, "COMMON STOCK" MEANS THE COMMON STOCK ($.01 PAR VALUE) OF THE COMPANY AND "NONVOTING COMMON STOCK" MEANS THE NONVOTING COMMON STOCK ($.01 PAR VALUE) OF THE COMPANY. THE COMPANY The Company is one of the largest health care services companies in the United States. As of March 31, 1994, the Company operated 168 general, acute care hospitals and 28 psychiatric hospitals in 26 states and two foreign countries. In addition, as part of its comprehensive health care networks, the Company operates facilities that provide a range of outpatient and ancillary services. For the year ended December 31, 1993, the Company generated operating revenues of $10.3 billion and income from continuing operations of $575 million. The Company's outpatient and ancillary facilities accounted for 27 percent of total operating revenues in 1993. The Company's primary objective is to provide to the markets it serves a comprehensive array of quality health care services in the most cost effective manner possible. The Company's general, acute care hospitals usually provide a full range of services commonly available in hospitals to accommodate such medical specialties as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and ancillary health care services are provided by the Company's general, acute care hospitals as well as at freestanding facilities operated by the Company including rehabilitation facilities, outpatient surgery and diagnostic centers, home health care agencies and other facilities. In addition, the Company operates psychiatric hospitals which generally provide a full range of mental health care services in inpatient, partial hospitalization and outpatient settings. The Company believes that its widespread and comprehensive network of health care facilities enables it to attract business from managed care plans and major employers seeking efficient access to a wide array of health care services. On February 10, 1994, the Company acquired HCA-Hospital Corporation of America ("HCA") in a transaction accounted for as a pooling of interests (the "HCA Merger"). Effective September 1, 1993, the Company acquired Galen Health Care, Inc. ("Galen") also in a pooling of interests transaction (the "Galen Merger"). Galen began operations as an independent publicly held corporation upon the distribution of all of its common stock (the "Spinoff") by its then 100% owner, Humana Inc. ("Humana"), on March 1, 1993. As a result of these acquisitions, the Company added 167 hospitals. These acquisitions have allowed the Company to establish a strong position in new markets. In addition, the Company expects these acquisitions to enhance its relationships with managed care providers and other payers by expanding its geographic coverage and the range of outpatient services it offers, and to permit it to capture significant operating efficiencies through the consolidation of supply purchasing activities, information systems, office facilities and various support functions. The Company intends to continue to pursue a strategy of acquisition and integration of hospitals and other health care facilities that are complementary to its existing facilities and that enhance both the array of services offered by its facilities and the geographic coverage of the markets it serves. Consistent with this strategy, the Company has in the first quarter of 1994 announced the expansion of a number of its regional networks including Atlanta, Chicago, Dallas/Fort Worth, Kansas City and Orlando. The Company believes that significant opportunities exist to integrate facilities that have formerly been operated on a tax-exempt basis into its networks. In integrating the facilities it acquires, the Company seeks to decentralize the management of its facilities and provide local management and physicians with the opportunity to purchase equity interests in their local operations through partnership or other corporate structures. In addition to the acquisition of general, acute care hospitals, the Company is in the process of adding additional sub-acute, home health, rehabilitation, psychiatric and comprehensive outpatient services. Along with the Company's focus on the acquisition of facilities that broaden its range of services and geographic coverage, the Company's strategy also includes a number of programs designed to enhance the quality of its 4 health care services and the management and operating efficiency of its facilities. The principal components of the Company's operating strategy are to: (i) BECOME A SIGNIFICANT PROVIDER OF HEALTH CARE SERVICES in the markets that it serves by consolidating services and operations to reduce costs and by establishing the wide geographic coverage required by managed care and employer sponsored health care plans; (ii) PROVIDE A COMPREHENSIVE RANGE OF HEALTH CARE SERVICES in each of its markets to provide managed care and employer health care plans and individuals with efficient, single provider access to health care services; (iii) DELIVER HIGH QUALITY SERVICES by using clinical information systems to focus on patient outcomes and by implementing other quality assurance programs to support and monitor quality of care standards and to meet accreditation and regulatory standards; and (iv) INTEGRATE FRAGMENTED DELIVERY SYSTEMS through the consolidation of acquisitions and existing facilities to maximize the efficiencies generated by contracting with managed care plans and employers and coordinating supply purchasing, information systems, government and private reimbursement and other support functions. The Company, through various predecessor entities, began operations on July 1, 1988. The Company was incorporated in Nevada in January 1990 and reincorporated in Delaware in September 1993. The Company's principal executive offices are located at 201 West Main Street, Louisville, Kentucky 40202 and its telephone number at such address is (502) 572-2000. THE OFFERING Common Stock offered by the Selling Stockholders: U.S. Offering............................. 4,800,000 shares (1) International Offering.................... 1,200,000 shares Total Offering...................... 6,000,000 shares (1) Common Stock outstanding after the 338,069,320 shares (2)(3) Offering.................................. NYSE symbol............................... COL Use of Proceeds........................... All of the Common Stock is being sold by the Selling Stockholders. The Company will not receive any proceeds from the sale of the shares being offered hereby. - ------------ (1) Assumes the U.S. Underwriters' overallotment option is not exercised. See "Underwriting." (2) Does not include 18,198,524 shares as of April 30, 1994 which have been reserved for issuance under the Company's stock option plans, pursuant to the exercise of warrants and upon conversion of convertible securities. (3) Includes 15,089,999 shares of Nonvoting Common Stock.
5 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The summary consolidated financial information set forth below gives effect to the Galen Merger and the HCA Merger which were accounted for as poolings of interests. The following financial information has been derived from, and should be read in conjunction with, the Company's consolidated financial statements, and notes thereto, included elsewhere in this Prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
----------------------------------------------------- THREE MONTHS ENDED MARCH 31 YEAR ENDED DECEMBER 31 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1994 1993 1993 1992 1991 --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Revenues....................................... $ 2,778 $ 2,654 $ 10,252 $ 9,932 $ 9,598 Non-recurring charges.......................... 159 - 151 439 300 Income from continuing operations before income taxes......................................... 233 332 969 533 542 Extraordinary loss on extinguishment of debt, net of income tax benefit..................... (92) - (84) - - Net income..................................... 45 221 507 165 369 Earnings per common and common equivalent share......................................... $ .13 $ .65 $ 1.50 $ .50 $ 1.25 BALANCE SHEET DATA (AT END OF PERIOD): Assets......................................... $ 10,352 $ 10,068 $ 10,216 $ 10,347 $ 10,843 Working capital................................ 758 442 573 606 635 Long-term debt (including amounts due within one year)..................................... 3,614 3,891 3,698 3,656 5,158 Common stockholders' equity.................... 3,514 3,114 3,471 3,691 2,822 SELECTED OTHER FINANCIAL DATA: EBDITA(1)...................................... $ 603 $ 557 $ 2,004 $ 1,924 $ 1,972 EBDITA as a percent of revenues................ 21.7% 21.0% 19.5% 19.4% 20.6% Interest expense............................... $ 64 $ 85 $ 321 $ 401 $ 597 Ratio of debt to debt plus common stockholders' equity........................................ 50.7% 55.5% 51.6% 49.8% 64.6% SELECTED OPERATING DATA: Number of hospitals at end of period........... 196 197 193 200 219 Weighted average licensed beds(2).............. 41,955 41,525 41,263 40,608 42,437 Admissions(3).................................. 309,800 306,200 1,158,400 1,161,100 1,189,700 Average length of stay (days).................. 5.9 6.1 5.9 6.1 6.5 Average daily census........................... 20,341 20,880 18,702 19,253 21,255 Occupancy(4)................................... 48.5% 50.3% 45.3% 47.4% 50.1% Emergency room visits.......................... 788,300 791,900 3,139,700 3,042,900 3,028,600 - ------------ (1) Income from continuing operations before non-recurring transactions, depreciation, interest expense, minority interests, income taxes and amortization. (2) Defined as the number of licensed beds after giving effect to the length of time the beds have been licensed during the period. (3) The number of patients admitted for inpatient treatment. (4) Calculated by dividing average daily census by weighted average licensed beds.
6 INVESTMENT CONSIDERATIONS Prospective investors should consider carefully, in addition to the other information contained or incorporated by reference in this Prospectus, the following factors before purchasing the Common Stock offered hereby. HEALTH CARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the health care system, either nationally or at the state level. Among the proposals under consideration are cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of a single government health insurance plan that would cover all citizens. President Clinton has stated that one of his primary objectives is to reform the nation's health care system to ensure universal coverage and address the rising costs of care. In early 1993, President Clinton appointed Hillary Rodham Clinton to lead a health care reform task force with the objective of developing a health care reform proposal which could be submitted by the President. On September 22, 1993, before a Joint Session of Congress, President Clinton outlined the basic principles of his upcoming health care reform proposal. President Clinton's Health Security Act, introduced as legislation on November 22, 1993, includes certain measures that could be viewed as advancing the scope of government regulation of the health care industry. Key elements in the President's proposal include various insurance market reforms, the requirement that businesses provide health insurance coverage for their full-time and part-time employees, significant reductions in future Medicare and Medicaid payments to providers, and stringent government cost controls that would directly control insurance premiums and indirectly affect the fees of hospitals, physicians and other health care providers. In addition to the President's reform proposal, several other health care reform bills have recently been introduced, including The Managed Competition Act of 1993, Affordable Health Care Now Act of 1993 and Health Equity & Access Reform Today. There can be no assurance that health care proposals adverse to the Company's business will not be adopted. COMPETITION; IMPACT OF MANAGED CARE ORGANIZATIONS The health care business is highly competitive and competition among hospitals and other health care providers for patients has intensified in recent years. During this period, U.S. hospital occupancy rates have declined as a result of cost containment pressures, changing technology, changes in government regulation and reimbursement, and changes in physician practice patterns from inpatient to outpatient treatment. In most geographic areas in which the Company operates, there are other hospitals, outpatient surgery and diagnostic centers and other facilities that provide most of the services offered by the Company's hospitals. Certain of these competing facilities offer services, including extensive medical research and medical education programs, which are not offered by the Company's hospitals. In addition, hospitals owned by governmental agencies or other tax-exempt entities benefit from endowments, charitable contributions, tax-exempt financing and exemptions from sales, property and income taxes, which advantages are not available to the Company's hospitals. The competitive position of the Company's hospitals also has been, and will continue to be, affected by the increasing number of initiatives undertaken during the past several years by major purchasers of health care, including federal and state governments, insurance companies and employers, to revise payment methodologies and monitor health care expenditures in order to contain health care costs. As a result of these initiatives, managed care organizations, which offer prepaid and discounted medical services packages, represent an increasing segment of health care payers, the effect of which has been to reduce hospital revenue growth. LIMITS ON REIMBURSEMENT A significant portion of the Company's revenue is derived from the Medicare program, which is highly regulated and subject to frequent and substantial changes. In recent years, fundamental changes in the Medicare program (including the implementation of a prospective payment system for inpatient services at medical/surgical hospitals) have resulted in reduced levels of payment for a substantial portion of hospital procedures and costs. Certain existing payment programs are scheduled to be revised in the future which will likely result in further reductions in payment levels. Medicare programs that currently are on a cost reimbursement basis, such as outpatient and psychiatric hospital services, may be changed to a prospective payment basis in the future. Additionally, hospitals have experienced increasing pressures from private payers attempting to control health 7 care costs through direct contracting with hospitals to provide services on a discounted basis, increasing utilization review, and encouraging greater enrollment in managed care programs such as health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs"). Management believes that hospital operating margins have been, and may continue to be, under significant pressure because of deterioration in inpatient volumes and payer mix, and growth in operating expenses in excess of the increase in prospective payments under the Medicare program. EXTENSIVE REGULATION The health care industry, including hospitals, is subject to extensive federal, state and local regulation relating to licensure, conduct of operations, ownership of facilities, addition of facilities and services and prices for services, and there can be no assurance that future regulatory changes will not have an adverse impact on the Company. In particular, Medicare and Medicaid antifraud and abuse amendments codified under Section 1128(b) of the Social Security Act (the "Antifraud Amendments") prohibit certain business practices and relationships that might affect the provision and cost of health care services reimbursable under Medicare and Medicaid. Sanctions for violating the Antifraud Amendments include criminal penalties and civil sanctions, including fines and possible exclusion from the Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Patient and Program Protection Act of 1987, the Department of Health and Human Services has issued regulations which describe some of the conduct and business relationships permissible under the Antifraud Amendments (the "Safe Harbors"). Certain of the Company's current arrangements with physicians, including joint ventures, do not qualify for the current Safe Harbors. Although the Company exercises care in an effort to structure its arrangements with physicians to comply in all material respects with these laws, and although management believes that the Company is in compliance with the Antifraud Amendments, there can be no assurance that (i) government officials charged with responsibility for enforcing the prohibitions of the Antifraud Amendments will not assert that the Company or certain transactions in which it is involved are in violation of the Antifraud Amendments and (ii) such statute will ultimately be interpreted by the courts in a manner consistent with the practices of the Company. PENDING HCA TAX LITIGATION As a result of examinations by the Internal Revenue Service (the "IRS") of HCA's federal income tax returns, HCA received statutory notices of deficiency for the years 1981 through 1988. HCA has filed petitions in the U.S. Tax Court opposing these claimed deficiencies. Additionally, the IRS completed its examination for the years 1989 and 1990 and has issued proposed adjustments, which HCA has protested. In the aggregate, the IRS is claiming additional taxes of $516 million and interest of approximately $802 million through March 31, 1994. In addition to disputing the IRS's positions, HCA is claiming refunds of $51 million and interest through March 31, 1994 of $95 million. Management is of the opinion that HCA has properly reported its income and paid its taxes in accordance with applicable laws and in accordance with agreements established with the IRS during previous examinations. In management's opinion, the final outcome from the IRS's examinations of prior years' income taxes will not have a material adverse effect on the results of operations or financial position of the Company. If all or the majority of the positions of the IRS are upheld, however, the financial position, results of operations and liquidity of the Company would be materially adversely affected. See Note 7 of the Notes to Consolidated Financial Statements and Note 9 of the Notes to Condensed Consolidated Financial Statements. DEPENDENCE ON KEY PERSONNEL The Company is dependent upon the continued services and management experience of Richard L. Scott and other executive officers. If Mr. Scott or any of such other executive officers were to leave the Company, the Company's operating results could be adversely affected. In addition, the Company's continued growth depends on its ability to attract and retain skilled employees, on the ability of its officers and key employees to manage growth successfully and on the Company's ability to attract and retain physicians at its hospitals. PROFESSIONAL LIABILITY RISKS As is typical in the health care industry, the Company is subject to claims and legal actions by patients and others in the ordinary course of business. The Company, through two wholly-owned subsidiaries, insures substantially all of its professional and general liability risks. Subject to various deductibles, the Company's hospitals are insured by these insurance subsidiaries for losses of up to $25 million per occurrence for the former 8 HCA hospitals and up to $5 million per occurrence for the former Columbia Hospital Corporation and Galen hospitals. The Company currently carries general and professional liability insurance from unrelated commercial carriers for losses in excess of amounts insured by its insurance subsidiaries, subject to certain limitations. While the Company's professional and other liability insurance has been adequate to provide for liability claims in the past, there can be no assurance that such insurance will continue to be adequate. If actual payments of claims with respect to liabilities insured by the Company through its subsidiaries exceed anticipated payments of claims, the results of operations and cash flows of the Company could be adversely affected. CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws may make an unsolicited acquisition of control of the Company more difficult or expensive. Furthermore, the Company has adopted a stockholder rights plan which may also make an unsolicited acquisition of the Company more difficult or expensive. 9 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock has been primarily traded on the New York Stock Exchange (the "NYSE") (symbol "COL") since July 14, 1993. Prior to that date, the Common Stock was traded through the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ/NMS"). The table below sets forth, for the calendar quarters indicated, the high and low sales prices per share reported on the NYSE Composite Tape or NASDAQ/NMS for the Common Stock. The information with respect to NASDAQ/NMS quotations was obtained from the National Association of Securities Dealers, Inc. and reflects interdealer prices, without retail markup, markdown or commissions and may not represent actual transactions.
------------------- HIGH LOW ------------------- 1992: First Quarter...................................................... $ 21.25 $ 16.50 Second Quarter..................................................... 22.00 16.25 Third Quarter...................................................... 19.25 16.25 Fourth Quarter..................................................... 21.75 13.75 1993: First Quarter...................................................... 24.50 16.25 Second Quarter..................................................... 27.75 19.25 Third Quarter...................................................... 31.00 25.38 Fourth Quarter..................................................... 33.88 27.00 1994: First Quarter...................................................... 45.25 33.25 Second Quarter (through May 13, 1994).............................. 43.00 37.13
The registrar and transfer agent for the Common Stock is First Union National Bank of North Carolina. At the close of business on March 31, 1994, there were 15,600 holders of record of the Common Stock and one holder of record of the Nonvoting Common Stock. See the cover page of this Prospectus for a recent closing sale price of the Common Stock. The Company commenced the payment of a quarterly dividend of $.03 per share in the fourth quarter of 1993. Prior to that time, the Company did not pay any cash dividends. While it is the present intention of the Board of Directors to continue paying a quarterly dividend of $.03 per share, the declaration and payment of future dividends by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, financial condition, business needs, capital and surplus and regulatory considerations. 10 USE OF PROCEEDS All of the Common Stock is being offered by the Selling Stockholders. The Company will not receive any of the proceeds from the sale of the shares being offered. CAPITALIZATION The following table sets forth as of March 31, 1994 the capitalization of the Company. The table should be read in conjunction with the Company's condensed consolidated financial statements, and the notes thereto, appearing elsewhere in this Prospectus.
----------- AS OF MARCH 31 1994 ----------- (UNAUDITED) DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS SHORT-TERM DEBT: Current portion of long-term debt................................................................. $ 81 ------------ LONG-TERM DEBT: Bank debt......................................................................................... 318 Other floating rate debt.......................................................................... 1,779 Fixed rate notes and debentures................................................................... 1,338 Capitalized leases................................................................................ 98 ------------ Total long-term debt............................................................................ 3,533 ------------ COMMON STOCKHOLDERS' EQUITY: Common Stock, par value $.01 per share; 800,000,000 voting shares and 25,000,000 nonvoting shares authorized; 318,806,900 voting shares and 18,990,000 nonvoting shares issued and outstanding(1)................................................................................... 3 Capital in excess of par value.................................................................... 2,226 Other............................................................................................. 4 Retained earnings................................................................................. 1,281 ------------ Total common stockholders' equity............................................................... 3,514 ------------ TOTAL CAPITALIZATION................................................................................ $ 7,128 ------------ ------------ - ------------ (1) Does not include 18,428,489 shares which have been reserved for issuance under the Company's stock option plans, pursuant to the exercise of warrants and upon conversion of convertible securities.
11 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below gives effect to the Galen Merger and the HCA Merger which were accounted for as poolings of interests. The following financial information has been derived from, and should be read in conjunction with, the Company's consolidated financial statements, and notes thereto, included elsewhere in this Prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
----------------------------------------------------------------------------- THREE MONTHS ENDED DOLLARS IN MILLIONS, EXCEPT PER MARCH 31 YEAR ENDED DECEMBER 31 SHARE AMOUNTS 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Revenues........................... $ 2,778 $ 2,654 $ 10,252 $ 9,932 $ 9,598 $ 8,641 $ 7,724 -------- -------- ---------- ---------- ---------- ---------- ---------- Salaries, wages and benefits....... 1,113 1,072 4,215 4,112 3,976 3,510 3,066 Supplies........................... 434 433 1,664 1,613 1,467 1,314 1,135 Other operating expenses........... 492 478 1,893 1,849 1,739 1,586 1,483 Provision for doubtful accounts.... 150 126 542 515 508 444 407 Depreciation and amortization...... 144 136 554 541 524 499 468 Interest expense................... 64 85 321 401 597 694 667 Investment income.................. (14) (12) (66) (81) (64) (69) (103) Non-recurring transactions......... 159 - 151 439 300 22 (10) -------- -------- ---------- ---------- ---------- ---------- ---------- 2,542 2,318 9,274 9,389 9,047 8,000 7,113 -------- -------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations before minority interests and income taxes...................... 236 336 978 543 551 641 611 Minority interests in earnings of consolidated entities............. 3 4 9 10 9 4 4 -------- -------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations before income taxes............... 233 332 969 533 542 637 607 Provision for income taxes......... 96 127 394 294 189 240 223 -------- -------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations........................ 137 205 575 239 353 397 384 Income (loss) from operations of discontinued health plan segment, net of income taxes (benefit)..... - 16 16 (125) 16 (6) (18) Extraordinary loss on extinguishment of debt, net of income tax benefit................ (92) - (84) - - - (9) Cumulative effect on prior years of a change in accounting for income taxes............................. - - - 51 - - - -------- -------- ---------- ---------- ---------- ---------- ---------- Net income..................... $ 45 $ 221 $ 507 $ 165 $ 369 $ 391 $ 357 -------- -------- ---------- ---------- ---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ---------- ---------- Earnings per common and common equivalent share (1): Income from continuing operations...................... $ .40 $ .61 $ 1.70 $ .73 $ 1.20 $ 1.28 Income (loss) from operations of discontinued health plan segment......................... - .04 .04 (.39) .05 (.02) Extraordinary loss on extinguishment of debt.......... (.27) - (.24) - - - Cumulative effect on prior years of a change in accounting for income taxes.................... - - - .16 - - -------- -------- ---------- ---------- ---------- ---------- Net income..................... $ .13 $ .65 $ 1.50 $ .50 $ 1.25 $ 1.26 -------- -------- ---------- ---------- ---------- ---------- -------- -------- ---------- ---------- ---------- ---------- Shares used in earnings per common and common equivalent share computations (in thousands)....... 341,621 337,739 339,222 328,564 279,954 262,552 Net cash provided by continuing operations........................ $ 367 $ 376 $ 1,298 $ 1,287 $ 1,257 $ 1,191 $ 919 Cash dividends declared and paid per common share.................. .03 - .03 - - - -
12
----------------------------------------------------------------------------- AS OF MARCH 31 AS OF DECEMBER 31 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Assets............................. $ 10,352 $ 10,068 $ 10,216 $ 10,347 $ 10,843 $ 10,391 $ 10,461 Working capital.................... 758 442 573 606 635 482 379 Long-term debt, including amounts due within one year............... 3,614 3,891 3,698 3,656 5,158 5,139 6,022 Common stockholders' equity........ 3,514 3,114 3,471 3,691 2,822 2,099 1,585 ----------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 YEAR ENDED DECEMBER 31 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- SELECTED OTHER FINANCIAL DATA: EBDITA (2)......................... $ 603 $ 557 $ 2,004 $ 1,924 $ 1,972 $ 1,856 $ 1,736 Percent of revenues: Salaries, wages and benefits..... 40.1% 40.4% 41.1% 41.4% 41.4% 40.6% 39.7% Supplies......................... 15.6 16.3 16.2 16.2 15.3 15.2 14.7 Other operating expenses......... 17.7 18.1 18.5 18.6 18.1 18.4 19.2 Provision for doubtful accounts........................ 5.4 4.7 5.3 5.2 5.3 5.1 5.3 EBDITA........................... 21.7 21.0 19.5 19.4 20.6 21.5 22.5 Ratio of debt to debt plus common stockholders' equity.............. 50.7% 55.5% 51.6% 49.8% 64.6% 71.0% 79.2% SELECTED OPERATING DATA: Number of hospitals at end of period............................ 196 197 193 200 219 221 218 Weighted average licensed beds..... 41,955 41,525 41,263 40,608 42,437 42,264 41,452 Admissions......................... 309,800 306,200 1,158,400 1,161,100 1,189,700 1,174,700 1,139,300 Average length of stay (days)...... 5.9 6.1 5.9 6.1 6.5 6.6 6.8 Average daily census............... 20,341 20,880 18,702 19,253 21,255 21,351 21,155 Occupancy.......................... 48.5% 50.3% 45.3% 47.4% 50.1% 50.5% 51.0% Emergency room visits.............. 788,300 791,900 3,139,700 3,042,900 3,028,600 2,894,800 2,756,900 - ------------- (1) Earnings per common and common equivalent share are not presented for periods prior to the initial public offering of Columbia Hospital Corporation common stock in May 1990. Earnings per common and common equivalent share include the effect of preferred stock dividend requirements totaling $18 million in 1991 and $63 million in 1990. (2) Income from continuing operations before non-recurring transactions, depreciation, interest expense, minority interests, income taxes and amortization.
13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND INFORMATION AND BUSINESS STRATEGY HCA MERGER As discussed in Notes 1 and 2 of the Notes to the Consolidated Financial Statements of the Company, on October 2, 1993, Columbia Healthcare Corporation ("Columbia") entered into a definitive agreement to merge with HCA. This transaction was completed on February 10, 1994 and was accounted for as a pooling of interests. Accordingly, the accompanying financial statements and the financial and operating data included in this discussion and analysis give retroactive effect to the HCA Merger and include the combined operations of Columbia and HCA for all periods presented. GALEN MERGER The Galen Merger was completed on September 1, 1993 and was also accounted for as a pooling of interests. Accordingly, the accompanying financial statements and the financial and operating data included in this discussion and analysis give retroactive effect to the Galen Merger and include the combined operations of Columbia Hospital Corporation ("CHC") and Galen for all periods presented. In addition, the historical financial information related to Galen (which prior to the Galen Merger was reported on a fiscal year ending August 31) has been recast to conform to the Company's annual reporting period ending December 31. SPINOFF TRANSACTION Prior to the merger with CHC, Galen became a publicly held corporation as a result of the Spinoff which was completed on March 1, 1993. The Spinoff separated Humana's previously integrated hospital and managed care health plan businesses and was effected through the distribution of Galen common stock to then current Humana common stockholders on a one-for-one basis. For accounting purposes, because of the relative significance of the hospital business, the pre-Spinoff financial statements of Galen (and now those of the Company) include the separate results of Humana's hospital business, while the operating results and net assets of Humana's managed care health plans have been classified as discontinued operations. BUSINESS STRATEGY The Company primarily operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries or (ii) ownership of controlling interests in various partnerships in which subsidiaries of the Company serve as the managing general partner. The Company's business strategy centers on the development of comprehensive, integrated health care delivery networks with physicians and other health care providers in targeted markets, which typically involves significant health care facility acquisition and consolidation activities. During the past several years, hospital inpatient admission trends have been adversely impacted by cost containment efforts initiated by federal and state governments and various third-party payers, including HMOs, PPOs, commercial insurance companies and employer-sponsored networks. In addition, a significant number of medical procedures have shifted from inpatient to less expensive outpatient settings as a result of both cost containment pressures and advances in medical technology. In response to changes in the health care industry, the Company has developed the following operating strategy to provide the highest quality health care services at the lowest possible cost: BECOME A SIGNIFICANT PROVIDER OF SERVICES -- The Company attempts to (i) consolidate services to reduce costs and (ii) develop the geographic coverage necessary for inclusion in most managed care and employer-sponsored networks in each market. PROVIDE A COMPREHENSIVE RANGE OF SERVICES -- In addition to the operation of general, acute care hospitals, the Company also operates psychiatric and rehabilitation facilities, outpatient surgery and diagnostic centers, home health agencies and other services. This strategy enables the Company to attract business from managed care plans and major employers seeking efficient access to a wide array of health care services. 14 DELIVER HIGH QUALITY SERVICES -- Through the use of clinical information systems and continuous quality enhancement programs, the Company focuses on patient outcomes and strives to continuously improve the quality of care and service provided to patients. INTEGRATE FRAGMENTED DELIVERY SYSTEMS -- Through its networks, the Company focuses on coordinating contracting, information systems, economic incentives and quality assurance activities among providers in each market. Management intends to implement its strategy discussed above in a substantial number of former Galen and HCA markets as well as new markets, and further develop the integrated health care networks in its five pre-Galen Merger markets. COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993 Revenues increased 5% to $2.8 billion in the first quarter of 1994 compared to the same period of 1993 primarily as a result of price increases, growth in inpatient and outpatient volumes and acquisitions. On a same-hospital basis, first quarter 1994 admissions increased 1.4% and outpatient visits increased 8.1% from the same period of 1993. Despite a continued deterioration in payer mix, EBDITA increased 8% to $603 million in the first quarter of 1994 from $557 million in the first quarter of 1993. The increase in EBDITA margins to 21.7% in the first quarter of 1994 from 21.0% in the first quarter of 1993 resulted primarily from volume growth, improvements in staffing levels, increased discounts on medical supplies and other operating efficiencies related to growth in volume of services. Medicare admissions as a percentage of total admissions increased from 40% in the first quarter of 1993 to 41% in the first quarter of 1994, while discounted and managed care admissions grew from 32% to 37%, respectively. During the first quarter of 1994, the Company recorded $159 million ($102 million net of tax) of certain non-recurring charges in connection with the HCA Merger. In addition to investment and advisory fees associated with the HCA Merger, these charges reflect management's actions to reduce overhead costs, eliminate duplicative operating facilities in certain markets and consolidate management information systems. These cost-saving measures should be completed during 1994. The Company may incur additional charges related to the HCA Merger during the remainder of 1994 in connection with severance payments resulting from continued consolidation activities. Management believes that these actions related to the HCA Merger, combined with cost reductions from renegotiations of medical supply contracts and interest savings from the first quarter 1994 refinancing of long-term debt, may result in annual pretax savings of approximately $130 million, of which as much as $75 million may be realized in 1994. Excluding the effects of the non-recurring transactions, income from continuing operations in the first quarter of 1994 totaled $239 million or $.70 per share, an increase of 15% over the $205 million or $.61 per share in the first quarter of 1993. The increase was attributable to the previously discussed growth of EBDITA and a $21 million decline in interest expense resulting from refinancing activities and reductions of long-term debt. Results of operations for the first quarter of 1993 include income from discontinued operations of $16 million or $.04 per share related to Humana's health plan business prior to the Spinoff. See Note 6 of the Notes to Condensed Consolidated Financial Statements for a description of the Spinoff. In the first quarter of 1994, the Company refinanced approximately $2 billion of HCA's high coupon fixed and floating rate long-term debt. These transactions were effected to reduce future interest expense and eliminate certain restrictive covenants. After-tax losses from these extinguishments of debt aggregated $92 million or $.27 per share. In connection with the Galen Merger, the Company recorded charges in the third quarter of 1993 totaling $151 million ($98 million net of tax) for management actions similar to those previously discussed as part of the HCA Merger. As of March 31, 1994, consolidation and cost-saving activities related to these charges were 15 substantially completed. Management believes that these actions related to the Galen Merger, combined with cost reductions from renegotiations of medical supply contracts and interest savings from the third quarter 1993 refinancing of long-term debt, should result in annual pretax savings in 1994 of approximately $30 million. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 At the time of the HCA Merger, the Company operated 195 hospitals (43,075 licensed beds) and certain ancillary health care facilities in forty major markets located in twenty-six states and two foreign countries. Operating data related to the pre-HCA Merger entities follows (dollars in millions):
---------------------------------- COLUMBIA HCA CONSOLIDATED ---------------------------------- Revenues: 1993............................................................. $ 5,130 $ 5,122 $ 10,252 1992............................................................. 4,806 5,126 9,932 1991............................................................. 4,612 4,986 9,598 EBDITA: 1993............................................................. $ 907 $ 1,097 $ 2,004 1992............................................................. 870 1,054 1,924 1991............................................................. 928 1,044 1,972 Income from continuing operations (a): 1993............................................................. $ 291 $ 382 $ 673 1992............................................................. 297 300 597 1991............................................................. 358 156 514 Admissions (in thousands): 1993............................................................. 596.3 562.1 1,158.4 1992............................................................. 586.5 574.6 1,161.1 1991............................................................. 587.8 601.9 1,189.7 Emergency room visits (in thousands): 1993............................................................. 1,563.2 1,576.5 3,139.7 1992............................................................. 1,537.4 1,505.5 3,042.9 1991............................................................. 1,519.7 1,508.9 3,028.6 - ------------ (a) Excludes the after-tax effect of non-recurring transactions. See Note 5 of the Notes to the Consolidated Financial Statements for a description of these transactions.
Revenues increased 3% to $10.3 billion in 1993 and 3% to $9.9 billion in 1992. Increases in both periods resulted primarily from price increases, acquisitions and growth in outpatient services. During 1992 and 1993, the Company completed numerous acquisitions and divestitures of hospitals, most of which are discussed in Notes 5 and 6 of the Notes to the Consolidated Financial Statements. The following table summarizes percentage changes in same-hospital volumes for each respective period of 1993 compared to the same period of 1992, and changes in same-hospital volumes for each respective period of 1992 compared to the same period of 1991.
--------------------------------------------------------------------- COLUMBIA1993 VS 1992 COLUMBIA1992 VS 1991 ------------- ------------- CHC GALEN HCA CONSOLIDATED CHC GALEN HCA CONSOLIDATED --------------------------------------------------------------------- ADMISSIONS: Quarter: First................ 6.7 (2.1) (1.5) (1.5) 8.4 -- 3.5 2.1 Second............... 8.9 (1.3) (2.5) (1.6) 2.4 (4.8) 1.2 (1.5) Third................ 5.9 (1.0) (3.0) (1.8) 4.6 (4.1) (0.4) (1.9) Fourth............... 5.9 1.3 (0.4) 0.6 4.6 (3.6) (2.2) (2.6) Year............... 6.8 (0.8) (1.8) (1.1) 5.0 (3.1) 0.6 (1.0) EMERGENCY ROOM VISITS: Quarter: First................ 19.2 4.4 9.0 7.3 6.3 2.2 0.9 1.7 Second............... 11.7 (0.1) 4.2 2.6 8.0 (1.8) -- (0.5) Third................ 5.8 (2.2) 1.9 0.3 16.5 0.2 7.0 4.0 Fourth............... 6.9 2.4 5.7 4.3 8.9 (2.2) (0.5) (1.0) Year............... 10.6 1.1 5.1 3.6 9.1 (0.4) 1.8 1.0
16 In addition to the above, same-hospital outpatient volumes for CHC facilities increased 9.5% in 1993 and 39% in 1992, while such volumes for Galen facilities declined 3.6% and 1.5%, respectively. Same-hospital outpatient volumes for HCA increased 9.6% in 1993 and 14.6% in 1992 compared to the respective prior year. Since it began operations in 1988, CHC had experienced significant growth in patient volumes, revenues and net income, primarily as a result of successful implementation of its strategy. The historical operating results of Galen's hospitals (which include the hospital operations of Humana prior to the Spinoff) had been adversely impacted as a result of such hospitals' pre-Spinoff relationship with Humana's managed care health plan business in certain markets. Management believes that this relationship caused some physicians to discontinue referrals of their patients to Galen's hospitals, and had precluded these hospitals from contracting with unaffiliated insurers. In addition, Galen's volume of patients covered by traditional insurance (who pay amounts which more closely approximate established charges) declined significantly in 1992 due in part to increased price consciousness of patients and physicians with respect to Galen's pricing policies. Same-hospital volume trends at former Galen facilities have improved in 1993 primarily as a result of increased volumes from discounted managed care health plans other than Humana. During 1993 HCA facilities experienced declines in inpatient admissions and increases in outpatient volumes primarily as a result of the previously discussed cost containment efforts and outpatient utilization trends. In addition, volumes in HCA's psychiatric facilities had been adversely impacted in both 1992 and 1993 as a result of negative publicity in the psychiatric hospital industry. Despite declines in same-hospital admissions and deterioration in payer mix, EBDITA for the Company increased 4% to $2 billion in 1993 from $1.9 billion in 1992. EBDITA margins improved slightly to 19.5% from 19.4% primarily as a result of improvements in staffing levels and increased medical supply discounts. Medicare admissions as a percentage of total admissions increased from 37% in 1992 to 39% in 1993, while discounted and managed care admissions grew from 32% to 35%, respectively. EBDITA declined 3% in 1992 from 1991 due to a decline in same-hospital admissions at former Galen facilities and deterioration in Galen's payer mix. During the third quarter of 1993, the Company recorded non-recurring charges of $151 million ($98 million net of tax) of costs related to the Galen Merger. Results of operations in 1992 include (i) $394 million ($330 million net of tax) of losses associated with divestitures of certain hospitals, (ii) $138 million ($86 million net of tax) of costs related primarily to the Spinoff and (iii) a gain of $93 million ($58 million net of tax) on the sale of the common stock of HealthTrust, Inc. -- The Hospital Company ("HealthTrust"). Income from continuing operations in 1991 includes (i) a charge of $413 million ($256 million net of tax) in connection with the acceleration of vesting of stock options under the HCA Nonqualified Stock Option Plan and the establishment of exercise prices at levels substantially less than the then fair value of the underlying common stock, (ii) a charge of $159 million ($99 million net of tax) primarily in connection with the anticipated loss on the disposition of certain hospitals and other assets, (iii) a gain of $51 million ($32 million net of tax) on the sale of a hospital, and (iv) a gain of $221 million ($162 million net of tax) on the sale of an investment in preferred stock and warrants of HealthTrust. See Note 5 of the Notes to Consolidated Financial Statements and Note 7 of the Notes to Condensed Consolidated Financial Statements for a discussion of non-recurring transactions. Excluding the effects of the non-recurring transactions, income from continuing operations increased 13% to $673 million ($1.99 per share) in 1993 and 16% to $597 million ($1.82 per share) in 1992. Improvements in both years resulted primarily from reductions in interest expense, and in 1993, growth in EBDITA. During the third quarter of 1993, in an effort to reduce future interest expense and eliminate certain restrictive covenants, the Company effected the refinancing of $787 million of its long-term debt (bearing interest at an average rate of 8.5%) primarily through the issuance of commercial paper, and renegotiated HCA's bank credit agreement (subsequently replaced upon consummation of the HCA Merger). After-tax losses from these refinancing activities aggregated $84 million or $.24 per share. 17 Results of operations include income from discontinued operations of $16 million in 1993, a loss of $125 million in 1992 and income of $16 million in 1991. Losses from discontinued operations in 1992 include costs of $135 million (net of tax) incurred by Humana in connection with the Spinoff. LIQUIDITY Cash provided by continuing operations totaled $367 million for the three months ended March 31, 1994 compared to $376 million for the comparable period of 1993. Cash flows in the first quarter of 1994 were reduced by approximately $75 million in connection with a payment to the IRS related to disputed prior year income taxes and interest. In the first quarter of both 1994 and 1993, cash flows in excess of the Company's capital expenditure program were used primarily to reduce long-term debt and in the first quarter of 1993, to finance a payment of $135 million to Humana in connection with the Spinoff. A substantial portion of the non-recurring transactions recorded in the first quarter of 1994 comprises the writedown of recorded assets and, accordingly, management does not expect that these transactions will have a material adverse effect on cash flows from continuing operations in 1994. Cash provided by continuing operations totaled $1.3 billion in each of the last three fiscal years. Cash flows in excess of the Company's capital expenditure program were used primarily to reduce long-term debt. Working capital totaled $758 million at March 31, 1994, $573 million at December 31, 1993 and $606 million at December 31, 1992. Management believes that cash flows from operations and amounts available under the Company's revolving credit facilities and related commercial paper programs are sufficient to meet expected future liquidity needs. Investments of the Company's professional liability insurance subsidiaries to maintain statutory equity and pay claims totaled $778 million at both March 31, 1994 and December 31, 1993, and $709 million at December 31, 1992. In September 1993 the Board of Directors initiated the payment of a regular quarterly cash dividend of $.03 per common share. While it is the present intention of the Board of Directors to continue paying a quarterly dividend of $.03 per share, the declaration and payment of future dividends by the Company will be at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, financial condition, business needs, capital and surplus and regulatory considerations. CAPITAL RESOURCES Excluding acquisitions, capital expenditures totaled $214 million and $181 million for the three months ended March 31, 1994 and 1993, respectively, and $836 million in all of 1993 compared to $668 million in 1992 and $645 million in 1991. Planned capital expenditures in 1994 (excluding acquisitions) are expected to approximate $800 million. Management believes that its capital expenditure program is adequate to expand, improve and equip existing health care facilities. In addition, the Company expended $114 million and $75 million for acquisitions in the respective first quarters of 1994 and 1993, and $79 million, $36 million and $96 million during all of 1993, 1992 and 1991, respectively. See Note 6 of the Notes to Consolidated Financial Statements and Note 8 of the Notes to Condensed Consolidated Financial Statements for a description of these activities. As part of its business strategy, the Company intends to acquire additional health care facilities in the future. The Company expects to finance all capital expenditures with internally generated and borrowed funds. Available sources of capital include public or private debt, commercial paper, unused bank revolving credits and equity. At March 31, 1994, there were projects under construction which had an estimated additional cost to complete of approximately $285 million. In connection with the Spinoff, common stockholders' equity was reduced by $802 million in 1993 as a result of the following transactions with Humana: (i) distribution of the net assets of the health plan business ($392 million) and the net assets of a hospital facility ($25 million), (ii) payment of cash ($135 million) and (iii) issuance of notes ($250 million). The notes were refinanced in September 1993. The ratio of debt to debt plus common stockholders' equity improved from 58% at December 31, 1992 (after giving pro forma effect to the Spinoff) to 52% at December 31, 1993 and 51% at March 31, 1994. 18 On April 29, 1994, the Company filed a Registration Statement on Form S-3 with the Commission in connection with the planned public offering of up to $1.5 billion of long-term debt. The proceeds from the sales of such securities will be used for general corporate purposes, which may include repayment of commercial paper and other indebtedness, additional capitalization of the Company's subsidiaries, capital expenditures and possible acquisitions. The Company's credit facilities contain customary covenants which include (i) limitations on additional debt, (ii) limitations on sales of assets, mergers and changes of ownership and (iii) maintenance of certain interest coverage ratios. The Company was in compliance with all such covenants at March 31, 1994. EFFECTS OF INFLATION AND CHANGING PRICES Various federal, state and local laws have been enacted that, in certain cases, limit the Company's ability to increase prices. Revenues for hospital services rendered to Medicare patients are established under the federal government's prospective payment system. Medicare revenues approximated 34%, 30% and 29% of revenues in 1993, 1992 and 1991, respectively. Management believes that hospital operating margins have been, and may continue to be, under significant pressure because of deterioration in inpatient volumes and payer mix, and growth in operating expenses in excess of the increase in prospective payments under the Medicare program. The Company expects that the average rate of increase in Medicare prospective payments will approximate 2% in 1994. In addition, as a result of increasing regulatory and competitive pressures, the Company's ability to maintain operating margins through price increases to non-Medicare patients is limited. HEALTH CARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and some state legislatures that would significantly affect health care systems in the Company's markets. Proposals under consideration include cost controls on hospitals, insurance market reforms that increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance to their employees and creation of a single government health insurance plan that would cover all citizens. President Clinton's health care reform bill, introduced as legislation in November 1993, includes certain measures that could significantly reduce future payments to providers of health care services. OTHER INFORMATION As discussed in Note 9 of the Notes to Condensed Consolidated Financial Statements, the Company is contesting certain income taxes and related interest, aggregating approximately $1.3 billion at March 31, 1994, proposed by the IRS for prior years. Management believes that final resolution of these disputes will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. However, if all or a majority of the positions of the IRS are upheld, the financial position, results of operations and liquidity of the Company would be materially adversely affected. On March 24, 1994, the Company made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior year income taxes and related interest. This payment will not have a material effect on 1994 earnings. Resolution of various other loss contingencies, including litigation pending against the Company in the ordinary course of business, is not expected to have a material adverse effect on its financial position or results of operations. During 1992 the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which increased 1992 first quarter net income by $51 million or $.16 per share. See Note 7 of the Notes to Consolidated Financial Statements. 19 SELLING STOCKHOLDERS The following table sets forth as of April 30, 1994, and after the sale of the Common Stock offered hereby (assuming no exercise of the U.S. Underwriters' overallotment option) certain information regarding the beneficial ownership of the Common Stock by each person selling Common Stock in the Offering (a "Selling Stockholder"). All information with respect to the ownership of shares of the Common Stock by the Selling Stockholders has been furnished by the Selling Stockholders to the Company.
--------------------------------------------------------- SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO SHARES OWNED AFTER OFFERING BEING OFFERING NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT - ------------------------------------------------------ --------------------------------------------------------- J.P. Morgan Capital Corporation ...................... 16,683,122(1) 5% 6,000,000 15,089,999(2) 4.5% 60 Wall Street New York, New York 10260 - ------------ (1) J.P. Morgan Capital Corporation ("J.P. Morgan Capital") owns 2,100,000 shares of Common Stock and 18,989,999 shares of Nonvoting Common Stock. The number of shares shown in the table includes 2,100,000 shares of Common Stock and 14,583,122 shares of Nonvoting Common Stock which are immediately convertible into shares of Common Stock, and excludes 4,406,877 shares of Nonvoting Common Stock which are not immediately convertible into shares of Common Stock. In addition, on April 30, 1994, J.P. Morgan Investment Management Inc. and Morgan Guaranty Trust Company of New York, which are affiliates of J.P. Morgan Capital, held for investment by their clients 2,269,858 shares of Common Stock, as to which beneficial ownership is disclaimed by J.P. Morgan Capital. (2) The number of shares shown in the table represents 15,089,999 shares of Nonvoting Common Stock which will be immediately convertible into shares of Common Stock after the Offering.
CERTAIN RELATIONSHIPS OF THE SELLING STOCKHOLDERS TO THE COMPANY J.P. Morgan Capital, a Selling Stockholder, is an indirect wholly-owned subsidiary of J.P. Morgan & Co. Incorporated and an affiliate of J.P. Morgan Securities Inc. ("J.P. Morgan Securities") and J.P. Morgan Securities Ltd., which are the lead managers of the Offering, and of Morgan Guaranty Trust Company of New York ("Morgan Guaranty") and J.P. Morgan Delaware (together with Morgan Guaranty, the "J.P. Morgan Bank Entities"), which are lenders to the Company. In the ordinary course of their respective businesses, affiliates of J.P. Morgan Capital have engaged, and may in the future engage, in commercial banking and investment banking transactions with the Company and its subsidiaries, including HCA and Galen. J.P. Morgan Securities was a co-managing underwriter of the Company's public offerings in April and March, 1994 of $150 million of 8.36% Debentures Due 2024 and $150 million of 7.15% Notes Due 2004 and the Company's public offering in December 1993 of $150 million of 7 1/2% Debentures Due 2023 and $150 million of 6 1/8% Notes Due 2000. In addition, during the first quarter of 1994, J.P. Morgan Securities assisted the Company in connection with certain swap transactions. In 1993, J.P. Morgan Securities arranged a $1.6 billion credit facility for HCA, and in 1992, J.P. Morgan Securities was a co-managing underwriter of HCA's initial public offering. Upon consummation of the HCA Merger, the Company entered into revolving credit agreements in an aggregate amount of $3 billion. The J.P. Morgan Bank Entities, which are wholly-owned subsidiaries of J.P. Morgan & Co. 20 Incorporated, are lenders in this credit facility, and Morgan Guaranty is a co-agent bank for this credit facility. The Company's total indebtedness under this credit facility at March 31, 1994 was approximately $218 million. The J.P. Morgan Bank Entities have received certain commitment and other fees from the Company in connection with the credit facility. Prior to the HCA Merger, Morgan Guaranty was the agent bank, and the J.P. Morgan Bank Entities were lenders, in certain of HCA's credit facilities, including a $1.6 billion credit facility. In addition, Morgan Guaranty has engaged in certain transactions with, and provided certain products and services to, the Company and its predecessors relating to the management of interest rate and foreign exchange exposures. During the period beginning January 1, 1993 and ended December 31, 1993, the Company and its subsidiaries paid underwriting, arrangement and other fees to J.P. Morgan Securities, and commitment, agency and other fees to the J.P. Morgan Bank Entities, in the aggregate amount of approximately $2.6 million. Pursuant to a Registration Rights Agreement dated as of March 16, 1989, as amended (the "Registration Rights Agreement"), J.P. Morgan Capital and certain other original investors in HCA had demand registration rights to require four registrations (and after completion of the Offering will have demand registration rights to require three more registrations), and have unlimited "piggyback" registration rights with respect to registrations of shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"). The Company has agreed to pay all of the expenses of such registrations, including the fees and disbursements of counsel for such stockholders. Pursuant to the Registration Rights Agreement and the Underwriting Agreement dated the date hereof, the Company has agreed to indemnify the Selling Stockholders against certain liabilities, including liabilities under the Securities Act. 21 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof, the Underwriters named below have severally agreed to purchase, and the Selling Stockholders have agreed to sell to them, severally, the respective number of shares of the Company's Common Stock set forth opposite their names below:
---------- NUMBER OF SHARES ---------- U.S. UNDERWRITERS J.P. Morgan Securities Inc............................................................... Dean Witter Reynolds Inc................................................................. Morgan Stanley & Co. Incorporated........................................................ ---------- Subtotal............................................................................... 4,800,000 ---------- INTERNATIONAL UNDERWRITERS J.P. Morgan Securities Ltd............................................................... Dean Witter International Ltd............................................................ Morgan Stanley & Co. International Limited............................................... ---------- Subtotal............................................................................... 1,200,000 ---------- Total................................................................................ 6,000,000 ---------- ----------
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are committed to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the overallotment option described below) if any are taken. The closing of the U.S. Offering is a condition to the closing of the International Offering, and the closing of the International Offering is a condition to the closing of the U.S. Offering. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions set forth below, (a) it is not purchasing any shares of Common Stock being sold by it (the "U.S. Shares") for the account of anyone other than a United States or Canadian Person and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions set forth below, (a) it is not purchasing any shares of Common Stock being sold by it (the "International Shares") for the account of any United States or Canadian Person and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and the International Underwriters of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price and currency of settlement of any shares so sold shall be the Price to Public set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. 22 Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and agreed not to offer or sell, any Common Stock, directly or indirectly, in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any Common Stock a notice stating in substance that, by purchasing such Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Common Stock in Canada or to, or for the benefit of, any resident of Canada in contravention of the securities laws of Canada or any province or territory thereof and that any offer of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any such Common Stock a notice containing substantially the same statement as is contained in this sentence. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that (i) it has not offered or sold and will not offer or sell in the United Kingdom by means of any document, any shares of Common Stock, other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agents, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Act of 1985, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of Common Stock in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the sale of the shares of Common Stock if that person is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom the document may otherwise lawfully be issued or passed on. The Underwriters propose to offer part of the shares of Common Stock offered hereby directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to certain other dealers. Pursuant to the Underwriting Agreement, certain Selling Stockholders have granted to the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an additional 900,000 shares of Common Stock at the public offering price set forth on the cover page hereof less the underwriting discount. The U.S. Underwriters may exercise such option to purchase solely for the purpose of covering overallotments, if any, made in connection with the sale of the shares of Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered hereby. From time to time in the ordinary course of their respective businesses, J.P. Morgan Securities, Dean Witter Reynolds Inc. and Morgan Stanley & Co. Incorporated have engaged and may in the future engage in investment banking transactions with, and provide financial advisory services to, the Company. For additional information with respect to certain relationships with the Company and its subsidiaries, see "Selling Stockholders -- Certain Relationships of the Selling Stockholders to the Company." J.P. Morgan Capital will be a Selling Stockholder in the Offering. The provisions of Section (c)(8) of the Corporate Financing Rule under Section 44 of Article III of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., apply to this Offering since substantially all of the net proceeds of the Offering will be paid to J.P. Morgan Capital. See "Selling Stockholders." The Selling Stockholders have agreed in the Underwriting Agreement not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable for Common Stock (except for the shares offered hereby) for a period of 90 days after the date of this Prospectus, without the prior written consent of J.P. Morgan Securities, as representative of the several Underwriters. The Company has agreed in the Underwriting Agreement not to effect any registration of any shares of Common Stock or any 23 securities convertible into or exchangeable for Common Stock (except for the shares offered hereby and shares registered in connection with acquisitions and employee benefit plans) for a period of 90 days after the date of this Prospectus, without the prior written consent of J.P. Morgan Securities, as representative of the several Underwriters. In the Underwriting Agreement, the Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the federal securities laws, or to contribute to payments which the Underwriters may be required to make in respect thereof. LEGAL MATTERS The validity of the issuance of the Common Stock offered hereby will be passed upon for the Company by Stephen T. Braun, Senior Vice President and General Counsel of the Company. Davis Polk & Wardwell, New York, New York, is acting as counsel for the Underwriters in connection with certain legal matters relating to the shares of Common Stock offered hereby. As of May 12, 1994, Mr. Braun owned approximately 1,072 shares and had options to purchase 94,500 shares of Common Stock. EXPERTS The annual consolidated financial statements of the Company, the consolidated financial statements and financial statement schedules of Columbia and the supplemental consolidated financial statements and supplemental financial statement schedules of the Company, included or incorporated by reference in this Prospectus, have been audited by Coopers & Lybrand, independent accountants, to the extent and for the periods indicated in their reports thereon included or incorporated by reference herein, which include explanatory paragraphs regarding (as to the Company and Columbia) a change in accounting for income taxes and (as to the supplemental financial statements and supplemental financial statement schedules of the Company) the merger of Columbia and HCA. Such financial statements and financial statement schedules audited by Coopers & Lybrand have been included or incorporated by reference in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at the Washington, D.C. address. Such reports, proxy statements and other information concerning the Company also may be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, on which the shares of Common Stock of the Company are listed. The Company has filed with the Commission a Registration Statement under the Securities Act with respect to the Common Stock offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and exhibits and schedules thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. The information so omitted, including exhibits, may be obtained from the Commission at its principal office in Washington, D.C. upon the payment of the prescribed fees, or may be examined without charge at the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. For further information, reference is made to the Registration Statement and exhibits thereto. 24 COLUMBIA/HCA HEALTHCARE CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
---- PAGE ---- Report of Independent Accountants.......................................................................... F-2 Consolidated Financial Statements: Consolidated Statement of Income for the years ended December 31, 1993, 1992 and 1991........................................................................................... F-3 Consolidated Balance Sheet, December 31, 1993 and 1992................................................... F-4 Consolidated Statement of Common Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991........................................................................................... F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1993, 1992 and 1991................ F-6 Notes to Consolidated Financial Statements............................................................... F-7 Quarterly Consolidated Financial Information (Unaudited)................................................. F-24 Condensed Consolidated Financial Statements: Condensed Consolidated Statement of Income for the three months ended March 31, 1994 and March 31, 1993 (Unaudited)............................................................................................. F-25 Condensed Consolidated Balance Sheet, March 31, 1994 and December 31, 1993 (Unaudited)................... F-26 Consolidated Statement of Cash Flows for the three monthsended March 31, 1994 and March 31, 1993 (Unaudited)............................................................................................. F-27 Notes to Condensed Consolidated Financial Statements (Unaudited)......................................... F-28
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Columbia/HCA Healthcare Corporation We have audited the accompanying consolidated balance sheet of Columbia/HCA Healthcare Corporation as of December 31, 1993 and 1992, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993, which statements give retroactive effect to the pooling of interests described in Note 2 to the consolidated financial statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbia/HCA Healthcare Corporation as of December 31, 1993 and 1992, and the consolidated results of operations and cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 7 to the consolidated financial statements, effective January 1, 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." [LOGO] COOPERS & LYBRAND Louisville, Kentucky February 28, 1994, except for Note 15, as to which the date is March 24, 1994 F-2 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------------- 1993 1992 1991 --------------------------- Revenues............................................................................ $ 10,252 $ 9,932 $ 9,598 --------- --------- --------- Salaries, wages and benefits........................................................ 4,215 4,112 3,976 Supplies............................................................................ 1,664 1,613 1,467 Other operating expenses............................................................ 1,893 1,849 1,739 Provision for doubtful accounts..................................................... 542 515 508 Depreciation and amortization....................................................... 554 541 524 Interest expense.................................................................... 321 401 597 Investment income................................................................... (66) (81) (64) Non-recurring transactions.......................................................... 151 439 300 --------- --------- --------- 9,274 9,389 9,047 --------- --------- --------- Income from continuing operations before minority interests and income taxes........ 978 543 551 Minority interests in earnings of consolidated entities............................. 9 10 9 --------- --------- --------- Income from continuing operations before income taxes............................... 969 533 542 Provision for income taxes.......................................................... 394 294 189 --------- --------- --------- Income from continuing operations................................................... 575 239 353 Discontinued operations: Income (loss) from operations of discontinued health plan segment, net of income tax (benefit) of $9 in 1993, ($46) in 1992 and $9 in 1991........................ 16 (108) 16 Costs associated with discontinuance of health plan segment, net of income tax benefit of $2...................................................... - (17) - Extraordinary loss on extinguishment of debt, net of income tax benefit of $51...... (84) - - Cumulative effect on prior years of a change in accounting for income taxes......... - 51 - --------- --------- --------- Net income.................................................................... $ 507 $ 165 $ 369 --------- --------- --------- --------- --------- --------- Earnings per common and common equivalent share: Income from continuing operations................................................. $ 1.70 $ .73 $ 1.20 Discontinued operations: Income (loss) from operations of discontinued health plan segment............... .04 (.33) .05 Costs associated with discontinuance of health plan segment..................... - (.06) - Extraordinary loss on extinguishment of debt...................................... (.24) - - Cumulative effect on prior years of a change in accounting for income taxes....... - .16 - --------- --------- --------- Net income.................................................................... $ 1.50 $ .50 $ 1.25 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. F-3 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 AND 1992 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) ASSETS
------------------- 1993 1992 ------------------- Current assets: Cash and cash equivalents................................................................. $ 224 $ 217 Accounts receivable less allowance for loss of $513 -- 1993 and $475 -- 1992.............. 1,566 1,624 Inventories............................................................................... 245 238 Other..................................................................................... 453 496 --------- --------- 2,488 2,575 Property and equipment, at cost: Land...................................................................................... 568 553 Buildings................................................................................. 4,049 3,741 Equipment................................................................................. 3,442 3,133 Construction in progress (estimated cost to complete and equip after December 31, 1993 -- $299).................................................................................... 333 258 --------- --------- 8,392 7,685 Accumulated depreciation.................................................................. (2,792) (2,437) --------- --------- 5,600 5,248 Net assets of discontinued operations....................................................... - 376 Investments of professional liability insurance subsidiaries................................ 700 644 Intangible assets net of accumulated amortization of $178 -- 1993 and $233 -- 1992........................................................................... 1,232 1,247 Other....................................................................................... 196 257 --------- --------- $ 10,216 $ 10,347 --------- --------- --------- --------- LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................................... $ 445 $ 410 Salaries, wages and other compensation.................................................... 232 211 Other accrued expenses.................................................................... 853 903 Income taxes.............................................................................. 22 92 Long-term debt due within one year........................................................ 363 353 --------- --------- 1,915 1,969 Long-term debt.............................................................................. 3,335 3,303 Deferred credits and other liabilities...................................................... 1,438 1,353 Minority interests in equity of consolidated entities....................................... 57 31 Contingencies Common stockholders' equity: Common stock $.01 par; authorized 800,000,000 voting shares and 25,000,000 nonvoting shares; issued and outstanding 317,686,800 voting shares and 18,990,000 nonvoting shares -- 1993 and 308,252,100 voting shares and 23,421,700 nonvoting shares -- 1992............ 3 3 Capital in excess of par value............................................................ 2,164 2,070 Other..................................................................................... 59 69 Retained earnings......................................................................... 1,245 1,549 --------- --------- 3,471 3,691 --------- --------- $ 10,216 $ 10,347 --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. F-4 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
---------------------------------------------------- COMMON STOCK CAPITAL IN SHARES PAR EXCESS OF RETAINED (000) VALUE PAR VALUE OTHER EARNINGS TOTAL ---------------------------------------------------- Balances, December 31, 1990........................... 255,276 $ 3 $ 734 $ 48 $ 1,314 $2,099 Net income.......................................... 369 369 Cash dividends (Galen Health Care, Inc.)............ (138) (138) Paid-in-kind dividend on cumulative exchangeable preferred stock.................................... (18) (18) Issuance of common stock............................ 4,310 61 61 Stock options exercised and related tax benefits, net of 224,000 shares tendered in partial payment therefor........................................... 797 24 24 Accumulated credit under stock option contract...... 413 413 Other............................................... 24 2 10 12 ------- ----- ---------- ----- -------- ------ Balances, December 31, 1991........................... 260,407 3 821 471 1,527 2,822 Net income.......................................... 165 165 Cash dividends (Galen Health Care, Inc.)............ (143) (143) Issuance of common stock............................ 48,282 916 916 Stock options exercised and related tax benefits, net of 30,000 shares tendered in partial payment therefor........................................... 22,967 331 (386) (55) Other............................................... 18 2 (16) (14) ------- ----- ---------- ----- -------- ------ Balances, December 31, 1992........................... 331,674 3 2,070 69 1,549 3,691 Net income.......................................... 507 507 Cash dividends (Columbia Healthcare Corporation).... (9) (9) Stock options exercised and related tax benefits, net of 81,000 shares tendered in partial payment therefor........................................... 4,000 71 (35) 36 Spinoff transaction with Humana Inc.: Cash payment to Humana Inc........................ (135) (135) Noncash transactions: Issuance of notes payable....................... (250) (250) Distribution of net investment in discontinued health plan operations......................... (392) (392) Transfer of a hospital facility................. (25) (25) Net unrealized gains on investment securities....... 27 27 Other............................................... 1,003 23 (2) 21 ------- ----- ---------- ----- -------- ------ Balances, December 31, 1993........................... 336,677 $ 3 $ 2,164 $ 59 $ 1,245 $3,471 ------- ----- ---------- ----- -------- ------ ------- ----- ---------- ----- -------- ------
The accompanying notes are an integral part of the consolidated financial statements. F-5 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (DOLLARS IN MILLIONS)
------------------------- 1993 1992 1991 ------------------------- Cash flows from continuing operations: Net income.......................................................................... $ 507 $ 165 $ 369 Adjustments to reconcile net income to net cash provided by operating activities: Discontinued operations........................................................... (16) 127 (16) Minority interests in earnings of consolidated entities........................... 9 10 9 Non-recurring transactions........................................................ 151 439 300 Depreciation and amortization..................................................... 554 541 524 Amortization of debt discounts and loan costs..................................... 45 78 116 Noncash interest on exchange debentures........................................... - 4 57 Deferred income taxes............................................................. (28) 34 (210) Change in operating assets and liabilities: (Increase) decrease in accounts receivable...................................... 19 98 (53) Increase in inventories and other assets........................................ (7) (58) (42) Increase (decrease) in income taxes............................................. 19 (160) 53 Increase (decrease) in other liabilities........................................ (87) 83 164 Change in accounting for income taxes............................................. - (51) - Extraordinary loss on extinguishment of debt...................................... 135 - - Other............................................................................. (3) (23) (14) --------- --------- --------- Net cash provided by continuing operations...................................... 1,298 1,287 1,257 --------- --------- --------- Cash flows from investing activities: Purchase of property and equipment.................................................. (836) (668) (645) Acquisition of hospitals and health care facilities................................. (79) (36) (96) Sale of assets...................................................................... 191 225 860 Investment in discontinued operations............................................... - (71) (76) Change in investments............................................................... 21 (35) (33) Other............................................................................... (34) (8) (25) --------- --------- --------- Net cash used in investing activities........................................... (737) (593) (15) --------- --------- --------- Cash flows from financing activities: Issuance of long-term debt.......................................................... 1,586 240 216 Net change in commercial paper borrowings and lines of credit....................... 342 (176) 124 Repayment of long-term debt......................................................... (2,325) (1,799) (890) Payment to Humana Inc. in spinoff transaction....................................... (135) - - Payment of cash dividends........................................................... (40) (143) (134) Issuance of common stock............................................................ 43 741 71 Other............................................................................... (25) (15) (6) --------- --------- --------- Net cash used in financing activities........................................... (554) (1,152) (619) --------- --------- --------- Change in cash and cash equivalents................................................... 7 (458) 623 Cash and cash equivalents at beginning of period...................................... 217 675 52 --------- --------- --------- Cash and cash equivalents at end of period............................................ $ 224 $ 217 $ 675 --------- --------- --------- --------- --------- --------- Interest payments..................................................................... $ 278 $ 319 $ 469 Income tax payments, net of refunds................................................... 347 360 385
The accompanying notes are an integral part of the consolidated financial statements. F-6 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ACCOUNTING POLICIES Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation which began operations on February 10, 1994 as a result of a merger involving Columbia Healthcare Corporation ("Columbia") and HCA -- Hospital Corporation of America ("HCA") (the "HCA Merger"). See Note 2 for a description of the specific terms of the HCA Merger. Prior to the HCA Merger, Columbia began operations on September 1, 1993 as a result of a merger involving Columbia Hospital Corporation ("CHC") and Galen Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 3 for a description of the specific terms of the Galen Merger. Columbia/HCA primarily operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries or (ii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/ HCA serve as the managing general partner. BASIS OF PRESENTATION The consolidated financial statements include substantially all subsidiaries and partnerships controlled by Columbia/HCA as the managing general partner. Significant intercompany transactions have been eliminated. The HCA Merger and the Galen Merger have been accounted for by the pooling-of-interests method. Accordingly, the consolidated financial statements included herein give retroactive effect to these transactions and include the combined operations of CHC, Galen and HCA for all periods presented. In addition, the historical financial information related to Galen (which prior to the Galen Merger was reported on a fiscal year ending August 31) has been recast to conform to Columbia/HCA's annual reporting period ending December 31. REVENUES Columbia/HCA's health care facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which Columbia/HCA is paid based upon established charges, cost of providing services, predetermined rates by diagnosis, fixed per diem rates or discounts from established charges. Revenues are recorded at estimated amounts due from patients and third-party payers for health care services provided, including anticipated settlements under reimbursement agreements with third-party payers. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with an original maturity of three months or less. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments. ACCOUNTS RECEIVABLE Accounts receivable consist primarily of amounts due from the Medicare and Medicaid programs, other government programs, managed care health plans, commercial insurance companies and individual patients. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Depreciation expense, computed by the straight-line method, was $504 million in 1993, $493 million in 1992 and $478 million in 1991. Columbia/HCA uses component depreciation for buildings. Depreciation rates for buildings are equivalent to useful lives ranging generally from 20 to 25 years. Estimated useful lives of equipment vary generally from 3 to 10 years. F-7 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 -- ACCOUNTING POLICIES (CONTINUED) INVESTMENTS On December 31, 1993, Columbia/HCA adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"), which requires that investments in debt and equity securities be classified according to certain criteria. INTANGIBLE ASSETS Intangible assets consist primarily of costs in excess of the fair value of identifiable net assets of acquired entities and are amortized using the straight-line method over periods ranging from 10 to 40 years. Noncompete and debt issuance costs are amortized based upon the lives of the respective contracts or loans. PROFESSIONAL LIABILITY INSURANCE CLAIMS Provisions for loss for professional liability risks are based upon actuarially determined estimates. To the extent that subsequent claims information varies from management's estimates, earnings are charged or credited. MINORITY INTERESTS IN CONSOLIDATED ENTITIES The consolidated financial statements include all assets, liabilities and earnings of Columbia/HCA's partnerships, certain partnership interests of which are not owned by Columbia/HCA. Accordingly, management has recorded minority interests in the earnings and equity of such partnerships. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common and common equivalent share are based upon the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock equivalents consisting primarily of stock options. The computation also gives retroactive effect to the exchange of common shares in connection with the HCA Merger. The following is a summary of shares used in the computation of earnings per common and common equivalent share (amounts in thousands):
------------------------------ 1993 1992 1991 ------------------------------ Columbia: Weighted average shares outstanding.................................. 150,017 144,897 138,936 Common stock equivalents............................................. 966 718 750 --------- --------- --------- Columbia common and common equivalent shares......................... 150,983 145,615 139,686 --------- --------- --------- HCA: Weighted average shares outstanding.................................. 175,374 149,547 113,480 Common stock equivalents............................................. 3,901 24,690 20,109 --------- --------- --------- HCA common and common equivalent shares.............................. 179,275 174,237 133,589 Merger exchange ratio................................................ 1.05 1.05 1.05 --------- --------- --------- Adjusted HCA common and common equivalent shares..................... 188,239 182,949 140,268 --------- --------- --------- Shares used in computation of earnings per common and common equivalent share.................................................... 339,222 328,564 279,954 --------- --------- --------- --------- --------- ---------
Fully diluted earnings per common and common equivalent share is not presented because it approximates earnings per common and common equivalent share. NOTE 2 -- HCA MERGER On October 2, 1993, Columbia entered into a definitive agreement to merge with HCA. This transaction was completed on February 10, 1994. In connection with the HCA Merger, Columbia stockholders approved an F-8 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- HCA MERGER (CONTINUED) amendment to Columbia's Certificate of Incorporation changing the name of the corporation to Columbia/HCA Healthcare Corporation. HCA was then merged into a wholly owned subsidiary of Columbia/HCA. Shares of HCA Class A voting common stock and Class B nonvoting common stock were converted on a tax-free basis into approximately 166,846,000 shares of Columbia/HCA voting common stock and approximately 18,990,000 shares of Columbia/HCA nonvoting common stock, respectively (an exchange ratio of 1.05 shares of Columbia/HCA common stock for each share of HCA voting and nonvoting common stock). The HCA Merger has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements give retroactive effect to the combined operations of Columbia and HCA for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the HCA Merger (dollars in millions):
------------------------------ COLUMBIA HCA COMBINED ------------------------------ 1993: Revenues............................................................. $ 5,130 $ 5,122 $ 10,252 Income from continuing operations.................................... 193 382 575 Net income........................................................... 139 368 507 1992: Revenues............................................................. $ 4,806 $ 5,126 $ 9,932 Income from continuing operations.................................... 211 28 239 Net income........................................................... 137 28 165 1991: Revenues............................................................. $ 4,612 $ 4,986 $ 9,598 Income (loss) from continuing operations............................. 358 (5) 353 Net income (loss).................................................... 374 (5) 369
NOTE 3 -- GALEN MERGER On August 31, 1993, the stockholders of both CHC and Galen approved the Galen Merger, effective as of September 1, 1993. In connection with the Galen Merger, CHC, a Nevada corporation, was merged into Columbia. Each CHC share of common stock was converted on a tax-free basis into one share of Columbia common stock. Immediately subsequent thereto, a wholly owned subsidiary of Columbia was merged into Galen, at which time Galen became a wholly owned subsidiary of Columbia. In connection with this transaction, Columbia issued approximately 123,830,000 shares of common stock in a tax-free exchange for all of the outstanding common shares of Galen (an exchange ratio of 0.775 of a share of Columbia common stock for each share of Galen common stock). F-9 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 -- GALEN MERGER (CONTINUED) The Galen Merger has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements give retroactive effect to the combined operations of CHC and Galen for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the Galen Merger (dollars in millions):
-------------------------- CHC GALEN COMBINED -------------------------- Eight months ended August 31, 1993 (unaudited): Revenues................................................................. $ 823 $ 2,600 $ 3,423 Income from continuing operations........................................ 17 176 193 Net income............................................................... 17 192 209 1992: Revenues................................................................. $ 819 $ 3,987 $ 4,806 Income from continuing operations........................................ 26 185 211 Net income............................................................... 26 111 137 1991: Revenues................................................................. $ 499 $ 4,113 $ 4,612 Income from continuing operations........................................ 15 343 358 Net income............................................................... 15 359 374
NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS Prior to the Galen Merger, Galen began operating its hospital business as an independent publicly held corporation on March 1, 1993 as a result of a tax-free spinoff transaction (the "Spinoff") by Humana Inc. ("Humana"), which retained its managed care health plan business. The Spinoff separated Humana's previously integrated hospital and managed care health plan businesses and was effected through the distribution of Galen common stock to then current Humana common stockholders on a one-for-one basis. For accounting purposes, because of the relative significance of the hospital business, the pre-Spinoff consolidated financial statements of Galen (and now those of Columbia/HCA) include the separate results of Humana's hospital business, while the operations and net assets of Humana's managed care health plans have been classified as discontinued operations. In connection with the Spinoff, Galen entered into various agreements with Humana which were intended to facilitate orderly changes for both the hospital and managed care health plan businesses in a way which would be minimally disruptive to each entity. Principal contracts are summarized below: OPERATIONS -- Certain former Galen hospitals will provide medical services to insureds of Humana for three years subsequent to the Spinoff. The contract includes, among other things, established payment rates for various inpatient and outpatient services and annual increases therein, and hospital utilization guarantees and related penalties. LIABILITIES AND INDEMNIFICATION -- Each entity assumed liability for specified claims. The entities will also share risks with respect to certain litigation and other contingencies, both identified and unknown. INCOME TAXES -- Each entity entered into risk-sharing arrangements in connection with the ultimate resolution of various income tax disputes. FINANCING -- In January 1993 certain subsidiaries issued $250 million of notes payable to Humana, and paid to Humana $135 million in cash on March 1, 1993 which was financed principally through the issuance of commercial paper. The $250 million of notes were repaid in September 1993 in connection with the refinancing of certain long-term debt. F-10 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED) ADMINISTRATION -- These arrangements relate to leasing of certain administrative facilities, division of information systems, employee benefit and stock option plans, and various administrative service arrangements. Revenues of the discontinued managed care health plan business (included in discontinued operations in the accompanying consolidated statement of income) were $523 million in 1993, $2.9 billion in 1992 and $2.5 billion in 1991. NOTE 5 -- NON-RECURRING TRANSACTIONS 1993 In September 1993 the following charges were recorded in connection with the Galen Merger (dollars in millions): Investment advisory and professional fees, and employee benefit plan costs............................................................... $ 62 Writedown of assets in connection with the consolidation of the combined entity's operations........................................ 63 Administrative facility asset writedowns and conversion costs associated with the transaction..................................... 16 Provision for loss on planned sales of assets........................ 10 --------- $ 151 --------- ---------
1992 In September 1992 a pretax charge of $394 million was recorded in connection with the planned divestiture of twenty-two psychiatric hospitals and the unrelated sale of two other facilities. The charge included the writedown to estimated net realizable value of the hospitals to be sold, a $231 million writeoff of permanently impaired cost in excess of net assets acquired, and the costs associated with the replacement of certain credit agreements. Income from continuing operations in 1992 also includes a gain of $93 million on the sale of an investment in common stock of HealthTrust, Inc. -- The Hospital Company ("HealthTrust"). Income from continuing operations in 1992 includes $138 million of charges incurred primarily in connection with the Spinoff, including a provision for loss on the planned sale of hospitals, writedowns of assets in markets with significant declines in operations, administrative facility asset writedowns and certain other costs associated with the separation of the hospital and health plan businesses. Costs aggregating $171 million (before income taxes) incurred by Humana primarily in connection with the Spinoff are included in discontinued operations in 1992. 1991 Income from continuing operations in 1991 includes (i) a charge of $413 million in connection with the acceleration of vesting of stock options under the HCA Nonqualified Stock Option Plan and the establishment of exercise prices at levels substantially less than the then fair value of the underlying common stock, (ii) a charge of $159 million primarily in connection with the anticipated loss on the disposition of certain hospitals and other assets, (iii) a gain of $51 million on the sale of a hospital, and (iv) a gain of $221 million on the sale of an investment in preferred stock and warrants of HealthTrust. NOTE 6 -- OTHER BUSINESS COMBINATIONS During the past three years, Columbia/HCA has acquired various hospitals and related ancillary health care facilities (or controlling interests in such facilities), all of which have been accounted for by the purchase method. Accordingly, the aggregate purchase price of these transactions has been allocated to tangible and F-11 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- OTHER BUSINESS COMBINATIONS (CONTINUED) identifiable intangible assets acquired and liabilities assumed based upon their respective fair values. The consolidated financial statements include the operations of acquired entities since the respective acquisition dates. The following is a summary of acquisitions and joint ventures consummated during the last three years (dollars in millions):
------------------------ 1993 1992 1991 ------------------------ Number of hospitals.......................................................... 3 15 2 Number of licensed beds...................................................... 903 2,345 1,420 Purchase price information: Fair value of assets acquired.............................................. $ 164 $ 490 $ 165 Liabilities assumed........................................................ (76) (279) (48) --------- --------- --------- Net assets acquired...................................................... 88 211 117 --------- --------- --------- Issuance of common stock................................................... - 119 1 Cash acquired.............................................................. 9 15 15 Cash received from sale of certain acquired assets......................... - 40 - Other...................................................................... - 1 5 --------- --------- --------- 9 175 21 --------- --------- --------- Net cash paid for acquisitions........................................... $ 79 $ 36 $ 96 --------- --------- --------- --------- --------- ---------
In July 1992 Columbia/HCA acquired Basic American Medical, Inc. ("BAMI") (included in the table above) through a merger into a wholly owned subsidiary. The assets of BAMI included eight hospitals containing 1,203 licensed beds and certain other health care businesses. The transaction was financed through the assumption of approximately $140 million of long-term debt, issuance of 6,995,000 shares of common stock and payment of $38 million in cash to BAMI stockholders. The purchase price paid in excess of the fair value of identifiable net assets of acquired entities aggregated $7 million in 1993, $97 million in 1992 and $19 million in 1991. The pro forma effect of these acquisitions on Columbia/HCA's results of operations was not significant. NOTE 7 -- INCOME TAXES Provision for income taxes consists of the following (dollars in millions):
--------------------- 1993 1992 1991 --------------------- Current: Federal....................................................................... $ 357 $ 232 $ 375 State......................................................................... 69 34 64 --------- --------- --------- 426 266 439 --------- --------- --------- Deferred: Federal....................................................................... (36) 22 (218) State......................................................................... 4 6 (32) --------- --------- --------- (32) 28 (250) --------- --------- --------- $ 394 $ 294 $ 189 --------- --------- --------- --------- --------- ---------
F-12 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) Reconciliation of federal statutory rate to effective income tax rate follows:
-------------------------- 1993 1992 1991 -------------------------- Federal statutory rate..................................................... 35.0% 34.0% 34.0% State income taxes, net of federal income tax benefit...................... 4.6 4.4 2.9 Gain on sale of HealthTrust investments.................................... - - (3.5) Merger costs............................................................... 0.6 - - Costs in excess of net assets acquired..................................... 1.2 16.6 2.3 Tax exempt investment income............................................... (0.9) (1.7) (1.5) Other items, net........................................................... 0.1 1.8 0.7 --- --- --- Effective income tax rate.................................................. 40.6% 55.1% 34.9% --- --- --- --- --- ---
In August 1993 Congress enacted the Omnibus Budget Reconciliation Act of 1993 which included, among other things, an increase in corporate income tax rates retroactive to January 1, 1993. This legislation had no material effect on 1993 net income. Columbia/HCA adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), as of January 1, 1992, the effect of which increased 1992 net income by $51 million. The provisions of SFAS 109 require, among other things, recognition of deferred income taxes using statutory rates at which temporary differences in the tax and book bases of assets and liabilities are expected to affect taxable income in future years. A summary of deferred income taxes by source included in the consolidated balance sheet at December 31, 1993 and 1992 follows (dollars in millions):
---------------------------------------- 1993 1992 ASSETS LIABILITIES ASSETS LIABILITIES ---------------------------------------- Depreciation................................................. $ - $ 766 $ - $ 748 Long-term debt............................................... - 26 - 71 Professional liability risks................................. 329 - 336 - Doubtful accounts............................................ 91 - 85 - Property losses.............................................. 87 - 111 - Cash basis................................................... - 60 - 89 Compensation................................................. 24 - 18 - Capitalized leases........................................... 11 - 12 - Other........................................................ 215 167 202 106 ----- ----------- ----- ----------- $ 757 $ 1,019 $ 764 $ 1,014 ----- ----------- ----- ----------- ----- ----------- ----- -----------
Management believes that the deferred tax assets in the table above will ultimately be realized. Management's conclusion is based primarily on its expectation of future taxable income and the existence of sufficient taxable income within the allowable carryback periods to realize the tax benefits of deductible temporary differences recorded at December 31, 1993. Deferred income taxes totaling $295 million and $257 million at December 31, 1993 and 1992, respectively, are included in other current assets. Noncurrent deferred income taxes, included in deferred credits and other liabilities, totaled $557 million and $507 million at December 31, 1993 and 1992, respectively. The Internal Revenue Service (the "Service") has issued statutory notices of deficiency in connection with its examinations of HCA's federal income tax returns for 1981 through 1988. Columbia/HCA is currently contesting F-13 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) these claimed deficiencies in the United States Tax Court. In addition, the Service has proposed certain adjustments in connection with its examinations of HCA's 1989 and 1990 federal income tax returns. The following is a discussion of the disputed items with respect to these years. METHOD OF ACCOUNTING For years 1981 through 1986, most of HCA's hospital subsidiaries (the "Subsidiaries") reported taxable income primarily using the cash method of accounting. This method was prevalent within the hospital industry and the Subsidiaries applied the method in accordance with prior agreements with the Service. The Service now asserts that the accrual method of accounting should have been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act") requires the use of the accrual method of accounting beginning in 1987. Consequently, the Subsidiaries changed to the accrual method beginning January 1, 1987. In accordance with the provisions of the 1986 Act, income that had been deferred at the end of 1986 is being recognized as taxable income by the Subsidiaries in equal annual installments over ten years. If the Service should ultimately prevail in its claim that the Subsidiaries should have used the accrual method for 1981 through 1986, the claim would be reduced to the extent that HCA has recognized as taxable income a portion of such deferred income taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987 that had been using the cash method resulted in the recognition of a substantial gain that would not have been recognized had the Subsidiaries been using the accrual method. If the Service were successful with respect to this issue, Columbia/HCA would owe an additional $110 million in income taxes and $432 million in interest as of December 31, 1993. HOSPITAL ACQUISITIONS In connection with hospitals acquired by HCA in 1981 and 1985, the Service has asserted that a portion of the costs allocated to identifiable assets with ascertainable useful lives should be reclassified as nondeductible goodwill. If the Service ultimately prevails in this regard, Columbia/HCA would owe an additional $113 million in income taxes and $139 million in interest as of December 31, 1993. INSURANCE SUBSIDIARY Based on a Sixth Circuit Court of Appeals decision (the Court having jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the Service asserts that such premiums are not deductible and that corresponding losses are only deductible at the time and to the extent that claims are actually paid. HCA has claimed the additional deductions in its Tax Court petitions. Through December 31, 1993, Columbia/HCA is seeking a refund totaling $51 million in income taxes and $93 million in interest in connection with this issue. As an alternative to its position, HCA has asserted that in connection with the sale of hospitals to HealthTrust in 1987, premiums paid to Parthenon by the sold hospitals, if not deductible as discussed above, became deductible at the time of the sale. Accordingly, HCA claimed such deduction in its 1987 federal income tax return. The Service has disallowed the deduction and is claiming an additional $5 million in income taxes and $15 million in interest. A final determination that the premiums are not deductible either when paid to Parthenon or upon the sale of certain hospitals to HealthTrust would increase the taxable basis in the hospitals sold, thereby reducing HCA's gain realized on the sale. HEALTHTRUST SALE In connection with its sale of certain Subsidiaries to HealthTrust in 1987 in exchange for cash, HealthTrust preferred stock and stock purchase warrants, HCA calculated its gain based on the valuation of such stock and warrants by an independent appraiser. The Service claims a higher aggregate valuation, based on the face amount of the preferred stock and a separate appraisal HealthTrust obtained for the stock purchase warrants. Application of the higher valuation would increase the gain recognized by HCA on the sale. However, if the Service succeeds in its assertion, HCA's tax basis in its HealthTrust preferred stock and warrants will be increased accordingly, thereby substantially reducing the tax from the sale of such preferred stock and warrants by a corresponding F-14 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) amount. By December 31, 1992, HCA had sold its entire interest in the HealthTrust preferred stock and warrants. Including the effect of the sales of these securities, the Service is claiming additional interest of $64 million through December 31, 1993. Also in connection with the 1987 sale of certain Subsidiaries to HealthTrust, the Service claims that HCA's basis in the stock of the Subsidiaries sold to HealthTrust should be calculated by adjusting such basis to reflect accelerated rather than straight-line depreciation, which would reduce HCA's basis in the stock sold and increase the taxable gain on the sale. The Service position is contrary to a Tax Court decision in a similar case. The Service is claiming additional income taxes of $79 million and interest of $66 million through December 31, 1993. In connection with the 1987 HealthTrust transactions, the Service further asserts that, to the extent the Subsidiaries were properly on the cash method through 1986, and therefore properly recognizing taxable income over the ten-year transition period, HCA should have additional income in 1987 equal to the unamortized portion of the deferred income. It is HCA's position that no additional income need be included in 1987 and that the deferred income continues to qualify for the ten-year transition period after the sale. Should the Service prevail, Columbia/HCA would owe $11 million of additional income taxes and $17 million of interest through December 31, 1993. The position of the Service is an alternative to its denial of the use of the cash method of accounting previously discussed. DOUBTFUL ACCOUNTS The Service is asserting that in 1986 HCA was not entitled to include charity care writeoffs in the formula used to calculate its deduction for doubtful accounts. For years 1987 and 1988, the Service is asserting that HCA was not entitled to exclude from income amounts which are unlikely to be collected. Management believes that such exclusions are permissible under an accrual method of accounting, and because HCA is a "service business" and not a "merchandising business," it is entitled to a special exclusion provided to service businesses by the 1986 Act. The Service disagrees, asserting that HCA is engaged, at least in part, in a merchandising business. Notwithstanding this assertion, the Service contends that the exclusion taken by HCA is excessive under applicable Temporary Treasury Regulations. Columbia/HCA believes that the calculation of the exclusion is inaccurate since it does not permit the exclusion in accordance with the controlling statute. If the Service prevails, Columbia/HCA would owe additional income taxes of $102 million and interest of $48 million through December 31, 1993. LEVERAGED BUY-OUT EXPENSES The Service has asserted that no deduction is allowed for various expenses incurred in connection with HCA's leveraged buy-out transaction in 1989, including the amortization of loan costs incurred to borrow funds to acquire the stock of the former shareholders, certain fees incurred by the Special Committee of HCA's Board of Directors to evaluate the buy-out proposal, compensation payments to cancel employee stock plans, and various other costs incurred after the buy-out which have been treated as part of the transaction by the Service. Columbia/HCA believes that all of these costs are deductible. If the Service prevails on these issues, Columbia/ HCA would owe income taxes of $94 million and interest of $24 million through December 31, 1993. OTHER ISSUES Additional federal income tax issues primarily concern disputes over the depreciable lives utilized by HCA for constructed hospital facilities, investment tax credits, vacation pay deductions and income from foreign operations. Many of these items, including depreciation, investment tax credits and foreign issues, have been resolved favorably in previous settlements. The Service is claiming an additional $44 million in income taxes and $28 million in interest through December 31, 1993 with respect to these issues. F-15 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) Management believes that HCA had properly reported its income and paid its taxes in accordance with applicable laws and agreements established with the Service during previous examinations, and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of Columbia/HCA. NOTE 8 -- PROFESSIONAL LIABILITY RISKS Columbia/HCA insures a substantial portion of its professional liability risks through wholly owned insurance subsidiaries. Provisions for such risks underwritten by the subsidiaries and deductibles at certain hospitals, including expenses incident to claim settlements, were $96 million for 1993, $102 million for 1992 and $111 million for 1991. Amounts funded to the insurance subsidiaries were $62 million for 1993, $55 million for 1992 and $56 million for 1991. Allowances for professional liability risks, included principally in deferred credits and other liabilities, were $817 million and $791 million at December 31, 1993 and 1992, respectively. As discussed in Note 1, Columbia/HCA adopted the provisions of SFAS 115 on December 31, 1993. Accordingly, common stockholders' equity was increased by $27 million (net of deferred income taxes) to reflect the net unrealized gain on investments classified as available for sale. Prior to the adoption of SFAS 115, debt securities were recorded at amortized cost (which approximated fair value), while equity securities were recorded at the lower of aggregate cost or fair value. The adoption of SFAS 115 had no effect on earnings in 1993. The provisions of SFAS 115 require that investments in debt and equity securities be classified according to the following criteria: TRADING ACCOUNT -- Assets held for resale in anticipation of short-term changes in market conditions are recorded at fair value and gains and losses, both realized and unrealized, are included in income. Columbia/HCA does not maintain a trading account portfolio. HELD TO MATURITY -- Certain debt securities of Columbia/HCA's professional liability insurance subsidiaries are expected to be held to maturity as a result of management's intent and ability to do so. These investments are carried at amortized cost. AVAILABLE FOR SALE -- Debt and equity securities not classified as either trading securities or held to maturity are classified as available for sale and recorded at fair value. Unrealized gains and losses are excluded from income and recorded as a separate component of common stockholders' equity. F-16 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED) The following is a summary of the insurance subsidiaries' investments at December 31, 1993 and 1992 (dollars in millions):
---------------------------- DECEMBER 31, 1993 UNREALIZED AMOUNTS -------------- FAIR COST GAINS LOSSES VALUE ---------------------------- Held to maturity: United States Government obligations............ $ 44 $ - $ - $ 44 ---- ----- ------- ----- Available for sale: Bonds: United States Government...................... 19 1 - 20 States and municipalities..................... 372 16 - 388 Mortgage-backed securities.................... 54 1 - 55 Corporate and other........................... 51 2 (1) 52 Money market funds.............................. 31 - - 31 Redeemable preferred stocks..................... 17 1 - 18 ---- ----- ------- ----- 544 21 (1) 564 ---- ----- ------- ----- Equity securities: Adjustable rate preferred stocks.............. 13 1 - 14 Common stocks................................. 133 27 (4) 156 ---- ----- ------- ----- 146 28 (4) 170 ---- ----- ------- ----- $734 $ 49 $ (5) 778 ---- ----- ------- ---- ----- ------- Amounts classified as current assets.............. (78) ----- Investment carrying value......................... $ 700 ----- -----
F-17 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED)
---------------------------- DECEMBER 31, 1992 UNREALIZED AMOUNTS -------------- FAIR COST GAINS LOSSES VALUE ---------------------------- Held to maturity: United States Government obligations............ $ 19 $ - $ - $ 19 Certificates of deposit......................... 20 - - 20 ---- ----- ------- ----- 39 - - 39 ---- ----- ------- ----- Available for sale: Bonds: United States Government...................... 22 1 - 23 States and municipalities..................... 312 9 - 321 Mortgage-backed securities.................... 55 - - 55 Corporate and other........................... 39 2 - 41 Money market funds.............................. 68 - - 68 Redeemable preferred stocks..................... 18 - - 18 ---- ----- ------- ----- 514 12 - 526 ---- ----- ------- ----- Equity securities: Adjustable rate preferred stocks.............. 20 1 - 21 Common stocks................................. 136 21 (9) 148 ---- ----- ------- ----- 156 22 (9) 169 ---- ----- ------- ----- 709 $ 34 $ (9) $ 734 ----- ------- ----- ----- ------- ----- Amounts classified as current assets.............. (65) ---- Investment carrying value......................... $644 ---- ----
The cost and estimated fair value of debt and equity securities at December 31, 1993 by contractual maturity are shown below (dollars in millions). Expected and contractual maturities will differ because the issuers of certain securities may have the right to prepay or otherwise redeem such obligations without penalty.
---------------- FAIR COST VALUE ---------------- Held to maturity: Due in one year or less.................................................. $ 44 $ 44 --------- --------- Available for sale: Due in one year or less.................................................. 34 34 Due after one year through five years.................................... 134 136 Due after five years through ten years................................... 131 137 Due after ten years...................................................... 245 257 --------- --------- 544 564 Equity securities........................................................ 146 170 --------- --------- 690 734 --------- --------- $ 734 $ 778 --------- --------- --------- ---------
F-18 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- PROFESSIONAL LIABILITY RISKS (CONTINUED) The fair value of the subsidiaries' investments is based generally on quoted market prices. The average life of the above investments (excluding common stocks) approximated five years at December 31, 1993 and four years at December 31, 1992, and the tax equivalent yield on such investments averaged 10% for the last three years. Tax equivalent yield is the rate earned on invested assets, excluding unrealized gains and losses, adjusted for the benefit of nontaxable investment income. Sales of securities for the year ended December 31, 1993 are summarized below (dollars in millions):
---------------- TYPE OF SECURITY DEBT EQUITY ---------------- Cash proceeds........................................................................ $ 185 $ 106 Gross realized gains................................................................. 4 19 Gross realized losses................................................................ - 10
NOTE 9 -- LONG-TERM DEBT A summary of long-term debt at December 31 follows (dollars in millions):
---------------- 1993 1992 ---------------- Senior collateralized debt, 5% to 13.8% (rates generally fixed) payable in periodic installments through 2034........................................................... $ 211 $ 401 Senior debt, 8% to 13.3% (rates generally fixed) payable in periodic installments through 2023........................................................................ 1,158 1,166 Fixed rate note agreement (13% rate)................................................. 100 100 Commercial paper (rates fixed under interest rate agreements averaging four years at 7.9%)............................................................................... 380 380 Commercial paper (floating rates averaging 3.4%)..................................... 495 153 Bank credit agreement (floating rates averaging 4.4%)................................ 1,172 1,067 Bank line of credit (floating rates averaging 3.6%).................................. 100 - Subordinated credit agreement (floating rates averaging 5.9%)........................ - 300 Subordinated debt, 8.5% to 15% (rates generally fixed) payable in periodic installments through 2008........................................................... 82 89 --------- --------- Total debt, average life of six years (rates averaging 6.7%)......................... 3,698 3,656 Amounts due within one year.......................................................... 363 353 --------- --------- Long-term debt....................................................................... $ 3,335 $ 3,303 --------- --------- --------- ---------
Borrowings under the commercial paper programs are classified as long-term debt due to the credit available under the revolving credit agreements discussed below and management's intention to refinance these borrowings on a long-term basis. Maturities of long-term debt in years 1995 through 1998 are $1.1 billion, $161 million, $64 million and $1.1 billion, respectively. Such amounts reflect maturities of debt issued for refinancings through March 24, 1994 and, as to short-term debt classified as long-term, are based upon maturities of the revolving credit agreements. Approximately 8% of Columbia/HCA's property and equipment is pledged on senior collateralized debt. During the past three years Columbia/HCA has reduced interest costs and eliminated certain restrictive covenants by refinancing or prepaying high interest rate debt, primarily through the use of existing cash and cash equivalents and issuance of long-term debt, commercial paper and equity. Amounts refinanced or prepaid totaled $787 million in 1993, $1 billion in 1992 and $275 million in 1991. After-tax losses from refinancing activities in 1993 aggregated $84 million or $.24 per share. F-19 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- LONG-TERM DEBT (CONTINUED) In February 1994 Columbia/HCA entered into revolving credit agreements (the "Credit Facilities") in the aggregate amount of $3 billion. The Credit Facilities comprise a four-year $1 billion revolving credit agreement and a 364-day $2 billion revolving credit agreement. The Credit Facilities were established to support Columbia/ HCA's commercial paper programs and replace $3.2 billion of prior revolving credit agreements associated with HCA ($1.6 billion) and Columbia ($1.6 billion). Interest is payable generally at either LIBOR plus 1/4% to 1/2% (depending on Columbia/HCA's credit rating), or the higher of prime, the bank certificate of deposit rate plus 1% or the Federal Funds rate plus 1/2%. In December 1993 Columbia/HCA issued $150 million of 6 1/8% Notes due 2000 and $150 million of 7 1/2% Notes due 2023. During 1992 Columbia/HCA sold $100 million face amount of 10 7/8% Senior Subordinated Notes due 2002 and $135 million face amount of 11 1/2% Senior Subordinated Notes due 2002. In September 1993 $232 million face amount of these notes were retired through the completion of a tender offer. Proceeds from the public offering of 41,055,000 shares of voting common stock in 1992 were used to repay $352 million of debt outstanding under a bank credit agreement and redeem the 15 3/4% Subordinated Discount Debentures and related interest aggregating $444 million. In connection with the acquisition of BAMI in 1992, Columbia/HCA assumed approximately $140 million of long-term debt, including approximately $64 million of senior collateralized notes payable in quarterly installments through 1998 at interest rates ranging from 10.7% to 11.7%. In September 1993 Columbia/HCA effected the defeasance of these notes. In 1991 one of Columbia/HCA's partnerships issued $95 million of 11.45% Senior Secured Notes due 2001. Proceeds from the issuance were used to repay $66 million of bank debt and finance expansion. These notes were retired in connection with the refinancing of debt in September 1993. Columbia/HCA also issued in 1991 a $40 million face amount 9% Subordinated Mandatory Convertible Note due 1999. The note is convertible at the option of the holder into Columbia/HCA voting common stock at a price of $18.50 per share (adjusted for stock splits, recapitalizations and reorganizations). The note will be automatically converted into common stock if the average per share market price for four months preceding the July 1 anniversary exceeds a specified amount ranging from $27.00 in 1994 to $34.00 in 1996. In 1991 Columbia/HCA exchanged its Cumulative Exchangeable Preferred Stock for 17 1/2% Junior Subordinated Exchangeable Debentures due 2005. These debentures were redeemed in 1992 from proceeds on the 1991 sale of HealthTrust preferred stock and warrants. Columbia/HCA's credit facilities contain customary covenants which include (i) limitations on additional debt, (ii) limitations on sales of assets, mergers and changes of ownership and (iii) maintenance of certain interest coverage ratios. The estimated fair value of Columbia/HCA's long-term debt was $4.1 billion at both December 31, 1993 and 1992, compared to carrying amounts aggregating $3.7 billion at the end of each year. Certain subsidiaries of Columbia/HCA have entered into agreements which reduce the impact of changes in interest rates on $380 million of floating rate long-term debt. At December 31, 1993 and 1992, the fair value of Columbia/HCA's net payable position under these agreements (included in the aggregate fair value amounts above) totaled $34 million and $29 million, respectively. The estimate of fair value is based upon the quoted market prices for the same or similar issues of long-term debt, or on rates available to Columbia/HCA as a result of the HCA Merger for debt of the same remaining maturities. F-20 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 -- LONG-TERM DEBT (CONTINUED) As discussed in Note 4, in connection with the Spinoff, certain subsidiaries issued notes payable ($250 million) and paid cash ($135 million financed primarily through the issuance of commercial paper) to Humana in 1993. If the Spinoff had occurred on December 31, 1992, Columbia/HCA's ratio of debt to debt plus common stockholders' equity would have increased from 50% to 58%. NOTE 10 -- LEASES Columbia/HCA leases real estate and equipment under cancelable and non-cancelable arrangements. Future minimum payments under non-cancelable operating leases are as follows (dollars in millions): 1994................................................................. $ 123 1995................................................................. 102 1996................................................................. 78 1997................................................................. 63 1998................................................................. 43 Thereafter........................................................... 242
Rent expense aggregated $196 million, $190 million and $170 million for the years ended December 31, 1993, 1992 and 1991, respectively. NOTE 11 -- CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as certain third-party reimbursements and deductions that continue to be claimed in current cost reports and tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Columbia/HCA's financial position or results of operations. Principal contingencies are described below: REVENUES -- Certain third-party payments are subject to examination by agencies administering the programs. Columbia/HCA is contesting certain issues raised in audits of prior year cost reports. PROFESSIONAL LIABILITY RISKS -- Columbia/HCA has provided for loss for professional liability risks based upon actuarially determined estimates. Actual settlements and expenses incident thereto may differ from the provisions for loss. INTEREST RATE AGREEMENTS -- Certain subsidiaries of Columbia/HCA are parties to agreements which reduce the impact of changes in interest rates on its floating rate long-term debt. In the event of nonperformance by other parties to these agreements, Columbia/HCA may incur a loss on the difference between market rates and contract rates. INCOME TAXES -- Columbia/HCA is contesting adjustments proposed by the IRS. SPINOFF -- Certain subsidiaries of Columbia/HCA are parties to risk-sharing arrangements with Humana. REGULATORY REVIEW -- Federal regulators are investigating certain financial arrangements with physicians at two psychiatric hospitals. LITIGATION -- Various suits and claims arising in the ordinary course of business are pending against Columbia/HCA. F-21 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- CAPITAL STOCK The terms and conditions associated with each class of Columbia/HCA common stock are substantially identical except for voting rights. All nonvoting common stockholders may convert their shares on a one-for-one basis into voting common stock, subject to certain limitations. In addition, certain voting common stockholders may convert their shares on a one-for-one basis into nonvoting common stock. The following shares of common stock were reserved at December 31, 1993 (amounts in thousands): Stock option plans.................................................. 20,118 Retirement and savings plans........................................ 8,887 Other............................................................... 2,853 --------- 31,858 --------- ---------
Columbia/HCA has plans under which options to purchase common stock may be granted to officers, employees and directors. Except for those discussed in Note 5, options have been granted at not less than market price on the date of grant. Exercise provisions vary, but most options are exercisable in whole or in part beginning one to four years after grant and ending four to fifteen years after grant. Activity in the plans is summarized below (share amounts in thousands):
---------------------------- SHARES UNDER OPTION PRICE OPTION PER SHARE ---------------------------- Balances, December 31, 1990................................... 37,163 $ 0.22 to $37.00 Granted..................................................... 4,078 0.60 to 25.24 Exercised................................................... (1,021) 7.21 to 23.37 Cancelled or lapsed......................................... (1,142) 0.60 to 37.00 --------- Balances, December 31, 1991................................... 39,078 0.22 to 25.71 Granted..................................................... 3,950 0.60 to 22.62 Conversion of BAMI stock options............................ 466 3.18 to 11.59 Exercised................................................... (22,998) 0.22 to 17.25 Cancelled or lapsed......................................... (7,399) 0.22 to 23.37 --------- Balances, December 31, 1992................................... 13,097 0.22 to 25.71 Granted..................................................... 1,660 0.60 to 33.38 Exercised................................................... (4,018) 0.22 to 23.37 Cancelled or lapsed......................................... (709) 0.22 to 25.71 --------- Balances, December 31, 1993................................... 10,030 $ 0.22 to $33.38 --------- ---------
At December 31, 1993, options for 4,026,700 shares were exercisable. Shares of common stock available for future grants were 10,088,000 at December 31, 1993 and 11,442,900 at December 31, 1992. In connection with the Galen Merger, certain preferred stock purchase rights were redeemed which were previously issued to Galen common stockholders. The cost of this transaction was not significant. In addition, a stockholder rights plan was adopted upon consummation of the Galen Merger (similar to that of Galen) under which common stockholders have the right to purchase Series A Preferred Stock in the event of accumulation of or tender offer for certain percentages of Columbia/HCA's common stock. The rights will expire in 2003 unless redeemed earlier by Columbia/HCA. In September 1993 the Board of Directors initiated a regular quarterly cash dividend on common stock of $.03 per share. F-22 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 -- CAPITAL STOCK (CONTINUED) In March 1992 Columbia/HCA issued 41,055,000 shares of voting common stock, the net proceeds from which ($796 million) were used to reduce long-term debt. Assuming that these shares were issued and the proceeds therefrom were used to reduce long-term debt at the beginning of the year, earnings per common and common equivalent share would have been $.53 in 1992. In connection with the HCA Merger, Columbia/HCA stockholders voted to increase the aggregate number of authorized voting shares of common stock from 400 million to 800 million, and the number of authorized nonvoting common shares was established at 25 million. In addition, authorized shares of preferred stock (none of which are outstanding) were increased from 10 million to 25 million. NOTE 13 -- EMPLOYEE BENEFIT PLANS Columbia/HCA maintains noncontributory defined contribution retirement plans covering substantially all employees. Benefits are determined as a percentage of a participant's earned income and are vested over specified periods of employee service. Retirement plan expense was $97 million for 1993, $102 million for 1992 and $86 million for 1991. Amounts equal to retirement plan expense are funded annually. Columbia/HCA maintains various contributory savings plans which are available to employees who meet certain minimum requirements. Certain of the plans require that Columbia/HCA match an amount ranging from 50% to 60% of a participant's contribution up to certain maximum levels. The cost of these plans totaled $20 million for 1993, $19 million for 1992 and $15 million for 1991. Columbia/HCA contributions are funded periodically during the year. NOTE 14 -- ACCRUED EXPENSES The following is a summary of other accrued expenses at December 31 (dollars in millions):
---------------- 1993 1992 ---------------- Workers' compensation...................................................... $ 102 $ 90 Taxes other than income.................................................... 143 118 Professional liability risks............................................... 89 80 Employee benefit plans..................................................... 158 197 Interest................................................................... 181 167 Other...................................................................... 180 251 --------- --------- $ 853 $ 903 --------- --------- --------- ---------
NOTE 15 -- SUBSEQUENT EVENTS INCOME TAXES On March 24, 1994, Columbia/HCA made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior year income taxes and related interest. This transaction will not have a material effect on 1994 earnings. LONG-TERM DEBT Since completion of the HCA Merger, certain HCA and other long-term debt has been refinanced in an effort to reduce future interest expense. These transactions were financed primarily through the issuance of commercial paper, $175 million of 6 1/2% Notes due 1999 and $150 million of 7.15% Notes due 2004. Management anticipates that losses resulting from these refinancing activities will reduce Columbia/HCA's first quarter 1994 net income by approximately $80 million. F-23 COLUMBIA/HCA HEALTHCARE CORPORATION QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------- 1993 FIRST SECOND THIRD FOURTH ----------------------------------------------------- Revenues............................................... $ 2,654 $ 2,536 $ 2,491 $ 2,571 Net income (loss): Continuing operations (a)............................ 205 166 28 176 Discontinued operations.............................. 16 - - - Extraordinary loss on extinguishment of debt................................................ - - (84) - Net income (loss).................................. 221 166 (56) 176 Per common share: Earnings (loss): Continuing operations (a).......................... .61 .49 .08 .52 Discontinued operations............................ .04 - - - Extraordinary loss on extinguishment of debt.............................................. - - (.24) - Net income (loss)................................ .65 .49 (.16) .52 Market prices (b): High............................................... 24 1/2 27 3/4 31 33 7/8 Low................................................ 16 1/4 19 1/4 25 3/8 27 ----------------------------------------------------- 1992 FIRST SECOND THIRD FOURTH ----------------------------------------------------- Revenues............................................... $ 2,559 $ 2,450 $ 2,451 $ 2,472 Net income (loss): Continuing operations (c)(d)......................... 174 158 (300) 207 Discontinued operations (c).......................... 3 (2) (132) 6 Change in accounting for income taxes................ 51 - - - Net income (loss).................................. 228 156 (432) 213 Per common share: Earnings (loss): Continuing operations (c)(d)....................... .57 .48 (.89) .61 Discontinued operations (c)........................ .02 (.02) (.39) .02 Change in accounting for income taxes.............. .16 - - - Net income (loss)................................ .75 .46 (1.28) .63 Market prices (b): High............................................... 21 1/4 22 19 1/4 21 3/4 Low................................................ 16 1/2 16 1/4 16 1/4 13 3/4 - ------------ (a) Third quarter loss includes $98 million ($.29 per share) of costs related to the Galen Merger. See Note 5 of the Notes to Consolidated Financial Statements. (b) Represents high and low sales prices of CHC common stock for periods prior to the Galen Merger and Columbia common stock prior to the HCA Merger. Columbia/HCA common stock is traded on the New York Stock Exchange (ticker symbol -- COL). (c) Third quarter net loss includes charges of $221 million ($.65 per share) related primarily to the Spinoff, of which $86 million ($.25 per share) is included in continuing operations and $135 million ($.40 per share) is included in discontinued operations. The loss also includes $330 million ($.98 per share) associated with divestitures of certain assets. See Note 5 of the Notes to Consolidated Financial Statements. (d) Fourth quarter net income includes a gain of $58 million ($.17 per share) on the sale of HealthTrust common stock. See Note 5 of the Notes to Consolidated Financial Statements.
F-24 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993 UNAUDITED (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
--------------------- 1994 1993 --------------------- Revenues.................................................................................. $ 2,778 $ 2,654 ---------- ---------- Salaries, wages and benefits.............................................................. 1,113 1,072 Supplies.................................................................................. 434 433 Other operating expenses.................................................................. 492 478 Provision for doubtful accounts........................................................... 150 126 Depreciation and amortization............................................................. 144 136 Interest expense.......................................................................... 64 85 Investment income......................................................................... (14) (12) Non-recurring transactions................................................................ 159 - ---------- ---------- 2,542 2,318 ---------- ---------- Income from continuing operations before minority interests and income taxes.............. 236 336 Minority interests in earnings of consolidated entities................................... 3 4 ---------- ---------- Income from continuing operations before income taxes..................................... 233 332 Provision for income taxes................................................................ 96 127 ---------- ---------- Income from continuing operations......................................................... 137 205 Income from operations of discontinued health plan segment, net of income taxes........... - 16 Extraordinary loss on extinguishment of debt, net of income tax benefit................... (92) - ---------- ---------- Net income............................................................................ $ 45 $ 221 ---------- ---------- ---------- ---------- Earnings per common and common equivalent share: Income from continuing operations....................................................... $ .40 $ .61 Income from operations of discontinued health plan segment.............................. - .04 Extraordinary loss on extinguishment of debt............................................ (.27) - ---------- ---------- Net income............................................................................ $ .13 $ .65 ---------- ---------- ---------- ---------- Cash dividends declared and paid per common share......................................... $ .03 $ - Shares used in earnings per common and common equivalent share computation (000)....................................................... 341,621 337,739
See accompanying notes. F-25 COLUMBIA/HCA HEALTHCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET UNAUDITED (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
------------------------- DECEMBER 31, ASSETS MARCH 31, 1993 1994 ------------------------- Current assets: Cash and cash equivalents........................................................... $ 109 $ 224 Accounts receivable less allowance for loss of $544 -- March 31, 1994 and $513 -- December 31, 1993.................................................................. 1,625 1,566 Inventories......................................................................... 258 245 Other............................................................................... 516 453 ----------- ------------- 2,508 2,488 Property and equipment, at cost....................................................... 8,589 8,392 Accumulated depreciation.............................................................. (2,947) (2,792) ----------- ------------- 5,642 5,600 Investments of professional liability insurance subsidiaries.......................... 688 700 Intangible assets..................................................................... 1,277 1,232 Other................................................................................. 237 196 ----------- ------------- $ 10,352 $ 10,216 ----------- ------------- ----------- ------------- LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................................... $ 414 $ 445 Salaries, wages and other compensation.............................................. 260 232 Other accrued expenses.............................................................. 924 853 Income taxes........................................................................ 71 22 Long-term debt due within one year.................................................. 81 363 ----------- ------------- 1,750 1,915 Long-term debt........................................................................ 3,533 3,335 Deferred credits and other liabilities................................................ 1,421 1,438 Minority interests in equity of consolidated entities................................. 134 57 Contingencies Common stockholders' equity: Common Stock, $.01 par, authorized 800,000,000 voting shares and 25,000,000 nonvoting shares; issued and outstanding 318,806,900 voting shares and 18,990,000 nonvoting shares -- March 31, 1994 and 317,686,800 voting shares and 18,990,000 nonvoting shares -- December 31, 1993.............................................. 3 3 Other............................................................................... 3,511 3,468 ----------- ------------- 3,514 3,471 ----------- ------------- $ 10,352 $ 10,216 ----------- ------------- ----------- -------------
See accompanying notes. F-26 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993 UNAUDITED (DOLLARS IN MILLIONS)
---------------- 1994 1993 ---------------- Cash flows from continuing operations: Net income................................................................................... $ 45 $ 221 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations........................................................ - (16) Non-recurring transactions................................................................. 159 - Depreciation and amortization.............................................................. 144 136 Deferred income taxes...................................................................... (64) (6) Change in operating assets and liabilities: Increase in accounts receivable.......................................................... (35) (112) (Increase) decrease in inventories and other assets...................................... (53) 31 Increase in income taxes................................................................. 64 110 Decrease in other liabilities............................................................ (55) (8) Extraordinary loss on extinguishment of debt............................................... 149 - Other...................................................................................... 13 20 --------- --------- Net cash provided by continuing operations............................................... 367 376 --------- --------- Cash flows from investing activities: Purchase of property and equipment........................................................... (214) (181) Acquisition of hospitals and health care facilities.......................................... (114) (75) Disposition of property and equipment........................................................ 62 54 Change in investments........................................................................ (12) - Other........................................................................................ (64) (3) --------- --------- Net cash used in investing activities.................................................... (342) (205) --------- --------- Cash flows from financing activities: Issuance of long-term debt................................................................... 325 - Net change in commercial paper borrowings and lines of credit................................ 1,461 103 Repayment of long-term debt.................................................................. (1,954) (126) Payment of cash dividends.................................................................... (5) (36) Issuance of common stock..................................................................... 11 2 Payment to Humana Inc. in spinoff transaction................................................ - (135) Other........................................................................................ 22 (2) --------- --------- Net cash used in financing activities.................................................... (140) (194) --------- --------- Change in cash and cash equivalents............................................................ (115) (23) Cash and cash equivalents at beginning of period............................................... 224 217 --------- --------- Cash and cash equivalents at end of period..................................................... $ 109 $ 194 --------- --------- --------- --------- Interest payments.............................................................................. $ 106 $ 77 Income tax payments, net of refunds............................................................ 38 23
See accompanying notes. F-27 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1 -- REPORTING ENTITY Columbia/HCA Healthcare Corporation ("Columbia/HCA") is a Delaware corporation which began operations on February 10, 1994 as a result of a merger involving Columbia Healthcare Corporation ("Columbia") and HCA -- Hospital Corporation of America ("HCA") (the "HCA Merger"). See Note 4 for a description of the specific terms of the HCA Merger. Prior to the HCA Merger, Columbia began operations on September 1, 1993 as a result of a merger involving Columbia Hospital Corporation ("CHC") and Galen Health Care, Inc. ("Galen") (the "Galen Merger"). See Note 5 for a description of the specific terms of the Galen Merger. Columbia/HCA primarily operates hospitals and ancillary health care facilities through either (i) wholly owned subsidiaries or (ii) ownership of controlling interests in various partnerships in which subsidiaries of Columbia/ HCA serve as the managing general partner. NOTE 2 -- BASIS OF PRESENTATION The accompanying condensed consolidated financial statements do not include all of the disclosures normally required by generally accepted accounting principles or those normally required in annual reports filed on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of Columbia/HCA for the year ended December 31, 1993 contained in this Prospectus. The financial information has been prepared in accordance with Columbia/HCA's customary accounting practices and has not been audited. Management believes that the financial information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. For accounting purposes, the HCA and Galen Mergers have been treated as poolings of interests. Accordingly, these financial statements give retroactive effect to the mergers and include the combined operations of the respective former entities for all periods presented. In addition, the historical financial information related to Galen (which prior to the Galen Merger was reported on a fiscal year ending August 31) has been recast to conform to Columbia/HCA's annual reporting period ending December 31. NOTE 3 -- EARNINGS PER SHARE Earnings per common and common equivalent share are based upon weighted average common shares outstanding adjusted for the dilutive effect of common stock equivalents consisting primarily of stock options. Fully diluted earnings per common and common equivalent share is not presented because it approximates earnings per common and common equivalent share. NOTE 4 -- HCA MERGER On October 2, 1993, Columbia entered into a definitive agreement to merge with HCA. This transaction was completed on February 10, 1994. In connection with the HCA Merger, Columbia stockholders approved an amendment to Columbia's Certificate of Incorporation changing the name of the corporation to "Columbia/HCA Healthcare Corporation". HCA was then merged into a wholly owned subsidiary of Columbia/HCA. Shares of HCA Class A voting common stock and Class B nonvoting common stock were converted on a tax-free basis into approximately 166,846,000 shares of Columbia/HCA voting common stock and approximately 18,990,000 shares of Columbia/HCA nonvoting common stock, respectively (an exchange ratio of 1.05 shares of Columbia/HCA common stock for each share of HCA voting and nonvoting common stock). F-28 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED NOTE 4 -- HCA MERGER (CONTINUED) The HCA Merger has been accounted for as a pooling of interests, and accordingly, the condensed consolidated financial statements give retroactive effect to the HCA Merger and include combined operations of Columbia and HCA for all periods presented. The following is a summary of the results of operations of the separate entities for periods prior to the HCA Merger (dollars in millions):
-------------------------------- COLUMBIA HCA CONSOLIDATED -------------------------------- One month ended January 31, 1994: Revenues................................................. $ 480 $ 460 $ 940 Net income............................................... 33 44 77 Three months ended March 31, 1993: Revenues................................................. $ 1,329 $ 1,325 $ 2,654 Net income: Continuing operations.................................. $ 90 $ 115 $ 205 Discontinued operations................................ 16 - 16 ----------- --------- ------ $ 106 $ 115 $ 221 ----------- --------- ------ ----------- --------- ------
NOTE 5 -- GALEN MERGER On August 31, 1993, the stockholders of both CHC and Galen approved the Galen Merger, effective as of September 1, 1993. In connection with the Galen Merger, CHC, a Nevada corporation, was merged into Columbia. Each CHC share of common stock was converted on a tax-free basis into one share of Columbia common stock. Immediately subsequent thereto, a wholly owned subsidiary of Columbia was merged into Galen, at which time Galen became a wholly owned subsidiary of Columbia. In connection with this transaction, Columbia issued approximately 123,830,000 shares of common stock in a tax-free exchange for all of the outstanding common shares of Galen (an exchange ratio of 0.775 of a share of Columbia common stock for each share of Galen common stock). The Galen Merger has been accounted for as a pooling of interests and accordingly, the condensed consolidated financial statements give retroactive effect to the Galen Merger and include combined operations of CHC and Galen for all periods presented. The following is a summary of the results of operations of the separate entities for the first quarter of 1993 (dollars in millions):
----------------------------- CHC GALEN CONSOLIDATED ----------------------------- Revenues...................................................... $ 312 $ 1,017 $ 1,329 Net income: Continuing operations....................................... $ 10 $ 80 $ 90 Discontinued operations..................................... - 16 16 --------- --------- ------ $ 10 $ 96 $ 106 --------- --------- ------ --------- --------- ------
NOTE 6 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS Prior to the Galen Merger, Galen began operating its hospital business as an independent publicly held corporation on March 1, 1993 as a result of a spinoff transaction by Humana Inc. ("Humana") (the "Spinoff"), which retained its managed care health plan business. The Spinoff separated Humana's previously integrated hospital and managed care health plan businesses and was effected through the distribution of Galen common stock to then current Humana stockholders on a one-for-one basis. F-29 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED NOTE 6 -- SPINOFF TRANSACTION AND DISCONTINUED OPERATIONS (CONTINUED) For accounting purposes, because of the relative significance of the hospital business, the consolidated financial statements of Galen (and now those of Columbia/HCA) include the separate results of Humana's hospital business, while the operations and net assets of Humana's managed care health plans have been classified as discontinued operations. Revenues of the discontinued managed care health plan business (included in discontinued operations in the condensed consolidated statement of income) were $523 million for the three months ended March 31, 1993. NOTE 7 -- NON-RECURRING TRANSACTIONS AND EXTINGUISHMENT OF DEBT In the first quarter of 1994 Columbia/HCA recorded the following charges in connection with the HCA Merger (dollars in millions): Employee benefit and certain severance actions....................... $ 40 Investment advisory and professional fees............................ 12 Costs of information systems consolidations primarily related to the writedown of assets................................................. 42 Writedown of assets in connection with consolidation of duplicative facilities.......................................................... 53 Other................................................................ 12 --------- $ 159 --------- ---------
In addition to employee severance costs above, Columbia/HCA is a party to employment agreements with certain key employees as a result of the Galen and HCA Mergers. Future severance payments under these agreements, which may occur as a result of continued consolidation activities, will be charged to earnings as incurred. In the first quarter of 1994, Columbia/HCA refinanced approximately $2 billion of HCA's high coupon fixed and floating rate long-term debt. These transactions were effected to reduce future interest expense and eliminate certain restrictive covenants. After-tax losses from these extinguishments of debt aggregated $92 million or $.27 per share. NOTE 8 -- ACQUISITIONS The following is a summary of acquisitions and joint ventures consummated during the respective three month periods (dollars in millions):
----------------- 1994 1993 ----------------- Number of hospitals....................................................... 4 2 Number of licensed beds................................................... 1,264 843 Purchase price information: Fair value of assets acquired........................................... $ 192 $ 145 Liabilities assumed..................................................... (31) (32) --------- --------- Net assets acquired................................................. 161 113 Contributions from minority partners.................................... (47) (27) Cash acquired........................................................... - (11) --------- --------- Net cash paid for acquisitions.................................... $ 114 $ 75 --------- --------- --------- ---------
NOTE 9 -- INCOME TAXES The Internal Revenue Service (the "IRS") has issued statutory notices of deficiency in connection with its examinations of HCA's federal income tax returns for 1981 through 1988. Columbia/HCA is currently contesting F-30 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED NOTE 9 -- INCOME TAXES (CONTINUED) these claimed deficiencies in the United States Tax Court. In addition, the IRS has proposed certain adjustments in connection with its examinations of HCA's 1989 and 1990 federal income tax returns. The following is a discussion of the disputed items with respect to these years. METHOD OF ACCOUNTING For years 1981 through 1986, most of HCA's hospital subsidiaries (the "Subsidiaries") reported taxable income primarily using the cash method of accounting. This method was prevalent within the hospital industry and the Subsidiaries applied the method in accordance with prior agreements with the IRS. The IRS now asserts that the accrual method of accounting should have been used by the Subsidiaries. The Tax Reform Act of 1986 (the "1986 Act") requires the use of the accrual method of accounting beginning in 1987. Consequently, the Subsidiaries changed to the accrual method of accounting beginning January 1, 1987. In accordance with the provisions of the 1986 Act, income that had been deferred at the end of 1986 is being recognized as taxable income by the Subsidiaries in equal annual installments over ten years. If the IRS should ultimately prevail in its claim that the Subsidiaries should have used the accrual method for 1981 through 1986, the claim would be reduced to the extent that HCA has recognized as taxable income a portion of such deferred income taxes since 1986. In addition, the sale by HCA of numerous Subsidiaries in 1987 that had been using the cash method resulted in the recognition of a substantial gain that would not have been recognized had the Subsidiaries been using the accrual method. If the IRS were successful with respect to this issue, Columbia/HCA would owe an additional $110 million in income taxes and $444 million in interest as of March 31, 1994. HOSPITAL ACQUISITIONS In connection with hospitals acquired by HCA in 1981 and 1985, the IRS has asserted that a portion of the costs allocated to identifiable assets with ascertainable useful lives should be reclassified as nondeductible goodwill. If the IRS ultimately prevails in this regard, Columbia/HCA would owe an additional $113 million in income taxes and $145 million in interest as of March 31, 1994. INSURANCE SUBSIDIARY Based on a Sixth Circuit Court of Appeals decision (the Court having jurisdiction over the HCA issues), HCA has claimed that insurance premiums paid to its wholly owned insurance subsidiary ("Parthenon") are deductible, while the IRS asserts that such premiums are not deductible and that corresponding losses are only deductible at the time and to the extent that claims are actually paid. HCA has claimed the additional deductions in its Tax Court petitions. Through March 31, 1994, Columbia/HCA is seeking a refund totaling $51 million in income taxes and $95 million in interest in connection with this issue. As an alternative to its position, HCA has asserted that in connection with the sale of hospitals to HealthTrust, Inc. - The Hospital Company ("HealthTrust") in 1987, premiums paid to Parthenon by the sold hospitals, if not deductible as discussed above, became deductible at the time of the sale. Accordingly, HCA claimed such deduction in its 1987 federal income tax return. The IRS has disallowed the deduction and is claiming an additional $5 million in income taxes and $16 million in interest. A final determination that the premiums are not deductible either when paid to Parthenon or upon the sale of certain hospitals to HealthTrust would increase the taxable basis in the hospitals sold, thereby reducing HCA's gain realized on the sale. HEALTHTRUST SALE In connection with its sale of certain Subsidiaries to HealthTrust in 1987 in exchange for cash, HealthTrust preferred stock and stock purchase warrants, HCA calculated its gain based on the valuation of such stock and warrants by an independent appraiser. The IRS claims a higher aggregate valuation, based on the face amount of the preferred stock and a separate appraisal HealthTrust obtained for the stock purchase warrants. Application of the higher valuation would increase the gain recognized by HCA on the sale. However, if the IRS succeeds in its assertion, HCA's tax basis in its HealthTrust preferred stock and warrants will be increased accordingly, thereby F-31 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED NOTE 9 -- INCOME TAXES (CONTINUED) substantially reducing the tax from the sale of such preferred stock and warrants by a corresponding amount. By December 31, 1992, HCA had sold its entire interest in the HealthTrust preferred stock and warrants. Including the effect of the sales of these securities, the IRS is claiming additional interest of $66 million through March 31, 1994. Also in connection with the 1987 sale of certain Subsidiaries to HealthTrust, the IRS claims that HCA's basis in the stock of the Subsidiaries sold to HealthTrust should be calculated by adjusting such basis to reflect accelerated rather than straight-line depreciation, which would reduce HCA's basis in the stock sold and increase the taxable gain on the sale. The IRS position is contrary to a Tax Court decision in a similar case. The IRS is claiming additional income taxes of $79 million and interest of $69 million through March 31, 1994. In connection with the 1987 HealthTrust transactions, the IRS further asserts that, to the extent the Subsidiaries were properly on the cash method through 1986, and therefore properly recognizing taxable income over the ten-year transition period, HCA should have additional income in 1987 equal to the unamortized portion of the deferred income. It is HCA's position that no additional income need be included in 1987 and that the deferred income continues to qualify for the ten-year transition period after the sale. Should the IRS prevail, Columbia/ HCA would owe $11 million of additional income taxes and $17 million of interest through March 31, 1994. The position of the IRS is an alternative to its denial of the use of the cash method of accounting previously discussed. DOUBTFUL ACCOUNTS The IRS is asserting that in 1986 HCA was not entitled to include charity care writeoffs in the formula used to calculate its deduction for doubtful accounts. For years 1987 and 1988, the IRS is asserting that HCA was not entitled to exclude from income amounts which are unlikely to be collected. Management believes that such exclusions are permissible under the accrual method of accounting, and because HCA is a "service business" and not a "merchandising business," it is entitled to a special exclusion provided to service businesses by the 1986 Act. The IRS disagrees, asserting that HCA is engaged, at least in part, in a merchandising business. Notwithstanding this assertion, the IRS contends that the exclusion taken by HCA is excessive under applicable Temporary Treasury Regulations. Columbia/HCA believes that the calculation of the exclusion is inaccurate since it does not permit the exclusion in accordance with the controlling statute. If the IRS prevails, Columbia/HCA would owe additional income taxes of $102 million and interest of $51 million through March 31, 1994. LEVERAGED BUY-OUT EXPENSES The IRS has asserted that no deduction is allowed for various expenses incurred in connection with HCA's leveraged buy-out transaction in 1989, including the amortization of loan costs incurred to borrow funds to acquire the stock of the former shareholders, certain fees incurred by the Special Committee of HCA's Board of Directors to evaluate the buy-out proposal, compensation payments to cancel employee stock plans, and various other costs incurred after the buy-out which have been treated as part of the transaction by the IRS. Columbia/ HCA believes that all of these costs are deductible. If the IRS prevails on these issues, Columbia/HCA would owe income taxes of $94 million and interest of $26 million through March 31, 1994. OTHER ISSUES Additional federal income tax issues primarily concern disputes over the depreciable lives utilized by HCA for constructed hospital facilities, investment tax credits, vacation pay deductions and income from foreign operations. Many of these items, including depreciation, investment tax credits and foreign issues, have been resolved favorably in previous settlements. The IRS is claiming an additional $44 million in income taxes and $29 million in interest through March 31, 1994. F-32 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) UNAUDITED NOTE 9 -- INCOME TAXES (CONTINUED) On March 24, 1994, Columbia/HCA made an advance payment to the IRS of approximately $75 million in connection with certain disputed prior years income taxes and related interest. This payment will not have a material effect on 1994 earnings. Management believes that HCA had properly reported its income and paid its taxes in accordance with applicable laws and agreements established with the IRS during previous examinations, and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of Columbia/HCA. NOTE 10 -- CONTINGENCIES Management continually evaluates contingencies based upon the best available evidence. In addition, allowances for loss are provided currently for disputed items that have continuing significance, such as certain third-party reimbursements and deductions that continue to be claimed in current cost reports and tax returns. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. Management believes that resolution of contingencies will not materially affect Columbia/HCA's financial position or results of operations. Principal contingencies are described below: REVENUES Certain third-party payments are subject to examination by agencies administering the programs. Columbia/ HCA is contesting certain issues raised in audits of prior year cost reports. PROFESSIONAL LIABILITY RISKS Columbia/HCA has provided for loss for professional liability risks based upon actuarially determined estimates. Actual settlements and expenses incident thereto may differ from the provisions for loss. INCOME TAXES Columbia/HCA is contesting adjustments proposed by the IRS. SPINOFF Certain subsidiaries of Columbia/HCA are parties to risk-sharing arrangements with Humana. REGULATORY REVIEW Federal regulators are investigating certain financial arrangements with physicians at two psychiatric hospitals. LITIGATION Various suits and claims arising in the ordinary course of business are pending against Columbia/HCA. F-33 COLUMBIA/HCA A New Commitment To Healthcare . . . Together - -------------------------------------------------------------------------------- HEALTHCARE CORPORATION INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. (ALTERNATE COVER PAGE FOR INTERNATIONAL OFFERING) PROSPECTUS SUBJECT TO COMPLETION DATED MAY 16, 1994 6,000,000 SHARES Columbia/HCA Healthcare Corporation COMMON STOCK ($.01 PAR VALUE) All of the shares of Common Stock offered hereby are being sold by the Selling Stockholders of Columbia/HCA Healthcare Corporation (the "Company"). See "Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares. Of the 6,000,000 shares of Common Stock offered hereby, 1,200,000 shares initially are being offered outside of the United States and Canada by the International Underwriters (the "International Underwriters") and 4,800,000 shares initially are being offered in the United States and Canada by the U.S. Underwriters (the "U.S. Underwriters," together with the International Underwriters, the "Underwriters"). The Company's Common Stock is listed on the New York Stock Exchange under the symbol "COL." On May 13, 1994, the last reported sale price for the Common Stock, as reported on the New York Stock Exchange Composite Tape, was $38.00 per share. See "Price Range of Common Stock and Dividend Policy." SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) STOCKHOLDERS(2) - --------------------------------------------------------------------------------------------------------- Per Share $ $ $ - --------------------------------------------------------------------------------------------------------- Total(3) $ $ $ - --------------------------------------------------------------------------------------------------------- (1) The Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) The Company will pay the expenses of the offering estimated at $ . (3) Certain Selling Stockholders have granted to the U.S. Underwriters an option, exercisable within 30 days of the date of this Prospectus, to purchase up to an additional 900,000 shares of Common Stock, solely to cover overallotments, if any. If such overallotment option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Selling Stockholders will be $ , $ and $ , respectively. See "Underwriting."
The shares offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to the approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the shares will be made against payment therefor on or about , 1994 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260. J.P. MORGAN SECURITIES LTD. DEAN WITTER INTERNATIONAL LTD. MORGAN STANLEY & CO. INTERNATIONAL , 1994 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC filing fee............................................................ $ 90,860 Accounting fees and expenses.............................................. 20,000 Printing and engraving.................................................... 75,000 Blue Sky fees and expenses (including legal fees)......................... 15,000 Selling Stockholders' legal fees.......................................... 40,000 Miscellaneous............................................................. 9,140 --------- Total................................................................. $ 250,000 --------- --------- - ------------ All amounts shown are estimated except the SEC filing fee
The Company will bear all of the above expenses. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant's Certificate of Incorporation provides that each person who was or is made a party to, or is involved in, any action, suit or proceeding by reason of the fact that he or she was a director or officer of the Registrant (or was serving at the request of the Registrant as director, officer, employee or agent for another entity) will be indemnified and held harmless by the Registrant, to the full extent authorized by the Delaware General Corporation Law. Under Section 145 of the Delaware General Corporation Law, a corporation may indemnify a director, officer, employee or agent of the corporation against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In the case of an action brought by or in the right of a corporation, the corporation may indemnify a director, officer, employee or agent of the corporation against expenses (including attorneys' fees) actually and reasonably incurred by him or her if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless a court finds that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. The Registrant's Certificate of Incorporation provides that to the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of the Registrant shall not be liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director. The Delaware General Corporation Law permits Delaware corporations to include in their certificates of incorporation a provision eliminating or limiting director liability for monetary damages arising from breaches of their fiduciary duty. The only limitations imposed under the statute are that the provision may not eliminate or limit a director's liability (i) for breaches of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or involving intentional misconduct or known violations of law, (iii) for the payment of unlawful dividends or unlawful stock purchases or redemptions, or (iv) for transactions in which the director received an improper personal benefit. The Registrant is insured against liabilities which it may incur by reason of its indemnification of officers and directors in accordance with its Certificate of Incorporation. In addition, directors and officers are insured, at the Registrant's expense, against certain liabilities that might arise out of their employment and are not subject to indemnification under the Certificate of Incorporation. II-1 The Form of Underwriting Agreement, filed as Exhibit 1 to this Registration Statement, obligates the underwriters and selling stockholders to indemnify the Registrant, its officers and directors, and persons who control the Registrant, under certain circumstances. The foregoing summaries are necessarily subject to the complete text of the statutes, Certificate of Incorporation and agreements referred to above and are qualified in their entirety by reference thereto. ITEM 16. EXHIBITS 1 Form of Underwriting Agreement. 4.1 Specimen Certificate for shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.1 to the Company's Form SE to Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible Note Due June 30, 1999 (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.3 Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.4 Securities Purchase Agreement by and between the Company and The 1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.5 Warrant to purchase shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.6 Registration Rights Agreement dated as of March 16, 1989, by and among HCA-Hospital Corporation of America and the persons listed on the signature pages thereto (filed as Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation of America, Hospital Corporation of America and The HCA Profit Sharing Plan on March 22, 1989, and incorporated herein by reference). 4.7 Assignment and Assumption Agreement dated as of February 10, 1994, between HCA-Hospital Corporation of America and the Company relating to the Registration Rights Agreement, as amended (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.8 Amended and Restated Rights Agreement dated February 10, 1994 between the Company and Mid-America Bank of Louisville and Trust Company (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.11 Indenture dated as of December 15, 1993 between the Company and The First National Bank of Chicago, as Trustee (filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 5 Opinion of Stephen T. Braun, Esq. 23(a) Consent of Coopers & Lybrand. 23(b) Consent of Stephen T. Braun, Esq. appears in his opinion filed as Exhibit 5. 24 Power of Attorney of certain signatories appears on page II-4.
ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: II-2 (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, unless the information required to be included in such post-effective amendment is contained in a periodic report filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 and incorporated herein by reference; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement, unless the information required to be included in such post-effective amendment is contained in a periodic report filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 and incorporated herein by reference; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Louisville, Commonwealth of Kentucky, on the 16th day of May, 1994. COLUMBIA/HCA HEALTHCARE CORPORATION By: /s/ STEPHEN T. BRAUN ----------------------------------- Stephen T. Braun SENIOR VICE PRESIDENT AND GENERAL COUNSEL POWER OF ATTORNEY Know All Men By These Presents, that each person whose signature appears below constitutes and appoints Stephen T. Braun and David C. Colby, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all Amendments (including Post-Effective Amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform such and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ ----------------------------------------- -------------- /s/ THOMAS F. FRIST, JR., M.D. ------------------------------------------- Chairman of the Board May 16, 1994 Thomas F. Frist, Jr., M.D. /s/ RICHARD L. SCOTT President, Chief Executive Officer ------------------------------------------- (Principal Executive Officer) and May 16, 1994 Richard L. Scott Director /s/ DAVID C. COLBY Senior Vice President, Chief Financial ------------------------------------------- Officer and Treasurer (Principal May 16, 1994 David C. Colby Financial Officer) /s/ RICHARD A. LECHLEITER ------------------------------------------- Vice President & Controller (Principal May 16, 1994 Richard A. Lechleiter Accounting Officer) /s/ MAGDALENA AVERHOFF, M.D. ------------------------------------------- Director May 16, 1994 Magdalena Averhoff, M.D. /s/ J. DAVID GRISSOM ------------------------------------------- Director May 16, 1994 J. David Grissom
II-4
SIGNATURE TITLE DATE - ------------------------------------------------------ ----------------------------------------- -------------- /s/ ETHAN JACKSON ------------------------------------------- Director May 16, 1994 Ethan Jackson /s/ CHARLES J. KANE ------------------------------------------- Director May 16, 1994 Charles J. Kane /s/ JOHN W. LANDRUM ------------------------------------------- Director May 16, 1994 John W. Landrum /s/ T. MICHAEL LONG ------------------------------------------- Director May 16, 1994 T. Michael Long /s/ DARLA D. MOORE ------------------------------------------- Director May 16, 1994 Darla D. Moore /s/ RODMAN W. MOORHEAD III ------------------------------------------- Director May 16, 1994 Rodman W. Moorhead III /s/ CARL F. POLLARD ------------------------------------------- Director May 16, 1994 Carl F. Pollard ------------------------------------------- Director Carl E. Reichardt /s/ FRANK S. ROYAL, M.D. ------------------------------------------- Director May 16, 1994 Frank S. Royal, M.D. /s/ ROBERT D. WALTER ------------------------------------------- Director May 16, 1994 Robert D. Walter /s/ WILLIAM T. YOUNG ------------------------------------------- Director May 16, 1994 William T. Young
II-5 EXHIBIT INDEX
EXHIBIT NO. PAGE NO. - ------- ------------- 1 Form of Underwriting Agreement. 4.1 Specimen Certificate for shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.1 to the Company's Form SE to Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.2 Columbia Hospital Corporation 9% Subordinated Mandatory Convertible Note Due June 30, 1999 (filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.3 Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.4 Securities Purchase Agreement by and between the Company and The 1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.5 Warrant to purchase shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.6 Registration Rights Agreement dated as of March 16, 1989, by and among HCA-Hospital Corporation of America and the persons listed on the signature pages thereto (filed as Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation of America, Hospital Corporation of America and The HCA Profit Sharing Plan on March 22, 1989, and incorporated herein by reference). 4.7 Assignment and Assumption Agreement dated as of February 10, 1994, between HCA-Hospital Corporation of America and the Company relating to the Registration Rights Agreement, as amended (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.8 Amended and Restated Rights Agreement dated February 10, 1994 between the Company and Mid-America Bank of Louisville and Trust Company (filed as Exhibit 4.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.9 $1 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.10 $2 Billion Credit Agreement dated as of February 10, 1994, among the Company, the Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.11 Indenture dated as of December 15, 1993 between the Company and The First National Bank of Chicago, as Trustee (filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 5 Opinion of Stephen T. Braun, Esq. 23(a) Consent of Coopers & Lybrand. 23(b) Consent of Stephen T. Braun, Esq. appears in his opinion filed as Exhibit 5. 24 Power of Attorney of certain signatories appears on page II-4.
GRAPHIC AND IMAGE MATERIAL On the inside front cover of the Prospectus is a map of the United States, and an insert depicting England and Switzerland. The number of the Company's facilities are listed in each state or country. The number of acute care hospitals are contained within a square in each state or country, the number of psychiatric hospitals are contained within a circle in each state and the number of ancillary facilities are contained within a triangle. The Company logo is at the top of the page. EX-1 2 UNDERWRITING AGREEMENT UNDERWRITING AGREEMENT [ ] Shares Columbia/HCA Healthcare Corporation Common Stock (par value $0.01 per share) [ ], 1994 J.P. Morgan Securities Inc. Dean Witter Reynolds Inc. Morgan Stanley & Co. Incorporated As representatives of the several U.S. underwriters listed in Schedule I hereto c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260 J.P. Morgan Securities Ltd. Dean Witter International Ltd. Morgan Stanley & Co. International Limited As representatives of the several international managers listed in Schedule II hereto c/o J.P. Morgan Securities Ltd. 60 Victoria Embankment London EC4Y OJP Dear Sirs: The persons named in Schedule III hereto (the "Selling Stockholders") propose to sell to the several Underwriters (as defined below), and the Underwriters propose to purchase from such Selling Stockholders, an aggregate of [ ] shares of voting common stock, par value $0.01 per share, of Columbia/HCA Healthcare Corporation, a Delaware corporation (the "Company"), which [ ] shares are referred to herein as the "Underwritten Shares". In addition, the Selling Stockholders propose to sell to the several U.S. Underwriters (as defined below), for the sole purpose of covering over-allotments in connection with the sale of the Underwritten Shares, at the option of the U.S. Underwriters, up to an additional [ ] shares of voting common stock, par value $0.01 per share, of the Company (the "Option Shares"). The Underwritten Shares and the Option Shares are herein referred to as the "Shares". The Shares will have attached thereto rights (the "Rights") to purchase the Company's Series A Participating Preferred Stock. It is understood that, subject to the conditions hereinafter stated, [ ] Underwritten Shares (the "U.S. Underwritten Shares") will be sold to the several U.S. underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection with the offering and sale of such U.S. Underwritten Shares in the United States and Canada to United States and Canadian Persons (as such terms are defined in the Agreement Between U.S. and International Underwriting Syndicates of even date herewith between the U.S. Underwriters and the International Managers), and [ ] Underwritten Shares (the "International Shares") will be sold to the several international managers named in Schedule II hereto (the "International Managers") in connection with the offering and sale of such International Shares outside the United States and Canada to persons other than United States and Canadian Persons. J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and Dean Witter Reynolds Inc. shall act as representatives (the "U.S. Representatives") of the several U.S. Underwriters, and J.P. Morgan Securities Ltd., Morgan Stanley & Co. International Limited and Dean Witter International shall act as representatives (the "International Representatives") of the several International Managers. The U.S. Underwriters and the International Managers are hereinafter collectively referred to as the "Underwriters", and the U.S. Representatives and the International Representatives are hereinafter collectively referred to as the "Representatives". The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), a registration statement on Form S-3 (File No. 33- ) relating to the Shares. The registration statement contains two prospectuses to be used in connection with the offering and sale of the Shares: the U.S. prospectus, to be used in connection with the offering and sale of Shares in the United States and Canada to United States and Canadian Persons, and the international prospectus, to be used in connection with the offering and sale of Shares outside the United States and Canada to persons other than United States and Canadian Persons. The international prospectus is 2 identical to the U.S. prospectus except for the outside front cover page. The registration statement as amended at the time when it shall become effective, or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act, is referred to in this Agreement as the "Registration Statement", and the U.S. prospectus and the international prospectus in the respective forms first used to confirm sales of Shares are hereinafter collectively referred to as the "Prospectus". Any reference in this Agreement to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the effective date of the Registration Statement or the date of such preliminary prospectus or the Prospectus, as the case may be, and any reference to "amend", "amendment" or "supplement" with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act") that are deemed to be incorporated by reference therein. 1. AGREEMENTS TO SELL AND PURCHASE. Each Selling Stockholder, severally and not jointly, hereby agrees to sell to each Underwriter as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase at a price of $[ ] per share (the "Purchase Price"), severally and not jointly, from each Selling Stockholder the respective number of shares (subject to such adjustments to eliminate any fractional shares as the Representatives in their sole discretion may make) that bears the same proportion to the number of Underwritten Shares to be sold by such Selling Stockholder to the U.S. Underwriters or the International Managers, as the case may be, each as set forth on Schedule III hereto, as the number of U.S. Underwritten Shares set forth opposite the name of such U.S. Underwriter on Schedule I hereto or the number of International Shares set forth opposite the name of such International Manager on Schedule II hereto, as the case may be (or such number of U.S. Underwritten Shares or International Shares, as the case may be, increased as set forth in Section 10 hereof), bears to the total number of U.S. Underwritten Shares and International Shares, respectively. 3 Each of the Selling Stockholders, severally and not jointly, agrees to sell to the U.S. Underwriters the Option Shares, each such Selling Stockholder selling the number of Option Shares set forth opposite such Selling Stockholder's name in Schedule III hereto (or, if less than the total number of Option Shares is purchased by the U.S. Underwriters, a number of shares bearing the same proportion to such lesser aggregate number of Option Shares purchased as the number of Option Shares set forth opposite such Selling Stockholder's name in Schedule III hereto bears to the total number of Option Shares), and the U.S. Underwriters shall have a one-time right to purchase, severally and not jointly, up to [ ] Option Shares at the Purchase Price. Option Shares may be purchased as provided below solely for the purpose of covering over-allotments made in connection with the offering of the Underwritten Shares. If any Option Shares are to be purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase the number of Option Shares (subject to such adjustments to eliminate any fractional shares as the U.S. Representatives in their sole discretion may make) that bears the same proportion to the total number of Option Shares to be purchased as the number of U.S. Underwritten Shares set forth in Schedule I hereto opposite the name of such U.S. Underwriter bears to the total number of U.S. Underwritten Shares. The U.S. Underwriters may exercise the option to purchase the Option Shares at any time on or before the thirtieth day following the date of this Agreement, by written notice from the U.S. Representatives to the Company and the Selling Stockholders. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full Business Day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 10 hereof). Such notice shall be given at least two Business Days prior to the date and time of delivery specified therein. Each Selling Stockholder hereby agrees for a period of 90 days after the date of this Agreement not to offer, sell, contract to sell or otherwise dispose of any shares of common stock of the Company or any securities convertible into or exercisable or exchangeable for shares of common stock of the Company without the prior written consent of J.P. Morgan Securities Inc., other than the 4 Shares to be sold hereunder and except for the conversion of non-voting common stock into common stock by J.P. Morgan Capital Corporation ("J.P. Morgan Capital") for sale pursuant to this Agreement. 2. TERMS OF PUBLIC OFFERING. The Company and the Selling Stockholders understand that the Underwriters intend (i) to make a public offering of the Shares as soon after the Registration Statement and this Agreement have become effective as in the judgment of the Representatives is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. 3. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Payment for the Shares shall be made to the Selling Stockholders or to their order by certified or official bank check or checks payable in New York Clearing House or other next day funds in such location outside the State of New York as you shall designate at [ ], New York City time, in the case of the Underwritten Shares, on [ ], 1994, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time specified by the U.S. Representatives in the written notice of the U.S. Underwriters' election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares are referred to herein as the Closing Date and the time and date for such payment for the Option Shares, if other than the Closing Date, are herein referred to as the Additional Closing Date. As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date registered in such names and in such denominations as the Representatives shall request in writing not later than two full Business Days prior to the Closing Date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the transfer to the Underwriters of the Shares duly paid by the Selling Stockholders. The Selling Stockholders hereby agree to pay any such transfer taxes. The certificates for the Shares will be made available for inspection and packaging by the Representatives not later than [ ], New York City time, on the Business Day prior to the Closing Date or the Additional Closing Date, as the case may be. 5 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Underwriter and to each Selling Stockholder that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act; (b) (i) no stop order suspending the effectiveness of the Registration Statement is in effect and no proceedings for that purpose are pending before or threatened by the Commission, (ii) each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (iii) each part of the Registration Statement, when such part became effective, did not contain, and each such part, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iv) the Registration Statement and the Prospectus comply, and, as amended or supplemented, if applicable, will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing representations and warranties shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter or Selling Stockholder furnished to the Company in writing by such Underwriter through the Representatives or by such Selling Stockholder expressly for use therein; (c) the financial statements, and the related notes thereto, included or incorporated by reference in the Registration Statement and the Prospectus, present 6 fairly the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their consolidated cash flows for the periods specified; and said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, except as disclosed therein, and the supporting schedules included or incorporated by reference in the Registration Statement present fairly the information required to be stated therein; (d) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries (as hereinafter defined), taken as a whole; (e) each direct and indirect subsidiary of the Company (the "Corporate Subsidiaries") has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; and all the outstanding shares of capital stock of each Corporate Subsidiary which is a Significant Subsidiary within the meaning of the rules and regulations under the Securities Act (the "Material Corporate Subsidiaries") have been duly authorized and validly issued, are fully-paid and non-assessable, and are owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (f) each of the partnerships owned or controlled, directly or indirectly, by the Company (the 7 "Partnerships," and together with the Corporate Subsidiaries, the "Subsidiaries") has been duly formed and is validly existing under the laws of its jurisdiction of formation and has the partnership power and authority to carry on its business as it is currently being conducted and to own, lease and operate it properties, and each is duly qualified as a foreign partnership authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (g) this Agreement has been duly authorized, executed and delivered by the Company; (h) there has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus; (i) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Registration Statement and the Prospectus, and all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully-paid and non-assessable and are not subject to any preemptive or similar rights, except as described in the Registration Statement and the Prospectus; (j) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or bylaws of the Company or any agreement or other instrument binding upon the Company or any of its Subsidiaries that is material to the Company and its Subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained under the Securities Act or such as may be required by the securities or Blue Sky laws of the various states or any applicable foreign securities 8 laws or other foreign laws in connection with the offer and sale of the Shares; (k) the Rights attached to the Shares have been duly authorized and validly issued; (l) there are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its Subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as exhibits to the Registration Statement that are not described, filed or incorporated as required; (m) other than the Selling Stockholders, no holder of any securities of the Company has any rights, not effectively satisfied or waived, to require the Company to register the sale of any securities under the Securities Act in connection with the filing of the Registration Statement or the consummation of the transactions contemplated therein; (n) the Company and its Subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (o) in the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates associated 9 costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (p) the Company and each of its Subsidiaries hold all licenses, consents, certificates of need and approvals issued, and have satisfied all eligibility and other similar requirements imposed, by hospital, health or similar regulatory bodies, administrative agencies or other governmental bodies, agencies or officials, or that are related to private or governmental programs for the reimbursement or payment of health care costs, in each case as required for the conduct of the respective businesses in which they are engaged (i) as contemplated by the Prospectus and (ii) in each jurisdiction or place where the conduct of their respective businesses requires such licenses, consents, certificates of need or approvals, or satisfaction of such requirements (including each such jurisdiction and place referred to in the Prospectus), except in each case where the failure to hold any such license, consent, certificate of need or approval, or to satisfy any such requirement, would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (q) the Company is not an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended; and (r) the Company has complied with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida). 5. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each of the Selling Stockholders, severally and not jointly, represents and warrants to each of the Underwriters and the Company that: (a) this Agreement has been duly authorized, executed and delivered by such Selling Stockholder; 10 (b) the execution and delivery by such Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, this Agreement will not contravene any provision of applicable law (subject to obtaining the governmental approvals set forth below), or the certificate of incorporation or by-laws of such Selling Stockholder (if such Selling Stockholder is a corporation), or any agreement or other instrument binding upon such Selling Stockholder or any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Stockholder, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by such Selling Stockholder of its obligations under this Agreement, except such as have been obtained under the Securities Act and such as may be required by the securities or Blue Sky laws of the various states or any applicable foreign securities laws or other foreign laws in connection with the offer and sale of the Shares; (c) such Selling Stockholder has, and on the Closing Date and any Additional Closing Date will have, valid marketable title to the Shares to be sold by such Selling Stockholder, and subject to obtaining the governmental approvals set forth in paragraph (b) above, the legal right and power, and all authorization and approval required by law, to enter into this Agreement and to sell, transfer and deliver the Shares to be sold by such Selling Stockholder; PROVIDED that with respect to J.P. Morgan Capital, J.P. Morgan Capital has on the date of this Agreement valid marketable title to the shares of non-voting common stock of the Company to be converted into the Shares to be sold by it pursuant to this Agreement and on the Closing Date and any Additional Closing Date, will have valid marketable title to the Shares to be sold by it pursuant to this Agreement; (d) delivery of the Shares to be sold by such Selling Stockholder pursuant to this Agreement, against payment therefor, will pass marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances; (e) all written information relating to such Selling Stockholder furnished by or on behalf of such Selling Stockholder for use in the Registration Statement and Prospectus is, and on the Closing Date 11 and any Additional Closing Date will be, true, correct, and complete in all material respects, and does not, and on the Closing Date and any Additional Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading; and (f) certificates in negotiable form for all Shares to be sold by such Selling Stockholder under this Agreement have been irrevocably delivered to Proskauer Rose Goetz & Mendelsohn, counsel for the Selling Stockholders, for the purpose of effecting delivery under this Agreement; PROVIDED that with respect to J.P. Morgan Capital, J.P. Morgan Capital has irrevocably delivered to such counsel certificates for the shares of non-voting common stock of the Company to be converted into the Shares to be sold by J.P. Morgan Capital pursuant to this Agreement. 6. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters and the Selling Stockholders as follows: (a) to use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, if required, to file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act; (b) to furnish you, without charge, three signed copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits, and to each other Underwriter and each Selling Stockholder a conformed copy of the Registration Statement (as originally filed) and each amendment thereto, in each case without exhibits and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto and documents incorporated by reference therein) as the Representatives may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the time the Registration Statement becomes effective, to furnish to the Representatives and the Selling Stockholders a copy of the proposed amendment or supplement for review and not to file any such proposed amendment or supplement to which the 12 Representatives or the Selling Stockholders reasonably object; (d) to advise the Representatives and the Selling Stockholders promptly, and to confirm such advice in writing, (i) when the Registration Statement shall become effective, (ii) when any amendment to the Registration Statement shall have become effective, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order or notification and, if issued, to obtain as soon as possible the withdrawal thereof; (e) if, during such period after the first date of the public offering of the Shares as in the opinion of your counsel a prospectus relating to the Shares is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare, file with the Commission and furnish, without charge, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Shares may have been sold by the Representatives on behalf of the Underwriters and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) to endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably 13 request and to continue such qualification in effect so long as reasonably required for distribution of the Shares and to pay all fees and expenses (including fees and disbursements of counsel to the Underwriters) reasonably incurred in connection with such qualification; PROVIDED that the Company shall not be required to file a general consent to service of process in any jurisdiction or subject itself to general taxation in any jurisdiction; (g) to make generally available to its security holders and to the Representatives as soon as practicable an earning statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date of the Registration Statement, which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder; (h) for a period of 90 days after the date of this Agreement, without the prior written consent of J.P. Morgan Securities Inc., not to effect any registration of any shares of common stock of the Company or any securities convertible into or exercisable or exchangeable for shares of common stock of the Company, other than the Shares to be sold hereunder and shares of common stock of the Company registered in connection with acquisitions and existing employee benefit plans; and (i) to pay all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution and delivery of the Shares, (ii) incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Prospectus and any preliminary prospectus (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification of the Shares under the laws of such jurisdictions as the Representatives may reasonably request (including filing fees and the reasonable fees of counsel for the Underwriters and their disbursements), (iv) in connection with the listing of the Shares on the New York Stock Exchange, (v) of Proskauer Rose Goetz & Mendelsohn, counsel for 14 the Selling Stockholders and (vi) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Agreement Between U.S. and International Underwriting Syndicates, the Agreement Among U.S. Underwriters, the Agreement Among International Underwriters, any dealer agreements, the Preliminary and Supplemental Blue Sky Memoranda and the furnishing to the Underwriters and dealers of copies of the Registration Statement and the Prospectus, including mailing and shipping, as herein provided. 7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of the Underwriters hereunder to purchase the Underwritten Shares are subject to the following conditions: (a) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission; and all requests by the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representatives; (b) the representations and warranties of the Company contained herein are true and correct on and as of the Closing Date as if made on and as of the Closing Date and the Company shall have complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (c) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus, that in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus; 15 (d) the Representatives shall have received on and as of the Closing Date a certificate of the Company signed by the Chief Executive Officer, the Chief Operating Officer or the Chief Financial Officer of the Company to the effect set forth in subsections (a) and (b) of this Section and to the further effect that there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations, of the Company and its Subsidiaries, taken as a whole, from that set forth in the Prospectus, that is material and adverse; (e) the Representatives shall have received on the Closing Date an opinion of Stephen T. Braun, Senior Vice President and General Counsel of the Company, dated the Closing Date, to the effect that: (i) the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole; (ii) each Material Corporate Subsidiary has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; (iii) each of the Partnerships, which is a Significant Subsidiary within the meaning of the rules and regulations under the Securities Act 16 (the "Material Partnerships" and, together with the Material Corporate Subsidiaries, the "Material Subsidiaries"), has been duly formed and is validly existing under the laws of its jurisdiction of formation and has the partnership power and authority to carry on its business as it is currently being conducted and to own, lease and operate its properties, and each is duly qualified as a foreign partnership authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company and its Subsidiaries, taken as whole; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) the authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus; (vi) the shares of capital stock of the Company (including the Shares to be sold by the Selling Stockholders) have been duly authorized and are validly issued, fully paid and non- assessable; (vii) the Rights attached to the Shares have been duly authorized and validly issued; (viii) the execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or bylaws of the Company or, to the best of such counsel's knowledge, any agreement or other instrument binding upon the Company or any of its Material Subsidiaries that is material to the Company and its Subsidiaries, taken as a whole, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as have been obtained under the Securities Act or such as may 17 be required by the securities or Blue Sky laws of the various states or any applicable foreign securities laws or other foreign laws in connection with the offer and sale of the Shares; (ix) the statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1993 incorporated by reference in the Prospectus under Item 1 "Regulation and Other Factors" and "Internal Revenue Service Examinations and Tax Litigation" and under Item 3, insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents or proceedings; (x) after due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its Material Subsidiaries is a party or to which any of the properties of the Company or any of its Material Subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or incorporated by reference or of any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed or incorporated by reference as exhibits to the Registration Statement that are not described, filed or incorporated as required; (xi) other than the Selling Stockholders, no holder of any securities of the Company has any rights not effectively satisfied or waived, to require the Company to register the sale of any securities under the Securities Act in connection with the filing of the Registration Statement or the consummation of the transactions contemplated therein; and (xii) such counsel (1) is of the opinion that each document, if any, filed pursuant to the Exchange Act and incorporated by reference in the Prospectus (except for financial statements and schedules and other financial data included therein as to which such counsel need not express any opinion), complied when so filed as to form in all material respects with the Exchange Act and the applicable rules and regulations of the 18 Commission thereunder and (2) is of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules and other financial data included therein as to which such counsel need not express any opinion), comply as to form in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. In addition, such counsel shall also include a statement to the effect that nothing has come to the attention of such counsel which leads him to believe that (1) any part of the Registration Statement (except for financial statements and schedules and other financial data included therein as to which such counsel need not make any statement), when such part became effective contained or, as of the date such opinion is delivered, contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (2) the Prospectus (except for financial statements and schedules and other financial data included therein as to which such counsel need not make any statement) as of its date or the date such opinion is delivered contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such statement, such counsel may state that such statement is based upon such counsel's employment as Senior Vice President and General Counsel of the Company, his participation in the preparation of the Registration Statement and the Prospectus (including any documents incorporated by reference therein) and his participation in conferences with certain officers or employees and representatives of the Company and its subsidiaries, with representatives of Coopers & Lybrand, and with any others referred to in the opinion. Such counsel in rendering his opinion may rely as to certain matters of fact on certificates of officers of the Company and of public officials, and may state that he expresses no opinion as to the laws of any jurisdiction other than the State of Texas, the Federal law of the United States and the Delaware General Corporation Law. Such opinion shall be rendered to the Representatives and the Selling Stockholders at the request of the Company and shall so state therein. 19 (f) You shall have received on the Closing Date an opinion of Proskauer Rose Goetz & Mendelsohn, counsel for the Selling Stockholders, dated the Closing Date, to the effect that: (i) this Agreement has been duly authorized, executed and delivered by or on behalf of each of the Selling Stockholders; (ii) the execution and delivery by each Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, this Agreement will not contravene any provision of applicable law (except that no opinion need be expressed as to the securities or Blue Sky laws of the various states or any applicable foreign securities laws or other foreign laws, or as to provisions relating to indemnification or contribution), or the certificate of incorporation or bylaws of such Selling Stockholder (if such Selling Stockholder is a corporation) or, to the best of such counsel's knowledge, any agreement or other instrument binding upon such Selling Stockholder or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over such Selling Stockholder, and no consent, approval, authorization or order of or qualification with any governmental body or agency is required for the performance by such Selling Stockholder of its obligations under this Agreement, except such as have been obtained under the Securities Act or such as may be required by the securities or Blue Sky laws of the various states or any applicable foreign securities laws or other foreign laws in connection with the offer and sale of the Shares; (iii) each Selling Stockholder has the corporate power and authority to enter into this Agreement and to sell, transfer and deliver the Shares to be sold by such Selling Stockholder; and (iv) each of the Underwriters which purchases Shares in good faith and without notice of any security interest, claim, lien, equity or encumbrance or any other adverse claim within the meaning of the Uniform Commercial Code, upon indorsement and delivery of the Shares pursuant to this Agreement, and payment of the purchase price therefor, will acquire title to such Shares, free 20 and clear of any adverse claim within the meaning of the Uniform Commercial Code arising from the actions of, or created by, the Selling Stockholders. The above opinion shall be rendered to the Representatives at the request of the Selling Stockholders and shall so state therein. In rendering such opinion, such counsel may rely (A) as to matters of fact, upon certificates of officers or other representatives of the Selling Stockholders and (B) upon any opinions of counsel to the Selling Stockholders satisfactory to the Representatives; PROVIDED that a copy of any such opinions shall be furnished to the Underwriters through the Representatives. Such counsel may state that its opinion is limited to the laws of the State of New York, the Federal laws of the United States and the Delaware General Corporation Law. (g) on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date, Coopers & Lybrand shall have furnished to the Representatives letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Representatives, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; such letters shall also be addressed and delivered to each Selling Stockholder; (h) the Representatives shall have received on and as of the Closing Date an opinion of Davis Polk & Wardwell, counsel to the Underwriters, with respect to the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (i) J.P. Morgan Capital will have taken, on or prior to the Closing Date or the Additional Closing Date, as the case may be, all necessary action to cause the conversion of the shares of non-voting common stock of the Company into the Shares to be sold by it pursuant to this Agreement; and 21 (j) on or prior to the Closing Date the Company shall have furnished to the Representatives such further certificates and documents as the Representatives shall reasonably request. The several obligations of the U.S. Underwriters to purchase Option Shares hereunder on the Additional Closing Date are, unless otherwise agreed by the U.S. Underwriters, subject to the delivery to the Representatives on the Additional Closing Date of such documents as they may reasonably request with respect to the good standing of the Company and its subsidiaries, the due authorization and issuance of the Option Shares and other matters related to the issuance of the Option Shares. 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees to indemnify and hold harmless each Selling Stockholder and Underwriter and each person, if any, who controls any Selling Stockholder or Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation the legal fees and other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Selling Stockholder or any Underwriter furnished to the Company in writing by such Underwriter through the Representatives or by such Selling Stockholder expressly for use therein; PROVIDED that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages or liabilities purchased Shares if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is eliminated or remedied in the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) and, if required by law, a copy of the Prospectus (as so amended or supplemented) shall not have been furnished to such person 22 at or prior to the written confirmation of the sale of such Shares to such person. Each Selling Stockholder agrees, severally and not jointly, to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; but only with reference to information relating to such Selling Stockholder furnished to the Company or to any Underwriter in writing by such Selling Stockholder expressly for use in the Registration Statement, any preliminary prospectus, the Prospectus or any amendments or supplements thereto; PROVIDED that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages or liabilities purchased Shares if such untrue statement or omission or alleged untrue statement or omission made in such preliminary prospectus is eliminated or remedied in the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) and, if required by law, a copy of the Prospectus (as so amended or supplemented) shall not have been furnished to such person at or prior to the written confirmation of the sale of such Shares to such person. Notwithstanding the foregoing, the aggregate liability of any Selling Stockholder pursuant to the provisions of this paragraph shall be limited to an amount equal to the aggregate purchase price received by such Selling Stockholder from the sale of such Selling Stockholder's Shares hereunder. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each Selling Stockholder, the directors of the Company, the officers of the Company who sign the Registration Statement 23 and each person, if any, who controls the Company or any Selling Stockholder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to any of the three preceding paragraphs, such person (hereinafter called the Indemnified Person) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the Indemnifying Person) in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for (a) the fees and expenses of more than one separate firm (in addition to any local 24 counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, (b) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section and (c) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Selling Stockholders and all persons, if any, who control any Selling Stockholder within the meaning of either such Section, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters and such control persons of Underwriters, such firm shall be designated in writing by J.P. Morgan Securities Inc. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In the case of any such separate firm for the Selling Stockholders and such controlling persons of Selling Stockholders, such firm shall be designated in writing by J.P. Morgan Capital. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement, PROVIDED, HOWEVER, that such Indemnified Person shall not have the right to enter into such settlement if there is a good faith dispute between such Indemnified Person and such Indemnifying Person regarding such Indemnifying Person's obligation to reimburse such Indemnified Person for such fees and expenses of counsel. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes 25 an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first, second or third paragraph of this Section 8 is unavailable to an Indemnified Person under such paragraph in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities as follows: (A) as between the Company or the Selling Stockholders on the one hand and the Underwriters on the other (i) in such proportion as is appropriate to reflect the aggregate relative benefits received by the Company and the Selling Stockholders and by the Underwriters from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders and of the Underwriters in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations; and (B) as between the Company on the one hand and each Selling Stockholder on the other (x) in such proportion as is appropriate to reflect the relative benefits received by the Company and by such Selling Stockholder from the offering of the Shares or (y) if the allocation provided by clause (x) above is not permitted by applicable law or if the allocation provided by clause (x) above provides a lesser sum to the Indemnified Person than the amount hereinafter calculated, then in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (x) above, but also the relative fault of the Company and the Selling Stockholder in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and by the Underwriters on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Selling Stockholders and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Shares. The relevant benefits received by the Company on the one hand and the Selling Stockholders on the other shall take into 26 consideration the fact that the provision of registration rights pursuant to which the offering of Shares is being made was a material inducement to the Selling Stockholders to purchase shares in the Company or its predecessor. The relative fault of the Company and the Selling Stockholders on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, the aggregate liability of any Selling Stockholder pursuant to the provisions of this paragraph shall be limited to an amount equal to the aggregate purchase price received by such Selling Stockholder from the sale of such Selling Stockholder's Shares hereunder. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by PRO RATA allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 8 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. 27 The indemnity and contribution agreements contained in this Section 8 are in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company and the Selling Stockholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, any Selling Stockholder or any person controlling any Selling Stockholder, or the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Shares. 9. TERMINATION OF AGREEMENT. Notwithstanding anything herein contained, this Agreement (or the obligations of the several Underwriters with respect to the Option Shares) may be terminated in the absolute discretion of the Representatives, by notice given to the Company and the Selling Stockholders, if after the execution and delivery of this Agreement and prior to the Closing Date (or, in the case of the Option Shares, prior to the Additional Closing Date) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the National Association of Securities Dealers, Inc., or the London Stock Exchange, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York or London shall have been declared by either U.S. Federal, New York State or United Kingdom authorities or exchange controls shall have been imposed by the United States, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and which, in the judgment of the Representatives, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 10. EFFECTIVENESS OF AGREEMENT; ADDITIONAL OBLIGATIONS OF THE UNDERWRITERS. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post-effective amendment) by the Commission. 28 If, on the Closing Date or the Additional Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Shares set forth opposite their respective names in Schedules I and II hereto bears to the aggregate number of Underwritten Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Representatives may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; PROVIDED that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Representatives, the Company and the Selling Stockholders for the purchase of such Shares are not made within 36 hours after such default, this Agreement (or the obligations of the several Underwriters to purchase the Option Shares, as the case may be) shall terminate without liability on the part of any non-defaulting Underwriter, the Selling Stockholders or the Company. In any such case either the Representatives or the Company shall have the right to postpone the Closing Date (or, in the case of the Option Shares, the Additional Closing Date), but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 11. REIMBURSEMENT UPON OCCURRENCE OF CERTAIN EVENTS. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company or any Selling Stockholder to comply with the terms, or if for any reason the 29 Company or any Selling Stockholder shall be unable to perform its obligations under this Agreement, the Company or any such Selling Stockholder, as the case may be, responsible for such noncompliance or nonperformance agrees to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and expenses of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 12. MISCELLANEOUS. This Agreement shall inure to the benefit of and be binding upon the Company, the Selling Stockholders, the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 13. NOTICE. Any action by the Underwriters hereunder may be taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such action taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260 (facsimile: (212) 648- 5705); Attention: Syndicate Department. Notices to the Company shall be given to it at Columbia/HCA Healthcare Corporation, 201 West Main Street, Louisville, Kentucky 40202 (facsimile: (502) 572-2163); Attention: General Counsel. Notices to the Selling Stockholders shall be given to each of them at their respective addresses as set forth in Schedule III hereto with a copy to Bruce L. Lieb, Esq., Proskauer Rose Goetz & Mendelsohn, 1585 Broadway, New York, New York 10036. 30 14. COUNTERPARTS; APPLICABLE LAW. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. 31 If the foregoing is in accordance with your understanding, please sign and return six counterparts hereof. Very truly yours, COLUMBIA/HCA HEALTHCARE CORPORATION By:____________________________ Name: Title: J.P. MORGAN CAPITAL CORPORATION By:____________________________ Name: Title: [Insert other Selling Stockholders] Accepted: [ ], 1994 J.P. MORGAN SECURITIES INC. DEAN WITTER REYNOLDS INC. MORGAN STANLEY & CO. INCORPORATED Acting severally on behalf of themselves and the several U.S. Underwriters listed in Schedule I hereto. By: J.P. MORGAN SECURITIES INC. By:_______________________ Name: Title: 32 J.P. MORGAN SECURITIES LTD. DEAN WITTER INTERNATIONAL LTD. MORGAN STANLEY & CO. INTERNATIONAL Acting severally on behalf of themselves and the several international managers listed in Schedule II hereto. By: J.P. MORGAN SECURITIES LTD. By:________________________ Name: Title: Attorney-in-Fact for J.P. Morgan Securities Ltd. 33 SCHEDULE I Number of U.S. Underwritten Shares U.S. Underwriters To Be Purchased - ----------------- ------------------- J.P. Morgan Securities Inc. . . . . . . . . . . . . . Dean Witter Reynolds Inc. . . . . . . . . . . . . . . Morgan Stanley & Co. Incorporated . . . . . . . . . . Total: . . . . . . . . . . . . . . . . . . . SCHEDULE II Number of International Underwritten Shares International Managers To Be Purchased - ---------------------- ------------------- J.P. Morgan Securities Ltd. . . . . . . . . . . . . . Dean Witter International Ltd.. . . . . . . . . . . . Morgan Stanley & Co. International Limited. . . . . . Total: . . . . . . . . . . . . . . . . . . . SCHEDULE III Maximum Number of Underwritten Shares Underwritten Shares Option Shares to Selling to be sold to the to be sold to the be sold to the Stockholder U.S. Underwriters International Managers U.S. Underwriters ---------- ------------------ ---------------------- ----------------- J.P. Morgan Capital Corporation EX-5 3 EXHIBIT 5 [Columbia/HCA Letterhead] May 16, 1994 Columbia/HCA Healthcare Corporation 201 West Main Street Louisville, KY 40202 Re: Registration Statement on Form S-3 Ladies & Gentlemen: I am Senior Vice President and General Counsel of Columbia/HCA Healthcare Corporation and have acted as such in connection with the preparation of a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Act"), covering 6,900,000 shares of common stock, $.01 par value per share (the "Shares"), of Columbia/HCA Healthcare Corporation (the "Company"). The Shares also include associated Preferred Stock Purchase Rights (the "Rights"). The Shares and the Rights are hereinafter collectively referred to as the "Common Stock." I have examined the Restated Certificate of Incorporation, By-laws and other corporate records of the Company and such other documents as I have deemed relevant to this opinion. Based on the foregoing, it is my opinion that when the 6,900,000 shares of the Common Stock, or any portion thereof, are sold as described in the Registra- tion Statement, such shares will be duly authorized, validly issued, fully paid and nonassessable. I hereby consent to the use of my name under the caption "Legal Matters" in the Registration Statement and any prospectus which constitutes a part thereof and to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, I do not hereby admit that I come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, Stephen T. Braun Senior Vice President and General Counsel EX-23.(A) 4 EXHIBIT 23(A) CONSENT OF COOPERS & LYBRAND Ex 23.(a) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-3 of our report dated February 28, 1994, except for Note 15, as to which the date is March 24, 1994 (which includes an explanatory paragraph regarding a change in accounting for income taxes) on our audits of the consolidated financial statements of Columbia/HCA Healthcare Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993. Additionally, we consent to the incorporation by reference of our report dated February 28, 1994 (which includes an explanatory paragraph regarding a change in accounting for income taxes) on our audits of the consolidated financial statements and financial statement schedules of Columbia Healthcare Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993 and our report dated February 28, 1994, except for Note 15, as to which the date is March 24, 1994 (which includes explanatory paragraphs regarding the merger of Columbia Healthcare Corporation and HCA - Hospital Corporation of America and a change in accounting for income taxes) on our audits of the supplemental consolidated financial statements and supplemented financial statement schedules of Columbia/HCA Healthcare Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, which reports are included in Columbia/HCA Healthcare Corporation Form 10-K for the fiscal year ended December 31, 1993 incorporated by reference herein. We also consent to the reference to our Firm under the caption, "Experts." COOPERS & LYBRAND Louisville, Kentucky May 16, 1994 -----END PRIVACY-ENHANCED MESSAGE-----