SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ______________
Commission file number 0-29816
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Triad Hospitals, Inc. Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Triad Hospitals, Inc.
13455 Noel Road, 20th Floor
Dallas, Texas 75240
(972) 789-2700
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Triad Hospitals, Inc. Retirement Savings Plan
As of December 31, 2001 and 2000 and for the year ended December 31, 2001
Triad Hospitals, Inc. Retirement Savings Plan
Financial Statements and Supplemental Schedule
As of December 31, 2001 and 2000
and for the year ended December 31, 2001
Contents
Report of Independent Auditors .......................................... 1
Audited Financial Statements
Statements of Net Assets Available for Benefits ......................... 2
Statement of Changes in Net Assets Available for Benefits ............... 3
Notes to Financial Statements ........................................... 4
Supplemental Schedule
Schedule H; Line 4i - Schedule of Assets (Held At End of Year) .......... 14
Signatures .............................................................. 15
Report of Independent Auditors
Plan Administrator
Triad Hospitals, Inc. Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Triad Hospitals, Inc. Retirement Savings Plan as of December 31, 2001 and
2000, and the related statement of changes in net assets available for benefits
for the year ended December 31, 2001. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 net assets available for benefits of the Plan at
December 31, 2001 and 2000, and the changes in its net assets available for
benefits for the year ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2001, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Dallas, Texas
May 8, 2002
1
Triad Hospitals, Inc. Retirement Savings Plan
Statements of Net Assets Available for Benefits
December 31
2001 2000
--------------------------------------
Assets
Investments:
HCA Inc. Common Stock $ 78,113,797 $ 98,412,477
Triad Hospitals, Inc. Common Stock 36,229,757 26,583,146
Triad Hospitals, Inc. Common Stock (unallocated) 70,440,000 87,918,750
LifePoint Hospitals, Inc. Common Stock 3,837,976 6,166,779
Registered investment companies 222,646,934 230,801,142
Collective Short-Term Investment Fund 2,558,638 2,202,062
Participant loans 6,801,617 6,510,280
--------------------------------------
Total investments 420,628,719 458,594,636
--------------------------------------
Receivables:
Employer matching contribution 68,947 129,616
Employer supplemental contribution 439,580 651,766
Participants contributions 265,144 582,887
Due from broker for securities sold - 422,677
Interest and dividends 431,238 508,389
--------------------------------------
Total receivables 1,204,909 2,295,335
--------------------------------------
Total assets 421,833,628 460,889,971
--------------------------------------
Liabilities
Note payable to Triad Hospitals, Inc. 25,611,438 28,433,057
Cash overdraft 310,930 118,742
Other 106,535 129,030
--------------------------------------
Total liabilities 26,028,903 28,680,829
--------------------------------------
Net assets available for benefits $ 395,804,725 $432,209,142
======================================
See accompanying notes.
2
Triad Hospitals, Inc. Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
Investment income (loss):
Net depreciation in fair value of investments $(32,996,567)
Interest and dividends 7,033,687
----------------------
(25,962,880)
----------------------
Contributions:
Participants 16,704,603
Employer matching 1,841,915
Employer retirement 4,669,768
Employer supplemental (212,186)
Rollovers 2,607,098
----------------------
25,611,198
----------------------
Deductions:
Benefits paid to participants 32,511,048
Interest expense 1,848,149
Administrative expenses 1,693,538
----------------------
Total deductions 36,052,735
----------------------
Net decrease (36,404,417)
Net assets available for benefits at beginning of year 432,209,142
----------------------
Net assets available for benefits at end of year $395,804,725
======================
See accompanying notes.
3
Triad Hospitals, Inc. Retirement Savings Plan
Notes to Financial Statements
December 31, 2001
1. Description of the Plan
The following description of Triad Hospitals, Inc. Retirement Savings Plan (the
Plan) provides only general information. Participants should refer to the Plan
document for a more comprehensive description of the Plan's provisions.
General
Triad Hospitals, Inc. (the Company or Triad) was created May 11, 1999 (the
closing date) upon completion of a spin-off by HCA Inc. (HCA). Triad created the
Plan effective on the closing date.
The Plan replaced benefits previously provided by HCA through the Columbia/HCA
Healthcare Corporation Money Purchase Pension Plan, Columbia/HCA Salary Deferral
Plan, Columbia/HCA Healthcare Corporation Stock Bonus Plan, HealthTrust, Inc.
401(k) Retirement Program, and/or the EPIC Healthcare Group, Inc. Profit Sharing
Plan (collectively referred to hereinafter as the Prior Plans).
On April 27, 2001, the Company acquired Quorum Health Group, Inc. (Quorum).
Effective December 31, 2001, all participant accounts of the Quorum 401(k) Plan,
with the exception of the individuals employed under Abilene Physicians Group
and Northwest Primary Care Physicians, P.A., were transferred into the Plan.
The Plan is a defined contribution plan which provides retirement, disability,
and death benefits for all of the employees of the Company. The Plan covers
employees of the Company who have at least two months of service and are age 21
or older. Employees whose employment is subject to a collective bargaining
agreement (unless such agreement provides to the contrary) and leased employees
are not entitled to participate in the Plan. All individuals who were employed
by the Company on the closing date and who were active participants in one or
more of the Prior Plans became participants of the Plan on the closing date. A
component of the Plan operates as a leveraged employee stock ownership program
(ESOP) and is designed to comply with Section 4975(e)(7) and
4
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
1. Description of the Plan (continued)
the regulations thereunder of the Internal Revenue Code (the Code). The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended (ERISA).
Contributions
Participants may voluntarily elect to defer salary and contribute the amount
deferred to the Plan (participants' contributions) in amounts up to 18% of their
annual compensation upon attainment of age 21 and completion of two months of
service, as defined by the Plan.
New employees that meet eligibility requirements automatically defer 3% of their
annual compensation as participant contributions to the Plan unless the
participant directs the Plan Sponsor otherwise. Additionally, participants may
also rollover amounts representing distributions from other qualified plans.
The Company contributes, on behalf of each participant, an amount equal to 50%
of a participant's contribution (Employer Matching Contribution), not to exceed
1.5% of the participant's compensation.
The Company makes an Annual Employer Contribution, which is allocated to
eligible participants. For a participant to be eligible to receive their portion
of the Annual Employer Contribution, the participant must have been employed by
the Company on the first day of the Plan year, have completed at least one year
of service, and, as of the last day of the Plan year, must have been actively
employed and attained age 21.
The Annual Employer Contribution calculation is based on the following schedule:
Allocation as a Percent
Years of Service of Participant's
on Last Day of Plan Year Compensation
------------------------------------ --------------------------------
Less than 5 2
5 but less than 10 3
10 or more 5
5
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
1. Description of the Plan (continued)
The Annual Employer Contribution consists of an ESOP Contribution (Employer
Retirement Contribution) equal to 300,000 shares of Triad Hospitals, Inc. common
stock (Triad common stock) (see Note 3) at the present market value on December
31 relating to the Note Payable to Triad (see Note 4) and any remaining amount
due, if necessary, is remitted to the Plan in the form of cash (Employer
Supplemental Contribution).
Participants may direct all participant contributions, the Employer Matching
Contribution and the Employer Supplemental Contribution to several different
Plan investment options, including Triad common stock. The Employer Retirement
Contributions are remitted in Triad common stock and are nonparticipant
directed.
Effective December 31, 2001, Barberton Union Employees were allowed to
participate in the Plan. However, they are excluded from receiving Employer
Matching Contributions and Annual Employer Contributions (consisting of the
Employer Retirement Contributions and the Employer Supplemental Contributions).
Participant Accounts
Each participant's account is credited with the participant's contribution and
Employer Matching Contribution, and the participant's allocation of the Employer
Retirement and Supplemental Contributions and investment earnings and charged
with an allocation of administrative expenses. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Vesting
Participants are immediately vested with respect to their participant's
contributions plus earnings thereon. Vesting of the Employer Matching,
Retirement and Supplemental Contributions plus earnings thereon is based on
years of continuous service and increases with the accumulation of the years of
service. After three years of service, the participant is 20% vested. With the
completion of each additional year of service, the participant is vested an
additional 20%. After seven years of service, the participant is l00% vested.
6
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
1. Description of the Plan (continued)
All balances transferred from the Prior Plans and associated earnings are 100%
vested, with the exception of the Columbia/HCA Healthcare Corporation Money
Purchase Pension Plan and the Columbia/HCA Healthcare Corporation Stock Bonus
Plan. Vesting provisions for former participants of these plans generally follow
that outlined above.
Participant Loans
Participants may borrow from their account subject to a minimum of $1,000, and
up to a maximum equal to $50,000 less the highest outstanding loan balance in
the preceding twelve months, or the lesser of 50% of vested balances in all
accounts available for loans, as defined by the Plan. Loan terms range from one
to five years, or up to ten years for the purchase of a primary residence. The
loans are secured by the balance in the participant's account. Principal and
interest is paid ratably through payroll deductions. The interest rate is
determined based on the prime rate charged by the Northern Trust Company (the
Trustee).
Payment of Benefits
Upon termination of service due to death, disability, or retirement, a
participant becomes 100% vested and may elect to receive an amount equal to the
value of the participant's interest in his or her account in either a lump-sum
amount or in annuity payments. For termination of service due to other reasons,
a participant may receive the value of the vested interest in his or her account
as a lump-sum distribution. In-service withdrawals are available for a
participant upon attainment of age 59 1/2. Hardship withdrawals are available
for a participant experiencing qualifying circumstances.
Forfeited Accounts
Forfeitures attributable to Employer Contributions are allocated to accounts of
participants employed on the last day of the Plan year in which such forfeitures
are created, pro rata based on participants Annual Retirement Contribution
account balances. Any other forfeitures are utilized to reduce the Employer
Matching Contribution and any Employer Supplemental Contribution. During the
year ended December 31, 2001 amounts totaling $4,801,771 were used to reduce the
Company's contributions made to the Plan. Included in this amount is $651,766
that was utilized to settle the 2000 Employer Supplemental Contribution
receivable therefore resulting in a ($212,186) on the Statement of Changes in
Net Asset Available for Benefits for the year ended December 31, 2001.
7
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of
accounting.
Use of Estimates
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Valuation of Investments and Income Recognition
Shares of registered investment companies are valued at published market prices,
which represent the net asset value of shares held by the Plan at year-end.
Common stock is valued at its quoted market price. Participant loans are valued
at their carrying value, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
Administrative Expenses
Certain administrative expenses are paid by the Plan.
3. Investments
Unless the Plan Administrator directs otherwise, participants shall have no
voting rights with regard to the investment in HCA Inc. Common Stock (HCA common
stock) or LifePoint Hospitals. Inc. Common Stock (LifePoint common stock).
Participants may direct investments out of these funds, but no future
investments may be made in these funds. The Plan Administrator or the Company
may direct some or all of the HCA and/or LifePoint common stock to be sold and
invested in Triad common stock.
8
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
3. Investments (continued)
During 1999, the Plan purchased 3,000,000 shares of Triad common stock for use
in connection with the ESOP component of the Plan (ESOP stock). The ESOP stock
is held in a secondary trust which is administered by U.S. Trust Company, N.A.
(the Secondary Trustee). The ESOP stock is collateral for the Triad Note (see
Note 4). As payments are made on the Triad Note, shares are released from
collateral based upon the ratio of principal and interest paid during the period
over the total principal and interest payments due under the Triad Note.
Released shares are allocated to participant accounts in accordance with the
ESOP allocation. Participants do not have any investment discretion regarding
the ESOP stock allocated to their accounts. Participants can direct the voting
of ESOP stock allocated to their account. The Secondary Trustee votes any
unallocated ESOP stock and any allocated ESOP stock for which the Secondary
Trustee did not receive voting directions proportionately in accordance with the
voting directions that were received. As of December 31, 2001, a total of
900,000 shares in total have been released from collateral.
During 2001, the Plan's investments (including investments bought, sold, and
held during the period) depreciated in value as follows:
Registered investment companies $ (8,377,531)
Common stock (24,619,036)
-------------
$ (32,996,567)
=============
The fair value of individual investments that represent 5% or more of the Plan's
net assets at December 31 are:
2001
-------------
HCA Inc. Common Stock $ 78,113,797
Triad Hospitals, Inc. Common Stock 106,669,757
Core Equity Fund 54,931,950
PIMCO Total Return Fund 50,908,296
PRIMCO Stable Value Fund 45,319,202
Berger Small Cap Value Investment Fund 44,329,366
9
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
3. Investments (continued)
2000
--------------
HCA Inc. Common Stock $ 98,412,477
Triad Hospitals, Inc. Common Stock 114,501,896
Core Equity Fund 69,121,785
PIMCO Total Return Fund 46,979,208
PRIMCO Stable Value Fund 44,027,509
Berger Small Cap Value Investment Fund 36,365,818
4. Note Payable to Triad
In June 1999, the Plan borrowed $34,500,000 from the Company and used the
proceeds to purchase the ESOP stock (see Note 3). The Note Payable to Triad
(Triad Note) is to be repaid annually in equal annual installments of $4,669,768
(principal and interest) over a period of ten years at 6.5% interest. The Triad
Note requires the Company to make Employer Retirement Contributions in amounts
sufficient to cover the required principal and interest payments. The Triad Note
is collateralized by the ESOP stock. Making the payment under the Triad Note
results in shares of Triad common stock being released from collateral under the
Triad Note. The Company has no rights against the shares once the ESOP stock is
allocated to participant accounts. As of December 31, 2001, payments due under
the Triad Note and the schedule for release of ESOP stock from collateral was as
follows:
Stock
Principal Released
-----------------------------
2002 $ 3,005,025 300,000
2003 3,200,352 300,000
2004 3,408,374 300,000
2005 3,629,919 300,000
2006 3,865,864 300,000
Thereafter 8,501,904 600,000
------------
$ 25,611,438
============
10
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
5. Non-Participant Directed ESOP Investments
Information about the net assets and the significant components of the changes
in net assets relating to the non-participant-directed ESOP investments is as
follows:
December 31, 2001
Allocated Unallocated
-----------------------------------------
Net assets:
Triad Hospitals, Inc. common stock $16,429,895 $70,440,000
Note payable to Triad - (25,611,438)
-----------------------------------------
$16,429,895 $44,828,562
=========================================
December 31, 2000
Allocated Unallocated
----------------------------------------
Net assets:
Triad Hospitals, Inc. common stock $9,341,693 $87,918,750
Note payable to Triad - (28,433,057)
----------------------------------------
$9,341,693 $59,485,693
========================================
Year ended December 31, 2001
Allocated Unallocated
----------------------------------------
Net depreciation in fair value of investments $(769,974) $(8,673,750)
Interest 23 -
Employer retirement contribution - 4,669,768
Benefits paid to participants (946,847) -
Transfers 8,805,000 (8,805,000)
Interest expense - (1,848,149)
----------------------------------------
$7,088,202 $(14,657,131)
========================================
11
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
6. Related Party Transactions
Certain plan investments are managed by an affiliate of the Trustee. Certain
other plan investments are shares of the Triad common stock and of HCA Inc.
common stock. HCA Inc. provides various services to the Company, including
payroll processing.
7. Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants would become 100% vested with regard to their Employer Matching
Contribution, and Employer Retirement and Supplemental Contributions.
8. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated November 7, 2000, stating that the Plan is qualified under Section 401(a)
of the Code and, therefore, the related trust is exempt from taxation. Once
qualified, the Plan is required to operate in conformity with the Code to
maintain its qualification. The Plan Administrator believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan is qualified and the related trust is tax
exempt.
9. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements at December 31 to Form 5500:
2001 2000
------------------- --------------------
Net assets available for benefits per the financial statements $ 395,804,725 $ 432,209,142
Amounts allocated to withdrawing participants (342,802) (734,663)
------------------- --------------------
Net assets available for benefits per the Form 5500 $ 395,461,923 $ 431,474,479
=================== ====================
12
Triad Hospitals, Inc. Retirement Savings Plan
Notes to the Financial Statements (continued)
9. Reconciliation of Financial Statements to Form 5500 (continued)
The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 2001, to Form 5500:
Benefits paid to participants per the financial statements $ 32,511,048
Amounts allocated to withdrawing participants at December 3l, 2001 342,802
Amounts allocated to withdrawing participants at December 3l, 2000 (734,663)
-----------------
Benefits paid to participants per Form 5500 $ 32,119,187
=================
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit payments that have been processed and approved for payment prior to
December 31, but not yet paid as of that date.
10. Subsequent Events
Effective January 1, 2002, participants may direct investments out of the Triad
Common Stock Fund into the other funds of the Plan, but no future investments
may be made in the Triad Common Stock Fund. Upon the decision of the participant
to reduce the portion of his/her account, which is invested in the Triad Common
Stock Fund, the participant will not be allowed to reinvest additional amounts
in the Triad Common Stock Fund.
The Plan's vesting schedule was amended effective January 1, 2002 and will
change from a seven-year to a five-year schedule. After two years of service,
the participant will be 20% vested, after three years, 40%, after four years,
60%, and after the completion of five years of service, the participant will be
100% vested.
Effective January 1, 2002 the age minimum of 21 years was eliminated from the
eligibility requirements of the Plan.
On January 2, 2002, approximately $254,000,000 was transferred to the Plan
related to the Quorum transfer.
13
Supplemental Schedule
Triad Hospitals, Inc. Retirement Savings Plan
Schedule H; Line 4i - Schedule of Assets (Held At End of Year)
EIN: 75-2816101 Plan #: 001
December 31, 2001
(c)
(b) Description of Investment Including (e)
Identity of Issue, Borrower, Maturity Date, Rate of Interest, Par (d) Current
(a) or Similar Party or Maturity Value Cost Value
---------------------------------------------------------------------------------------------------------------------------------
* HCA Inc. HCA Inc. Common Stock N/A $ 78,113,797
* Triad Hospitals, Inc. Triad Hospitals, Inc. Common Stock
(ESOP stock/non-participant-directed) $ 34,037,608 86,869,895
* Triad Hospitals, Inc. Triad Hospitals, Inc. Common Stock N/A 19,799,862
LifePoint Hospital, Inc. LifePoint Hospitals, Inc. Common Stock
N/A 3,837,976
J.P. Morgan & Co. Inc. and
Putnam Investments Core Equity Fund N/A 54,931,950
Pacific Investment Management Company PIMCO Total Return Fund N/A 50,908,296
Invesco PRIMCO Stable Value Fund N/A 45,319,202
Berger Funds Berger Small Cap Value Investment Fund
N/A 44,329,366
Putnam Investments Putnam International Growth A Fund N/A 13,812,327
Barclays Global Investors BGI Equity Index H Fund N/A 13,345,793
* The Northern Trust Company Collective Short-Term Investment Fund
N/A 2,558,638
* Participant Loans General purpose loans, interest rates
ranging from 5% to 9.5% N/A 6,801,617
-------------------------------------
$ 34,037,608 $ 420,628,719
=====================================
* Party-in-interest
N/A Reporting not required because investment is participant-directed.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Triad Hospitals, Inc. Retirement Savings Plan
Date: June 24, 2002 By /s/ Ricky E. Thomason
--------------------------------
Ricky E. Thomason
Vice President of Human Resources
15
EXHIBIT INDEX
Exhibit Seq.
Number Description Page No.
------ ----------- --------
23.1 Consent of Independent Auditors 17
16