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Stock Warrants issued to HCA and certain institutional investors
was $117 million, a total of $443 million. Based on the J.C.
Bradford Valuation, the 17,741,379 Common Stock Warrants HCA
owned (out of the 19,551,724 Common Stock Warrants issued) had a
fair market value of approximately $106,166,650. In valuing the
class A preferred stock for HealthTrust, J.C. Bradford used an
assumed dividend rate of 14.66 percent, which was equal to the
30-year Treasury bond rate of 9.66 percent in effect on September
17, 1987, plus 500 basis points.
For financial reporting purposes, HealthTrust initially used
the fair market values for the Securities determined by J.C.
Bradford. HealthTrust also employed those fair market values on
a registration statement it filed with the SEC on January 19,
1988, in order to register the ESOP Senior Notes, class A
preferred stock, class B preferred stock, Common Stock, and
Common Stock Warrants. The SEC subsequently asked HealthTrust to
explain why HealthTrust reported different values for the
Securities from the values stated by petitioners on their Form
10-Q for the quarter ended September 1987. The SEC indicated its
belief that the discount rate which had been used by J.C.
Bradford should have been higher to reflect the significant risk
of HealthTrust's highly leveraged financial position.
Accordingly, HealthTrust agreed to reduce the value placed on the
Common Stock Warrants from $117 million to $52 million. Based on
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