HCA Holdings 2012 Annual Report Download - page 124

HCA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Related Party Transactions — Management Agreement
The Investors provided management and advisory services to the Company pursuant to a management
agreement among HCA Inc. and the Investors executed in connection with the Investors’ acquisition of HCA Inc.
in November 2006. The management agreement was terminated pursuant to its terms upon completion of the
initial public offering of our common stock during March 2011, and the Company paid the Investors a final fee
of $181 million. The management agreement also provided that the Company pay a 1% fee in connection with
certain financing, acquisition, divestiture and change of control transactions. The Company paid the Investors a
fee of $26 million related to the initial public offering of our common stock, and this fee was recorded as a cost
of the stock offering. The annual management fee was $18 million for 2010.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2012 presentation.
NOTE 2 — SHARE-BASED COMPENSATION
Stock Incentive Plan
The 2006 Stock Incentive Plan for Key Employees of HCA Holdings Inc. and its Affiliates, as Amended
and Restated (the “Stock Incentive Plan”) is designed to promote the long term financial interests and growth of
the Company by attracting and retaining management and other personnel and to motivate them to achieve long
range goals and further the alignment of interests of participants with those of our stockholders through
opportunities for increased stock, or stock-based, ownership in the Company. During 2011, our Board of
Directors approved certain amendments to the Stock Incentive Plan that included an increase to the number of
shares available for issuance under the plan by 40,000,000 shares. Portions of the options, stock appreciation
rights (“SARs”) and restricted share units (“RSUs”) granted under the Stock Incentive Plan vest solely based
upon continued employment over a specific period of time, and portions of the options, SARs and RSUs vest
based both upon continued employment over a specific period of time and upon the achievement of
predetermined financial and Investor return targets over time. We granted 6,348,000 and 1,288,000 stock options
and SARs and 4,647,400 and 80,000 RSUs under the Stock Incentive Plan during 2012 and 2011, respectively.
At December 31, 2012, there were 31,513,200 stock options and SARs outstanding and exercisable, and there
were 36,455,600 shares available for future grants under the Stock Incentive Plan.
Rollover Options
Certain management holders of outstanding prerecapitalization HCA stock options retained certain of their
stock options (the “Rollover Options”). The Rollover Options remain outstanding in accordance with the terms of
the governing stock incentive plans and grant agreements pursuant to which the holder originally received the
stock option grants. At December 31, 2012, there were 932,800 Rollover Options outstanding and exercisable.
Stock Option, SAR and RSU Activity
The fair value of each stock option and SAR award is estimated on the grant date, using valuation models
and the weighted average assumptions indicated in the following table. Awards under the Stock Incentive Plan
generally vest based on continued employment (“Time Stock Options and SARs” and “Time RSUs”) and based
upon achievement of certain financial and Investor return targets (“Performance Stock Options and SARs” and
“Performance RSUs”). Each grant is valued as a single award with an expected term equal to the average
expected term of the component vesting tranches. We use historical exercise behavior data and other factors to
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