Copyright

Hospital Corporation of America

Harvard Business School Case 9-289-010
Case Software 2-292-719
Copyright 1989 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.

Page 1

Exh 1

EXHIBIT 1

Operating revenues
Contractual adj.s & doubtful accts
NET REVENUES
Operating expenses
Depreciation and amortization
Interest expense
INCOME FROM OPERATIONS
Other income (expense)
INCOME BEFORE TAXES
Provision for income taxes:
Current
Deferred
NET INCOME

Average number of common and

common equivalent shares
Earnings per share

Consolidated Income Statements ($000)

1979
1980
1981
$1,043,361 $1,428,541 $2,406,472
142,583
196,993
342,835
900,778
1,231,548
2,063,637
726,422
998,326
1,681,596
41,471
53,421
88,197
38,217
49,727
131,458
94,668
130,074
162,386
849
5,621
21,845
95,517
135,695
184,231
27,685
13,623
$54,209

43,508
11,192
$80,995

48,771
24,329
$111,131

40,597
$1.34

46,750
$1.73

49,880
$2.23

Page 2

Exh 2

EXHIBIT 2

ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable-net
Supplies
Other current assets
TOTAL CURRENT ASSETS
Net property, plant, and equipment
Investments and other assets
Intangible assets
TOTAL ASSETS
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable
Dividends payable
Accrued liabilities
Income taxes payable
Current matur. of LT debt
TOTAL CURRENT LIAB.
Long-term debt
Deferred income taxes
Other liabilities
SHAREHOLDERS' EQUITY
Common stock
Addtl paid-in capital
Retained earnings
TOT SHAREHOLDER EQUITY
TOTAL LIABILITIES &
SHAREHOLDER'S EQUITY

Consolidated Balance Sheets ($000)

|-------- At December 31 -------|

1979
1980
1981
$30,268
$29,029
$50,463
148,739
214,023
363,418
29,261
44,088
65,344
10,088
15,383
18,406
218,356
302,523
497,631
801,810
1,187,274
2,065,529
39,952
81,327
188,476
17,716
38,479
206,520
$1,077,834 $1,609,603 $2,958,156

$37,670
2,432
45,348
55,553
18,654
159,657

$57,664
3,025
80,288
71,208
25,877
238,062

$92,787
4,438
165,803
60,753
43,487
367,268

427,025
74,026
30,248

775,179
84,718
43,014

1,648,836
116,712
57,740

19,457
157,277
210,144
386,878

45,378
144,114
279,138
468,630

52,211
341,785
373,604
767,600

$1,077,834 $1,609,603 $2,958,156

Page 3

Exh 3

EXHIBIT 3

SUMMARY OF OPERATIONS
Operating revenues
Interest expense
Income before taxes
Net income

Ten-Year Historical Summary, 1972-1981

($000 except per share amounts)
1972
$172,650
5,865
17,831
10,276

1973
$223,093
8,912
22,531
12,163

1974
$297,747
12,922
29,881
15,555

1975
$392,933
17,225
36,446
20,648

1976
$506,484
21,163
46,630
26,953

Avg. shares outstand. (a)

Earnings per share (a)
Cash dividends/share (a)
Dividend payout (%)

34,679
$0.30
$0.02
6.7

34,297
$0.35
$0.04
11.4

34,234
$0.45
$0.05
11.1

34,920
$0.59
$0.06
10.2

37,847
$0.71
$0.09
12.7

FINANCIAL POSITION
Total assets
Total debt
Shareholders' equity
Book value/share(yr. end)
Average P/E

$274,623
154,752
90,663
$2.69
33.7

$320,529
174,695
107,280
$3.12
18.1

$416,790
239,505
121,192
$3.53
7.3

$507,539
298,370
141,828
$4.09
8

$602,059
326,664
186,168
$4.89
9.2

STOCK PERFORMANCE
High
Low

$12.10
$8.10

$9.90
$2.80

$5.10
$1.50

$7.10
$2.30

$7.60
$5.40

1.3
6.0
5.3
24.3
0.89
63.1

1.4
5.5
4.4
13.4
0.81
62.0

1.2
5.2
4.9
14.5
0.93
66.4

1.5
5.3
5.0
17.0
0.94
67.8

1.5
5.3
5.3
19.0
1.00
63.7

SELECTED RATIOS
Current ratio
Net profit margin (%)
Return on beginning assets (%)
Return on beginning equity (%)
Asset turnover
Total debt/Total capital (%)

(a) Average share figures included unexercised options. Per

share earnings and dividends were computed based on average
shares outstanding.

Page 4

Exh 3

1977
$627,405
24,431
59,032
33,375
38,925
$0.86
$0.12
14

$708,598
362,619
215,323
$5.65
8.6

1978
1979
1980
1981
$797,154 $1,043,361 $1,428,541 $2,406,472
32,256
38,217
49,727
131,458
73,816
95,517
135,695
184,231
41,504
54,209
80,995
111,131
39,627
$1.05
$0.17
16.2

40,597
$1.34
$0.22
16.4

46,750
$1.73
$0.27
15.6

49,880
$2.23
$0.34
15.2

$857,468 $1,077,834 $1,609,603 $2,958,156

427,088
445,679
801,056
1,692,323
251,617
386,878
468,630
767,600
$6.57
$8.84
$10.33
$14.70
10.9
11.8
15.9
18.5

$9.00
$5.80

$15.30
$7.50

$19.90
$11.60

$37.00
$17.90

$50.70
$31.70

1.4
5.3
5.5
17.9
1.04
62.7

1.4
5.2
5.9
19.3
1.12
62.9

1.4
5.2
6.3
21.5
1.22
53.5

1.3
5.7
7.5
20.9
1.33
63.1

1.4
4.6
6.9
23.7
1.50
68.8

Page 5

Exh 4

EXHIBIT 4

HOSPITALS IN OPERATION
Owned and leased, U.S.
Managed, U.S.
Owned and managed, intl.
TOTAL
Bed capacity
Bed capacity
Occup. rate(US owned only)
SOURCES OF REV.S-BY PAYER
Cost-based
Medicare
Medicaid
Blue Cross
TOTAL COST-BASED
Charge-based
TOTAL

Key Statistics for HCA's Hospitals

1972
46
2
48

1973
53
4
57

1974
56
6
62

1975
62
8
2
72

1976
68
15
2
85

7304
#N/A

8507
#N/A

9280
70%

11648
66%

13458
66%

27%
4%
8%
39%
61%
100%

27%
3%
9%
39%
61%
100%

29%
3%
8%
40%
60%
100%

30%
4%
7%
41%
59%
100%

32%
4%
5%
41%
59%
100%

Page 6

Exh 4

1977
72
21
2
95

1978
81
26
5
112

1979
88
45
15
148

1980
114
56
18
188

1981
188
146
15
349

14465
66%

18036
65%

22543
68%

28204
69%

49866
68%

33%
4%
5%
42%
58%
100%

35%
4%
5%
44%
56%
100%

36%
3%
4%
43%
57%
100%

37%
3%
4%
44%
56%
100%

38%
5%
3%
46%
54%
100%

Page 7

Exh 5

EXHIBIT 5

Comparative Data on Selected Publicly-Held Hospital

Management Companies ($000 except per share amt.s) (a)
Hospital Corporation
of America
1981
1980

American Medical
International, Inc.
1981
1980

Humana, Inc.
1981
1980

SUMMARY OF OPERATIONS
Operating revenues
$2,406,472 $1,428,541 $1,703,597 $1,392,412 $1,117,234
Interest expense
131,458
49,727
59,880
75,831
40,520
Income before taxes
184,231
135,695
176,932
119,855
96,807
Net income
111,131
80,995
93,177
64,602
50,807
EPS-primary
2.23
1.73
2.33
1.53
1.6
Cash dividends/share
0.34
0.27
0.54
0.35
0.45
Dividend payout (%)
15.2
15.6
23.2
22.9
28.1
FINANCIAL POSITION
Total assets
Total debt
Preferred stock
Shareholders' equity
Book value per share
Average P/E
STOCK PERFORMANCE
High
Low

$2,958,156 $1,609,603 $1,502,232 $1,326,584

1,692,323
801,056
776,170
757,124
63,925
65,961
767,600
468,630
297,314
216,313
$14.70
$10.33
$8.01
$5.97
18.5
15.9
16.3
11.9

$766,211
24,995
65,510
33,210
1.23
0.38
30.9

$984,149
395,979

$662,789
312,281

326,619
$10.20
16.9

201,495
$7.36
18.3

$50.70
$31.70

$37.00
$17.90

$46.38
$29.75

$26.20
$10.25

$32.50
$21.50

$22.50
$9.88

B+

NR

NR

Ba

1.4
4.6
6.9
23.7
1.5
68.6

1.3
5.7
7.5
20.9
1.3
63.1

1.4
5.5
7.0
43.1
1.3
68.2

1.4
4.6
5.4
38.1
1.2
72.8

1.5
4.5
7.7
25.2
1.7
54.8

1.6
4.3
6.5
21.3
1.5
60.8

349
49,866
68%

188
28,204
69%

89
16,431
61%

90
16,765
59%

102
9,713
#N/A

61
6,117
61%

SOURCES OF REVENUE-BY PAYER

Cost-based
Medicare
38%
Medicaid
5%
Blue Cross
3%
TOTAL COST-BASED
46%
Charge-based
54%
TOTAL
100%

37%
3%
4%
44%
56%
100%

40%
5%
5%
50%
50%
100%

39%
5%
5%
49%
51%
100%

45%
7%
2%
54%
46%
100%

45%
7%
3%
55%
45%
100%

Bond rating (b)

SELECTED RATIOS
Current ratio
Net profit margin (%)
Return on begin. assets (%)
Return on begin. equity (%)
Asset turnover
Total debt/Total capital (%)
HOSPITAL DATA
Hospitals in operationown/managed (c)
Bed capacity (c & d)
Occupancy rate (d)

Page 8

Exh 5

National Medical
Enterprises, Inc.
1981
1980

Lifemark
1981
1980

$1,044,118
32,968
96,249
51,799
1.24
0.3
24.2

$722,560
25,740
54,293
29,493
0.91
0.2
22.0

$322,877
11,997
30,772
18,354
1.8
0.42
23.3

$202,540
5,847
16,390
14,059
1.77
0.33
18.6

$867,497
299,354
5,141
376,150
$8.39
15.6

$596,196
274,172
5,141
200,153
$5.47
8.2

$387,453
170,945

$210,597
101,858

134,752
$13.18
10.3

60,587
$7.56
16.1

$27.25
$11.50

$10.50
$4.38

$28.10
$9.10

$35.80
$21.20

BB+

Ba

BB+

Ba

2
5.0
8.7
25.9
1.8
44

1.8
4.1
9.2
27.0
2.3
57.2

1.2
5.7
8.7
30.3
1.5
55.9

1.7
6.9
11.1
40.3
1.6
62.7

57
6,929
#N/A

54
6,593
#N/A

35
4,563
#N/A

30
3,546
#N/A

42%
13%
5%
59%
41%
100%

42%
13%
4%
59%
41%
100%

#N/A
#N/A
#N/A
42%
58%
100%

#N/A
#N/A
#N/A
44%
56%
100%

Page 9

Exh 5

GROWTH RATES: 1976-1981

Revenues
Net income
Total assets
Hospitals in operation

35.3%
32.4%
34.2%
30.1%

41.1%
54.6%
30.0%
6.8%

(a) Fiscal Year ends 8/31 for Humana & American Medical Int.; 12/31 for
HCA and Lifemark; 5/31 for National Medical.
(b) Excludes Convertibles.
(c) Excludes long-term care facilities (i.e. nursing homes) for
National Medical Enterprises.
(d) For owned hospitals only for American Medical International.
NR = Not rated. NA = Not available.

Page 10

31.2%
46.1%
22.7%
13.4%

Exh 5

47.0%
52.7%
34.3%
18.7%

31.0%
40.9%
39.7%
11.7%

Page 11

Exh 6

EXHIBIT 6

Schedule of Outstanding Long-term Debt ($000)

1979

Mortgage notes and bonds, 6% to

16 1/2% , due through 1988
Revenue bonds, 6 1/4% to 13 1/2%,
due through 2011
Notes, debentures, and capitalized
leases, 7% to 16 1/2%, due through
'1999
Revolving credit and term loan
agreements at prime or Libor, plus
1/2% to 5/8%
Commercial paper and bank financing,
13 1/4% composite effective rate at
December 31, 1981 (a)
Convertible subordinated debentures:
8 3/4% due 1996, convertible at $43.5
per share
8 3/4% , due 1996, convertible at $62.30
per share
12%, due 1996, convertible at $62.30
per share
Guaranteed notes, 15 1/2%, due 1988
Total
Debt maturing the next five years:
1982
1983
1984
1985
1986

$288,431

1980

$152,500

1981

$175,963

63,287

102,068

133,788

75,307

227,235

280,541

168,000

515,000

125,376

207,544

80,000
125,000
81,000
50,000
$775,179 $1,648,836

$427,025
$33,678
70,232
71,388
116,801
$163,387

Notes:
(a) The company entered into revolving credit agreements with a group of banks for
amounts that totaled $160 million in 1980 and $278 million in 1981. The lines were used
to support commercial paper and other bank financing during these two years.
Because of the availability of long-term financing under these agreements, the
company classified the commercial paper issue under long-term debt.

Page 12

Exh 7

EXHIBIT 7

Debt Issued in the U.S. Public Market by Industrial

Corporations with Varying Credit Ratings ($ millions)

Credit Rating
Aaa
Aa
A
Baa
Other

1974
$
1,650
2,415
2,060
440
15
6,580

%
25.1%
36.7%
31.3%
6.7%
0.2%
100.0%

1975
$
2,875
3,310
5,355
420
9
11,969

Page 13

%
24.0%
27.7%
44.7%
3.5%
0.1%
100.0%

1976
$
700
2,030
2,205
1,010
53
5,998

%
11.7%
33.8%
36.8%
16.8%
0.9%
100.0%

$
800
1,125
960
445
567
3,897

Exh 7

1977
%
20.5%
28.9%
24.6%
11.4%
14.6%
100.0%

1978
$
275
700
1,310
210
713
3,208

%
8.6%
21.8%
40.8%
6.5%
22.3%
100.0%

1979
$
1,550
1,800
1,500
0
809
5,659

%
27.4%
31.8%
26.5%
0.0%
14.3%
100.0%

Page 14

1980
$
1,750
2,900
4,220
345
549
9,764

%
17.9%
29.7%
43.2%
3.6%
5.6%
100.0%

$
1,852
2,458
3,887
0
690
8,887

Exh 7

1981
%
20.8%
27.7%
43.7%
0.0%
7.8%
100.0%

Page 15