This problem asks you to analyze the capital structure of HCA, Inc., the largest private operator of health care facilities in the world. In 2006, a syndicate of private equity firms acquired the firm for $31.6 billion and took it private. In November 2010, as interest rates hit record lows, the company announced a dividend recapitalization in which it would distribute an extraordinary $2 billion dividend financed in large part by a $1.53 billion bond offering.

e.

HCA is the largest private operator of health care facilities in the world with hundrd of facilities in over 20 states. In 2006, private equity buyers took the company private in a $31.6 billion acquisition. In broad terms how costly do you think financial distress would be to HCA if it began to appear the company might be having difficulty servicing its debt? Why?

f.	In late 2010 HCA announced an intended dividend recapitalization in which it would pay a $2 billion dividend to shareholders financed in large part by a $1.53 billion bond offering. At an interest rate of 6 percent, how would the added debt have affected HCA's times-interest-earned ratio in 2009?

g.	Please comment on HCA's capital structure. Is its 2009 debt level prudent? Is it smart to add another $1.53 billion to this total? Why, or why not?

Below is the data, and answer I calculated for a-d

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Sales Cost of Goods Sold Gross Profit Depreciation Operating Profit Interest Expense Non-Operating Income/Expense Pretax Income Total Income Taxes Minority Interest Net Income ASSETS Cash & Equivalents Net Receivables Inventories HCA INC. INCOME STATEMENT ($ millions) 2005 2006 Intangibles Deferred Charges Other Assets TOTAL ASSETS Other Current Assets Total Current Assets Gross Plant, Property & Equipm Accumulated Depreciation Net Plant, Property & Equipmen Investments at Equity Other Investments Capital Surplus Retained Earnings Common Equity LIABILITIES Long Term Debt Due In One Yea Accounts Payable Taxes Payable Accrued Expenses Total Current Liabilities Long Term Debt Deferred Taxes Minority Interest Other Liabilities TOTAL LIABILITIES Preferred Stock Common Stock BALANCE SHEET ($ millions) 2005 2007 2008 2009 26,858 28,374 30,052 20,391 21,448 22,480 24,023 24,826 24,455 25,477 4,064 4,029 4,378 4,351 5,226 1,374 1,391 1,426 1,416 1,425 2,690 2,638 2,952 2,935 3,801 655 955 2,215 2,021 1,987 412 179 661 256 188 1,862 1,398 1,170 2,002 625 316 627 201 208 321 1,036 874 1,054 TOTAL EQUITY TOTAL LIABILITIES & EQUITY 2,327 725 178 1,424 336 3,332 616 931 2006 2007 634 393 3,705 3,895 669 710 5,215 20,818 9,439 10,238 11,379 627 85 159 22,225 2,134 1,886 1,669 2,626 2,601 2,629 614 539 148 853 0 4 0 312 3,692 802 1,070 1,207 1,319 1,771 6,078 6,205 6,301 6,577 21,907 22,579 23,714 24,669 11,137 12,185 13,242 11,669 11,442 11,529 11,427 679 688 842 853 268 229 673 2008 390 907 465 3,780 737 1,422 2,580 458 164 1 112 2009 1,148 1,113 23,675 24,025 24,280 24,131 586 293 1,484 1,415 0 0 1,825 1,868 1,981 1,912 2,007 3,895 3,576 3,849 3,910 4,313 9,889 28,115 27,000 26,585 24,824 830 828 308 404 1,370 1,370 190 224 1,166 2,577 418 0 0 938 995 1,920 1,936 2,612 2,890 17,362 34,924 34,399 34,380 125 155 1 1 165 0 4,859 (11,375) (10,651) (10,421) (9,213) 4,863 (11,374) (10,538) (10,255) (8,986) 4,863 (11,249) (10,374) (10,100) (8,839) 22,225 23,675 24,025 24,280 24,131 846 1,460 0 0 1,008 2,825 32,970 147 1 226 Sales Cost of Goods Sold Gross Profit Depreciation Operating Profit Interest Expense Non-Operating Income/Expense Pretax Income Total Income Taxes Minority Interest Net Income ASSETS Cash & Equivalents Net Receivables Inventories HCA INC. INCOME STATEMENT ($ millions) 2005 2006 Intangibles Deferred Charges Other Assets TOTAL ASSETS Other Current Assets Total Current Assets Gross Plant, Property & Equipm Accumulated Depreciation Net Plant, Property & Equipmen Investments at Equity Other Investments Capital Surplus Retained Earnings Common Equity LIABILITIES Long Term Debt Due In One Yea Accounts Payable Taxes Payable Accrued Expenses Total Current Liabilities Long Term Debt Deferred Taxes Minority Interest Other Liabilities TOTAL LIABILITIES Preferred Stock Common Stock BALANCE SHEET ($ millions) 2005 2007 2008 2009 26,858 28,374 30,052 20,391 21,448 22,480 24,023 24,826 24,455 25,477 4,064 4,029 4,378 4,351 5,226 1,374 1,391 1,426 1,416 1,425 2,690 2,638 2,952 2,935 3,801 655 955 2,215 2,021 1,987 412 179 661 256 188 1,862 1,398 1,170 2,002 625 316 627 201 208 321 1,036 874 1,054 TOTAL EQUITY TOTAL LIABILITIES & EQUITY 2,327 725 178 1,424 336 3,332 616 931 2006 2007 634 393 3,705 3,895 669 710 5,215 20,818 9,439 10,238 11,379 627 85 159 22,225 2,134 1,886 1,669 2,626 2,601 2,629 614 539 148 853 0 4 0 312 3,692 802 1,070 1,207 1,319 1,771 6,078 6,205 6,301 6,577 21,907 22,579 23,714 24,669 11,137 12,185 13,242 11,669 11,442 11,529 11,427 679 688 842 853 268 229 673 2008 390 907 465 3,780 737 1,422 2,580 458 164 1 112 2009 1,148 1,113 23,675 24,025 24,280 24,131 586 293 1,484 1,415 0 0 1,825 1,868 1,981 1,912 2,007 3,895 3,576 3,849 3,910 4,313 9,889 28,115 27,000 26,585 24,824 830 828 308 404 1,370 1,370 190 224 1,166 2,577 418 0 0 938 995 1,920 1,936 2,612 2,890 17,362 34,924 34,399 34,380 125 155 1 1 165 0 4,859 (11,375) (10,651) (10,421) (9,213) 4,863 (11,374) (10,538) (10,255) (8,986) 4,863 (11,249) (10,374) (10,100) (8,839) 22,225 23,675 24,025 24,280 24,131 846 1,460 0 0 1,008 2,825 32,970 147 1 226

Answer rating: 100% (QA)

To analyze the capital structure of HCA Inc lets address each question separately e The cost of financial distress refers to the negative impact on a companys value and operations when it faces diffic... View the full answer