HEALTH MANAGEMENT ASSOCIATES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2003

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number 001-11141

HEALTH MANAGEMENT ASSOCIATES, INC.

(Exact name of Registrant as specified in its charter)

Delaware

61-0963645

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

5811 Pelican Bay Boulevard, Suite 500

Naples, Florida

34108-2710

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (239) 598-3131

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

At February 9, 2004, 242,928,011 shares of the Registrant’s Class A Common Stock were outstanding.

HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003

INDEX


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Income - Three Months Ended December 31, 2003 and 2002	3

	Condensed Consolidated Balance Sheets - December 31, 2003 and September 30, 2003	4

	Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 2003 and 2002	5

	Notes to Interim Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II - OTHER INFORMATION		19

Signatures		20

Index To Exhibits		21

Exhibits		24

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


	Three months ended December 31,
	2003		2002
Net patient service revenue	$	756,553	$	609,419
Costs and expenses:
Salaries and benefits		302,762		242,511
Supplies and other		228,136		179,942
Provision for doubtful accounts		58,087		46,307
Depreciation and amortization		31,003		26,087
Rent expense		15,422		12,105
Interest, net		4,454		3,761

Total costs and expenses		639,864		510,713

Income before minority interests and income taxes		116,689		98,706
Minority interests in earnings of consolidated entities		1,140		922

Income before income taxes		115,549		97,784
Provision for income taxes		44,238		38,128

Net income	$	71,311	$	59,656

Net income per share:
Basic	$	.30	$	.25

Diluted	$	.29	$	.24

Dividends per share	$	.02	$	.02

Weighted average number of shares outstanding:
Basic		241,322		238,589

Diluted		246,153		257,255

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	December 31, 2003			September 30, 2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	119,350		$	395,338
Accounts receivable, net		627,025			527,254
Supplies, prepaid expenses and other assets		105,548			123,247
Funds held by trustee		12,588			17,470
Deferred income taxes		30,027			30,027

Total current assets		894,538			1,093,336
Property, plant and equipment		2,237,838			1,983,151
Less: accumulated depreciation and amortization		(585,253	)		(555,436	)

Net property, plant and equipment		1,652,585			1,427,715
Funds held by trustee		22,129			15,924
Excess of cost over acquired net assets, net		730,230			397,825
Deferred charges and other assets		44,845			44,687

Total assets	$	3,344,327		$	2,979,487

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	142,184		$	136,136
Accrued expenses and other liabilities		149,340			121,980
Income taxes - currently payable		29,082			5,400
Current maturities of long-term debt		208,906			9,447

Total current liabilities		529,512			272,963
Deferred income taxes		48,984			48,984
Other long-term liabilities		64,013			58,402
Long-term debt		926,205			924,713
Minority interests in consolidated entities		38,490			37,350
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized		—			—
Common stock, Class A, $.01 par value, 750,000 shares authorized, 265,286 and 262,705 shares issued at December 31, 2003 and September 30, 2003, respectively		2,653			2,627
Additional paid-in capital		433,397			399,782
Retained earnings		1,601,729			1,535,322

		2,037,779			1,937,731
Less: treasury stock, 22,500 shares of common stock, at cost, at both December 31, 2003 and September 30, 2003		(300,656	)		(300,656	)

Total stockholders’ equity		1,737,123			1,637,075

Total liabilities and stockholders’ equity	$	3,344,327		$	2,979,487

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three months ended December 31,
	2003			2002
Cash flows from operating activities:
Net income	$	71,311		$	59,656
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		31,003			26,087
Provision for doubtful accounts		58,087			46,307
Loss on sale of fixed assets		—			10
Changes in assets and liabilities:
Accounts receivable		(158,717	)		(52,822	)
Supplies and other current assets		26,724			(7,515	)
Deferred charges and other assets		(2,394	)		8,729
Accounts payable		2,510			2,554
Accrued expenses and other liabilities		18,259			5,151
Income taxes-currently payable		39,682			23,865
Other long term liabilities		6,751			(1,548	)

Net cash provided by operating activities		93,216			110,474

Cash flows from investing activities:
Acquisition of facilities, net of cash acquired and purchase price adjustments		(527,498	)		(9,556	)
Additions to property, plant and equipment		(53,941	)		(32,015	)
Proceeds from sale of property, plant and equipment		54			120
Increase in funds held by trustee		(1,323	)		(753	)

Net cash used in investing activities		(582,708	)		(42,204	)

Cash flows from financing activities:
Proceeds from borrowings, net of issuance costs		278,185			3,239
Principal payments on debt		(77,418	)		(1,400	)
Payment of dividends		(4,904	)		(4,863	)
Proceeds from issuance of common stock		17,641			319

Net cash provided by (used in) financing activities		213,504			(2,705	)

Net (decrease) increase in cash and cash equivalents		(275,988	)		65,565
Cash and cash equivalents at beginning of period		395,338			123,736

Cash and cash equivalents at end of period	$	119,350		$	189,301

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The condensed consolidated balance sheet as of September 30, 2003 has been derived from the audited consolidated financial statements included in our 2003 Annual Report on Form 10-K. The interim condensed consolidated financial statements at December 31, 2003, and for the three month periods ended December 31, 2003 and 2002 are unaudited; however, such interim statements reflect all adjustments (consisting only of a normal recurring nature) which are, in the opinion of our management, necessary for a fair presentation of our financial position and results of operations for the interim periods presented. Our results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our 2003 Annual Report on Form 10-K.

The interim condensed consolidated financial statements include all assets, liabilities, revenues and expenses of certain entities which are controlled by us but not wholly-owned. Accordingly, we have recorded minority interests in the earnings and equity of such entities to reflect the ownership interests of such minority shareholders in the respective entities.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements. Actual results could differ from these estimates.

2. Stock Compensation

We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under APB 25, since the exercise price of the employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. As a result, pro forma disclosure of alternative fair value accounting is required under Financial Accounting Standards Board (“FASB”) Statement of Accounting Financial Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, utilizing an option valuation model.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Stock Compensation (continued)

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over their vesting period. Our pro forma information is as follows (in thousands, except per share data):


	Three months ended December 31,
	2003			2002
Net income, as reported	$	71,311		$	59,656
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,906	)		(3,169	)

Pro forma net income	$	68,405		$	56,487

Pro forma earnings per share:
Basic – as reported	$	.30		$	.25
Basic – pro forma	$	.28		$	.24
Diluted – as reported	$	.29		$	.24
Diluted – pro forma	$	.28		$	.22

3. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share of our common stock (in thousands, except per share data):


	Three months ended December 31,
	2003		2002
Numerator:
Numerator for basic earnings per share-net income	$	71,311	$	59,656
Effect of interest expense on convertible debt		—		1,393

Numerator for diluted earnings per share	$	71,311	$	61,049

Denominator:
Denominator for basic earnings per share-weighted average shares		241,322		238,589
Effect of dilutive securities:
Employee stock options		4,831		4,217
Convertible debt		—		14,449

Denominator for diluted earnings per share		246,153		257,255

Basic earnings per share	$	.30	$	.25

Diluted earnings per share	$	.29	$	.24

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