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, 2004

¨	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 1, 2005, 244,004,107 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, 2004

INDEX


		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Income - Three Months Ended December 31, 2004 and 2003		3

Condensed Consolidated Balance Sheets - December 31, 2004 and September 30, 2004		4

Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 2004 and 2003		5

Notes to Interim Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

Item 4. Controls and Procedures		21

PART II - OTHER INFORMATION		22

Signatures		23

Index To Exhibits		24

Exhibits		26

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,
	2004		2003
Net patient service revenue	$	822,181	$	756,553

Costs and expenses:
Salaries and benefits		327,250		302,762
Supplies and other		247,816		228,136
Provision for doubtful accounts		62,086		58,087
Depreciation and amortization		36,595		31,003
Rent expense		17,014		15,422
Interest, net		3,218		4,454

Total costs and expenses		693,979		639,864

Income before minority interests and income taxes		128,202		116,689
Minority interests in earnings of consolidated entities		662		1,140

Income before income taxes		127,540		115,549
Provision for income taxes		48,788		44,238

Net income	$	78,752	$	71,311

Net income per share:
Basic	$	.32	$	.30

Diluted	$	.32	$	.29

Dividends per share	$	—	$	.02

Weighted average number of shares outstanding:
Basic		243,714		241,322

Diluted		247,379		246,153

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	December 31, 2004			September 30, 2004
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	192,443		$	112,946
Accounts receivable, net		638,240			626,149
Supplies, prepaid expenses, and other assets		143,532			159,142
Restricted funds		17,020			16,852
Deferred income taxes		26,505			26,505

Total current assets		1,017,740			941,594

Property, plant and equipment		2,429,891			2,374,201
Less: accumulated depreciation and amortization		(716,898	)		(681,500	)

Net property, plant and equipment		1,712,993			1,692,701

Restricted funds		66,676			55,942
Excess of cost over acquired net assets, net		754,253			748,156
Deferred tax asset		22,142			22,142
Deferred charges and other assets		58,395			46,753

Total assets	$	3,632,199		$	3,507,288

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	140,890		$	140,695
Accrued expenses and other liabilities		150,103			163,230
Income taxes - currently payable		39,128			3,500
Deferred income taxes		2,964			2,964
Current maturities of long-term debt		10,319			9,742

Total current liabilities		343,404			320,131

Deferred income taxes		152,337			143,760
Other long-term liabilities		102,553			96,803
Long-term debt		927,212			925,518
Minority interests in consolidated entities		43,728			43,066

Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized		—			—
Common stock, Class A, $.01 par value, 750,000 shares authorized, 266,489 and 265,981 shares issued at December 31, 2004 and September 30, 2004, respectively		2,665			2,660
Additional paid-in capital		451,669			445,270
Retained earnings		1,909,287			1,830,736

		2,363,621			2,278,666
Less: treasury stock, 22,500 shares of common stock, at cost, at both December 31, 2004 and September 30, 2004		(300,656	)		(300,656	)

Total stockholders’ equity		2,062,965			1,978,010

Total liabilities and stockholders’ equity	$	3,632,199		$	3,507,288

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended December 31,
	2004			2003
Cash flows from operating activities:
Net income	$	78,752		$	71,311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		36,595			31,003
Provision for doubtful accounts		62,086			58,087
Minority interest in earnings of consolidated entities		662			1,140
Gain on sale of fixed assets		(108	)		—
Non-deferred financing costs		2,540			—
Change in deferred income taxes		8,577			—

Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(70,278	)		(158,717	)
Supplies and other current assets		16,566			26,724
Deferred charges and other assets		(13,126	)		(2,394	)
Accounts payable		328			2,510
Accrued expenses and other liabilities		(7,262	)		17,119
Income taxes - currently payable		35,629			39,682
Other long term liabilities		5,447			6,751

Net cash provided by operating activities		156,408			93,216

Cash flows from investing activities:
Acquisition of facilities, net of cash acquired and purchase price adjustments		(20,108	)		(527,498	)
Additions to property, plant and equipment		(43,509	)		(53,941	)
Proceeds from sale of property, plant and equipment		337			54

Net cash used in investing activities		(63,280	)		(581,385	)

Cash flows from financing activities:
Proceeds from long-term borrowings		5,247			278,185
Principal payments on debt		(2,976	)		(77,418	)
Increase in restricted funds		(10,902	)		(1,323	)
Proceeds from issuance of common stock		6,404			17,641
Payment of financing costs		(1,465	)		—
Payment of dividends		(9,939	)		(4,904	)

Net cash (used in) provided by financing activities		(13,631	)		212,181

Net increase (decrease) in cash and cash equivalents		79,497			(275,988	)
Cash and cash equivalents at beginning of period		112,946			395,338

Cash and cash equivalents at end of period	$	192,443		$	119,350

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, 2004 has been derived from the audited consolidated financial statements included in our 2004 Annual Report on Form 10-K. The interim condensed consolidated financial statements at December 31, 2004, and for the three month periods ended December 31, 2004 and 2003 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. Due to the seasonal nature of our business, our results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal 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 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 2004 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. Our actual results could differ from these estimates.

2. Stock compensation

We have elected to follow Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees. Under APB Opinion No. 25, because the exercise price of 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 Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, utilizing an option valuation model. See Note 5 – Recent accounting pronouncements.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Stock compensation (continued)

For purposes of pro forma disclosure, the estimated fair value of 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,
	2004			2003
Net income, as reported	$	78,752		$	71,311
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,965	)		(2,906	)

Pro forma net income	$	75,787		$	68,405

Pro forma earnings per share:
Basic – as reported	$	.32		$	.30
Basic – pro forma	$	.31		$	.28
Diluted – as reported	$	.32		$	.29
Diluted – pro forma	$	.31		$	.28

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,
	2004		2003
Numerator:
Numerator for basic earnings per Share - net income	$	78,752	$	71,311
Effect of interest expense on convertible debt		1		—

Numerator for diluted earnings per share	$	78,753	$	71,311

Denominator:
Denominator for basic earnings per share - weighted average shares		243,714		241,322
Effect of dilutive securities:
Employee stock options		3,659		4,831
Convertible debt

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