UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
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Commission File Number 000-18799
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HEALTH MANAGEMENT ASSOCIATES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 61-0963645
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5811 Pelican Bay Boulevard, Suite 500, Naples, Florida 34108-2710
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(Address of principal executive offices) (Zip Code)
(941)598-3131
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(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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At February 7, 2001, the following shares of the Registrant were outstanding:
Class A Common Stock 243,586,952 shares
HEALTH MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
INDEX
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PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Income --
Three Months Ended December 31, 2000 and 1999 ......................3
Condensed Consolidated Balance Sheets--
December 31, 2000 and September 30, 2000 ...........................4
Condensed Consolidated Statements of Cash Flows--
Three Months Ended December 31, 2000 and 1999 ......................5
Notes to Interim Condensed Consolidated Financial Statements .........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................7-10
PART II. OTHER INFORMATION .................................................11
Signatures ...................................................................12
Index To Exhibits .........................................................13-14
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,
---------------------------
2000 1999
-------- ---------
Net patient service revenue ....................... $434,237 $370,094
Costs and expenses:
Salaries and benefits .......................... 169,153 136,428
Supplies and other ............................. 126,069 109,946
Provision for doubtful accounts ................ 35,905 34,173
Depreciation and amortization .................. 21,430 18,132
Rent expense ................................... 9,522 9,273
Interest, net .................................. 6,036 5,691
-------- --------
Total costs and expenses ................... 368,115 313,643
-------- --------
Income before income taxes ........................ 66,122 56,451
Provision for income taxes ........................ 25,944 22,159
-------- --------
Net income ........................................ $ 40,178 $ 34,292
======== ========
Net income per share:
Basic ......................................... $ .17 $ .14
======== ========
Diluted ....................................... $ .16 $ .14
======== ========
Weighted average number of shares outstanding:
Basic ......................................... 243,234 241,916
======== ========
Diluted ....................................... 264,297 245,015
======== ========
See accompanying notes.
3
HEALTH MANAGEMENT ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
------
December 31, September 30,
2000 2000
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents ............................................... $ 34,051 $ 16,471
Receivables--net ........................................................ 398,569 372,653
Supplies, prepaids and other assets ..................................... 63,612 57,866
Funds held by trustee ................................................... 2,495 2,562
Deferred income taxes ................................................... 37,411 37,411
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Total current assets ............................................... 536,138 486,963
Property, plant and equipment ............................................. 1,367,751 1,352,819
Less: accumulated depreciation and amortization ......................... (305,746) (287,489)
---------- ----------
Net property, plant and equipment .................................. 1,062,005 1,065,330
Other assets:
Funds held by trustee ................................................... 1,939 2,005
Excess of cost over acquired net assets, net ............................ 207,432 195,004
Deferred charges and other assets ....................................... 17,810 22,763
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Total .............................................................. 227,181 219,772
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$1,825,324 $1,772,065
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ........................................................ $ 86,216 $ 78,227
Accrued expenses and other liabilities .................................. 88,195 82,910
Income taxes--currently payable and deferred ............................ 24,014 2,122
Current maturities of long-term debt .................................... 6,645 6,523
---------- ----------
Total current liabilities .......................................... 205,070 169,782
Deferred income taxes ..................................................... 34,496 34,496
Other long-term liabilities ............................................... 17,765 17,570
Long-term debt ............................................................ 492,636 520,151
Stockholders' equity:
Preferred stock, $.01 par value, 5,000
shares authorized ..................................................... - -
Common stock, Class A, $.01 par value, 750,000
shares authorized, 256,073 and 255,357
shares issued at December 31, 2000 and
September 30, 2000, respectively ...................................... 2,561 2,554
Additional paid-in capital .............................................. 313,940 308,834
Retained earnings ....................................................... 870,347 830,169
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1,186,848 1,141,557
Less: treasury stock, 12,500 shares at cost ............................. (111,491) (111,491)
---------- ----------
Total stockholders' equity ......................................... 1,075,357 1,030,066
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$1,825,324 $1,772,065
========== ==========
See accompanying notes.
4
HEALTH MANAGEMENT ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
December 31,
-----------------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income .............................................................. $ 40,178 $ 34,292
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ........................................ 21,430 18,132
Loss on sale of fixed assets ......................................... 4 3
Changes in assets and liabilities:
Receivables--net ................................................... (25,934) (18,507)
Supplies and other current assets .................................. (5,746) (3,104)
Deferred charges and other assets .................................. (9,980) (3,243)
Accounts payable ................................................... 7,989 7,679
Accrued expenses and other liabilities ............................. 5,376 (5,135)
Income taxes--
currently payable and deferred ................................... 21,892 7,389
Other long term liabilities ........................................ (178) 286
-------- --------
Net cash provided by
operating activities .......................................... 55,031 37,792
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Cash flows from investing activities:
Additions to property, plant and equipment .............................. (16,520) (28,525)
Proceeds from sale of property, plant and
equipment .............................................................. 2,792 11
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Net cash used in investing activities ........................... (13,728) (28,514)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings ...................................... 2,673 47,405
Principal payments on debt .............................................. (31,641) (2,282)
Proceeds from issuance of common stock .................................. 5,112 54
Purchase of treasury stock, at cost ..................................... - (42,399)
Decrease (increase) in funds held by trustee ............................ 133 (308)
-------- --------
Net cash (used in) provided by
financing activities .......................................... (23,723) 2,470
-------- --------
Net increase in cash and cash
equivalents ............................................. 17,580 11,748
Cash and cash equivalents at beginning of period .......................... 16,471 12,926
-------- --------
Cash and cash equivalents at end of period ................................ $ 34,051 $ 24,674
======== ========
See accompanying notes.
5
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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The condensed consolidated balance sheet as of September 30, 2000 has been
derived from the audited consolidated financial statements included in Health
Management Associates, Inc.'s (the Company's) 2000 Annual Report. The interim
condensed consolidated financial statements at December 31, 2000 and for the
three months ended December 31, 2000 and 1999 are unaudited; however, such
interim statements reflect all adjustments (consisting only of a normal
recurring nature) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full year.
The interim financial statements should be read in conjunction with the audited
consolidated financial statements of the Company included in its 2000 Annual
Report.
2. Use of Estimates
- ---------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements. Actual results could differ from the estimates.
3. Earnings Per Share
- -----------------------
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
December 31,
--------------------------
2000 1999
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Numerator:
Numerator for basic earnings per share-
net income $40,178 $34,292
Effect of convertible debt 1,337 -
------- -------
Numerator for diluted earnings per share $41,515 $34,292
======= =======
Denominator:
Denominator for basic earnings
per share-weighted average shares 243,234 241,916
Effect of dilutive securities:
Employee stock options 6,614 3,099
Convertible debt 14,449 -
------- -------
Denominator for diluted earnings
per share 264,297 245,015
======= =======
Basic earnings per share $ .17 $ .14
======= =======
Diluted earnings per share $ .16 $ .14
======= =======
See accompanying notes.
6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
Three months ended December 31, 2000 compared
---------------------------------------------
to three months ended December 31, 1999
---------------------------------------
Net patient service revenue for the three months ended December 31,
2000 ("2001 Period") was $434.2 million, as compared to $370.1 million for
the three months ended December 31, 1999 ("2000 Period"). This represented
an increase in net patient service revenue of $64.1 million, or 17.3%.
Hospitals in operation for the entire 2001 Period and 2000 Period ("same
hospitals") provided $25.3 million of the increase in net patient service
revenue. The remaining net increase of $38.8 million included $39.4 million
of net patient service revenue from the July 2000 acquisition of a 268-bed
hospital, the September 2000 acquisition of a 120-bed hospital and the
October 2000 acquisition of a 149-bed hospital, offset by a decrease of $.6
million in Corporate and miscellaneous other revenue.
During the 2001 Period the Company's hospitals generated patient days
of service and an occupancy rate of 209,431 and 44.7%, respectively, versus
194,260 and 45.3%, respectively, for the 2000 Period. Same hospital patient
days and occupancy rates were 178,125 and 44.3%, respectively, for the 2001
Period, and 177,764 and 44.2%, respectively, for the 2000 Period. Same
hospital admissions for the Company during the 2001 Period were 40,235, up
3.1% from the 39,021 admissions during the 2000 Period.
The Company's operating expenses (salaries and benefits, supplies and
other, provision for doubtful accounts and rent expense) for the 2001
Period were $340.6 million or 78.4% of net patient service revenue as
compared to $289.8 million or 78.3% of net patient service revenue for the
2000 Period. Of the total $50.8 million increase, approximately $17.7
million related to same hospitals, which was largely attributable to
increased inpatient and outpatient volumes. Another $32.6 million of
increased operating expense related to the acquisitions mentioned
previously. The remaining $.5 million represented the net increase in
Corporate and miscellaneous other operating expenses.
The Company's depreciation and amortization costs increased by $3.3
million and interest expense increased by $.3 million. The increase in
depreciation and amortization resulted primarily from the acquisitions
mentioned previously. The increase in interest expense was due largely to
increased acquisition related debt in the 2001 Period.
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company's income before income taxes was $66.1 million for the
2001 Period as compared to $56.5 million for the 2000 Period, an increase
of $9.6 million, or 17.0%. The increase resulted primarily from same
hospital volume increases and the acquisitions mentioned previously. The
Company's provision for income taxes was $25.9 million for the 2001 Period,
as compared to $22.2 million for the 2000 Period. These provisions reflect
effective income tax rates of approximately 39.2% for both periods. As a
result of the foregoing, the Company's net income was $40.2 million for the
2001 Period as compared to $34.3 million for the 2000 Period.
Liquidity and Capital Resources
-------------------------------
2001 Period Cash Flows compared to 2000 Period Cash Flows
The Company's operating cash flows totaled $55.0 million for the 2001
Period as compared to $37.8 million for the 2000 Period. The continued
positive cash flows from operating activities results from the Company's
profitability and management of its working capital. The Company's
investing activities used $13.7 million and $28.5 million for the 2001
Period and 2000 Period, respectively. Construction costs related to the
replacement of existing hospitals accounted for the majority of the
expenditures in the 2000 Period while ongoing renovation and capital
equipment costs accounted for the majority of the expenditures in the 2001
Period. Financing activities used $23.7 million for the 2001 Period and
provided net cash of $2.5 million for the 2000 Period. Increased principal
payments on debt accounted for the majority of the net cash used in the
2001 period, while borrowings used primarily to finance the purchase of
treasury stock accounted for the net cash provided in the 2000 period. See
the Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 2000 and 1999 at page 5 of this Report.
Capital Resources
The Company currently has a 5-year $450 million Credit Agreement (the
"Credit Agreement") due November 30, 2004. The Credit Agreement is a term
loan agreement which permits the Company to borrow under an unsecured
revolving credit loan at any time through November 30, 2004, at which time
the agreement terminates and all outstanding amounts become due and
payable. The Company may choose a Base Rate Loan (prime interest rate) or a
Eurodollar Rate Loan (LIBOR interest rate). The interest rate for a
Eurodollar Rate Loan is currently LIBOR plus 1.00 percent, and will
increase or decrease in relation to a change in the Company's credit
rating. Under either alternative, quarterly interest payments are required.
As of January 31, 2001, the outstanding balance was $100 million.
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company also has a $15 million unsecured revolving credit
commitment with a bank. The $15 million credit is a working capital
commitment which is tied to the Company's cash management system, and
renews annually on November 1. Currently, interest on any outstanding
balance is payable monthly at a fluctuating rate not to exceed the bank's
prime rate less 1/4%. As of January 31, 2001, there were no amounts
outstanding under this credit commitment.
On August 16, 2000, the Company sold $488.8 million face value of
zero-coupon convertible senior subordinated debentures for gross proceeds
of $287.7 million. The debentures mature on August 16, 2020 unless
converted or redeemed earlier. The debentures are convertible into the
Company's class A common stock at a conversion rate of 29.5623 shares for
each $1,000 principal amount of debentures converted (equivalent to a
conversion price of $19.9125 per share). Interest on the debentures is
payable in arrears on August 16 and February 16 of each year, beginning
February 16, 2001 at a rate of .25% per year on the principal amount due at
maturity. The rate of cash interest and accrual of original issue discount
represent a yield to maturity of 3% per year, calculated from August 16,
2000. The Company used the net proceeds generated from the sale and
issuance of the debentures to pay down borrowings under its revolving
credit facility.
Neither the debentures nor the shares of class A common stock
underlying the debentures were registered or required to be registered
under the Securities Act of 1933 and were sold in the United States in a
private placement under Rule 144A of the Securities Act. Pursuant to a
Registration Rights Agreement with the holders of the debentures, the
Company registered the debentures and the underlying class A common stock
for resale under the Securities Act pursuant to a registration statement on
Form S-3, which registration statement became effective with the Securities
and Exchange Commission on January 17, 2001.
Forward-Looking Statements
--------------------------
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions, both nationally and in the regions in which the Company
operates; industry capacity; demographic changes; existing governmental
regulations and changes in, or the failure to comply with, governmental
regulations; legislative proposals for health care reform; the ability to
enter into managed care provider arrangements on acceptable terms; changes
in
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Medicare and Medicaid payment levels; liability and other claims asserted
against the Company; competition; the loss of any significant ability to
attract and retain qualified personnel, including physicians; the
availability and terms of capital to fund additional acquisitions or
replacement facilities. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors
or to publicly announce the results of any revision to any of the
forward-looking statements contained herein to reflect future events or
developments.
10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults upon Senior Securities.
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information.
-----------------
None
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a. Exhibits:
--------
See Index to Exhibits located on page 13.
b. Reports on Form 8-K:
-------------------
Form 8-K Reporting Date--January 2, 2001
Item Reported--Item 5. Other Events and Regulation FD
Disclosure. The Company filed Form 8-K to announce (a) the
promotion of Mr. Joseph V. Vumbacco to Chief Executive
Officer, (b) the continuation of Mr. William J. Schoen as
Chairman of the Corporation and Chairman of the Board at
least until January 1, 2004 and (c) the retirement of Mr.
Earl Holland, Vice Chairman and Chief Operating Officer.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEALTH MANAGEMENT ASSOCIATES, INC.
DATE: February 9, 2001 BY: /s/ Stephen M. Ray
---------------------------------
Stephen M. Ray
Executive Vice President-Finance
(Duly authorized officer and
Principal Financial Officer)
12
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
Not applicable.
(3) (i) Articles of Incorporation
3.1 The Fifth Restated Certificate of Incorporation, previously filed and
included as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, is incorporated herein by
reference.
3.2 Certificate of Amendment to Fifth Restated Certificate of
Incorporation, previously filed and included as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended September 30,
1999, is incorporated herein by reference.
(ii) By-laws
The By-laws, as amended, previously filed and included as Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, is incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including indentures.
The Exhibits referenced under (3) of this Index to Exhibits are
incorporated herein by reference.
Credit Agreement by and among Health Management Associates, Inc., as
Borrower, Bank of America, N.A., as Administrative Agent and as Lender,
First Union National Bank, as Syndication Agent and as Lender, and the
Chase Manhattan Bank, as Syndication Agent and as Lender, and The Lenders
Party Hereto From Time To Time, dated November 30, 1999, previously filed
and included as Exhibit 4.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2000, is incorporated herein by
reference.
Credit Agreement dated March 23, 2000 between First Union National Bank and
Health Management Associates, Inc., pertaining to a $15 million working
capital and cash management line of credit, previously filed and included
as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, is incorporated herein by reference.
(10) Material contracts.
Employment Agreement for William J. Schoen dated January 2, 2001,
previously filed and included as Exhibit 99.2 to the Company's Registration
Statement Form S-8 as filed on January 12, 2001, is incorporated herein by
reference.
(11) Statement re computation of per share earnings.
Not applicable.
13
INDEX TO EXHIBITS (Continued)
(15) Letter re unaudited interim financial information.
Not applicable.
(18) Letter re change in accounting principles.
Not applicable.
(19) Report furnished to security holders.
Not applicable.
(22) Published report regarding matters submitted to vote of security holders.
Not applicable.
(23) Consents of experts and counsel.
Not applicable.
(24) Power of attorney.
Not applicable.
(99) Additional exhibits.
Not applicable.
14