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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ____ to ____
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
- -------------------------------- -----------------------------
(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 ___
---
At July 31, 1997, the following shares of the Registrant were outstanding:
Class A Common Stock 108,373,168 shares
HEALTH MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
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PART I. FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income --
Three Months Ended June 30, 1997 and 1996.................... 3
Consolidated Statements of Income --
Nine months ended June 30, 1997 and 1996...................... 4
Consolidated Balance Sheets--
June 30, 1997 and September 30, 1996......................... 5
Consolidated Statements of Cash Flows--
Nine months ended June 30, 1997 and 1996...................... 6
Notes to Interim Condensed Consolidated Financial Statements... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 8-11
PART II. OTHER INFORMATION......................................... 12
SIGNATURES.......................................................... 13
INDEX TO EXHIBITS................................................... 14-15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
June 30,
--------------------------
1997 1996
------------ ------------
Net patient service revenue......... $232,691,000 $184,356,000
Costs and expenses:
Salaries and benefits............ 78,879,000 63,043,000
Supplies and expenses............ 69,672,000 55,136,000
Provision for doubtful accounts.. 17,765,000 14,654,000
Depreciation and amortization.... 9,347,000 6,725,000
Rent expense..................... 5,001,000 4,083,000
Interest, net.................... 997,000 920,000
------------ ------------
Total costs and expenses..... 181,661,000 144,561,000
------------ ------------
Income before income taxes.......... 51,030,000 39,795,000
Provision for income taxes ......... 20,029,000 15,619,000
------------ ------------
Net income ......................... $ 31,001,000 $ 24,176,000
============ ============
Net income per share................ $ .28 $ .22
============ ============
Weighted average number of common
and common equivalent shares
outstanding....................... 112,115,000 110,869,000
============ ============
See accompanying notes.
3
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine months ended
June 30,
--------------------------
1997 1996
------------ ------------
Net patient service revenue......... $669,645,000 $521,125,000
Costs and expenses:
Salaries and benefits............ 231,827,000 179,344,000
Supplies and expenses............ 200,447,000 156,557,000
Provision for doubtful accounts.. 56,610,000 46,457,000
Depreciation and amortization.... 26,687,000 19,133,000
Rent expense..................... 14,262,000 11,702,000
Interest, net.................... 3,483,000 2,262,000
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Total costs and expenses..... 533,316,000 415,455,000
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Income before income taxes.......... 136,329,000 105,670,000
Provision for income taxes ......... 53,510,000 41,475,000
------------ ------------
Net income ......................... $ 82,819,000 $ 64,195,000
============ ============
Net income per share................ $ .74 $ .58
============ ============
Weighted average number of common
and common equivalent shares
outstanding ...................... 111,606,000 110,307,000
============ ============
See accompanying notes.
4
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
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June 30, September 30,
1997 1996
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(Unaudited)
Current assets:
Cash and cash equivalents....................... $ 53,934,000 $ 31,172,000
Receivables--net................................ 128,276,000 114,547,000
Supplies, prepaids and other assets............. 21,793,000 17,469,000
Funds held by trustee........................... 1,698,000 2,276,000
Income taxes - receivable and deferred.......... 12,339,000 12,339,000
------------ ------------
Total current assets........................... 218,040,000 177,803,000
Property, plant and equipment.................... 601,892,000 504,950,000
Less accumulated depreciation and amortization..
132,089,000 107,206,000
Net property, plant and equipment.............. ------------ ------------
469,803,000 397,744,000
Other assets:
Funds held by trustee........................... 931,000 136,000
Deferred charges and other assets............... 18,709,000 16,024,000
------------ ------------
Total.......................................... 19,640,000 16,160,000
------------ ------------
$707,483,000 $591,707,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................... $ 33,826,000 $ 28,754,000
Accrued expenses and other liabilities......... 34,197,000 29,724,000
Current maturities of long-term debt........... 8,587,000 8,438,000
Income taxes--currently payable and deferred... 15,970,000 3,980,000
------------ ------------
Total current liabilities................. 92,580,000 70,896,000
Deferred income taxes............................ 19,099,000 19,099,000
Other long-term liabilities...................... 17,027,000 15,271,000
Long-term debt................................... 62,750,000 68,702,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized............................. - -
Common stock, Class A, $.01 par value,
150,000,000 shares authorized, 108,361,000
and 105,699,000 shares issued and outstanding
at June 30, 1997 and September 30, 1996,
respectively............................... 1,082,000 1,057,000
Additional paid-in capital...................... 164,635,000 149,191,000
Retained earnings............................... 350,310,000 267,491,000
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Total stockholders' equity................. 516,027,000 417,739,000
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$707,483,000 $591,707,000
============ ============
See accompanying notes.
5
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
June 30,
----------------------------
1997 1996
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Cash flows from operating activities:
Net income........................................... $ 82,819,000 $ 64,195,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization..................... 26,687,000 19,133,000
(Gain)loss on sale of fixed assets................ (69,000) 203,000
Changes in assets and liabilities:
Receivables--net................................ (7,705,000) (19,348,000)
Other current assets............................ (705,000) (1,231,000)
Deferred charges and other assets............... (6,181,000) (6,770,000)
Accounts payable................................ 2,308,000 2,836,000
Accrued expenses and other liabilities.......... 1,682,000 (1,688,000)
Income taxes--
currently payable and deferred................ 11,990,000 7,462,000
Other long term liabilities..................... 1,756,000 1,079,000
------------ ------------
Net cash provided by operating activities . 112,582,000 65,871,000
------------ ------------
Cash flows from investing activities:
Acquisition of facilities, net of cash acquired...... (51,467,000) (99,640,000)
Additions to property, plant and equipment........... (47,227,000) (28,753,000)
Proceeds from sale of equipment...................... 298,000 27,000
------------ ------------
Net cash used in investing activities........ (98,396,000) (128,366,000)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term borrowings................... 384,000 791,000
Principal payments on debt........................... (7,061,000) (5,368,000)
Increase in funds held by trustee.................... (217,000) (355,000)
Issuance of common stock, net of costs............... 15,470,000 8,081,000
------------ ------------
Net cash provided by
financing activities....................... 8,576,000 3,149,000
------------ ------------
Net increase(decrease) in cash.................... 22,762,000 (59,346,000)
Cash and cash equivalents at beginning of period....... 31,172,000 75,326,000
------------ ------------
Cash and cash equivalents at end of period............. $ 53,934,000 $ 15,980,000
============ ============
See accompanying notes.
6
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
- -------------------------
The consolidated balance sheet as of September 30, 1996 has been derived
from the audited consolidated financial statements included in Health Management
Associates, Inc.'s (the Company's) 1996 Annual Report. The interim consolidated
financial statements at June 30, 1997 and for the three and nine month periods
ended June 30, 1997 and 1996 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 1996 Annual Report.
2. Acquisitions
- ----------------
Effective January 1, 1997 the Company acquired certain assets of a 112-bed
acute care hospital and a 125-bed acute care hospital through long-term lease
agreements for consideration totaling approximately $51,467,000, including
working capital. Approximately $49,538,000 of cash was paid at closing and
funded from available cash on hand. The operating results of the foregoing
hospitals have been included in the accompanying consolidated statements of
income from the January 1, 1997 acquisition date.
3. Recent Pronouncements
- -------------------------
In February, 1997 the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128, "Earnings per Share" ("SFAS 128") which is required
to be adopted for accounting periods ending after December 15, 1997. For the
first quarter ended December 31, 1997, the Company will be required to change
the method currently used to compute earnings per share and restate prior
periods. Under the new requirements for calculating earnings per share, the
Company will be required to present "Basic EPS" and "Fully Diluted EPS." Basic
EPS excludes dilutive securities such as stock options, while Fully Diluted EPS
includes such securities in its calculation. Management believes the impact of
the adoption of SFAS 128 will not be material.
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Three months ended June 30, 1997 compared
- -----------------------------------------
to three months ended June 30, 1996
- -----------------------------------
Net patient service revenue for the three months ended June 30, 1997 ("1997
Period") was $232,691,000, as compared to $184,356,000 for the three months
ended June 30, 1996 ("1996 Period"). This represented an increase in net
patient service revenue of $48,335,000, or 26.2%. Hospitals in operation for the
entire 1997 Period and 1996 Period ("same hospitals") provided $16,000,000
of the increase in net patient service revenue, which resulted primarily from
inpatient and outpatient volume increases. The remaining increase of
$32,335,000 included $32,691,000 of net patient service revenue from the
acquisition of the 112-bed Rankin Medical Center effective January 1, 1997, the
125-bed Stringfellow Memorial Hospital effective January 1, 1997 and the 206-bed
Midwest City Regional Hospital effective June 1, 1996, offset by a decrease of
$356,000 in Corporate and miscellaneous revenue.
During the 1997 Period the Company's hospitals generated total patient days
of service and an occupancy rate of 123,326 and 44.0%, respectively, versus
102,692 and 41.8%, respectively, for the 1996 Period. Same store patient days
and occupancy for the 1997 Period were 103,091 and 43.0%, respectively, versus
99,537 and 41.5%, respectively for the 1996 Period. Same hospital admissions
for the Company during the 1997 Period were 21,014, up 5.7% from the 19,874
admissions during the 1996 Period.
The Company's operating expenses (salaries and benefits, supplies and
expenses, provision for doubtful accounts and rent expense) for the 1997 Period
were $171,317,000 or 73.6% of net patient service revenue as compared to
$136,916,000 or 74.3% of net patient service revenue for the 1996 Period. Of
the total $34,401,000 increase, approximately $8,481,000 related to same
hospitals, which was largely attributable to the increased patient volumes.
Another $25,114,000 of increased operating expense related to the acquisitions
mentioned previously, with the remaining $806,000 increase from Corporate and
miscellaneous other operating expenses.
The Company's earnings before depreciation and amortization, interest and
income taxes (EBITDA) were $61,374,000 for the 1997 Period as compared to
$47,442,000 for the 1996 Period, an increase of $13,932,000 or 29.4%. The
EBITDA margin was 26.4% for the 1997 Period compared to 25.7% for the 1996
Period.
The Company's depreciation and amortization costs increased by $2,622,000
and interest expense increased by $77,000. The increase in depreciation and
amortization resulted primarily from the acquisitions mentioned previously. The
increase in interest expense reflects lower investment income in the 1997 Period
(as a result of cash used for the acquisitions previously mentioned), which is
netted against interest expense.
8
Item 2. Management's discussion and Analysis of Financial
Condition and Results of Operations (continued)
The Company's income before income taxes was $51,030,000 for the 1997
Period as compared to $39,795,000 for the 1996 Period, an increase of
$11,235,000 or 28.2%. The increase resulted primarily from same hospital volume
increases and the acquisitions mentioned previously. The Company's provision
for income taxes was $20,029,000 for the 1997 Period as compared to $15,619,000
for the 1996 Period. These provisions reflect effective income tax rates of
39.25% for both periods. As a result of the foregoing, the Company's net income
was $31,001,000 for the 1997 Period as compared to $24,176,000 for the 1996
Period.
Results of Operations
- ---------------------
Nine months ended June 30, 1997 compared
- ----------------------------------------
to nine months ended June 30, 1996
- ----------------------------------
Net patient service revenue for the nine months ended June 30, 1997 ("1997
Nine Month Period") was $669,645,000, as compared to $521,125,000 for the nine
months ended June 30, 1996 ("1996 Nine Month Period"). This represented an
increase in net patient service revenue of $148,520,000, or 28.5%. Same
hospitals provided $35,244,000 of the increase in net patient service revenue,
which resulted primarily from inpatient and outpatient volume increases. The
remaining increase of $113,276,000 included $113,680,000 of net patient service
revenue from the acquisitions previously mentioned, offset by a decrease of
$404,000 of Corporate and miscellaneous revenue.
During the 1997 Nine Month Period the Company's hospitals generated 376,359
total patient days of service and an occupancy rate of 46.0%, respectively,
versus 312,374 and 44.0%, respectively, for the 1996 Nine Month Period. Same
hospital patient days and occupancy for the 1997 Nine Month Period were 294,827
and 44.3%, respectively, versus 291,161 and 43.6%, respectively, for the 1996
Nine Month Period. Same hospital admissions for the Company during the 1997 Nine
Month Period were 59,628, up 3.7% from the 57,474 admissions during the 1996
Nine Month Period.
The Company's operating expenses for the 1997 Nine Month Period were
$503,146,000 or 75.1% of net patient service revenue as compared to $394,060,000
or 75.6% of net patient service revenue for the 1996 Nine Month Period. Of the
total $109,086,000 increase, approximately $21,398,000 related to same
hospitals, which was largely attributable to increased patient volumes. Another
$86,053,000 of increased operating expense related to the hospital acquisitions
mentioned previously. The remaining increase of $1,635,000 represented an
increase in Corporate and miscellaneous other operating expenses.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company's earnings before depreciation and amortization, interest and
income taxes were $166,499,000 for the 1997 Nine Month Period as compared to
$127,065,000 for the 1996 Nine Month Period, an increase of $39,434,000 or
31.0%. The Company's EBITDA margin increased to 24.9% for the 1997 Nine Month
Period, as compared to 24.4% for the 1996 Nine Month Period.
The Company's depreciation and amortization costs increased by $7,554,000
and interest expense increased by $1,221,000. The increase in depreciation and
amortization resulted primarily from the acquisitions previously mentioned. The
increase in interest expense reflects lower investment income in the 1997 Nine
Month Period, which is netted against interest expense.
The Company's income before income taxes was $136,329,000 for the 1997 Nine
Month Period as compared to $105,670,000 for the 1996 Nine Month Period, an
increase of $30,659,000, or 29.0%. The increase resulted primarily from same
hospital volume increases and the acquisitions mentioned previously. The
Company's provision for income taxes was $53,510,000 for the 1997 Nine Month
Period as compared to $41,475,000 for the 1996 Nine Month Period. These
provisions reflect effective income tax rates of 39.25% for both periods. As a
result of the foregoing, the Company's net income was $82,819,000 for the 1997
Nine Month Period as compared to $64,195,000 for the 1996 Nine Month Period.
Liquidity and Capital Resources
- -------------------------------
The Company's operating cash flows totaled $112,582,000 for the 1997 Nine
Month Period as compared to $65,871,000 for the 1996 Nine Month Period. The
positive cash flows resulted from the Company's increased profitability and
management of its working capital. The Company's investing activities used
$98,396,000 and $128,366,000 for the 1997 Nine Month Period and 1996 Nine Month
Period, respectively. Acquisitions and ongoing capital expenditure requirements
accounted for substantially all of the funds used in investing activities.
Financing activities provided net cash of $8,576,000 for the 1997 Nine Month
Period and $3,149,000 during the 1996 Nine Month Period. See the Condensed
Consolidated Statements of Cash Flows for the nine months ended June 30, 1997
and 1996 at page 6 of this Report.
10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company had approximately $65,000,000 of available cash on hand at July
31, 1997. In addition, the Company has a total of $310 million of credit
available under its two unsecured lines of credit.
The Company's credit agreements contain certain covenants which, without
prior consent of the banks, limit certain activities of the Company and its
subsidiaries, including those relating to merger, consolidation and the
Company's ability to secure indebtedness, make guarantees, and grant security
interests. The Company must also maintain minimum levels of consolidated
tangible net worth, debt service coverage, and debt to cash flow and net worth.
At the present time, the Company anticipates that cash on hand,
internally generated funds and funds available under its lines of credit will be
sufficient to satisfy the Company's requirements for capital expenditures,
future acquisitions and working capital.
11
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
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None
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
a. Exhibits:
--------
See Index to Exhibits located on page 14.
b. Reports on Form 8-K:
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None
12
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: August 7, 1997 BY: /s/ Stephen M. Ray
-------------------------------
Stephen M. Ray
Senior Vice President-Finance
(Duly authorized officer and
Principal Financial Officer)
13
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.
(ii) By-laws
The By-laws, as amended, previously filed and included as Exhibit 3.2
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.
Fourth Amended and Restated Credit and Reimbursement Agreement among the
Company and NationsBank of Florida National Association and the Banks named
therein, dated December 1, 1994, previously filed and included as Exhibit
4.12 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1994, is incorporated herein by reference.
Credit Agreement dated May 6, 1996 between First Union National Bank of
Florida and the Company, pertaining to a $10 million working capital and
cash management line of credit, previously filed and included as Exhibit
4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, is incorporated herein by reference.
Amendment Agreement No. 1 to Fourth Amended and Restated Revolving Credit
and Reimbursement Agreement, made as of September 30, 1996, previously
filed and included as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, is incorporated herein by
reference.
(10) Material contracts
Not applicable
(11) Statement re computation of per share earnings.
Statement re computation of per share earnings is included as Exhibit 11.1
at page 16 of this Report.
(15) Letter re unaudited interim financial information.
Not Applicable.
14
INDEX TO EXHIBITS (Continued)
(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.
(27) Financial Data Schedule.
Financial Data Schedule is included herein as Exhibit 27.1 at page 17 of
this report.
(99) Additional exhibits.
Not applicable.
15