<PAGE>
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, 1998
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
-----------
HEALTH MANAGEMENT ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(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
- ------------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(941)598-3131
----------------------------------------------------
(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 February 1, 1999, the following shares of the Registrant were outstanding:
Class A Common Stock 251,875,849 shares
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
<S> <C> <C>
Consolidated Statements of Income --
Three Months Ended December 31, 1998 and 1997................. 3
Condensed Consolidated Balance Sheets--
December 31, 1998 and September 30, 1998...................... 4
Condensed Consolidated Statements of Cash Flows--
Three Months Ended December 31, 1998 and 1997................. 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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------------
1998 1997
-------- ---------
<S> <C> <C>
Net patient service revenue ............................. $305,496 $234,570
Costs and expenses:
Salaries and benefits................................. 113,643 84,567
Supplies and expenses................................. 88,361 71,080
Provision for doubtful accounts....................... 29,095 21,972
Depreciation and amortization......................... 14,507 10,172
Rent expense.......................................... 7,577 5,461
Interest, net......................................... 1,360 433
-------- --------
Total costs and expenses ......................... 254,543 193,685
-------- --------
Income before income taxes............................... 50,953 40,885
Provision for income taxes .............................. 19,998 16,048
-------- --------
Net income .............................................. $ 30,955 $ 24,837
======== ========
Net income per share:
Basic................................................ $ .12 $ .10
======== ========
Diluted.............................................. $ .12 $ .10
======== ========
Weighted average number of
shares outstanding:
Basic................................................ 251,653 244,829
======== ========
Diluted.............................................. 258,114 251,135
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
------
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 8,574 $ 12,685
Receivables--net ........................................ 253,282 243,542
Supplies, prepaids and other assets ..................... 35,934 32,983
Funds held by trustee ................................... 1,753 1,458
Income taxes - deferred ................................. 18,039 18,039
Total current assets ............................... 317,582 308,707
----------- ----------
Property, plant and equipment ............................. 980,544 925,956
Less accumulated depreciation and amortization .......... 201,428 188,201
----------- ----------
Net property, plant and equipment .................. 779,116 737,755
Funds held by trustee ..................................... 4,110 3,932
Excess of cost over acquired assets, net .................. 45,737 46,674
Deferred charges and other assets ......................... 14,855 15,037
----------- ----------
$ 1,161,400 $ 1,112,105
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable .......................................... $ 49,815 $ 44,300
Accrued expenses and other liabilities .................. 43,792 42,672
Due to third party programs ............................. 14,844 14,844
Current maturities of long-term debt .................... 6,889 8,544
Income taxes--currently payable and deferred ............ 27,832 10,186
----------- ----------
Total current liabilities .......................... 143,172 120,546
Deferred income taxes ..................................... 39,603 39,603
Other long-term liabilities ............................... 17,116 17,878
Long-term debt ............................................ 138,320 134,217
Obligation under put option contracts ..................... - 43,036
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized ..................................... - -
Common stock, Class A, $.01 par value, 300,000,000
shares authorized, 251,871,000 and 251,558,000
shares issued and outstanding at December 31,
1998 and September 30, 1998, respectively ............. 2,519 2,491
Additional paid-in capital .............................. 285,159 241,677
Retained earnings ....................................... 543,612 512,657
----------- ----------
831,290 756,825
Less treasury stock, 499,000 shares at cost ............. (8,101) -
----------- ----------
Total stockholders' equity ......................... 823,189 756,825
----------- ----------
$ 1,161,400 $ 1,112,105
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 30,955 $ 24,837
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............................... 14,507 10,172
Loss/(gain) on sale of fixed assets ......................... 70 (56)
Changes in assets and liabilities:
Receivables--net .......................................... (11,829) (10,464)
Supplies and other current assets ......................... (2,884) (2,920)
Long-term assets .......................................... (4) 969
Accounts payable .......................................... 5,515 529
Accrued expenses and other liabilities .................... 1,011 199
Income taxes--
currently payable and deferred .......................... 17,646 14,157
Other long term liabilities ............................... (762) (2,897)
-------- --------
Net cash provided by
operating activities ................................. 54,225 34,526
-------- --------
Cash flows from investing activities:
Acquisition of facilities, net of cash acquired ................ (7,021) (20,232)
Additions to property, plant and equipment ..................... (38,000) (10,740)
Proceeds from sale of equipment ................................ 1 128
-------- --------
Net cash used in investing activities .................. (45,020) (30,844)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings ............................. 133 136
Principal payments on debt ..................................... (7,761) (2,459)
Proceeds from issuance of common stock ......................... 2,564 4,278
Purchase of treasury stock ..................................... (8,101) -
(Increase)/decrease in funds held by trustee ................... (151) (631)
-------- --------
Net cash (used in) provided by
financing activities ................................. (13,316) 1,324
-------- --------
Net (decrease)increase in cash
and cash equivalents ........................... (4,111) 5,006
Cash and cash equivalents at beginning of period ................. 12,685 67,381
-------- --------
Cash and cash equivalents at end of period ....................... $ 8,574 $ 72,387
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
- -------------------------
The condensed consolidated balance sheet as of September 30, 1998 has
been derived from the audited consolidated financial statements included in
Health Management Associates, Inc.'s (the Company's) 1998 Annual Report. The
interim consolidated financial statements at December 31, 1998 and for the three
months ended December 31, 1998 and 1997 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 1998 Annual
Report.
2. Earnings Per Share
- ----------------------
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
December 31,
1998 1997
------- -------
Numerator:
Net income $30,955 $24,837
======= =======
Denominator:
Denominator for basic earnings
per share-weighted average shares 251,653 244,829
Effect of dilutive securities-
Employee stock options 6,461 6,306
------- -------
Denominator for diluted earnings
per share 258,114 251,135
======= =======
Basic earnings per share $ .12 $ .10
======= =======
Diluted earnings per share $ .12 $ .10
======= =======
During October 1998 the Company purchased 498,700 shares of its own
common stock on the open market for a total cost of $8,101,000.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
---------------------
Three months ended December 31, 1998 compared
---------------------------------------------
to three months ended December 31, 1997
---------------------------------------
Net patient service revenue for the three months ended December 31,
1998 ("1998 Period") was $305,496,000, as compared to $234,570,000 for
the three months ended December 31, 1997 ("1997 Period"). This
represented an increase in net patient service revenue of $70,926,000,
or 30.2%. Hospitals in operation for the entire 1998 Period and 1997
Period ("same hospitals") provided $14,286,000 of the increase in net
patient service revenue, which resulted primarily from inpatient and
outpatient volume increases. The remaining increase of $56,640,000
included $56,731,000 of net patient service revenue from the
acquisition of the 125-bed Southwest Hospital effective November 1,
1997, the 221-bed River Oaks Health System effective January 1, 1998,
the 180-bed Riley Memorial Hospital effective January 2, 1998 and the
Regional Healthcare Inc., health system effective June 1, 1998, offset
by a decrease of $91,000 in Corporate and miscellaneous revenue.
During the 1998 Period the Company's hospitals generated patient
days of service and an occupancy rate of 161,915 and 46.1%,
respectively, versus 132,922 and 45.3%, respectively, for the 1997
Period. Same hospital patient days and occupancy rates were 132,801 and
46.1%, respectively, for the 1998 Period, and 130,897 and 45.8%,
respectively, for the 1997 Period. Same hospital admissions for the
Company during the 1998 Period were 26,831, up 2.2% from the 26,264
admissions during the 1997 Period.
The Company's operating expenses (salaries and benefits, supplies
and expenses, provision for doubtful accounts and rent expense) for the
1998 Period were $238,676,000 or 78.1% of net patient service revenue
as compared to $183,080,000 or 78.0% of net patient service revenue for
the 1997 Period. Of the total $55,596,000 increase, approximately
$12,254,000 related to same hospitals, which was largely attributable
to increased patient volumes. Another $42,762,000 of increased
operating expense related to the acquisitions mentioned previously. The
remaining $580,000 represented an increase in Corporate and
miscellaneous other operating expenses.
The Company's depreciation and amortization costs increased by
$4,335,000 and interest expense increased by $927,000. The increase in
depreciation and amortization resulted primarily from the acquisitions
mentioned previously. The increase in interest expense resulted from
acquisition related debt, as well as a decrease in investment income in
the 1998 Period, which is netted against interest expense.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company's income before income taxes was $50,953,000 for the
1998 Period as compared to $40,885,000 for the 1997 Period, an increase
of $10,068,000, or 24.6%. The increase resulted primarily from same
hospital volume increases and the acquisitions mentioned previously.
The Company's provision for income taxes was $19,998,000 for the 1998
Period, as compared to $16,048,000 for the 1997 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
$30,955,000 for the 1998 Period as compared to $24,837,000 for the 1997
Period.
Liquidity and Capital Resources
-------------------------------
The Company's operating cash flows totalled $54,225,000 for the 1998
Period as compared to $34,526,000 for the 1997 Period. The positive
cash flows resulted from the Company's improved profitability and
management of its working capital. The Company's investing activities
used $45,020,000 and $30,844,000 for the 1998 Period and 1997 Period,
respectively. Construction costs related to the replacement of three
existing hospitals accounted for the majority of the 1998 Period
expenditures. Financing activities used net cash of $13,317,000 for the
1998 Period and provided net cash of $1,324,000 for the 1997 Period.
Increased principal debt reductions and purchases of the Company's
common stock accounted for the majority of the change from the 1997
Period to the 1998 Period. See the Condensed Consolidated Statements of
Cash Flows for the three months ended December 31, 1998 and 1997 at
page 5 of this Report.
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 liabilities to 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 in Fiscal
1999.
Year 2000 Computer Issues
-------------------------
The Year 2000 Computer Issue is the result of most computer programs
using two digits rather than four to identify a year in a data field.
These programs were designed and developed without considering
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results on or after
January 1, 2000.
The Company has implemented a plan to evaluate and correct the
effect of this problem on the Company's computer system and programs. As
part of the plan, the Company is also contacting its principal vendors
and suppliers to identify and correct the potential effects of this
problem relating to embedded systems of certain computer aided medical
and other equipment. In addition, the Company is contacting the Federal
and State governments, other payors and other companies with which the
Company's systems interface or on which they rely to monitor their
timely completion of necessary upgrades.
The company's financial systems, including general ledger, accounts
payable, cash management and payroll already are substantially Year 2000
compliant. Changes to the Company's patient accounting systems are
underway. Facility testing of systems-wide changes is expected to be
completed by the quarter ending March 31, 1999, with Company-wide
implementation to be completed by the quarter ending June 30, 1999.
The Company is utilizing both internal and external resources to
complete the Year 2000 modifications. The majority of the costs relating
to the Year 2000 Issue will be expensed as incurred. Management of the
Company does not believe such costs will have a material adverse impact
to the Company's future results of operation. However, there can be no
guarantee that actual results could differ materially from those
anticipated. Factors that might cause material differences include, but
are not limited to, the availability of trained personnel and the
ability to locate and correct all relevant computer coding and all
medical equipment affected.
As noted above, the Company is contacting its principal suppliers,
other vendors and payors, including Federal and State governments,
Medicare fiscal intermediaries, insurance companies and managed care
companies, concerning the status of their Year 2000 compliance. The
Company is not aware at this time whether those other systems are or
will be Year 2000 compliant and is unable to estimate at this time the
impact on the Company if one or more of those systems is not Year 2000
compliant. For the foregoing reasons, the Company is not able to
determine at this time whether the Year 2000 Computer Issue will
materially affect its future financial results or financial condition.
9
<PAGE>
tem 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 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
<PAGE>
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:
-------------------
None
11
<PAGE>
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, 1999 BY: /s/ Stephen M. Ray
------------------------------
Stephen M. Ray
Senior Vice President-Finance
(Duly authorized officer and
Principal Financial Officer)
12
<PAGE>
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 Cettificate of Amendment to Fifth Restated Certificate of
Incorporation, previously filed and included as Exhibit 4.5 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1998, 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
13
<PAGE>
INDEX TO EXHIBITS (Continued)
(11) Statement re computation of per share earnings.
Not applicable
(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.
(27) Financial Data Schedule.
Financial Data Schedule is included herein as Exhibit 27.1 at page
15 of this report.
(99) Additional exhibits.
Not applicable.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED WITHIN THE COMPANY'S DECEMBER 31, 1998 FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,574
<SECURITIES> 0
<RECEIVABLES> 320,637
<ALLOWANCES> 67,355
<INVENTORY> 25,086
<CURRENT-ASSETS> 317,582
<PP&E> 980,544
<DEPRECIATION> 201,428
<TOTAL-ASSETS> 1,161,400
<CURRENT-LIABILITIES> 143,172
<BONDS> 0
0
0
<COMMON> 2,519
<OTHER-SE> 820,670
<TOTAL-LIABILITY-AND-EQUITY> 1,161,400
<SALES> 0
<TOTAL-REVENUES> 305,496
<CGS> 0
<TOTAL-COSTS> 202,004
<OTHER-EXPENSES> 22,084
<LOSS-PROVISION> 29,095
<INTEREST-EXPENSE> 1,360
<INCOME-PRETAX> 50,953
<INCOME-TAX> 19,998
<INCOME-CONTINUING> 30,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,955
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
