Form 10-Q
Table of Contents

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, 2002

 

OR

 

¨   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

 

(I.R.S. Employer

of incorporation or organization)

 

Identification No.)

 

5811 Pelican Bay Boulevard, Suite 500, Naples, Florida

 

34108-2710

(Address of principal executive offices)

 

(Zip Code)

 

(239) 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 (or 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  ¨

 

At February 5, 2003, the following number of shares of the Registrant were outstanding:

 

Class A Common Stock: 238,678,367 shares

 



Table of Contents

 

HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002

 

INDEX

 

      

Page


PART I—FINANCIAL INFORMATION

      

Item 1. Financial Statements

      

Consolidated Statements of Income—

     Three Months Ended December 31, 2002 and 2001

    

3

Condensed Consolidated Balance Sheets—

     December 31, 2002 and September 30, 2002

    

4

Condensed Consolidated Statements of Cash Flows—

     Three Months Ended December 31, 2002 and 2001

    

5

Notes to Interim Condensed Consolidated Financial Statements

    

6

Item 2. Management’s Discussion and Analysis of Financial

                         Condition and Results of Operations

    

9

Item 3. Quantitative and Qualitative Disclosures

                         About Market Risk

    

15

Item 4. Controls and Procedures

    

15

PART II—OTHER INFORMATION

    

16

Signatures

    

17

Index To Exhibits

    

20

Exhibits

      

 

2


Table of Contents

 

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,


    

2002


  

2001


Net patient service revenue

  

$

609,419

  

$

495,821

Costs and expenses:

             

Salaries and benefits

  

 

242,511

  

 

195,748

Supplies and other

  

 

179,942

  

 

143,433

Provision for doubtful accounts

  

 

46,307

  

 

36,878

Depreciation and amortization

  

 

26,087

  

 

21,648

Rent expense

  

 

12,105

  

 

10,926

Interest, net

  

 

3,761

  

 

4,116

    

  

Total costs and expenses

  

 

510,713

  

 

412,749

    

  

Income before minority interests and income taxes

  

 

98,706

  

 

83,072

Minority interests in earnings of consolidated entities

  

 

922

  

 

—  

    

  

Income before income taxes

  

 

97,784

  

 

83,072

Provision for income taxes

  

 

38,128

  

 

32,606

    

  

Net income

  

$

59,656

  

$

50,466

    

  

Net income per share:

             

Basic

  

$

            .25

  

$

            .21

    

  

Diluted

  

$

            .24

  

$

            .20

    

  

Dividends per share

  

$

            .02

  

$

—  

    

  

Weighted average number of shares outstanding:

             

Basic

  

 

238,589

  

 

243,649

    

  

Diluted

  

 

257,255

  

 

263,365

    

  

 

See accompanying notes.

 

3


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

ASSETS   

December 31, 2002


    

September 30, 2002


 
    

(Unaudited)

 

Current assets:

                 

Cash and cash equivalents

  

$

189,301

 

  

$

123,736

 

Receivables-net

  

 

463,442

 

  

 

454,427

 

Supplies, prepaids and other assets

  

 

86,724

 

  

 

79,034

 

Funds held by trustee

  

 

3,605

 

  

 

2,628

 

Deferred income taxes

  

 

35,961

 

  

 

35,961

 

    


  


Total current assets

  

 

779,033

 

  

 

695,786

 

Property, plant and equipment

  

 

1,770,350

 

  

 

1,723,343

 

Less: accumulated depreciation and amortization

  

 

(477,768

)

  

 

(441,561

)

    


  


Net property, plant and equipment

  

 

1,292,582

 

  

 

1,281,782

 

Other assets:

                 

Funds held by trustee

  

 

1,226

 

  

 

1,450

 

Excess of cost over acquired net assets, net

  

 

338,296

 

  

 

335,313

 

Deferred charges and other assets

  

 

40,754

 

  

 

49,986

 

    


  


Total other assets

  

 

380,276

 

  

 

386,749

 

    


  


Total assets

  

$

2,451,891

 

  

$

2,364,317

 

    


  


LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Current liabilities:

                 

Accounts payable

  

$

135,182

 

  

$

132,228

 

Accrued expenses and other liabilities

  

 

128,022

 

  

 

122,678

 

Income taxes-currently payable and deferred

  

 

34,462

 

  

 

11,228

 

Current maturities of long-term debt

  

 

7,519

 

  

 

7,609

 

    


  


Total current liabilities

  

 

305,185

 

  

 

273,743

 

Deferred income taxes

  

 

17,861

 

  

 

17,861

 

Other long-term liabilities

  

 

38,873

 

  

 

42,793

 

Long-term debt

  

 

652,094

 

  

 

650,159

 

Minority interests in consolidated entities

  

 

33,931

 

  

 

33,009

 

Stockholders’ equity:

                 

Preferred stock, $.01 par value, 5,000 shares authorized

  

 

—  

 

  

 

—  

 

Common stock, Class A, $.01 par value, 750,000 shares authorized, 261,160 and 261,067 shares issued at December 31, 2002 and September 30, 2002, respectively

  

 

2,612

 

  

 

2,611

 

Additional paid-in capital

  

 

375,615

 

  

 

373,214

 

Retained earnings

  

 

1,326,376

 

  

 

1,271,583

 

    


  


    

 

1,704,603

 

  

 

1,647,408

 

Less treasury stock, 22,500 shares at cost at both December 31, 2002 and September 30, 2002

  

 

(300,656

)

  

 

(300,656

)

    


  


Total stockholders’ equity

  

 

1,403,947

 

  

 

1,346,752

 

    


  


Total liabilities and stockholders’ equity

  

$

2,451,891

 

  

$

2,364,317

 

    


  


 

See accompanying notes.

 

4


Table of Contents

 

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

    

Three months ended

December 31,


 
    

2002


    

2001


 

Cash flows from operating activities:

                 

Net income

  

$

59,656

 

  

$

50,466

 

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

  

 

26,087

 

  

 

21,648

 

Provision for doubtful accounts

  

 

46,307

 

  

 

36,878

 

Loss on sale of fixed assets

  

 

10

 

  

 

—  

 

Changes in assets and liabilities:

                 

Receivables

  

 

(52,822

)

  

 

(23,690

)

Supplies and other current assets

  

 

(7,515

)

  

 

(7,147

)

Deferred charges and other assets

  

 

8,729

 

  

 

898

 

Accounts payable

  

 

2,554

 

  

 

21,974

 

Accrued expenses and other liabilities

  

 

5,151

 

  

 

1,216

 

Income taxes-currently payable and deferred

  

 

23,865

 

  

 

28,370

 

Other long term liabilities

  

 

(1,548

)

  

 

(2,171

)

    


  


Net cash provided by operating activities

  

 

110,474

 

  

 

128,442

 

    


  


Cash flows from investing activities:

                 

Acquisition of facilities, net of cash acquired

  

 

(9,556

)

  

 

(186,520

)

Additions to property, plant and equipment

  

 

(32,015

)

  

 

(20,582

)

Proceeds from sale of property, plant and equipment

  

 

120

 

  

 

40,052

 

    


  


Net cash used in investing activities

  

 

(41,451

)

  

 

(167,050

)

    


  


Cash flows from financing activities:

                 

Proceeds from long-term borrowings, net of issuance costs

  

 

3,239

 

  

 

172,639

 

Principal payments on debt

  

 

(1,400

)

  

 

(2,090

)

Increase in funds held by trustee

  

 

(753

)

  

 

(1,034

)

Purchases of treasury stock

  

 

—  

 

  

 

(86,021

)

Payment of dividends

  

 

(4,863

)

  

 

—  

 

Proceeds from issuance of common stock

  

 

319

 

  

 

3,011

 

    


  


Net cash (used in) provided by financing activities

  

 

(3,458

)

  

 

86,505

 

    


  


Net increase in cash and cash equivalents

  

 

65,565

 

  

 

47,897

 

Cash and cash equivalents at beginning of period

  

 

123,736

 

  

 

70,263

 

    


  


Cash and cash equivalents at end of period

  

$

189,301

 

  

$

118,160

 

    


  


 

See accompanying notes.

 

5


Table of Contents

 

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

 

The condensed consolidated balance sheet as of September 30, 2002 has been derived from the audited consolidated financial statements included in the 2002 Annual Report on Form 10-K of Health Management Associates, Inc. (the “Company”). The interim condensed consolidated financial statements at December 31, 2002 and for the three month period ended December 31, 2002 and 2001 are unaudited; however, such interim statements reflect all adjustments (consisting only of a normal recurring nature) which are, in the opinion of the Company’s 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 included in the Company’s 2002 Annual Report on Form 10-K.

 

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

 

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 condensed consolidated financial statements. Actual results could differ from these estimates.

 

6


Table of Contents

 

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3. Earnings Per Share

 

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

 

    

Three months ended December 31,


    

2002


  

2001


Numerator:

             

Numerator for basic earnings per share-net income

  

$

59,656

  

$

50,466

Effect of convertible debt

  

 

1,393

  

 

1,355

    

  

Numerator for diluted earnings per share

  

$

61,049

  

$

51,821

    

  

Denominator:

             

Denominator for basic earnings per share-weighted average shares

  

 

238,589

  

 

243,649

Effect of dilutive securities:

             

Employee stock options

  

 

4,217

  

 

5,267

Convertible debt

  

 

14,449

  

 

14,449

    

  

Denominator for diluted earnings per share

  

 

257,255

  

 

263,365

    

  

Basic earnings per share

  

$

.25

  

$

.21

    

  

Diluted earnings per share

  

$

.24

  

$

.20

    

  

 

4. Acquisitions

 

Effective January 1, 2003, the Company acquired, via a 40-year lease, Madison County Medical Center, a 67-bed acute care hospital located in Canton, Mississippi. The assets leased included substantially all of the property, plant and equipment of the hospital. The total consideration approximated $9.5 million in cash. The Company used cash on hand to finance the cost of this transaction. The transaction closed on December 31, 2002 with an effective date of January 1, 2003 and is reflected in the Company’s balance sheet and statement of cash flows as of December 31, 2002 and for the three month period then ended.

 

7


Table of Contents

 

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

5. Recent Accounting Pronouncements

 

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations, for a disposal of a segment of a business. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of October 1, 2002. The adoption did not have a significant impact on the Company’s financial position or results of operations.

 

6. Subsequent Events

 

On January 28, 2003, the Company declared a quarterly cash dividend of $0.02 per share of the Company’s common stock payable on March 3, 2003 to stockholders of record at the close of business on February 7, 2003.

 

8


Table of Contents

 

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

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management of the Company to make estimates and assumptions that affect the amounts reported in its condensed consolidated financial statements and accompanying notes.

 

The Company considers its critical accounting policies to be those that require the more significant judgments and estimates in the preparation of its financial statements, including the following:

 

Net Patient Service Revenues

 

The Company derives a significant portion of its revenues from the Medicare and Medicaid programs and from managed care health plans. Payments for services rendered to patients covered by these programs are generally less than billed charges. For Medicare and Medicaid revenues, provisions for contractual adjustments are made to reduce the charges to these patients to estimated receipts based upon the programs’ principles of payment/reimbursement (either prospectively determined or retrospectively determined costs). Final settlements under these government programs are subject to administrative review and audit, and provision is currently made for adjustments which may result. Provisions for contractual allowances under managed care health plans are based primarily on the payment terms of contractual arrangements such as predetermined rates per diagnosis, per diem rates or discounted fee for service rates. Historical collection rates, law changes and changes in contract terms are closely monitored to be certain that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments could be different from the amounts estimated and recorded in the contractual provisions included in these financial statements.

 

Provision for Doubtful Accounts

 

The collection of receivables from third party payers and patients is the Company’s primary source of cash and is critical to its operating performance. The primary collection risks relate to uninsured patient accounts and patient accounts for which the primary insurance payor has paid, but patient responsibility amounts (generally deductibles and co-payments) remain outstanding. Provisions for doubtful accounts are estimated based primarily upon the age of patients’ account, the patients’ economic ability to pay and the effectiveness of collection efforts. Accounts receivable balances are routinely reviewed in conjunction with historical collection rates and other economic conditions which might ultimately affect the collectibility of patient accounts when considering the adequacy of the amounts recorded as reserves for doubtful accounts. Significant changes in payer mix, business office operations, economic conditions or trends in Federal and state governmental health care coverage could affect the Company’s collection of accounts receivable, cash flows and results of operations.

 

9


Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Critical Accounting Policies and Estimates (Continued)

 

Impairment of Long-Lived Assets

 

The Company periodically reviews the carrying values of its long-lived assets, including goodwill, for impairment of value. In performing its review of asset impairment, management calculates future cash flows expected to result from these assets and determines whether the asset is impaired. Significant judgments are required by management in determining these future cash flows as well as determining whether the asset is impaired.

 

Income Taxes

 

Management must make estimates in recording the Company’s provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. Management believes that future income will enable the Company to realize these benefits in the future and, therefore, has not recorded any valuation allowance against the deferred tax asset.

 

The Company operates in multiple states with varying tax laws. The Company is subject to both Federal and state audits of its tax returns. The Company’s Federal income tax returns have been examined by the Internal Revenue Service through its fiscal year ended September 30, 1999, which resulted in no material adjustments. Management must make estimates to determine that tax reserves are adequate to cover any potential audit adjustments.

 

Professional Liability Insurance Claims

 

Through September 30, 2002, the Company insured for its professional liability risks under a “claims-made” basis policy, whereby each claim is covered up to $1 million per occurrence, subject to a $100,000 deductible (with an annual deductible cap of $6.1 million). Liabilities in excess of these amounts were covered through a combination of limits provided by commercial insurance companies and a self-insurance program.

 

Accruals for self-insured professional liability risks are determined using asserted and unasserted claims identified by the Company’s incident reporting system and actuarially determined estimates based on Company and industry historical loss payment patterns and have been discounted to their present value using a discount rate of 6.0%. Although the ultimate settlement of these accruals may vary from these estimates, management believes that the amounts provided in the Company’s condensed consolidated financial statements are adequate. If actual payments of claims exceed projected estimates of claims, the Company’s insurance accruals could be materially adversely affected.

 

10


Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Critical Accounting Policies and Estimates (Continued)

 

Effective October 1, 2002, in response to difficulty in obtaining primary insurance from commercial companies at reasonable rates, the Company formed a wholly owned insurance subsidiary in order to self-insure a greater portion of its primary professional and general liability risk. The captive subsidiary reinsures risk up to $1 million per claim and $3 million in the aggregate per hospital, and further acts as an excess insurer for all hospitals in combination with three commercial insurance companies.

 

Results of Operations

 

Three months ended December 31, 2002 compared to three months ended December 31, 2001

 

Net patient service revenue for the three months ended December 31, 2002 (the “2003 Period”) was $609.4 million as compared to $495.8 million for the three months ended December 31, 2001 (the “2002 Period”). This represented an increase in net patient service revenue of $113.6 million or 23%. Hospitals in operation for the entire 2003 Period and 2002 Period (“same hospitals”) provided $48.2 million of the increase in net patient service revenue, resulting from overall increases in volume and pricing. The remaining increase of $65.4 million included $63.8 million of net patient service revenue from the December 2001 acquisition of an 88-bed hospital, the January 2002 acquisition of a 176-bed hospital, a 129-bed hospital and an 85-bed hospital and the May 2002 acquisition of a 172-bed hospital and $1.6 million from miscellaneous other revenue.

 

During the 2003 Period, the Company’s hospitals generated total patient days of service and an occupancy rate of 262,347 and 48.1%, respectively, versus 223,702 and 45.5%, respectively, for the 2002 Period. Same hospital patient days and occupancy for the 2003 Period were 221,650 and 46.8%, respectively, versus 211,124 and 44.3%, respectively for the 2002 Period. Same hospital admissions for the Company’s hospitals during the 2003 Period were 50,581, up 6.2% from 47,631 admissions during the 2002 Period. Same hospital adjusted admissions for the Company’s hospitals during the 2003 Period were 80,076, up 4.7% from 76,478 adjusted admissions during the 2002 Period.

 

The Company’s operating expenses (consisting of salaries and benefits, supplies and other, provision for doubtful accounts and rent expense) for the 2003 Period were $480.9 million or 78.9% of net patient service revenue as compared to $387.0 million or 78.1% of net patient service revenue for the 2002 Period. Of the total $93.9 million increase, approximately $36.3 million related to same hospitals and was largely attributable to overall increased patient volumes. Another $53.1 million of increased operating expense related to the previously mentioned acquisitions. The remaining increase of $4.5 million represented the net increase in corporate and other operating expenses.

 

11


Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

During the 2003 Period, the Company’s depreciation and amortization costs increased by $4.4 million and interest expense decreased by $0.4 million, as compared to the 2002 Period. The increase in depreciation and amortization resulted primarily from the depreciation associated with the previously mentioned acquisitions. The decrease in interest expense was due primarily to lower interest rates on the Company’s outstanding debt during the 2003 Period.

 

The Company’s income before income taxes was $97.8 million for the 2003 Period as compared to $83.1 million for the 2002 Period, an increase of $14.7 million or 17.7%. The Company’s provision for income taxes was $38.1 million for the 2003 Period as compared to $32.6 million for the 2002 Period. These provisions reflect effective income tax rates of approximately 39.0% for the 2003 Period and 39.25% for the 2002 Period. As a result of the foregoing, the Company’s net income was $59.7 million for the 2003 Period, and $50.5 million for the 2002 Period.

 

Liquidity and Capital Resources

 

Liquidity

 

2003 Three Month Period Cash Flows compared to 2002 Three Month Period Cash Flows

 

The Company’s operating cash flows totaled $110.5 million for the 2003 Three Month Period as compared to $128.4 million for the 2002 Three Month Period. The continued positive cash flows from operating activities resulted from the Company’s profitability and management of working capital. The Company’s investing activities used $41.5 million and $167.1 million for the 2003 Three Month Period and 2002 Three Month Period, respectively. The decrease was due to fewer acquisitions during the 2003 Three Month Period. Financing activities used net cash of $3.5 million for the 2003 Three Month Period and provided net cash of $86.5 million for the 2002 Three Month Period. The payment of dividends accounted for the majority of the cash used in the 2003 Three Month Period while increased borrowings to finance acquisitions, offset by purchases of treasury stock, accounted for the majority of the cash provided in the 2002 period. See the condensed consolidated statements of cash flows for the three months ended December 31, 2002 and 2001 on page 5 of this report.

 

 

12


Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Liquidity and Capital Resources (continued)

 

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. Monthly or quarterly interest payments are required depending on the type of loan chosen by the Company. The interest rate at December 31, 2002 and 2001 was 2.42% and 2.90%, respectively. As of December 31, 2002, there were no amounts outstanding under the Credit Agreement.

 

The Company also has a $15 million unsecured revolving credit commitment (“Credit Commitment”) with a bank. The Credit Commitment is a working capital commitment 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%. The interest rate at December 31, 2002 and 2001 was 4.00% and 4.75%, respectively. As of December 31, 2002 and 2001, there were no amounts outstanding under the Credit Commitment.

 

In addition, the Company is obligated to pay certain commitment fees based upon amounts available for borrowing during the terms of the credit agreements described above.

 

The above described credit agreements contain covenants which, without prior consent of the banks, limit certain activities, including those relating to mergers, consolidations and the Company’s ability to secure additional indebtedness, make guarantees, grant security interests and declare certain dividends. The Company must also maintain minimum levels of consolidated tangible net worth, debt service coverage and interest coverage. At December 31, 2002, the Company was in compliance with these covenants.

 

On August 16, 2000, the Company sold $488.8 million face value of Convertible Senior Subordinated Debentures due 2020 (the “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 common stock at a conversion rate of 29.5623 shares of common stock for each $1,000 principal amount of the Debentures (equivalent to a conversion price of $19.9125 per share). Interest on the Debentures is payable semiannually in arrears on August 16 and February 16 of each year at a rate of .25% per year on the principal amount 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.

 

 

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Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Capital Resources (continued)

 

Holders may require the Company to purchase all or a portion of their Debentures on August 16, 2003, August 16, 2008 and August 16, 2013 for a purchase price per Debenture of $635.88, $724.58 and $827.53, respectively, plus accrued and unpaid interest to each purchase date. The Company may choose to pay the purchase price in cash or common stock or a combination of cash and common stock. In addition, upon a change in control of the Company occurring on or before August 16, 2003, each holder may require the Company to repurchase all or a portion of such holder’s Debentures. The Company may redeem all or a portion of the Debentures at any time on or after August 16, 2003. There are approximately 14.5 million shares of common stock reserved for future issuance upon the conversion of the Company’s Debentures.

 

On January 28, 2002, the Company sold $330.0 million in face value of Zero-Coupon Convertible Senior Subordinated Notes due 2022 (the “Notes”) for gross proceeds of approximately $277.0 million. The Notes are the Company’s general unsecured obligations and are subordinated in right of payment to the Company’s existing and future indebtedness that is not, by its terms, expressly subordinated or pari passu in right of payment to the Notes. The Company’s Debentures rank pari passu with the Notes. The Notes mature on January 28, 2022, unless converted or redeemed earlier. Upon the occurrence of certain events, the Notes are convertible into the Company’s common stock at a conversion rate of 32.1644 shares of common stock for each $1,000 principal amount of the Notes (equivalent to a conversion price of $26.11 per share). The equivalent number of shares associated with the conversion of the Notes become dilutive (and thus would be included in the Company’s earnings per share calculation) when the Company’s common stock attains a level of $31.33 for at least 20 trading days of the 30 trading days prior to the conversion or the Notes otherwise become convertible. The accrual of the original issue discount represents a yield to maturity of 0.875% per year calculated from January 28, 2002, excluding any contingent interest which could be payable under the terms of the Notes.

 

Holders may require the Company to purchase all or a portion of their Notes on January 28, 2005, January 28, 2007, January 28, 2012 and January 28, 2017 for a purchase price per note of $862.07, $877.25, $916.40 and $957.29, respectively, plus accrued and unpaid interest to each purchase date. The Company will pay cash for all Notes so purchased on January 28, 2005. The Company may choose to pay the purchase price in cash or common stock or a combination of cash and common stock for purchases on or after January 28, 2007. In addition, upon a change in control of the Company occurring on or before January 28, 2007, each holder may require the Company to purchase all or a portion of such holder’s Notes. The Company may redeem all or a portion of the Notes at any time on or after January 28, 2007. There are approximately 10.6 million shares of common stock reserved for future issuance upon the conversion of the Notes.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Forward-Looking Statements

 

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “plans,” “expects” and words of similar import, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company’s current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company 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; 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

During the three months ended December 31, 2002, there were no material changes in the quantitative and qualitative disclosures about market risks presented in Item 7A in the Company’s Annual Report on Form 10-K for the year ended September 30, 2002.

 

Item 4. Controls and Procedures

 

  (a)   Explanation Of Disclosure Controls And Procedures. The Company’s President and Chief Executive Officer (principal executive officer) and Senior Vice President and Chief Financial Officer (principal financial officer), after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this Form 10-Q (the “Evaluation Date”), have concluded that as of the Evaluation Date the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to such officers by others within the Company, particularly during the period in which this Form 10-Q was being prepared.

 

 

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Item 4. Controls and Procedures (continued)

 

  (b)   Changes In Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective action. As a result, no corrective action was taken.

 

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 20.

 

b.Reports on Form 8-K:

 

None

 

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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 12, 2003

     

By:

 

/s/ Robert E. Farnham       


           

Robert E. Farnham

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer

and Principal Accounting Officer)

 

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Certification of Principal Executive Officer

 

I, Joseph V. Vumbacco, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Health Management Associates, Inc.;

 

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: February 12, 2003

     

/s/ Joseph V. Vumbacco       


       

Joseph V. Vumbacco,

President and Chief Executive Officer

 

 

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Certification of Principal Executive Officer

 

I, Robert E. Farnham, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Health Management Associates, Inc.;

 

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

  a)   designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

  b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: February 12, 2003

     

/s/ Robert E. Farnham     


       

Robert E. Farnham,

Senior Vice President and Chief Financial Officer

 

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INDEX TO EXHIBITS

 

(2)   Plan of acquisition, reorganization, arrangement, liquidation or succession.

 

Not applicable.

 

(3)   (i) Articles of Incorporation

 

3.1 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 (SEC File No. 000-18799), 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

 

3.3 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 March 31, 2001, are 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.

 

4.1   Specimen Stock Certificate, previously filed and included as Exhibit 4.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1992 (SEC File No. 000-18799), is incorporated herein by reference.

 

4.5   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 thereto 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, 1999, is incorporated herein by reference.

 

4.6   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.

 

4.7   Indenture dated as of August 16, 2000 between Health Management Associates, Inc. and First Union National Bank, as Trustee, pertaining to the $488.7 million face value of Convertible Senior Subordinated Debentures due 2020 (includes form of Convertible Senior Subordinated Debenture due 2020), previously filed and included as Exhibit 4.1(1) to the Company’s Form S-3 Registration Statement (Registration No. 33-48820) filed October 27, 2000, is incorporated herein by reference.

 

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INDEX TO EXHIBITS (Continued)

 

4.8   Indenture dated as of January 28, 2002, by and between Health Management Associates, Inc. and First Union National Bank, as Trustee, pertaining to the $330.0 million face value of Zero-Coupon Convertible Senior Subordinated Notes due 2022 (includes form of Zero-Coupon Convertible Senior Subordinated Note due 2022), previously filed and included as Exhibit 4(a) to the Company’s Form 8-K dated February 13, 2002, is incorporated herein by reference.

 

(10)   Material contracts.

 

Not applicable

 

(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.

 

(99)   Additional exhibits.

 

  99.1   Principal Executive Officer Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
  99.2   Principal Financial Officer Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

 

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