Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

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 of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5811 Pelican Bay Boulevard, Suite 500,

Naples, Florida

  34108-2710
(Address of principal executive offices)   (Zip Code)

(239) 598-3131

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨   No x

As of July 27, 2012, there were 256,355,016 shares of the registrant’s Class A common stock outstanding.


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

INDEX

 

PART I – FINANCIAL INFORMATION    Page  

Item 1.

 

Financial Statements.

  

  Consolidated Statements of Income – Three and Six Months Ended June 30, 2012 and 2011

     3   

  Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2012 and 2011

     4   

 Condensed Consolidated Balance Sheets – June 30, 2012 and December 31, 2011

     5   

  Consolidated Statements of Stockholders’ Equity – Six Months Ended June 30, 2012 and 2011

     6   

  Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011

     7   

 Notes to Interim Condensed Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     33   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     43   

Item 4.

 

Controls and Procedures

     43   

PART II – OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     44   

Item 1A.

 

Risk Factors

     47   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     47   

Item 6.

 

Exhibits

     47   

Signatures

       48   

Index to Exhibits

     49   

 

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 June 30,        Six Months Ended June 30,    
    2012     2011     2012     2011  

Net revenue before the provision for doubtful accounts

  $ 1,686,541       $ 1,395,353       $ 3,373,059       $ 2,822,182    

Provision for doubtful accounts

    (214,563)        (170,787)        (415,824)        (342,856)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

    1,471,978         1,224,566         2,957,235         2,479,326    
 

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

    645,933         546,198         1,305,017         1,115,236    

Supplies

    226,154         185,789         460,597         380,255    

Rent expense

    43,839         36,774         88,864         72,621    

Other operating expenses

    325,635         252,037         637,415         494,975    

Medicare and Medicaid HCIT incentive payments

    (2,871)               (7,461)          

Depreciation and amortization

    85,712         64,201         164,106         128,829    

Interest expense

    75,166         51,033         163,929         102,070    

Other

    (1,022)        (139)        618         (333)   
 

 

 

   

 

 

   

 

 

   

 

 

 
    1,398,546         1,135,893         2,813,085         2,293,653    
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    73,432         88,673         144,150         185,673    

Provision for income taxes

    (25,291)        (31,757)        (50,018)        (66,791)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    48,141         56,916         94,132         118,882    

Loss from discontinued operations, including gains/losses on disposals, net of income taxes

    (3,021)        (1,583)        (4,416)        (1,437)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    45,120         55,333         89,716         117,445    

Net income attributable to noncontrolling interests

    (8,166)        (6,722)        (15,072)        (13,310)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

  $ 36,954       $ 48,611       $ 74,644       $ 104,135    
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share attributable to Health Management Associates, Inc. common stockholders:

       

Basic and diluted

       

Continuing operations

  $ 0.16       $ 0.20       $ 0.31       $ 0.42    

Discontinued operations

    (0.02)        (0.01)        (0.02)        (0.01)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 0.14       $ 0.19       $ 0.29       $ 0.41    
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding:

       

Basic

    254,496         251,765         253,906         250,898    
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    256,030         255,235         255,864         254,478    
 

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes.

3


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

      Three Months Ended June 30,         Six Months Ended June 30,    
    2012     2011     2012     2011  

Consolidated net income

  $ 45,120       $ 55,333       $ 89,716       $ 117,445    

Components of other comprehensive income (loss) before income taxes attributable to:

       

Interest rate swap contract

       

Changes in fair value

           (3,790)               20,230    

Reclassification adjustments for amortization of expense into net income

    20,080                40,533           
 

 

 

   

 

 

   

 

 

   

 

 

 

Net activity attributable to the interest rate swap contract

    20,080         (3,790)        40,533         20,230    
 

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale securities

       

Unrealized gains (losses), net

    (535)        504         4,584         1,172    

Adjustments for net (gains) losses reclassified into net income

    (161)        (202)        103         (41)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net activity attributable to available-for-sale securities

    (696)        302         4,687         1,131    
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

    19,384         (3,488)        45,220         21,361    

Income tax (expense) benefit related to items of other comprehensive income (loss)

    (7,553)        3,457         (17,377)        (5,066)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

    11,831         (31)        27,843         16,295    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

    56,951         55,302         117,559         133,740    

Total comprehensive income attributable to noncontrolling interests

    (8,166)        (6,722)        (15,072)        (13,310)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders

  $ 48,785       $ 48,580       $ 102,487       $ 120,430    
 

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes.

 

4


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

 

        June 30, 2012           December 31, 2011    
ASSETS    

Current assets:

   

Cash and cash equivalents

  $ 36,300       $ 64,143    

Available-for-sale securities

    120,016         122,277    

Accounts receivable, less allowances for doubtful accounts of $621,649 and $578,972 at June 30, 2012 and December 31, 2011, respectively

    924,027         903,517    

Supplies, prepaid expenses and other assets

    219,626         215,595    

Prepaid and recoverable income taxes

    14,341         61,756    

Restricted funds

    24,967         28,289    

Assets of discontinued operations

    9,619         14,561    
 

 

 

   

 

 

 

Total current assets

    1,348,896         1,410,138    
 

 

 

   

 

 

 

Property, plant and equipment

    5,308,649         5,086,496    

Accumulated depreciation and amortization

    (1,930,954)        (1,823,324)   
 

 

 

   

 

 

 

Net property, plant and equipment

    3,377,695         3,263,172    
 

 

 

   

 

 

 

Restricted funds

    104,497         96,244    

Goodwill

    1,019,340         999,380    

Deferred charges and other assets

    325,179         235,255    
 

 

 

   

 

 

 

Total assets

  $ 6,175,607       $ 6,004,189    
 

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY    

Current liabilities:

   

Accounts payable

  $ 181,186       $ 198,120    

Accrued expenses and other liabilities

    553,397         469,729    

Deferred income taxes

    20,766         50,466    

Current maturities of long-term debt and capital lease obligations

    92,522         85,509    
 

 

 

   

 

 

 

Total current liabilities

    847,871         803,824    

Deferred income taxes

    259,064         234,080    

Long-term debt and capital lease obligations, less current maturities

    3,483,444         3,489,489    

Other long-term liabilities

    478,240         491,037    
 

 

 

   

 

 

 

Total liabilities

    5,068,619         5,018,430    
 

 

 

   

 

 

 

Redeemable equity securities

    197,752         200,643    

Stockholders’ equity:

   

Health Management Associates, Inc. equity:

   

Preferred stock, $0.01 par value, 5,000 shares authorized, none issued

             

Common stock, Class A, $0.01 par value, 750,000 shares authorized, 256,342 shares and 254,156 shares issued at June 30, 2012 and December 31, 2011, respectively

    2,563         2,542    

Accumulated other comprehensive income (loss), net of income taxes

    (67,597)        (95,440)   

Additional paid-in capital

    163,037         156,859    

Retained earnings

    779,824         705,180    
 

 

 

   

 

 

 

Total Health Management Associates, Inc. stockholders’ equity

    877,827         769,141    

Noncontrolling interests

    31,409         15,975    
 

 

 

   

 

 

 

Total stockholders’ equity

    909,236         785,116    
 

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 6,175,607       $ 6,004,189    
 

 

 

   

 

 

 

 

See accompanying notes.

 

5


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2012 and 2011

(in thousands)

(unaudited)

 

    Health Management Associates, Inc.              
    Common Stock     Accumulated
Other
Comprehensive
    Additional
Paid-in
    Retained     Noncontrolling     Total
Stockholders’
 
    Shares     Par Value     Income (Loss), Net     Capital     Earnings     Interests     Equity  

Balances at January 1, 2012

    254,156       $ 2,542      $ (95,440)      $ 156,859      $ 705,180      $ 15,975      $ 785,116   

Net income

    -        -        -        -        74,644        15,072        89,716   

Unrealized gains on available-for-sale securities and reclassifications into net income, net

    -        -        3,045         -        -        -        3,045   

Change in fair value of interest rate swap contract and amortization of expense into net income, net

    -        -        24,798         -        -        -        24,798   

Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures

    2,186         21         -        (7,001)        -        -        (6,980)   

Stock-based compensation expense

    -        -        -        13,204        -        -        13,204   

Distributions to noncontrolling shareholders

    -        -        -        -        -        (18,503)        (18,503)   

Investment by a noncontrolling shareholder

    -        -        -        -        -        1,805        1,805   

Purchases of subsidiary shares from noncontrolling shareholders

    -        -        -        (25)        -        (76)        (101)   

Noncontrolling shareholder interests in acquired businesses

    -        -        -        -        -        17,136        17,136   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2012

        256,342       $ 2,563       $     (67,597)       $     163,037       $       779,824       $ 31,409       $   909,236   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Health Management Associates, Inc.              
    Common Stock     Accumulated
Other
Comprehensive
    Additional
Paid-in
    Retained     Noncontrolling     Total
Stockholders’
 
    Shares     Par Value     Income (Loss), Net     Capital     Earnings     Interests     Equity  

Balances at January 1, 2011

    250,880      $ 2,509      $ (131,124)      $ 123,040      $ 526,470      $ 12,591      $ 533,486   

Net income

    -        -        -        -        104,135        13,310        117,445   

Unrealized gains on available-for-sale securities and reclassifications into net income, net

    -        -        734        -        -        -        734   

Change in fair value of interest rate swap contract and amortization of expense into net income, net

    -        -        15,561        -        -        -        15,561   

Exercises of stock options and related tax matters

    1,566        16        -        16,202        -        -        16,218   

Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures

    1,649        16        -        (7,369)        -        -        (7,353)   

Stock-based compensation expense

    -        -        -        12,945        -        -        12,945   

Distributions to noncontrolling shareholders

    -        -        -        -        -        (16,028)        (16,028)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at June 30, 2011

        254,095       $ 2,541       $ (114,829)       $     144,818       $       630,605       $ 9,873       $   673,008   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes.

 

6


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

            Six Months Ended June 30,           
    2012     2011  

Cash flows from operating activities:

   

Consolidated net income

  $ 89,716       $ 117,445    

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

   

Depreciation and amortization

    169,612         132,162    

Amortization related to interest rate swap contract

    40,533           

Fair value adjustment related to interest rate swap contract

    18,448           

Provision for doubtful accounts

    415,824         342,856    

Stock-based compensation expense

    13,204         12,945    

Losses on sales of assets, net

    2,191         794    

Gains on sales of available-for-sale securities, net

    (583)        (7)   

Deferred income tax expense (benefit)

    (22,092)        13,615    

Changes in assets and liabilities of continuing operations, net of the effects of acquisitions:

   

Accounts receivable

    (446,976)        (355,170)   

Supplies, prepaid expenses and other current assets

    (2,673)        (6,722)   

Prepaid and recoverable income taxes

    53,931         10,448    

Deferred charges and other long-term assets

    18         (3,333)   

Accounts payable

    (17,258)        (6,488)   

Accrued expenses and other liabilities

    (25,903)        14,434    

Equity compensation excess income tax benefits

    (1,407)        (2,919)   

Loss from discontinued operations, net

    4,416         1,437    
 

 

 

   

 

 

 

Net cash provided by continuing operating activities

    291,001         271,497    
 

 

 

   

 

 

 

Cash flows from investing activities:

   

Acquisitions of hospitals and other ancillary health care businesses

    (66,673)        (42,891)   

Additions to property, plant and equipment

    (194,175)        (133,034)   

Proceeds from sales of assets and insurance recoveries

    1,367         1,329    

Proceeds from sale of discontinued operations

    1,392           

Purchases of available-for-sale securities

    (901,735)        (687,218)   

Proceeds from sales of available-for-sale securities

    906,117         604,219    

Increase in restricted funds, net

    (1,783)        (11,559)   
 

 

 

   

 

 

 

Net cash used in continuing investing activities

    (255,490)        (269,154)   
 

 

 

   

 

 

 

Cash flows from financing activities:

   

Proceeds from long-term debt borrowings

    17,000           

Principal payments on debt and capital lease obligations

    (61,072)        (19,741)   

Proceeds from exercises of stock options

           14,067    

Cash received from noncontrolling shareholders

    3,591           

Cash payments to noncontrolling shareholders

    (23,281)        (16,285)   

Equity compensation excess income tax benefits

    1,407         2,919    
 

 

 

   

 

 

 

Net cash used in continuing financing activities

    (62,355)        (19,040)   
 

 

 

   

 

 

 

Net decrease in cash and cash equivalents before discontinued operations

    (26,844)        (16,697)   

Net increases (decreases) in cash and cash equivalents from discontinued operations:

   

Operating activities

    (864)        5,248    

Investing activities

    (135)        (56)   
 

 

 

   

 

 

 

Net decrease in cash and cash equivalents

    (27,843)        (11,505)   

Cash and cash equivalents at the beginning of the period

    64,143         101,812    
 

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

  $ 36,300       $ 90,307    
 

 

 

   

 

 

 

 

See accompanying notes.

 

7


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

 

1.

Business and Basis of Presentation

Health Management Associates, Inc. by and through its subsidiaries (collectively, “we,” “our” or “us”) provides health care services to patients in hospitals and other health care facilities in non-urban communities located primarily in the southeastern United States. As of June 30, 2012, we operated 70 hospitals in fifteen states with a total of 10,527 licensed beds, including twenty-two hospitals located in Florida, ten hospitals in Mississippi and nine hospitals in Tennessee.

Unless specifically indicated otherwise, all amounts and percentages presented in the notes below are exclusive of our discontinued operations, which are identified at Note 7.

The condensed consolidated balance sheet as of December 31, 2011 is unaudited; however, it was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 (referred to herein as our “2011 Form 10-K”). The interim condensed consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 are unaudited; however, such interim financial statements reflect all adjustments (consisting only of those of a normal recurring nature) that are, in our opinion, necessary for a fair presentation of our financial position, results of operations and cash flows. Our results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year due to, among other things, the seasonal nature of our business and changes in the economy and the health care regulatory environment, including the possible effects of the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and the Budget Control Act of 2011.

The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Based on the SEC’s guidance, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our 2011 Form 10-K. Additionally, see Note 2 for information regarding new accounting guidance that we adopted during the six months ended June 30, 2012.

Our preparation of interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in those financial statements and the accompanying notes. Actual results could differ from those estimates.

The presentation of our consolidated statements of income in the prior year has been modified to conform to the current year presentation and the new accounting guidance that is discussed at Note 2.

 

2.

Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other

New Accounting Guidance.  During July 2011, the Financial Accounting Standards Board amended and updated the accounting standards in GAAP regarding the income statement presentation and related disclosures of net revenue for health care entities (the “Net Revenue Update”). Among other things, the Net Revenue Update requires health care entities to (i) present the provision for doubtful accounts as a reduction of net patient service revenue in the income statement if the entity does not assess a patient’s ability to pay prior to rendering services or determine that collection of the related revenue is reasonably assured and (ii) provide enhanced disclosures about major sources of revenue by payor and certain activity in the allowance for doubtful accounts. The Net Revenue Update does not otherwise change the revenue recognition criteria for health care entities. The Net Revenue Update, which permitted early adoption, was required to be adopted by public companies during interim and annual periods beginning after December 15, 2011. The income statement presentation change was required to be adopted on a retrospective basis but the enhanced disclosures were permitted to be adopted either retrospectively or prospectively. Effective January 1, 2012, we adopted the Net Revenue Update, including the enhanced disclosures on a prospective basis.

Net Revenue.  We record gross patient service charges on the accrual basis in the period that the services are rendered. Net revenue before the provision for doubtful accounts represents gross patient service charges less provisions for contractual adjustments. Payments for services rendered to patients covered by Medicare, Medicaid and other government programs are generally less than billed charges and, therefore, provisions for contractual adjustments are made to reduce gross patient service charges to the estimated cash receipts based on each program’s principles of payment/reimbursement (i.e., either prospectively determined or retrospectively determined costs). Estimates of contractual allowances for services rendered to patients covered by commercial insurance, including managed care health plans, are primarily based on the payment terms of contractual arrangements, such as predetermined rates per diagnosis, per diem rates or discounted fee for service rates. Revenue and receivables from government programs are significant to our operations; however, we do not believe that there are substantive credit risks associated with such programs. There are no other concentrations of revenue or accounts receivable with any individual payor that subject us to significant credit or other risks. Historically, government payors, managed care health plans and other commercial payors have not significantly affected our provision for doubtful accounts.

 

8


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.

Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other (continued)

 

In the ordinary course of business, we provide services to patients who are financially unable to pay for their care. Accounts identified as charity and indigent care are not recognized in net revenue before the provision for doubtful accounts. We maintain a company-wide policy whereby patient account balances are characterized as charity and indigent care only if the patient meets certain percentages of the federal poverty level guidelines. Local hospital personnel and our collection agencies pursue payments on accounts receivable from patients who do not meet such criteria. For uninsured self-pay patients who do not qualify for charity and indigent care treatment, we recognize net revenue before the provision for doubtful accounts using our standard gross patient service charges, less discounts of 60% or more for non-elective procedures. Because a significant portion of uninsured self-pay patients will be unable or unwilling to pay for their care, we record a significant provision for doubtful accounts in the period that the services are provided to those patients.

Net revenue before the provision for doubtful accounts, by major payor source, is summarized in the table below (dollars in thousands).

 

         Three Months Ended June 30, 2012              Six Months Ended June 30, 2012     

Medicare

     $ 494,507            29.3 %            $ 965,918            28.6 %      

Medicaid

       119,657            7.1                   276,385            8.2           

Commercial insurance

       821,888            48.7                   1,645,482            48.8           

Self-pay

       188,050            11.2                   351,611            10.4           

Other

       62,439            3.7                   133,663            4.0           
    

 

 

      

 

 

      

 

 

      

 

 

 
     $ 1,686,541                  100.0 %             $         3,373,059                            100.0 %      
    

 

 

      

 

 

      

 

 

      

 

 

 

Provision for Doubtful Accounts and Related Other.  We grant credit without requiring collateral from our patients, most of whom live near our hospitals and are insured under third party payor agreements. The credit risk for non-governmental accounts receivable, excluding uninsured self-pay patients, is limited due to the large number of insurance companies and other payors that provide payment and reimbursement for patient services. Accounts receivable are reported net of estimated allowances for doubtful accounts.

Collection of accounts receivable from third party payors and patients is our primary source of cash and is therefore critical to our successful operating performance. Accordingly, we regularly monitor our cash collection trends and the aging of our accounts receivable by major payor source. Our collection risks principally relate to uninsured self-pay 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 primarily estimated based on cash collection analyses by major payor classification and accounts receivable aging reports. For accounts receivable associated with services provided to patients who have governmental and/or commercial insurance coverage, we analyze contractually due amounts and provide an allowance for doubtful accounts as necessary (e.g., expected uncollectible deductibles and co-payments on accounts for which the third party payor has not yet paid, payors known to be having financial difficulties, etc.). For accounts receivable associated with self-pay patients, which includes both patients without insurance and patients with deductible and co-payment balances due for which third party coverage exists for part of the bill, we record a significant provision for doubtful accounts in the period of service because many patients will not pay the portion of their bill for which they are financially responsible. We monitor the aging of accounts receivable from self-pay patients and record supplemental provisions for doubtful accounts when our likelihood of collection deteriorates.

When considering the adequacy of the allowance for doubtful accounts, our accounts receivable balances are reviewed in conjunction with historical collection rates, health care industry trends/indicators and other business and economic conditions that might reasonably be expected to affect the collectability of patient accounts. Accounts receivable are written off after collection efforts have been pursued in accordance with our policies and procedures. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent recoveries are netted against the provision for doubtful accounts. Changes in payor mix, general economic conditions or federal and state government health care coverage could each have a material adverse effect on our accounts receivable collections, cash flows and results of operations.

Cost of Revenue. The presentation of costs and expenses in our consolidated statements of income does not differentiate between costs of revenue and other costs because substantially all such costs and expenses relate to providing health care services. Furthermore, we believe that the natural classification of expenses is the most meaningful presentation of our operations. Amounts that could be classified as general and administrative expenses include the costs of our home office, which were approximately $54.6 million and $37.8 million during the three months ended June 30, 2012 and 2011, respectively. The corresponding amounts for the six months ended June 30, 2012 and 2011 were $111.4 million and $76.5 million, respectively.

 

9


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

3.

Long-Term Debt and Capital Lease Obligations

The following discussion of our long-term debt and capital lease obligations should be read in conjunction with Notes 2 and 3 to the audited consolidated financial statements included in our 2011 Form 10-K. The table below summarizes our long-term debt and capital lease obligations by major component (in thousands).

 

            June 30, 2012                  December 31, 2011      

Bank borrowings:

   

Revolving credit facilities

    $        $   

Term Loan A (as defined below)

    697,812         725,000    

Term Loan B (as defined below), net of discounts

    1,380,291         1,386,258    

7.375% Senior Notes due 2020

    875,000         875,000    

6.125% Senior Notes due 2016, net of discounts

    398,601         398,416    

3.75% Convertible Senior Subordinated Notes due 2028, net of discounts

    83,543         81,648    

Capital lease obligations and other long-term debt

    140,719         108,676    
 

 

 

   

 

 

 

Long-term debt and capital lease obligations

    3,575,966         3,574,998    

Less current maturities

    (92,522)        (85,509)   
 

 

 

   

 

 

 

Long-term debt and capital lease obligations, less current maturities

    $ 3,483,444         $ 3,489,489    
 

 

 

   

 

 

 

Bank Borrowings.  On November 18, 2011, we completed a restructuring of our long-term debt, which included, among other things, new variable rate senior secured credit facilities with a syndicate of banks (collectively, the “Credit Facilities”). The Credit Facilities consist of: (i) a $500.0 million five-year revolving credit facility (the “Revolving Credit Agreement”); (ii) a $725.0 million five-year term loan (the “Term Loan A”); and (iii) a $1.4 billion seven-year term loan (the “Term Loan B”). We used the net proceeds from the term loans under the Credit Facilities, together with the net proceeds from the sale of our 7.375% Senior Notes due 2020, to repay all amounts outstanding under certain predecessor credit facilities.

We can elect whether interest on borrowings under the Credit Facilities is determined using LIBOR or the Base Rate (as defined in the loan agreement). The effective interest rate on such borrowings, which fluctuates with market changes, includes a spread above the rate that we select. The effective interest rate for the Term Loan B is subject to a floor of 1.0% and 2.0% (before consideration of the interest rate spread) when using LIBOR and the Base Rate, respectively. The amount of the interest rate spread is predicated on, among other things, our Consolidated Leverage Ratio (as defined in the loan agreement). We can elect differing interest rates for each of the debt instruments under the Credit Facilities. Interest is payable in arrears at the end of a calendar quarter or on the date that the selected interest duration period ends. At June 30, 2012, the effective interest rates on the Term Loan A and the Term Loan B were 3.2% and 4.5%, respectively. Those rates remained unchanged as of July 27, 2012.

The Revolving Credit Agreement provides that we can borrow, on a revolving basis, up to an aggregate of $500.0 million, as adjusted for outstanding standby letters of credit of up to $75.0 million. During the six months ended June 30, 2012, we borrowed and repaid $17.0 million under the Revolving Credit Agreement. The proceeds from such borrowing were used for acquisition working capital. There were no borrowings under our predecessor revolving credit facility during the six months ended June 30, 2011. As of July 27, 2012, standby letters of credit in favor of third parties of approximately $50.5 million reduced the amount available for borrowing under the Revolving Credit Agreement to $449.5 million on such date. Although there were no amounts outstanding on either date, the effective interest rate on the variable rate Revolving Credit Agreement was approximately 3.2% on both June 30, 2012 and July 27, 2012.

Other.  Cash paid for interest on our long-term debt and capital lease obligations during the six months ended June 30, 2012 and 2011, including amounts that have been capitalized, was approximately $114.3 million and $98.7 million, respectively. Including acquisition transactions, we entered into capital leases and other similar arrangements for real property and equipment aggregating $41.2 million and $19.2 million during the six months ended June 30, 2012 and 2011, respectively.

See Note 5 for information regarding the estimated fair values of our long-term debt instruments. Additionally, see Note 11 for summarized financial information in respect of our wholly owned subsidiaries that provide joint and severable guarantees of payment for certain of our long-term debt obligations.

At June 30, 2012, we were in compliance with all of the covenants contained in our debt agreements.

 

10


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

4.

Earnings Per Share

Basic earnings per share is computed based on the weighted average number of outstanding common shares. Diluted earnings per share is computed based on the weighted average number of outstanding common shares plus the dilutive effect of common stock equivalents, primarily computed using the treasury stock method. The table below sets forth the computations of basic and diluted earnings (loss) per share for the common stockholders of Health Management Associates, Inc. (in thousands, except per share amounts).

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Numerators:

           

Income from continuing operations

   $ 48,141        $ 56,916        $ 94,132        $ 118,882    

Income attributable to noncontrolling interests

     (8,166)         (6,722)         (15,072)         (13,310)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations attributable to Health Management Associates, Inc. common stockholders

     39,975          50,194          79,060          105,572    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations attributable to Health Management Associates, Inc. common stockholders

     (3,021)         (1,583)         (4,416)         (1,437)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to Health Management Associates, Inc. common stockholders

   $ 36,954        $ 48,611        $ 74,644        $ 104,135    
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominators:

           

Denominator for basic earnings (loss) per share-weighted average number of outstanding common shares

     254,496          251,765          253,906          250,898    

Dilutive securities: stock-based compensation arrangements

     1,534          3,470          1,958          3,580    
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted earnings (loss) per share

     256,030          255,235          255,864          254,478    
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (loss) per share:

           

Basic

           

Continuing operations

   $ 0.16        $ 0.20        $ 0.31        $ 0.42    

Discontinued operations

     (0.02)         (0.01)         (0.02)         (0.01)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 0.14        $ 0.19        $ 0.29        $ 0.41    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

           

Continuing operations

   $ 0.16        $ 0.20        $ 0.31        $ 0.42    

Discontinued operations

     (0.02)         (0.01)         (0.02)         (0.01)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 0.14        $ 0.19        $ 0.29        $ 0.41    
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities excluded from diluted earnings (loss) per share because they were antidilutive or performance conditions were not met:

           

Stock options

     3,930          2,574          4,258          3,373    
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred stock and restricted stock

     3,682          944          2,325          716    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

5.

Fair Value Measurements, Available-For-Sale Securities and Restricted Funds

General.  GAAP defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes the following three levels of inputs that may be used:

 

Level 1:

   Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2:

   Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3:

   Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

11


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.

Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

 

We recognize transfers between levels within the fair value hierarchy on the date of the change in circumstances that requires such transfer. The table below summarizes the estimated fair values of certain of our financial assets (liabilities) as of June 30, 2012 (in thousands).

 

            Level 1                     Level 2                     Level 3                     Totals          

Available-for-sale securities, including those in restricted funds

  $ 216,013       $ 33,467       $      $ 249,480    
 

 

 

   

 

 

   

 

 

   

 

 

 

Interest rate swap contract

  $      $ (132,147)      $      $ (132,147)   
 

 

 

   

 

 

   

 

 

   

 

 

 

The estimated fair values of our Level 1 available-for-sale securities were primarily determined by reference to quoted market prices. Our Level 2 available-for-sale securities primarily consist of: (i) bonds and notes issued by (a) the United States government and its agencies and (b) domestic and foreign corporations; and (ii) preferred securities issued by domestic and foreign corporations. The estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids/offers and other pertinent reference data.

The estimated fair value of our interest rate swap contract, which is discussed at Note 2(a) to the audited consolidated financial statements included in our 2011 Form 10-K, was determined using a model that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, forward yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The model also incorporates valuation adjustments for credit risk. The table below summarizes our balance sheet classification of the estimated fair values of our interest rate swap contract liabilities (in thousands).

 

                 June 30, 2012                           December 31, 2011           

Accrued expenses and other liabilities

   $ 87,089         $ 86,975     

Other long-term liabilities

     45,058           75,332     
  

 

 

    

 

 

 

Totals

   $ 132,147         $ 162,307     
  

 

 

    

 

 

 

Cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses and other liabilities are reflected in the condensed consolidated balance sheets at their estimated fair values primarily due to their short-term nature.

The estimated fair values of our long-term debt instruments, which are discussed at Note 3, are determined by reference to quoted market prices and/or bid and ask prices in the relevant market. The table below summarizes the estimated fair values of our debt securities (in thousands) and indicates the corresponding level within the fair value hierarchy.

 

                 June 30, 2012                           December 31, 2011           

Level 1:

     

6.125% Senior Notes due 2016

   $ 427,000         $ 416,000     

7.375% Senior Notes due 2020

     936,250           910,000     

3.75% Convertible Senior Subordinated Notes due 2028

     93,808           94,391     

Level 2:

     

Term Loan A

     688,218           708,688     

Term Loan B

     1,385,164           1,393,000     

The estimated fair values of our other long-term debt instruments reasonably approximate their carrying amounts in the condensed consolidated balance sheets.

Available-For-Sale Securities (including those in restricted funds).  Supplemental information regarding our available-for-sale securities (all of which had no withdrawal restrictions) is set forth in the table on the following page (in thousands).

 

12


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.

Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

 

        Amortized    
Cost
    Gross
    Unrealized    
Gains
    Gross
    Unrealized    
Losses
    Estimated
    Fair Values    
 

As of June 30, 2012:

       

Debt securities and debt-based mutual funds

       

Government

  $ 116,785       $ 1,505       $ (104)      $ 118,186    

Corporate

    76,754         2,608         (146)        79,216    

Equity securities and equity-based mutual funds

       

Domestic

    29,734         3,694         (468)        32,960    

International

    18,709         574         (1,230)        18,053    

Commodity-based fund

    1,533                (468)        1,065    
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 243,515       $ 8,381       $ (2,416)      $ 249,480    
 

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2011:

       

Debt securities and debt-based mutual funds

       

Government

  $ 125,338       $ 1,164       $ (25)      $ 126,477    

Corporate

    76,995         356         (708)        76,643    

Equity securities and equity-based mutual funds

       

Domestic

    26,220         2,354         (431)        28,143    

International

    15,446         304         (1,288)        14,462    

Commodity-based fund

    1,533                (448)        1,085    
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 245,532       $ 4,178       $ (2,900)      $ 246,810    
 

 

 

   

 

 

   

 

 

   

 

 

 

As of June 30, 2012 and December 31, 2011, investments with aggregate estimated fair values of approximately $46.2 million (276 investments) and $67.0 million (294 investments), respectively, generated the gross unrealized losses disclosed in the above table. We concluded that other-than-temporary impairment charges were not necessary at either of the balance sheet dates because of, among other things, recent declines in the value of the affected securities and/or our brief holding period (i.e., most of such securities have been held for less than one year), as well as our ability to hold the securities for a reasonable period of time sufficient for a projected recovery of fair value. We will continue to monitor and evaluate the recoverability of our available-for-sale securities.

As of June 30, 2012, the contractual maturities of debt securities held by us, excluding debt-based mutual fund holdings, are set forth in the table below. Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the right to prepay their obligations without prepayment penalties.

 

                Amortized             
Cost
    Estimated
            Fair Values             
 
    (in thousands)  

Within 1 year

  $ -        $ -     

After 1 year and through year 5

    7,898          8,028     

After 5 years and through year 10

    7,846          8,051     

After 10 years

    12,003          12,374     

The weighted average cost method is used to calculate the historical cost basis of securities that are sold. Gross realized gains and losses on sales of available-for-sale securities and other investment income, which includes interest and dividends, are summarized in the table below (in thousands).

 

                Three Months Ended  June 30,                             Six Months Ended  June 30,              
    2012     2011     2012     2011  

Realized gains

  $ 590       $ 325       $ 1,465       $ 325    

Realized losses

    (324)        (115)        (882)        (318)   

Investment income

    1,698         1,416         3,120         2,677    

Restricted Funds.  Our restricted funds, which consisted solely of available-for-sale securities at both June 30, 2012 and December 31, 2011, are held by a wholly owned captive insurance subsidiary that is domiciled in the Cayman Islands. The assets of such subsidiary are effectively limited to use in its proprietary operations.

 

13


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.

Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

 

Supplemental information regarding the available-for-sale securities that are included in restricted funds is set forth in the table below (in thousands).

 

    Six Months Ended June 30,  
                         2012                                              2011                      

Proceeds from sales

  $ 17,817        $ 1,817     

Purchases

    19,977          1,979     

 

6.

Acquisitions, Joint Ventures and Other Activity

Acquisition Activity.  The acquisitions described below were in furtherance of the part of our business strategy that calls for the acquisition of hospitals and other ancillary health care businesses in non-urban communities. Our acquisitions are typically financed using a combination of available cash balances, proceeds from sales of available-for-sale securities, borrowings under revolving credit agreements and other long-term financing arrangements.

2012 Acquisitions.  Effective April 1, 2012, one of our subsidiaries acquired from a subsidiary of INTEGRIS Health, Inc. (“Integris”) an 80% interest in each of the following Oklahoma-based general acute care hospitals and certain related health care operations: (i) 53-bed Blackwell Regional Hospital in Blackwell; (ii) 56-bed Clinton Regional Hospital in Clinton; (iii) 25-bed Marshall County Medical Center in Madill; (iv) 52-bed Mayes County Medical Center in Pryor; and (v) 32-bed Seminole Medical Center in Seminole. A subsidiary of Integris retained a 20% interest in each of these entities. The total purchase price for our 80% interests in these five Oklahoma-based hospitals was approximately $61.9 million in cash. During the six months ended June 30, 2012, certain of our subsidiaries also acquired four ancillary health care businesses for aggregate cash consideration of $4.8 million.

2011 Acquisitions.  Effective May 1, 2011, one of our subsidiaries acquired a 95% equity interest in a company that owns and operates Tri-Lakes Medical Center, a 112-bed general acute care hospital in Batesville, Mississippi, and certain related health care operations. The total purchase price for our 95% equity interest was approximately $38.8 million in cash. During the six months ended June 30, 2011, certain of our subsidiaries also acquired three ancillary health care businesses for aggregate cash consideration of $4.1 million. Additionally, see below for discussion of a material acquisition that one of our subsidiaries completed on September 30, 2011.

Other.  Our acquisitions are accounted for using the purchase method of accounting. We use estimated exit price fair values as of the date of acquisition to (i) allocate the related purchase price to the assets acquired and liabilities assumed and (ii) record noncontrolling interests. We use a variety of techniques to estimate exit price fair values, including, but not limited to, valuation methodologies that derive fair values using a market approach based on comparable transactions and an approach based on depreciated replacement cost. We recorded incremental goodwill during each of the six months ended June 30, 2012 and 2011 because the final negotiated purchase price in certain of our completed acquisitions exceeded the fair value of the net tangible and intangible assets acquired. Most of the goodwill that was added during those periods is expected to be tax deductible.

The table below summarizes the purchase price allocations for the acquisitions that we completed during the six months ended June 30, 2012 and 2011; however, in some cases, such purchase price allocations are preliminary and remain subject to future refinement as we gather supplemental information.

 

                Six Months Ended  June 30,              
    2012     2011  
    (in thousands)  

Assets acquired:

   

Current and other assets

  $ 1,811       $ 4,201    

Property, plant and equipment

    12,171         42,488    

Intangible assets (primarily contractual rights to operate hospitals)

    48,775           

Goodwill

    21,587         2,162    
 

 

 

   

 

 

 

Total assets acquired

    84,344         48,851    
 

 

 

   

 

 

 

Liabilities assumed:

   

Current liabilities

    (501)        (3,702)   

Capital lease obligations

    (34)        (212)   
 

 

 

   

 

 

 

Total liabilities assumed

    (535)        (3,914)   
 

 

 

   

 

 

 

Net assets acquired

  $ 83,809       $ 44,937    
 

 

 

   

 

 

 

 

14


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6.

Acquisitions, Joint Ventures and Other Activity (continued)

 

Acquisition-related costs have been included in other operating expenses in the consolidated statements of income. However, such costs for both the six months ended June 30, 2012 and 2011 were not material. Amounts paid for acquisition-related costs are included in net cash provided by continuing operating activities in the condensed consolidated statements of cash flows.

The operating results of entities that are acquired by our subsidiaries are included in our consolidated financial statements from the date of acquisition. If an acquired entity was subsequently sold, closed or is being held for sale, its operations are included in discontinued operations, which are discussed at Note 7.

On September 30, 2011, one of our subsidiaries acquired from Catholic Health Partners and its subsidiary Mercy Health Partners, Inc. (“Mercy”) substantially all of the assets of Mercy’s seven general acute care hospitals in east Tennessee. Our subsidiary also acquired (i) substantially all of Mercy’s ancillary health care operations that are affiliated with the seven Tennessee-based hospitals and (ii) Mercy’s former Riverside hospital campus. This acquisition is more fully described at Note 4 to the audited consolidated financial statements included in our 2011 Form 10-K. Our network of east Tennessee hospitals and other ancillary health care businesses is now collectively referred to as Tennova Healthcare. The table below sets forth certain combined pro forma financial information for the three and six months ended June 30, 2011 as if the Mercy acquisition, which we deem to be material, had closed on January 1, 2010 (in thousands, except per share data).

 

        Three Months Ended    
June 30, 2011
        Six Months Ended    
June 30, 2011
 

Net revenue before the provision for doubtful accounts

  $ 1,558,676        $ 3,148,828     

Consolidated net income

    55,564          117,855     

Net income attributable to Health Management Associates, Inc.

    48,842          104,545     

Earnings per share attributable to Health Management Associates, Inc. common stockholders:

   

Basic

  $ 0.19        $ 0.42     

Diluted

    0.19          0.41     

There were no pro forma adjustments included in the above table to reflect potential cost reductions or operating efficiencies. Accordingly, the combined pro forma financial information is for comparative purposes only and is not necessarily indicative of the results that we would have experienced if the Mercy acquisition had actually occurred on January 1, 2010 or that may occur in the future. The table below provides certain summarized 2012 financial information in respect of Tennova Healthcare’s operations (in thousands).

 

        Three Months Ended    
June 30, 2012
        Six Months Ended    
June 30, 2012
 

Net revenue before the provision for doubtful accounts:

   

Continuing operations

  $ 164,874       $ 327,750    

Discontinued operations

    3,005         7,346    

Income (loss) from operations before income taxes:

   

Continuing operations

    18,195         34,448    

Discontinued operations

    (3,802)        (5,757)   

Joint Ventures and Redeemable Equity Securities.  As of June 30, 2012, we had established joint ventures to own/lease and operate 32 of our hospitals. Local physicians and/or other health care entities own minority equity interests in each of the joint ventures and participate in the related hospital’s governance. We own a majority of the equity interests in each joint venture and manage the related hospital’s day-to-day operations.

When completing a joint venture transaction, our subsidiary that is a party to the joint venture customarily issues equity securities that provide the noncontrolling shareholders with certain rights to require our subsidiary to redeem such securities. Redeemable equity securities with redemption features that are not solely within our control are classified outside of permanent equity. Those securities are initially recorded at their estimated fair value on the date of issuance. Securities that are currently redeemable or redeemable after the passage of time are adjusted to their redemption value as changes occur. If it is unlikely that a redeemable equity security will ever require redemption (e.g., we do not expect that a triggering contingency will occur, etc.), then subsequent adjustments to the initially recorded amount will only be recognized in the period that a redemption becomes probable.

 

15


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6.

Acquisitions, Joint Ventures and Other Activity (continued)

 

As recorded in the condensed consolidated balance sheets, redeemable equity securities represent the minimum amounts that can be unilaterally redeemed for cash by noncontrolling shareholders in respect of their subsidiary equity holdings or the initial unadjusted estimated fair values of contingent rights held by certain noncontrolling shareholders. As of June 30, 2012 and through July 27, 2012, the mandatory redemptions requested by noncontrolling shareholders in respect of their subsidiary equity holdings have been nominal. A rollforward of our redeemable equity securities is summarized in the table below (in thousands).

 

     Six Months Ended June 30,  
             2012                      2011          

Balances at the beginning of the period

   $ 200,643        $ 201,487    

Noncontrolling shareholder interests in an acquired business

             2,046    

Investments by noncontrolling shareholders and related other

     1,786          158    

Purchases of subsidiary shares from noncontrolling shareholders

     (4,677)         (257)   
  

 

 

    

 

 

 

Balances at the end of the period

   $ 197,752        $ 203,434    
  

 

 

    

 

 

 

 

7.

Discontinued Operations

Our discontinued operations during the periods presented herein included: (i) 189-bed Gulf Coast Medical Center in Biloxi, Mississippi; (ii) 25-bed Fishermen’s Hospital in Marathon, Florida; (iii) the 172-bed Woman’s Center at Dallas Regional Medical Center in Mesquite, Texas; (iv) 25-bed St. Mary’s Medical Center of Scott County in Oneida, Tennessee; (v) the 293-bed idle Riverside hospital campus in Knoxville, Tennessee; and (vi) certain other health care operations affiliated with those hospitals. The operating results and cash flows of discontinued operations are included in our consolidated financial statements up to the date of disposition. Additionally, as required by GAAP, the operating results and cash flows of the abovementioned entities have been separately presented as discontinued operations in the interim condensed consolidated financial statements. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value, less costs to sell. The estimates of fair value are based on recent sales of similar assets, market analyses, pending disposition transactions and market responses based on discussions with, and offers received from, potential buyers (i.e., Level 2 inputs under the GAAP fair value hierarchy that is described at Note 5).

The Woman’s Center at Dallas Regional Medical Center (the “Woman’s Center”) was closed on June 1, 2008. On May 21, 2012, the remaining real property at the Woman’s Center was sold for cash consideration of approximately $1.4 million, less selling and other related costs. The resulting loss of $1.1 million has been included in our discontinued operations during the three and six months ended June 30, 2012. We closed Gulf Coast Medical Center (“GCMC”) on January 1, 2008. On July 18, 2011, the remaining real property at GCMC was sold for cash consideration of $3.4 million, less selling and other related costs. During May 2011, one of our subsidiaries entered into a lease termination agreement for Fishermen’s Hospital that became effective on July 1, 2011. As part of the agreement, the hospital’s remaining equipment, as well as certain working capital items, were sold to our former lessor for $1.5 million in cash. The Fishermen’s Hospital lease termination resulted in a goodwill impairment charge of $3.6 million during the three and six months ended June 30, 2011.

One of our subsidiaries acquired St. Mary’s Medical Center of Scott County (“SMMC”) and the idle Riverside hospital campus (“Riverside”) from Mercy on September 30, 2011 (see Note 6 for a discussion of the Mercy acquisition). SMMC was a leased facility with a lease agreement that expired on May 24, 2012. On such date, the SMMC facility was returned to the lessor. Mercy had closed the hospital at the Riverside location prior to our acquisition. Although we are currently evaluating various disposal alternatives, the timing of a divestiture of the Riverside hospital facility has not yet been determined.

 

16


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

7.

Discontinued Operations (continued)

 

The table below sets forth the underlying details of our discontinued operations (in thousands).

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Net revenue before the provision for doubtful accounts

   $ 2,982        $ 6,886        $ 7,316        $ 13,603    

Provision for doubtful accounts

     (1,590)         (1,343)         (2,139)         (2,741)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue

     1,392          5,543          5,177          10,862    
  

 

 

    

 

 

    

 

 

    

 

 

 

Salaries and benefits

     2,221          2,226          4,395          4,535    

Depreciation and amortization

     615          438          1,988          1,182    

Other operating expenses

     2,386          1,850          4,902          3,563    

Losses on sales of assets

     1,102                  1,102          315    

Goodwill impairment charge

             3,614                  3,614    
  

 

 

    

 

 

    

 

 

    

 

 

 
     6,324          8,128          12,387          13,209    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (4,932)         (2,585)         (7,210)         (2,347)   

Income tax benefit

     1,911          1,002          2,794          910    
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from discontinued operations

   $ (3,021)       $ (1,583)       $ (4,416)       $ (1,437)   
  

 

 

    

 

 

    

 

 

    

 

 

 

The table below summarizes the principal components of our assets of discontinued operations (in thousands).

 

             June 30, 2012                       December 31, 2011           

Supplies, prepaid expenses and other assets

   $ -         $ 569     

Property, plant and equipment, net, and other

     9,619           13,992     
  

 

 

    

 

 

 

Total assets of discontinued operations

   $ 9,619         $ 14,561     
  

 

 

    

 

 

 

 

8.

Accumulated Other Comprehensive Income (Loss)

GAAP defines comprehensive income as the change in equity of a business enterprise from transactions and other events and circumstances that relate to non-owner sources. Rollforwards of our accumulated other comprehensive income (loss) are presented in the tables below (in thousands).

 

     Unrealized Gains
(Losses) on
Available-for-Sale
Securities
     Interest Rate
Swap Contract
     Totals  

Balances at January 1, 2012, net of income taxes of $60,635

   $ 831        $ (96,271)       $ (95,440)   

Unrealized gains on available-for-sale securities, net of income taxes of $1,606

     2,978                  2,978    

Adjustments for net (gains) losses reclassified into net income, net of income taxes of $36

     67                  67    

Reclassification adjustments for amortization of expense into net income, net of income taxes of $15,735

             24,798          24,798    
  

 

 

    

 

 

    

 

 

 

Balances at June 30, 2012, net of income taxes of $43,258

   $ 3,876        $ (71,473)       $ (67,597)   
  

 

 

    

 

 

    

 

 

 

Balances at January 1, 2011, net of income taxes of $81,933

   $ 1,572        $ (132,696)       $ (131,124)   

Unrealized gains on available-for-sale securities, net of income taxes of $411

     761          -         761    

Adjustments for net (gains) losses reclassified into net income net of income taxes of $14

     (27)         -         (27)   

Change in fair value of interest rate swap contract, net of income taxes of $4,669

     -                           15,561                          15,561    
  

 

 

    

 

 

    

 

 

 

Balances at June 30, 2011, net of income taxes of $76,867

   $ 2,306        $ (117,135)       $ (114,829)   
  

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.

Accumulated Other Comprehensive Income (Loss) (continued)

 

Prior to our debt restructuring on November 18, 2011, which is discussed at Note 2(a) to the audited consolidated financial statements included in our 2011 Form 10-K, our interest rate swap contract had been a perfectly effective cash flow hedge instrument that was used to manage the risk of variable interest rate fluctuation on certain long-term debt. Changes in the estimated fair value of our interest rate swap contract were previously recognized as a component of other comprehensive income (loss). Because of our debt restructuring, the interest rate swap contract, which expires in February 2014, is no longer an effective cash flow hedge instrument. Therefore, changes in its estimated fair value subsequent to our debt restructuring are no longer included in other comprehensive income (loss) but are recognized in our consolidated statements of income as interest expense. Future amortization of the accumulated other comprehensive loss attributable to our interest rate swap contract is expected to approximate $74.7 million during the twelve months ending June 30, 2013.

 

9.

Income Taxes

Our effective income tax rates were approximately 34.7% and 36.0% during the six months ended June 30, 2012 and 2011, respectively, and 34.4% and 35.8% during the three months ended June 30, 2012 and 2011, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 410 basis points and 280 basis points during the six months ended June 30, 2012 and 2011, respectively. The corresponding impact was 430 basis points and 290 basis points during the three months ended June 30, 2012 and 2011, respectively.

Our net federal and state income tax payments during the six months ended June 30, 2012 and 2011 approximated $17.2 million and $42.7 million, respectively.

 

10.

Commitments and Contingencies

Physician and Physician Group Guarantees.  We are committed to providing financial assistance to physicians and physician groups practicing in the communities that our hospitals serve through certain recruiting arrangements and professional services agreements. At June 30, 2012, we were committed to guarantees of approximately $191.9 million under such arrangements. The actual amounts advanced will depend on the financial results of each physician’s and physician group’s private practice during the related contractual measurement period, which generally approximates one to two years. We believe that the recorded liabilities for physician and physician group guarantees of $86.9 million and $30.2 million at June 30, 2012 and December 31, 2011, respectively, are adequate and reasonable; however, there can be no assurances that the ultimate liability will not exceed our estimates.

Ascension Health Lawsuit.  On February 14, 2006, Health Management Associates, Inc. (referred to as “Health Management” for the remainder of this Note 10) announced the termination of non-binding negotiations with Ascension Health (“Ascension”) and the withdrawal of a non-binding offer to acquire Ascension’s St. Joseph Hospital, a general acute care hospital in Augusta, Georgia. On June 8, 2007, certain Ascension subsidiaries filed a lawsuit against Health Management, entitled St. Joseph Hospital, Augusta, Georgia, Inc. et al. v. Health Management Associates, Inc., in Georgia Superior/State Court of Richmond County claiming that Health Management (i) breached an agreement to purchase St. Joseph Hospital and (ii) violated a confidentiality agreement. The plaintiffs claim at least $40 million in damages. Health Management removed the case to the U.S. District Court for the Southern District of Georgia, Augusta Division (Case No. 1:07-CV-00104). On July 13, 2010, the plaintiffs filed a motion for partial summary judgment and Health Management filed a motion for summary judgment. On March 30, 2011, Health Management’s motion for summary judgment was granted as to all of plaintiffs’ claims, except for the breach of confidentiality claim, and plaintiffs’ motion for partial summary judgment was denied. On June 15, 2011, the case was stayed pending resolution of the appellate process. On July 8, 2011, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Eleventh Circuit (Case No. 11-13069). Oral argument was held on May 22, 2012; however, the appellate court has not yet ruled on the plaintiffs’ appeal.

We do not believe there was a binding acquisition contract with Ascension or any of its subsidiaries and we do not believe Health Management breached a confidentiality agreement. Accordingly, we intend to vigorously defend Health Management against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Medicare/Medicaid Billing Lawsuit.  On January 11, 2010, Health Management and one of its subsidiaries were named in a qui tam lawsuit entitled United States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the federal False Claims Act of 1863 (the “False Claims Act”). The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On September 27, 2010, the defendants moved to dismiss the first amended complaint for failure to state a claim with the particularity

 

18


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.

Commitments and Contingencies (continued)

 

required and failure to state a claim upon which relief can be granted. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:11-cv-00089-JES-DNF). On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint on the same bases set forth in their earlier motion to dismiss. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which is similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Governmental Matters.  Several Health Management hospitals received letters during the second half of 2009 requesting information in connection with a U.S. Department of Justice (“DOJ”) investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. We believe that the DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and we are cooperating with the investigation. To date, the DOJ has not asserted any monetary or other claims against the Health Management hospitals in this matter. Based on the aggregate billings for inpatient kyphoplasty procedures during the period under review that were performed at the Health Management hospitals subject to the DOJ’s inquiry, we do not believe that the final outcome of this matter will be material.

During September 2010, Health Management received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain Health Management hospitals improperly submitted claims for the implantation of implantable cardioverter defibrillators (“ICDs”). The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by Health Management’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. We have, and will continue to, cooperate with the DOJ in its ongoing investigation, which could potentially give rise to claims against Health Management and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, we are conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against Health Management or its hospitals in this matter and, at this time, we are unable to determine the potential impact, if any, that will result from the final resolution of the investigation.

The U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”) and the DOJ, including the Civil Division and U.S. Attorney’s Offices in the Eastern District of Pennsylvania, the Middle District of Florida, the Eastern District of Oklahoma, the Middle District of Tennessee, the Western District of North Carolina, the District of South Carolina and the Middle District of Georgia, are currently investigating Health Management and certain of its subsidiaries (HHS-OIG and the DOJ are collectively referred to as “Government Representatives”). We believe that such investigations relate to the Anti-Kickback Statute, the Stark law and the False Claims Act and are focused on: (i) physician referrals, including financial arrangements with our whole-hospital physician joint ventures; (ii) the medical necessity of emergency room tests and patient admissions, including whether Pro-Med software has led to any medically unnecessary tests or admissions; and (iii) the medical necessity of certain surgical procedures. We further believe that the investigations may have originated as a result of qui tam lawsuits filed on behalf of the United States. In connection with the investigations, HHS-OIG has requested certain records through subpoenas, which apply system-wide, that were served on Health Management on May 16, 2011 and July 21, 2011. Additionally, Government Representatives have interviewed both our current and former employees. We are conducting internal investigations and have met with Government Representatives on numerous occasions to respond to their inquiries. We intend to cooperate with the Government Representatives during their investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

On February 22, 2012 and February 24, 2012, HHS-OIG served subpoenas on certain Health Management hospitals relating to those hospitals’ relationships with Allegiance Health Management, Inc. (“Allegiance”). Allegiance, which is unrelated to Health Management, is a post acute health care management company that provides intensive outpatient psychiatric (“IOP”) services to patients. The Health Management hospitals that were served subpoenas were: (i) Central

 

19


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.  Commitments and Contingencies (continued)

 

Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the Health Management hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the Health Management hospitals; (iv) documents relating to employees, physicians and therapists who were involved in the provision of IOP services provided by Allegiance at the Health Management hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We believe that HHS-OIG has served similar subpoenas on other non-Health Management hospitals that had contracts with Allegiance. We intend to cooperate with the investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

In addition to the abovementioned subpoenas and investigations, certain of our hospitals have received other requests for information from state and federal agencies. We are cooperating with all of the ongoing investigations by collecting and producing the requested materials. Because a large portion of our government investigations are in their early stages, we are unable to evaluate the outcome of such matters or determine the potential impact, if any, that could result from their final resolution.

Class Action Lawsuits.  On or about January 25, 2012, Health Management and certain of its executive officers, one of whom is a director, were named as defendants in an action entitled Milen Sapssov v. Health Management Associates, Inc. et al., which was filed in the U.S. District Court for the Middle District of Florida. This action purported to have been brought on behalf of stockholders who purchased our common stock during the period from July 27, 2009 through January 9, 2012 and alleged that Health Management made false and misleading statements in certain public disclosures regarding its business and financial results. A substantially similar purported class action lawsuit, entitled Norfolk County Retirement System v. Health Management Associates, Inc. et al., was filed against the same defendants on or about February 2, 2012 in the U.S. District Court for the Middle District of Florida. On April 30, 2012, the two class action lawsuits were consolidated in the same court under the caption In Re: Health Management Associates, Inc. et al. (Case No. 2:12-cv-00046-JES-DNF) and three pension fund plaintiffs were appointed as lead plaintiffs. On July 30, 2012, the plaintiffs filed an amended consolidated complaint purportedly on behalf of the same class of stockholders as alleged in the prior complaints and asserting claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the plaintiffs claim that Health Management inflated its earnings by engaging in fraudulent Medicare billing practices that entailed admitting patients to observation status when they should not have been admitted at all and to inpatient status when they should have been admitted to observation status. The plaintiffs seek unspecified monetary damages. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

Other.  We are also a party to various other legal actions arising out of the normal course of our business. Due to the inherent uncertainties of litigation and dispute resolution, we are unable to estimate the ultimate losses, if any, relating to each of our outstanding legal actions and other loss contingencies. Should an unfavorable outcome occur in some or all of our legal and other related matters, there could be a material adverse effect on our financial position, results of operations and liquidity.

11.  Supplemental Condensed Consolidating Financial Statements

Health Management Associates, Inc. (referred to as the “Parent Issuer” for the remainder of this Note 11) is the primary obligor under the Credit Facilities, as well as our 7.375% Senior Notes due 2020 and our 6.125% Senior Notes due 2016. Certain of the Parent Issuer’s material domestic wholly owned subsidiaries (the “Guarantor Subsidiaries”) provide joint and several unconditional guarantees as to payment for borrowings under such long-term debt arrangements; however, other Parent Issuer subsidiaries (the “Non-Guarantor Subsidiaries”) have not been required to provide any such guarantees. See Note 2 to the audited consolidated financial statements included in our 2011 Form 10-K for information regarding our long-term debt arrangements. On the pages that follow are schedules presenting condensed consolidating financial statements as of June 30, 2012 and December 31, 2011, as well as the three and six months ended June 30, 2012 and 2011. However, this financial information may not necessarily be indicative of the results of operations, cash flows or financial position of the Parent Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries if they had operated as independent entities.

 

20


Table of Contents

 HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended June 30, 2012

(in thousands)

 

    Parent     Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

  $      $ 853,992       $ 832,549       $      $ 1,686,541    

Provision for doubtful accounts

           (113,217)         (101,346)                (214,563)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

           740,775         731,203                1,471,978    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

           275,858         370,075                645,933    

Supplies

           126,841         99,313                226,154    

Rent expense

           19,025         24,814                43,839    

Other operating expenses

           154,615         171,020                325,635    

Medicare and Medicaid HCIT incentive payments

           (191)         (2,680)                (2,871)    

Equity in the earnings of consolidated subsidiaries

    (82,251)                       82,251           

Depreciation and amortization

    2,983         44,593         38,136                85,712    

Interest expense

    71,157         1,729         2,280                75,166    

Other

    (185)         (124)         (713)                (1,022)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (8,296)         622,346         702,245         82,251         1,398,546    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    8,296         118,429         28,958         (82,251)         73,432    

Income tax (expense) benefit

    28,658         (45,869)         (8,080)                (25,291)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    36,954         72,560         20,878         (82,251)         48,141    

Loss from discontinued operations, including gains/losses on disposals, net of income taxes

                  (3,021)                (3,021)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    36,954         72,560         17,857         (82,251)         45,120    

Net income attributable to noncontrolling interests

           (60)         (8,106)                (8,166)    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

  $       36,954       $ 72,500       $ 9,751       $ (82,251)       $ 36,954    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2012

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

  $ 36,954       $ 72,560       $ 17,857       $ (82,251)      $ 45,120    

Components of other comprehensive income (loss) before income taxes attributable to:

         

Interest rate swap contract

         

Reclassification adjustments for amortization of expense into net income

    20,080                              20,080    

Available-for-sale securities

         

Unrealized gains (losses), net

    67                (602)               (535)   

Adjustments for net (gains) losses reclassified into net income

                  (161)               (161)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

    20,147                (763)               19,384    

Income tax (expense) benefit related to items of other comprehensive income (loss)

    (7,821)               268                (7,553)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

    12,326                (495)               11,831    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

    49,280         72,560         17,362         (82,251)        56,951    

Total comprehensive income attributable to noncontrolling interests

           (60)        (8,106)               (8,166)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders

  $     49,280       $ 72,500       $ 9,256       $ (82,251)      $ 48,785    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended June 30, 2011

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

  $      $ 805,638       $ 589,715       $      $ 1,395,353    

Provision for doubtful accounts

           (94,276)        (76,511)               (170,787)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

           711,362         513,204                1,224,566    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

           277,915         268,283                546,198    

Supplies

           121,432         64,357                185,789    

Rent expense

           19,007         17,767                36,774    

Other operating expenses

           140,327         111,710                252,037    

Equity in the earnings of consolidated subsidiaries

    (79,404)                      79,404           

Depreciation and amortization

    1,913         38,512         23,776                64,201    

Interest expense

    48,879         940         1,214                51,033    

Other

    (517)        859         (481)               (139)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (29,129)        598,992         486,626         79,404         1,135,893    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    29,129         112,370         26,578         (79,404)        88,673    

Income tax (expense) benefit

    19,482         (43,503)        (7,736)               (31,757)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    48,611         68,867         18,842         (79,404)        56,916    

Loss from discontinued operations, including gains/losses on disposals, net of income taxes

                  (1,583)               (1,583)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    48,611         68,867         17,259         (79,404)        55,333    

Net income attributable to noncontrolling interests

           (108)        (6,614)               (6,722)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

  $ 48,611       $ 68,759       $ 10,645       $ (79,404)      $ 48,611    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2011

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

  $     48,611       $ 68,867      $ 17,259      $ (79,404)      $ 55,333    

Components of other comprehensive income (loss) before income taxes attributable to:

         

Interest rate swap contract

         

Changes in fair value

    (3,790)                             (3,790)   

Available-for-sale securities

         

Unrealized gains (losses), net

    (70)               574                504    

Adjustments for net (gains) losses reclassified into net income

                  (202)               (202)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

    (3,860)               372                (3,488)   

Income tax (expense) benefit related to items of other comprehensive income (loss)

    3,588                (131)               3,457    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

    (272)               241                (31)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

    48,339         68,867         17,500         (79,404)        55,302    

Total comprehensive income attributable to noncontrolling interests

           (108)        (6,614)               (6,722)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders

  $ 48,339       $ 68,759       $ 10,886       $ (79,404)      $ 48,580    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Six Months Ended June 30, 2012

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

  $      $ 1,733,182       $ 1,639,877       $      $ 3,373,059    

Provision for doubtful accounts

           (225,301)        (190,523)               (415,824)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

           1,507,881         1,449,354                2,957,235    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

           565,909         739,108                1,305,017    

Supplies

           257,969         202,628                460,597    

Rent expense

           40,134         48,730                88,864    

Other operating expenses

           306,196         331,219                637,415    

Medicare and Medicaid HCIT incentive payments

           (2,313)        (5,148)               (7,461)   

Equity in the earnings of consolidated subsidiaries

    (173,696)                      173,696           

Depreciation and amortization

    5,677         84,519         73,910                164,106    

Interest expense

    156,448         2,957         4,524                163,929    

Other

    (407)        (190)        1,215                618    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (11,978)        1,255,181         1,396,186         173,696         2,813,085    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    11,978         252,700         53,168         (173,696)        144,150    

Income tax (expense) benefit

    62,666         (97,858)        (14,826)               (50,018)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    74,644         154,842         38,342         (173,696)        94,132    

Loss from discontinued operations, including gains/losses on disposals, net of income taxes

                  (4,416)               (4,416)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    74,644         154,842         33,926         (173,696)        89,716    

Net income attributable to noncontrolling interests

           (165)        (14,907)               (15,072)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

  $ 74,644       $ 154,677       $ 19,019       $ (173,696)      $ 74,644    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2012

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

  $ 74,644       $ 154,842       $ 33,926       $ (173,696)      $ 89,716    

Components of other comprehensive income (loss) before income taxes attributable to:

         

Interest rate swap contract

         

Reclassification adjustments for amortization of expense into net income

    40,533                              40,533    

Available-for-sale securities

         

Unrealized gains (losses), net

    67                4,517                4,584    

Adjustments for net (gains) losses reclassified into net income

                  103                103    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

    40,600                4,620                45,220    

Income tax (expense) benefit related to items of other comprehensive income (loss)

    (15,761)               (1,616)               (17,377)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

    24,839                3,004                27,843    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

    99,483         154,842         36,930         (173,696)        117,559    

Total comprehensive income attributable to noncontrolling interests

           (165)        (14,907)               (15,072)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders

  $       99,483       $ 154,677       $ 22,023       $ (173,696)      $ 102,487    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Six Months Ended June 30, 2011

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

  $      $ 1,633,914       $ 1,188,268       $      $ 2,822,182    

Provision for doubtful accounts

           (187,453)        (155,403)               (342,856)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

           1,446,461         1,032,865                2,479,326    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

           570,233         545,003                1,115,236    

Supplies

           248,432         131,823                380,255    

Rent expense

           37,204         35,417                72,621    

Other operating expenses

           275,667         219,308                494,975    

Equity in the earnings of consolidated subsidiaries

    (165,991)                      165,991           

Depreciation and amortization

    3,619         78,632         46,578                128,829    

Interest expense

    97,885         1,812         2,373                102,070    

Other

    (514)        853         (672)               (333)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (65,001)        1,212,833         979,830         165,991         2,293,653    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

    65,001         233,628         53,035         (165,991)        185,673    

Income tax (expense) benefit

    39,134         (90,434)        (15,491)               (66,791)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    104,135         143,194         37,544         (165,991)        118,882    

Loss from discontinued operations, including gains/losses on disposals, net of income taxes

                  (1,437)               (1,437)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

    104,135         143,194         36,107         (165,991)        117,445    

Net income attributable to noncontrolling interests

           (252)        (13,058)               (13,310)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

  $ 104,135       $ 142,942       $ 23,049       $ (165,991)      $ 104,135    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2011

(in thousands)

 

    Parent
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

  $     104,135       $ 143,194       $ 36,107       $ (165,991)      $ 117,445    

Components of other comprehensive income (loss) before income taxes attributable to:

         

Interest rate swap contract

         

Changes in fair value

    20,230                              20,230    

Available-for-sale securities

         

Unrealized gains (losses), net

    (37)               1,209                1,172    

Adjustments for net (gains) losses reclassified into net income

    159                (200)               (41)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

    20,352                1,009                21,361    

Income tax (expense) benefit related to items of other comprehensive income (loss)

    (4,711)               (355)               (5,066)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

    15,641                654                16,295    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

    119,776         143,194         36,761         (165,991)        133,740    

Total comprehensive income attributable to noncontrolling interests

           (252)        (13,058)               (13,310)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders

  $ 119,776       $ 142,942       $ 23,703       $ (165,991)      $ 120,430    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Balance Sheet

June 30, 2012

(in thousands)

 

      Parent Issuer       Guarantor
  Subsidiaries  
    Non-Guarantor
  Subsidiaries  
       Eliminations        Consolidated  

Current assets:

         

Cash and cash equivalents

  $ 1,908      $ 50,349      $ (15,957)      $ -      $ 36,300    

Available-for-sale securities

    74,756        -        45,260        -        120,016    

Accounts receivable, net

    -        488,655        435,372        -        924,027    

Supplies, prepaid expenses and other assets

    4,594        114,733        100,299        -        219,626    

Prepaid and recoverable income taxes

    14,341        -        -        -        14,341    

Restricted funds

    -        -        24,967        -        24,967    

Assets of discontinued operations

    -        -        9,619        -        9,619   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    95,599        653,737        599,560        -        1,348,896   

Property, plant and equipment, net

    84,734        1,819,444        1,473,517        -        3,377,695   

Investments in consolidated subsidiaries

    1,823,648        -        -        (1,823,648)        -   

Restricted funds

    -        -        104,497        -        104,497   

Goodwill

    -        568,182        451,158        -        1,019,340   

Deferred charges and other assets

    78,702        77,095        169,382        -        325,179   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,082,683      $ 3,118,458      $ 2,798,114      $ (1,823,648)      $ 6,175,607   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities:

         

Accounts payable

  $ 29,244      $ 84,911      $ 67,031      $ -      $ 181,186   

Accrued expenses and other current liabilities

    145,061        176,094        232,242        -        553,397   

Deferred income taxes

    20,766        -        -        -        20,766   

Current maturities of long-term debt and capital lease obligations

    68,375        15,786        8,361        -        92,522   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    263,446        276,791        307,634         -        847,871   

Deferred income taxes

    259,064        -        -        -        259,064    

Long-term debt and capital lease obligations, less current maturities

    3,366,872        50,735        65,837        -        3,483,444   

Intercompany balances

    (2,787,801)        (512,822)        3,300,623        -        -   

Other long-term liabilities

    103,275        49,217        325,748        -        478,240   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,204,856        (136,079)        3,999,842        -        5,068,619   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Redeemable equity securities

    -        1,888        195,864        -        197,752   

Stockholders’ equity:

         

Total Health Management Associates, Inc. stockholders’ equity

    877,827        3,252,511        (1,428,863)        (1,823,648)        877,827   

Noncontrolling interests

    -        138        31,271        -        31,409   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    877,827        3,252,649        (1,397,592)        (1,823,648)        909,236   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

  $ 2,082,683      $ 3,118,458      $ 2,798,114      $ (1,823,648)      $ 6,175,607   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Supplemental Condensed Consolidating Financial Statements (continued)

 

Health Management Associates, Inc.

Condensed Consolidating Balance Sheet

December 31, 2011

(in thousands)

 

    Parent Issuer     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Current assets:

         

Cash and cash equivalents

  $ 28,586      $ 47,094      $ (11,537)      $ -      $ 64,143   

Available-for-sale securities

    81,654        -        40,623        -        122,277   

Accounts receivable, net

    -        474,847        428,670        -        903,517   

Supplies, prepaid expenses and other assets

    4,953        115,193        95,449        -        215,595   

Prepaid and recoverable income taxes

    61,756        -        -        -        61,756   

Restricted funds

    -        -        28,289        -        28,289   

Assets of discontinued operations

    -        -        14,561        -        14,561   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    176,949        637,134        596,055        -        1,410,138   

Property, plant and equipment, net

    89,419        1,729,632        1,444,121        -        3,263,172   

Investments in consolidated subsidiaries

    1,948,185        -        -        (1,948,185)        -   

Restricted funds

    -        -        96,244        -        96,244   

Goodwill

    -        568,182        431,198        -        999,380   

Deferred charges and other assets

    81,265        40,962        113,028        -        235,255   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 2,295,818      $ 2,975,910      $ 2,680,646      $ (1,948,185)      $ 6,004,189   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities:

         

Accounts payable

  $ 40,188      $ 84,870      $ 73,062      $ -      $ 198,120   

Accrued expenses and other current liabilities

    113,262        132,540        223,927        -        469,729   

Deferred income taxes

    50,466        -        -        -        50,466   

Current maturities of long-term debt and capital lease obligations

    68,375        8,941        8,193        -        85,509   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    272,291        226,351        305,182        -        803,824   

Deferred income taxes

    234,080        -        -        -        234,080   

Long-term debt and capital lease obligations, less current maturities

    3,397,948        30,819        60,722        -        3,489,489   

Intercompany balances

    (2,503,302)        (437,179)        2,940,481        -        -   

Other long-term liabilities

    125,660        53,997        311,380        -        491,037   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    1,526,677        (126,012)        3,617,765        -        5,018,430   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Redeemable equity securities

    -        2,805        197,838        -        200,643