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 September 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 October 26, 2012, there were 256,368,432 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 SEPTEMBER 30, 2012

INDEX

 

         Page  

PART I – FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements.

  

Consolidated Statements of Income – Three and Nine Months Ended September 30, 2012 and 2011

     3   

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2012 and 2011

     4   

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

     5   

Consolidated Statements of Stockholders’ Equity – Nine Months Ended September 30, 2012 and 2011

     6   

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 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

     34   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     44   

Item 4.

 

Controls and Procedures

     44   

PART II – OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     45   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     48   

Item 6.

 

Exhibits

     48   

Signatures

     49   

Index to Exhibits

     50   

 

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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Net revenue before the provision for doubtful accounts

   $ 1,664,187      $ 1,398,495      $ 5,037,246      $ 4,220,677   

Provision for doubtful accounts

     (224,078     (178,873     (639,902     (521,729
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     1,440,109        1,219,622        4,397,344        3,698,948   
  

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     637,305        549,857        1,942,322        1,665,093   

Supplies

     216,819        179,993        677,416        560,248   

Rent expense

     41,882        38,117        130,746        110,738   

Other operating expenses

     331,935        267,140        969,350        762,115   

Medicare and Medicaid HCIT incentive payments

     (24,224     (1,749     (31,685     (1,749

Depreciation and amortization

     91,610        65,605        255,716        194,434   

Interest expense

     76,814        50,018        240,743        152,088   

Other

     (2,363     (1,450     (1,745     (1,783
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,369,778        1,147,531        4,182,863        3,441,184   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     70,331        72,091        214,481        257,764   

Provision for income taxes

     (20,913     (22,387     (70,931     (89,178
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     49,418        49,704        143,550        168,586   

Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes

     (1,389     255        (5,805     (1,182
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     48,029        49,959        137,745        167,404   

Net income attributable to noncontrolling interests

     (6,685     (6,231     (21,757     (19,541
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

   $ 41,344      $ 43,728      $ 115,988      $ 147,863   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic and diluted

        

Continuing operations

   $ 0.17      $ 0.17      $ 0.48      $ 0.59   

Discontinued operations

     (0.01     —          (0.03     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.16      $ 0.17      $ 0.45      $ 0.58   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding:

        

Basic

     254,516        252,157        254,111        251,327   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     256,784        255,124        256,172        254,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Consolidated net income

   $ 48,029      $ 49,959      $ 137,745      $ 167,404   

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

        

Interest rate swap contract

        

Changes in fair value

     —          7,323        —          27,553   

Reclassification adjustments for amortization of expense into net income

     19,404        —          59,937        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net activity attributable to the interest rate swap contract

     19,404        7,323        59,937        27,553   
  

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale securities

        

Unrealized gains (losses), net

     4,244        (5,485     8,828        (4,313

Adjustments for net (gains) losses reclassified into net income

     (443     (979     (340     (1,020
  

 

 

   

 

 

   

 

 

   

 

 

 

Net activity attributable to available-for-sale securities

     3,801        (6,464     8,488        (5,333
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     23,205        859        68,425        22,220   

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

     (8,863     (2,897     (26,240     (7,963
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

     14,342        (2,038     42,185        14,257   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

     62,371        47,921        179,930        181,661   

Total comprehensive income attributable to noncontrolling interests

     (6,685     (6,231     (21,757     (19,541
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 55,686      $ 41,690      $ 158,173      $ 162,120   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

4


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

 

     September 30, 2012     December 31, 2011  
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 35,218      $ 64,143   

Available-for-sale securities

     146,569        122,277   

Accounts receivable, less allowances for doubtful accounts of $715,507 and $578,972 at September 30, 2012 and December 31, 2011, respectively

     972,104        903,517   

Supplies, prepaid expenses and other assets

     218,975        215,595   

Prepaid and recoverable income taxes

     14,626        61,756   

Restricted funds

     28,609        28,289   

Assets of discontinued operations

     8,100        14,561   
  

 

 

   

 

 

 

Total current assets

     1,424,201        1,410,138   
  

 

 

   

 

 

 

Property, plant and equipment

     5,410,805        5,086,496   

Accumulated depreciation and amortization

     (1,995,374     (1,823,324
  

 

 

   

 

 

 

Net property, plant and equipment

     3,415,431        3,263,172   
  

 

 

   

 

 

 

Restricted funds

     120,161        96,244   

Goodwill

     1,022,313        999,380   

Deferred charges and other assets

     324,622        235,255   
  

 

 

   

 

 

 

Total assets

   $ 6,306,728      $ 6,004,189   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 187,708      $ 198,120   

Accrued expenses and other liabilities

     613,263        469,729   

Deferred income taxes

     8,986        50,466   

Current maturities of long-term debt and capital lease obligations

     92,721        85,509   
  

 

 

   

 

 

 

Total current liabilities

     902,678        803,824   

Deferred income taxes

     281,644        234,080   

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

     3,476,368        3,489,489   

Other long-term liabilities

     477,981        491,037   
  

 

 

   

 

 

 

Total liabilities

     5,138,671        5,018,430   
  

 

 

   

 

 

 

Redeemable equity securities

     212,663        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, 256,368 shares and 254,156 shares issued at September 30, 2012 and December 31, 2011, respectively

     2,564        2,542   

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

     (53,255     (95,440

Additional paid-in capital

     169,020        156,859   

Retained earnings

     821,168        705,180   
  

 

 

   

 

 

 

Total Health Management Associates, Inc. stockholders’ equity

     939,497        769,141   

Noncontrolling interests

     15,897        15,975   
  

 

 

   

 

 

 

Total stockholders’ equity

     955,394        785,116   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 6,306,728      $ 6,004,189   
  

 

 

   

 

 

 

See accompanying notes.

 

5


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 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

    —          —          —          —          115,988       21,757       137,745  

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

    —          —          5,515        —          —          —          5,515  

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

    —          —          36,670        —          —          —          36,670  

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

    2,212        22        —          (7,057     —          —          (7,035

Stock-based compensation expense

    —          —          —          19,492       —          —          19,492  

Distributions to noncontrolling shareholders

    —          —          —          —          —          (23,598     (23,598

Purchases of subsidiary shares from noncontrolling shareholders

    —          —          —          (274     —          (154     (428

Noncontrolling shareholder interests in an acquired business

    —          —          —          —          —          1,917       1,917  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2012

    256,368     $ 2,564     $   (53,255   $ 169,020     $ 821,168     $ 15,897     $ 955,394  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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

    —          —          —          —          147,863       19,541       167,404  

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

    —          —          (3,468     —          —          —          (3,468

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

    —          —          17,725       —          —          —          17,725  

Exercises of stock options and related tax matters

    1,563       16       —          16,047       —          —          16,063  

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

    1,660       16       —          (7,429     —          —          (7,413

Stock-based compensation expense

    —          —          —          19,301       —          —          19,301  

Distributions to noncontrolling shareholders

    —          —          —          —          —          (20,539     (20,539

Noncontrolling shareholder interests in an acquired business

    —          —          —          —          —          2,036       2,036  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2011

    254,103     $ 2,541     $ (116,867   $ 150,959     $ 674,333     $ 13,629     $ 724,595  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

6


Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Nine Months Ended September 30,  
     2012     2011  

Cash flows from operating activities:

    

Consolidated net income

   $ 137,745      $ 167,404   

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

    

Depreciation and amortization

     263,960        199,428   

Amortization related to interest rate swap contract

     59,937        —     

Fair value adjustment related to interest rate swap contract

     22,965        —     

Provision for doubtful accounts

     639,902        521,729   

Stock-based compensation expense

     19,492        19,301   

Losses on sales of assets, net

     2,114        1,096   

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

     (2,350     (706

Deferred income tax expense (benefit)

     (20,156     48,375   

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

    

Accounts receivable

     (719,495     (573,902

Supplies, prepaid expenses and other current assets

     (1,962     (12,251

Prepaid and recoverable income taxes

     52,641        (8

Deferred charges and other long-term assets

     (1,839     (1,584

Accounts payable

     (10,524     (5,843

Accrued expenses and other liabilities

     11,355        85,649   

Equity compensation excess income tax benefits

     (1,444     (2,919

Loss from discontinued operations, net

     5,805        1,182   
  

 

 

   

 

 

 

Net cash provided by continuing operating activities

     458,146        446,951   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Acquisitions of hospitals and other ancillary health care businesses

     (71,475     (573,439

Additions to property, plant and equipment

     (282,424     (202,819

Proceeds from sales of assets and insurance recoveries

     1,932        1,792   

Proceeds from sales of discontinued operations

     1,392        4,851   

Purchases of available-for-sale securities

     (1,431,548     (1,153,492

Proceeds from sales of available-for-sale securities

     1,412,580        1,173,348   

Increase in restricted funds, net

     (18,723     (28,260
  

 

 

   

 

 

 

Net cash used in continuing investing activities

     (388,266     (778,019
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from long-term debt borrowings

     17,000        370,700   

Principal payments on debt and capital lease obligations

     (87,927     (34,047

Payments for debt issuance costs

     (636     (10,625

Proceeds from exercises of stock options

     —          14,067   

Cash received from noncontrolling shareholders

     3,591        —     

Cash payments to noncontrolling shareholders

     (30,815     (21,828

Equity compensation excess income tax benefits

     1,444        2,919   
  

 

 

   

 

 

 

Net cash provided by (used in) continuing financing activities

     (97,343     321,186   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents before discontinued operations

     (27,463     (9,882

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

    

Operating activities

     (1,327     8,004   

Investing activities (see Note 7)

     (135     (11,583
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (28,925     (13,461

Cash and cash equivalents at the beginning of the period

     64,143        101,812   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   $ 35,218      $ 88,351   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 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 September 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 Current Report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2012 (referred to herein as the “August 2012 Form 8-K”). The interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 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 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 the August 2012 Form 8-K. Additionally, see Note 2 for information regarding new accounting guidance that we adopted during the nine months ended September 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 (i) the current year presentation for, among other things, Medicare and Medicaid HCIT incentive payments and (ii) new accounting guidance that we adopted during the nine months ended September 30, 2012, which 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.

 

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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
September 30, 2012
    Nine Months Ended
September 30, 2012
 

Medicare

   $ 454,076         27.3   $ 1,419,994         28.2

Medicaid

     146,850         8.8        423,235         8.4   

Commercial insurance

     842,236         50.6        2,487,718         49.4   

Self-pay

     198,223         11.9        549,834         10.9   

Other

     22,802         1.4        156,465         3.1   
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 1,664,187         100.0   $ 5,037,246         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 $54.2 million and $45.0 million during the three months ended September 30, 2012 and 2011, respectively. The corresponding amounts for the nine months ended September 30, 2012 and 2011 were $165.6 million and $121.5 million, respectively.

 

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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 the August 2012 Form 8-K. The table below summarizes our long-term debt and capital lease obligations by major component (in thousands).

 

     September 30, 2012     December 31, 2011  

Bank borrowings:

    

Revolving credit facilities

   $ —        $ —     

Term Loan A (as defined below)

     684,219        725,000   

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

     1,377,305        1,386,258   

7.375% Senior Notes due 2020

     875,000        875,000   

6.125% Senior Notes due 2016, net of discounts

     398,693        398,416   

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

     84,522        81,648   

Capital lease obligations and other long-term debt

     149,350        108,676   
  

 

 

   

 

 

 

Long-term debt and capital lease obligations

     3,569,089        3,574,998   

Less current maturities

     (92,721     (85,509
  

 

 

   

 

 

 

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

   $ 3,476,368      $ 3,489,489   
  

 

 

   

 

 

 

Bank Borrowings. On November 18, 2011, we completed a restructuring of our long-term debt (the “2011 Debt Restructuring”), 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 (the “2020 Senior Notes”), 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 September 30, 2012, the effective interest rates on the Term Loan A and the Term Loan B were 2.9% and 4.5%, respectively. Those rates remained unchanged as of October 26, 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 nine months ended September 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 nine months ended September 30, 2011; however, as discussed below, one of our subsidiaries borrowed against its then existing revolving credit facility during such period. As of October 26, 2012, standby letters of credit in favor of third parties of approximately $50.1 million reduced the amount available for borrowing under the Revolving Credit Agreement to $449.9 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 2.9% and 2.8% on September 30, 2012 and October 26, 2012, respectively.

On September 30, 2011, one of our wholly owned subsidiaries, Knoxville HMA Holdings, LLC (“HMA Knoxville”), and certain subsidiaries of HMA Knoxville entered into a credit agreement with a syndicate of banks (the “Knoxville Credit Agreement”). HMA Knoxville entered into the Knoxville Credit Agreement to facilitate its September 30, 2011 acquisition of substantially all of the assets of seven general acute care hospitals and certain related ancillary health care operations in east Tennessee. See Note 6 for information regarding this acquisition. In connection with the 2011 Debt Restructuring, the Knoxville Credit Agreement was terminated on November 18, 2011 and all of the then existing principal and accrued interest outstanding thereunder was repaid. The Knoxville Credit Agreement consisted of a $360.0 million term loan and a $150.0 million revolving credit facility. The full amount of the term loan and $10.7 million under the revolving credit facility were borrowed by HMA Knoxville during the nine months ended September 30, 2011 and those borrowings were outstanding on such date. The borrowings were primarily used to (i) fund a portion of the total cash consideration paid to complete the abovementioned acquisition and (ii) pay closing costs associated with the Knoxville Credit Agreement.

Senior Debt Securities. As part of the 2011 Debt Restructuring, we completed a private placement of $875.0 million in aggregate principal amount 2020 Senior Notes. We also entered into an agreement that, among other things, required us to file a registration statement with the SEC with respect to a registered offer to exchange the 2020 Senior Notes

 

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

3. Long-Term Debt and Capital Lease Obligations (continued)

 

for publicly registered notes with terms substantially identical, in all material respects, to the 2020 Senior Notes. In connection therewith, we filed a registration statement during August 2012 and incurred approximately $0.5 million of debt issuance costs. Upon such registration statement being declared effective by the SEC on August 30, 2012, we offered the publicly registered notes to holders of the 2020 Senior Notes in exchange for the surrender of their existing notes. During the exchange period, which concluded on September 28, 2012, all of the 2020 Senior Notes were surrendered for the publicly registered notes.

Other. Cash paid for interest on our long-term debt and capital lease obligations during the nine months ended September 30, 2012 and 2011, including amounts that have been capitalized, was approximately $206.6 million and $140.6 million, respectively. Including acquisition transactions, we entered into capital leases and other similar arrangements for real property and equipment aggregating $58.3 million and $49.4 million during the nine months ended September 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 subsidiaries that provide joint and severable guarantees of payment for certain of our long-term debt obligations.

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

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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Numerators:

        

Income from continuing operations

   $ 49,418      $ 49,704      $ 143,550      $ 168,586   

Income attributable to noncontrolling interests

     (6,685     (6,231     (21,757     (19,541
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     42,733        43,473        121,793        149,045   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations attributable to Health Management Associates, Inc. common stockholders

     (1,389     255        (5,805     (1,182
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 41,344      $ 43,728      $ 115,988      $ 147,863   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominators:

        

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

     254,516        252,157        254,111        251,327   

Dilutive securities: stock-based compensation arrangements

     2,268        2,967        2,061        3,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator for diluted earnings (loss) per share

     256,784        255,124        256,172        254,703   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share:

        

Basic

        

Continuing operations

   $ 0.17      $ 0.17      $ 0.48      $ 0.59   

Discontinued operations

     (0.01     —          (0.03     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.16      $ 0.17      $ 0.45      $ 0.58   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

        

Continuing operations

   $ 0.17      $ 0.17      $ 0.48      $ 0.59   

Discontinued operations

     (0.01     —          (0.03     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.16      $ 0.17      $ 0.45      $ 0.58   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Stock options

     3,417        4,803        3,977        3,849   
  

 

 

   

 

 

   

 

 

   

 

 

 

Deferred stock and restricted stock

     1,624        916        2,091        783   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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.

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 September 30, 2012 (in thousands).

 

     Level 1      Level 2     Level 3      Totals  

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

   $ 258,559       $ 36,780      $ —         $ 295,339   
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest rate swap contract

   $ —         $ (114,798   $ —         $ (114,798
  

 

 

    

 

 

   

 

 

    

 

 

 

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 consisted of: (i) bonds and notes issued by (a) the United States government and its agencies, (b) domestic and foreign corporations and (c) foreign governments; 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 the August 2012 Form 8-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).

 

     September 30, 2012      December 31, 2011  

Accrued expenses and other liabilities

   $ 87,200       $ 86,975   

Other long-term liabilities

     27,598         75,332   
  

 

 

    

 

 

 

Totals

   $ 114,798       $ 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 their corresponding level within the fair value hierarchy.

 

     September 30, 2012      December 31, 2011  

Level 1:

     

6.125% Senior Notes due 2016

   $ 438,000       $ 416,000   

7.375% Senior Notes due 2020

     955,938         910,000   

3.75% Convertible Senior Subordinated Notes due 2028

     97,623         94,391   

Level 2:

     

Term Loan A

     684,219         708,688   

Term Loan B

     1,403,395         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.

 

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

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 below (in thousands).

 

            Gross      Gross        
     Amortized      Unrealized      Unrealized     Estimated  
     Cost      Gains      Losses     Fair Values  

As of September 30, 2012:

          

Debt securities and debt-based mutual funds

          

Government

   $ 150,287       $ 1,510       $ (3   $ 151,794   

Corporate

     80,160         3,940         (109     83,991   

Equity securities and equity-based mutual funds

          

Domestic

     34,082         4,704         (313     38,473   

International

     18,773         1,169         (801     19,141   

Commodity-based fund

     2,271         —           (331     1,940   
  

 

 

    

 

 

    

 

 

   

 

 

 

Totals

   $ 285,573       $ 11,323       $ (1,557   $ 295,339   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 September 30, 2012 and December 31, 2011, investments with aggregate estimated fair values of approximately $14.7 million (204 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.

The contractual maturities of debt-based securities held by us as of September 30, 2012, excluding mutual fund holdings, are set forth in the table below (in thousands). 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      Estimated  
     Cost      Fair Values  

Within 1 year

   $ 309       $ 325   

After 1 year and through year 5

     9,437         9,710   

After 5 years and through year 10

     8,876         9,312   

After 10 years

     12,419         12,964   

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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Realized gains

   $ 2,043      $ 1,291      $ 3,508      $ 1,616   

Realized losses

     (276     (592     (1,158     (910

Investment income

     1,640        1,548        4,760        4,225   

 

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)

 

Restricted Funds. Our restricted funds, which consisted solely of available-for-sale securities at both September 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. Supplemental information regarding the available-for-sale securities that are included in restricted funds is set forth in the table below (in thousands).

 

     Nine Months Ended September 30,  
     2012      2011  

Proceeds from sales

   $ 52,583       $ 115,456   

Purchases

     70,610         136,981   

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% interest in these five Oklahoma-based hospitals was approximately $61.9 million in cash. During the nine months ended September 30, 2012, certain of our subsidiaries also acquired six ancillary health care businesses for aggregate cash consideration of $9.6 million.

2011 Acquisitions. On September 30, 2011, one of our subsidiaries, Knoxville HMA Holdings, LLC (“HMA Knoxville”), 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. Those hospitals were formerly known as:

 

   

Mercy Medical Center St. Mary’s in Knoxville (401 licensed beds);

 

   

Mercy Medical Center North in Powell (108 licensed beds);

 

   

Mercy Medical Center West in Knoxville (101 licensed beds);

 

   

St. Mary’s Jefferson Memorial Hospital in Jefferson City (58 licensed beds);

 

   

St. Mary’s Medical Center of Campbell County in LaFollette (66 licensed beds);

 

   

St. Mary’s Medical Center of Scott County in Oneida (25 licensed beds); and

 

   

Baptist Hospital of Cocke County in Newport (74 licensed beds).

HMA Knoxville also acquired (i) substantially all of Mercy’s ancillary health care operations that were affiliated with the aforementioned Tennessee-based hospitals (collectively those ancillary facilities are licensed to operate 74 beds) and (ii) Mercy’s Riverside hospital campus (which is licensed to operate 293 beds but is currently idle). Our east Tennessee hospital and health care network is now collectively referred to as Tennova Healthcare. St. Mary’s Medical Center of Scott County and the former Riverside hospital campus were treated as discontinued operations on the date of acquisition (see Note 7). The total purchase price for this acquisition was approximately $532.4 million in cash. Additionally, HMA Knoxville assumed certain long-term lease obligations and will make certain maintenance and capital expenditures at the acquired hospitals. This acquisition was financed with available cash balances, which included the proceeds from sales of available-for-sale securities, and bank financing, which is described at Note 3.

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 nine months ended September 30, 2011, certain of our subsidiaries also acquired six ancillary health care businesses for aggregate cash consideration of $11.3 million.

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 nine months ended September 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.

 

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6. Acquisitions, Joint Ventures and Other Activity (continued)

 

The table below summarizes the purchase price allocations for the acquisitions that we completed during the nine months ended September 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.

 

     Nine Months Ended September 30,  
     2012     2011  
     (in thousands)  

Assets acquired:

    

Current and other assets

   $ 1,811      $ 24,740   

Property, plant and equipment

     14,311        496,936   

Intangible assets (primarily contractual rights to operate hospitals) and other long-term assets

     48,775        55,967   

Goodwill

     25,176        82,048   
  

 

 

   

 

 

 

Total assets acquired

     90,073        659,691   
  

 

 

   

 

 

 

Liabilities assumed:

    

Current liabilities

     (501     (10,285

Capital lease obligations and related other

     (961     (61,339
  

 

 

   

 

 

 

Total liabilities assumed

     (1,462     (71,624
  

 

 

   

 

 

 

Net assets acquired

   $ 88,611      $ 588,067   
  

 

 

   

 

 

 

We incurred approximately $5.0 million of acquisition-related costs during the nine months ended September 30, 2011. Such costs have been included in other operating expenses in the consolidated statements of income. Our acquisition-related costs for the nine months ended September 30, 2012 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.

The table below sets forth certain combined pro forma financial information 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      Nine Months Ended  
     September 30, 2011      September 30, 2011  

Net revenue before the provision for doubtful accounts

   $ 1,561,817       $ 4,710,645   

Consolidated net income

     53,142         170,997   

Net income attributable to Health Management Associates, Inc.

     46,911         151,456   

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

     

Basic

   $ 0.19       $ 0.60   

Diluted

     0.18         0.59   

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 financial information in respect of Tennova Healthcare’s operations (in thousands).

 

     Three Months Ended     Nine Months Ended  
     September 30, 2012     September 30, 2012  

Net revenue before the provision for doubtful accounts:

    

Continuing operations

   $ 165,024      $ 492,774   

Discontinued operations

     —          7,346   

Income (loss) from operations before income taxes:

    

Continuing operations

     10,879        45,327   

Discontinued operations

     (2,268     (8,025

 

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6. Acquisitions, Joint Ventures and Other Activity (continued)

 

Joint Ventures and Redeemable Equity Securities. As of September 30, 2012, we had established joint ventures to own/lease and operate 29 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.

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 September 30, 2012 and through October 26, 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).

 

     Nine Months Ended September 30,  
     2012     2011  

Balances at the beginning of the period

   $ 200,643      $ 201,487   

Noncontrolling shareholder interests in acquired businesses

     15,218        2,046   

Investments by noncontrolling shareholders

     3,591        —     

Purchases of subsidiary shares from noncontrolling shareholders

     (6,789     (1,289
  

 

 

   

 

 

 

Balances at the end of the period

   $ 212,663      $ 202,244   
  

 

 

   

 

 

 

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 abovmentioned 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 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 nine months ended September 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. The resulting gain of $0.6 million has been included in our discontinued operations during the three and nine months ended September 30, 2011. 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 nine months ended September 30, 2011.

 

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

7. Discontinued Operations (continued)

 

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). A portion of the total Mercy acquisition purchase price was allocated to SMMC and Riverside and included as an investing activity of our discontinued operations in the condensed consolidated statements of cash flows. 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. We recently concluded that the estimated fair value of the long-lived assets at the Riverside hospital facility, less costs to sell, was lower than the corresponding net book value of such assets. Accordingly, we recorded a long-lived asset impairment charge of approximately $1.2 million during the three and nine months ended September 30, 2012 to reduce the affected long-lived assets to their estimated net realizable value.

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Net revenue before the provision for doubtful accounts

   $ —        $ —        $ 7,316      $ 13,603   

Provision for doubtful accounts

     —          —          (2,139     (2,741
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          —          5,177        10,862   
  

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     192        —          4,587        4,535   

Depreciation and amortization

     —          —          1,988        1,182   

Other operating expenses

     889        203        5,791        3,766   

(Gains) losses on sales of assets, net

     —          (619     1,102        (304

Long-lived asset and goodwill impairment charges

     1,187        —          1,187        3,614   
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,268        (416     14,655        12,793   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (2,268     416        (9,478     (1,931

Income tax (expense) benefit

     879        (161     3,673        749   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations

   $ (1,389   $ 255      $ (5,805   $ (1,182
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     September 30, 2012      December 31, 2011  

Supplies, prepaid expenses and other assets

   $ —         $ 569   

Property, plant and equipment, net, and other

     8,100         13,992   
  

 

 

    

 

 

 

Total assets of discontinued operations

   $ 8,100       $ 14,561   
  

 

 

    

 

 

 

8. Income Taxes

Our effective income tax rates were approximately 33.1% and 34.6% during the nine months ended September 30, 2012 and 2011, respectively, and 29.7% and 31.1% during the three months ended September 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 370 basis points and 280 basis points during the nine months ended September 30, 2012 and 2011, respectively. The corresponding impact was 310 basis points and 290 basis points during the three months ended September 30, 2012 and 2011, respectively.

Both our 2012 and 2011 provisions for income taxes were favorably impacted by the finalization of certain federal and state income tax returns. Our 2011 provision for income taxes also benefited from the satisfactory conclusion of certain state tax audits and examinations.

Our net federal and state income tax payments during the nine months ended September 30, 2012 and 2011 approximated $38.3 million and $40.2 million, respectively.

 

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

9. 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 (losses) on available-for-sale securities, net of income taxes of $3,092

     5,736        —          5,736   

Adjustments for net (gains) losses reclassified into net income, net of income taxes of $119

     (221     —          (221

Reclassification adjustments for amortization of expense into net income, net of income taxes of $23,267

     —          36,670        36,670   
  

 

 

   

 

 

   

 

 

 

Balances at September 30, 2012, net of income taxes of $34,395

   $ 6,346      $ (59,601   $ (53,255
  

 

 

   

 

 

   

 

 

 

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

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

Unrealized gains (losses) on available-for-sale securities, net of income taxes of $1,508

     (2,805     —          (2,805

Adjustments for net (gains) losses reclassified into net income, net of income taxes of $357

     (663     —          (663

Change in fair value of interest rate swap contract, net of income taxes of $9,828

     —          17,725        17,725   
  

 

 

   

 

 

   

 

 

 

Balances at September 30, 2011, net of income taxes of $73,970

   $ (1,896   $ (114,971   $ (116,867
  

 

 

   

 

 

   

 

 

 

Prior to our debt restructuring on November 18, 2011, which is discussed at Note 2(a) to the audited consolidated financial statements included in the August 2012 Form 8-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 $72.5 million during the twelve months ending September 30, 2013.

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 September 30, 2012, we were committed to guarantees of approximately $214.0 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 $92.6 million and $30.2 million at September 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

 

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10. Commitments and Contingencies (continued)

 

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 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 are cooperating 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.

 

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10. Commitments and Contingencies (continued)

 

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 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. On October 22, 2012, the defendants moved to dismiss the plaintiffs’ amended consolidated complaint for failure to state a claim or plead facts required by the Private Securities Litigation Reform Act. 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.

 

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10. Commitments and Contingencies (continued)

 

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 2020 Senior Notes and our 6.125% Senior Notes due 2016. Certain of the Parent Issuer’s material domestic subsidiaries that are 100% owned (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 3 herein and Note 2 to the audited consolidated financial statements included in the August 2012 Form 8-K for information regarding our long-term debt arrangements. On the pages that follow are schedules presenting condensed consolidating financial statements as of September 30, 2012 and December 31, 2011, as well as the three and nine months ended September 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.

 

21


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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 September 30, 2012

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

   $ —        $ 842,638      $ 821,549      $ —        $ 1,664,187   

Provision for doubtful accounts

     —          (119,816     (104,262     —          (224,078
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          722,822        717,287        —          1,440,109   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     —          276,557        360,748        —          637,305   

Supplies

     —          119,713        97,106        —          216,819   

Rent expense

     —          18,935        22,947        —          41,882   

Other operating expenses

     —          152,110        179,825        —          331,935   

Medicare and Medicaid HCIT incentive payments

     —          (15,990     (8,234     —          (24,224

Equity in the earnings of consolidated subsidiaries

     (93,292     —          —          93,292        —     

Depreciation and amortization

     4,946        44,507        42,157        —          91,610   

Interest expense

     72,788        1,641        2,385        —          76,814   

Other

     (362     (187     (1,814     —          (2,363
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (15,920     597,286        695,120        93,292        1,369,778   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     15,920        125,536        22,167        (93,292     70,331   

Income tax (expense) benefit

     25,424        (41,250     (5,087     —          (20,913
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     41,344        84,286        17,080        (93,292     49,418   

Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes

     —          —          (1,389     —          (1,389
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     41,344        84,286        15,691        (93,292     48,029   

Net income attributable to noncontrolling interests

     —          —          (6,685     —          (6,685
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

   $ 41,344      $ 84,286      $ 9,006      $ (93,292   $ 41,344   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


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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 September 30, 2012

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
     Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

   $ 41,344      $ 84,286       $ 15,691      $ (93,292   $ 48,029   

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

           

Interest rate swap contract

           

Reclassification adjustments for amortization of expense into net income

     19,404        —           —          —          19,404   

Available-for-sale securities

           

Unrealized gains (losses), net

     (1     —           4,245        —          4,244   

Adjustments for net (gains) losses reclassified into net income

     —          —           (443     —          (443
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     19,403        —           3,802        —          23,205   

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

     (7,531     —           (1,332     —          (8,863
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

     11,872        —           2,470        —          14,342   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

     53,216        84,286         18,161        (93,292     62,371   

Total comprehensive income attributable to noncontrolling interests

     —          —           (6,685     —          (6,685
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

   $ 53,216      $ 84,286       $ 11,476      $ (93,292   $ 55,686   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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 Income

Three Months Ended September 30, 2011

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

   $ —        $ 800,011      $ 598,484      $ —        $ 1,398,495   

Provision for doubtful accounts

     —          (103,178     (75,695     —          (178,873
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          696,833        522,789        —          1,219,622   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     —          276,691        273,166        —          549,857   

Supplies

     —          114,368        65,625        —          179,993   

Rent expense

     —          19,447        18,670        —          38,117   

Other operating expenses

     —          142,853        124,287        —          267,140   

Medicare and Medicaid HCIT incentive payments

     —          —          (1,749     —          (1,749

Equity in the earnings of consolidated subsidiaries

     (76,186     —          —          76,186        —     

Depreciation and amortization

     2,013        39,441        24,151        —          65,605   

Interest expense

     47,630        1,107        1,281        —          50,018   

Other

     (471     268        (1,247     —          (1,450
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (27,014     594,175        504,184        76,186        1,147,531   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     27,014        102,658        18,605        (76,186     72,091   

Income tax (expense) benefit

     16,714        (34,859     (4,242     —          (22,387
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     43,728        67,799        14,363        (76,186     49,704   

Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes

     —          —          255        —          255   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     43,728        67,799        14,618        (76,186     49,959   

Net income attributable to noncontrolling interests

     —          (107     (6,124     —          (6,231
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

   $ 43,728      $ 67,692      $ 8,494      $ (76,186   $ 43,728   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Comprehensive Income

Three Months Ended September 30, 2011

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

   $ 43,728      $ 67,799      $ 14,618      $ (76,186   $ 49,959   

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

          

Interest rate swap contract

          

Changes in fair value

     7,323        —          —          —          7,323   

Available-for-sale securities

          

Unrealized gains (losses), net

     37        —          (5,522     —          (5,485

Adjustments for net (gains) losses reclassified into net income

     —          —          (979     —          (979
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     7,360        —          (6,501     —          859   

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

     (5,173     —          2,276        —          (2,897
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

     2,187        —          (4,225     —          (2,038
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

     45,915        67,799        10,393        (76,186     47,921   

Total comprehensive income attributable to noncontrolling interests

     —          (107     (6,124     —          (6,231
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 45,915      $ 67,692      $ 4,269      $ (76,186   $ 41,690   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Income

Nine Months Ended September 30, 2012

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

   $ —        $ 2,574,219      $ 2,463,027      $ —        $ 5,037,246   

Provision for doubtful accounts

     —          (345,117     (294,785     —          (639,902
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          2,229,102        2,168,242        —          4,397,344   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     —          842,466        1,099,856        —          1,942,322   

Supplies

     —          377,681        299,735        —          677,416   

Rent expense

     —          59,069        71,677        —          130,746   

Other operating expenses

     —          458,307        511,043        —          969,350   

Medicare and Medicaid HCIT incentive payments

     —          (18,302     (13,383     —          (31,685

Equity in the earnings of consolidated subsidiaries

     (267,094     —          —          267,094        —     

Depreciation and amortization

     10,623        129,026        116,067        —          255,716   

Interest expense

     229,237        4,597        6,909        —          240,743   

Other

     (768     (378     (599     —          (1,745
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (28,002     1,852,466        2,091,305        267,094        4,182,863   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     28,002        376,636        76,937        (267,094     214,481   

Income tax (expense) benefit

     87,986        (138,550     (20,367     —          (70,931
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     115,988        238,086        56,570        (267,094     143,550   

Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes

     —          —          (5,805     —          (5,805
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     115,988        238,086        50,765        (267,094     137,745   

Net income attributable to noncontrolling interests

     —          (165     (21,592     —          (21,757
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

   $ 115,988      $ 237,921      $ 29,173      $ (267,094   $ 115,988   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Comprehensive Income

Nine Months Ended September 30, 2012

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

   $ 115,988      $ 238,086      $ 50,765      $ (267,094   $ 137,745   

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

          

Interest rate swap contract

          

Reclassification adjustments for amortization of expense into net income

     59,937        —          —          —          59,937   

Available-for-sale securities

          

Unrealized gains (losses), net

     66        —          8,762        —          8,828   

Adjustments for net (gains) losses reclassified into net income

     —          —          (340     —          (340
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     60,003        —          8,422        —          68,425   

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

     (23,292     —          (2,948     —          (26,240
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

     36,711        —          5,474        —          42,185   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

     152,699        238,086        56,239        (267,094     179,930   

Total comprehensive income attributable to noncontrolling interests

     —          (165     (21,592     —          (21,757
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 152,699      $ 237,921      $ 34,647      $ (267,094   $ 158,173   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Income

Nine Months Ended September 30, 2011

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net revenue before the provision for doubtful accounts

   $ —        $ 2,433,974      $ 1,786,703      $ —        $ 4,220,677   

Provision for doubtful accounts

     —          (290,019     (231,710     —          (521,729
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     —          2,143,955        1,554,993        —          3,698,948   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Salaries and benefits

     —          846,924        818,169        —          1,665,093   

Supplies

     —          362,774        197,474        —          560,248   

Rent expense

     —          56,651        54,087        —          110,738   

Other operating expenses

     —          418,519        343,596        —          762,115   

Medicare and Medicaid HCIT incentive payments

     —          —          (1,749     —          (1,749

Equity in the earnings of consolidated subsidiaries

     (241,819     —          —          241,819        —     

Depreciation and amortization

     5,632        118,073        70,729        —          194,434   

Interest expense

     145,514        2,920        3,654        —          152,088   

Other

     (985     1,121        (1,919     —          (1,783
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (91,658     1,806,982        1,484,041        241,819        3,441,184   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     91,658        336,973        70,952        (241,819     257,764   

Income tax (expense) benefit

     56,205        (126,005     (19,378     —          (89,178
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     147,863        210,968        51,574        (241,819     168,586   

Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes

     —          —          (1,182     —          (1,182
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     147,863        210,968        50,392        (241,819     167,404   

Net income attributable to noncontrolling interests

     —          (359     (19,182     —          (19,541
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Health Management Associates, Inc.

   $ 147,863      $ 210,609      $ 31,210      $ (241,819   $ 147,863   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 Statement of Comprehensive Income

Nine Months Ended September 30, 2011

(in thousands)

 

     Parent
Issuer
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Consolidated net income

   $ 147,863      $ 210,968      $ 50,392      $ (241,819   $ 167,404   

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

          

Interest rate swap contract

          

Changes in fair value

     27,553        —          —          —          27,553   

Available-for-sale securities

          

Unrealized gains (losses), net

     —          —          (4,313     —          (4,313

Adjustments for net (gains) losses reclassified into net income

     159        —          (1,179     —          (1,020
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before income taxes

     27,712        —          (5,492     —          22,220   

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

     (9,884     —          1,921        —          (7,963
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net

     17,828        —          (3,571     —          14,257   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consolidated comprehensive income

     165,691        210,968        46,821        (241,819     181,661   

Total comprehensive income attributable to noncontrolling interests

     —          (359     (19,182     —          (19,541
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 165,691      $ 210,609      $ 27,639      $ (241,819   $ 162,120   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

September 30, 2012

(in thousands)

 

     Parent Issuer     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Current assets:

          

Cash and cash equivalents

   $ 9,072     $ 20,814     $ 5,332     $ —        $ 35,218  

Available-for-sale securities

     96,277       —          50,292       —          146,569  

Accounts receivable, net

     —          507,192       464,912       —          972,104  

Supplies, prepaid expenses and other assets

     3,723       114,855       100,397       —          218,975  

Prepaid and recoverable income taxes

     14,626       —          —          —          14,626  

Restricted funds

     —          —          28,609       —          28,609  

Assets of discontinued operations

     —          —          8,100       —          8,100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     123,698       642,861       657,642       —          1,424,201  

Property, plant and equipment, net

     87,745       1,848,052       1,479,634       —          3,415,431  

Investments in consolidated subsidiaries

     1,836,486       —          —          (1,836,486     —     

Restricted funds

     —          —          120,161       —          120,161  

Goodwill

     —          568,182       454,131       —          1,022,313  

Deferred charges and other assets

     80,799       75,309       168,514       —          324,622  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,128,728     $ 3,134,404     $ 2,880,082     $ (1,836,486   $ 6,306,728  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities:

          

Accounts payable

   $ 26,961     $ 85,799     $ 74,948     $ —        $ 187,708  

Accrued expenses and other current liabilities

     124,978       214,511       273,774       —          613,263  

Deferred income taxes

     8,986       —          —          —          8,986  

Current maturities of long-term debt and capital lease obligations

     68,375       17,369       6,977       —          92,721  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     229,300       317,679       355,699       —          902,678  

Deferred income taxes

     281,644       —          —          —          281,644  

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

     3,351,364       54,963       70,041       —          3,476,368  

Intercompany balances

     (2,759,397     (612,981     3,372,378       —          —     

Other long-term liabilities

     86,320       53,740       337,921       —          477,981  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     1,189,231       (186,599     4,136,039       —          5,138,671  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Redeemable equity securities

     —          —          212,663       —          212,663  

Stockholders’ equity:

          

Total Health Management Associates, Inc. stockholders’ equity

     939,497       3,321,003       (1,484,517     (1,836,486     939,497  

Noncontrolling interests

     —          —          15,897       —          15,897  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     939,497       3,321,003       (1,468,620     (1,836,486     955,394  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,128,728     $ 3,134,404     $ 2,880,082     $ (1,836,486   $ 6,306,728  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


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