Health Management Announces Second Quarter 2013 Results

NAPLES, Fla.--(BUSINESS WIRE)--Health Management Associates, Inc. (NYSE: HMA) today announced its consolidated financial results for the second quarter ended June 30, 2013.

Key metrics from continuing operations for the second quarter (all percentage changes in the bullet points below compare the second quarter of 2013 to the second quarter of 2012) include:

• As shown in the tables accompanying this press release, diluted earnings per share (“EPS”) from continuing operations was $0.03. Excluding the impact of approximately $19.3 million, or $0.04 per diluted share, of interest rate swap accounting and mark-to-market adjustments on the swap, diluted earnings per share from continuing operations was $0.07 per diluted share, as compared to $0.21 per diluted share in the prior year;
• Net revenue was $1.464 billion;
• Adjusted EBITDA was $181.2 million, which includes $23.2 million of Medicare and Medicaid Healthcare Information Technology (“HCIT”) incentive payment as well as approximately $9.1 million, or $0.02 per diluted share, of severance accruals for certain employment arrangements;
• Same hospital net revenue was $1.398 billion;
• Same hospital net revenue per adjusted admission decreased 2.7%;
• As shown in the accompanying table, same hospital Adjusted EBITDA was $247.8 million, or an EBITDA margin of 17.7%; and
• Same hospital surgeries decreased 2.2% and emergency room visits decreased 3.1%.

The tables accompanying this press release include reconciliations of consolidated net income to all presentations of Adjusted EBITDA (which is not a GAAP measure) contained in this press release. Those tables also reconcile earnings per share on a GAAP basis to those amounts presented in this press release and contain disclaimers and other important information regarding how Health Management defines and uses Adjusted EBITDA.

For the second quarter, Health Management’s provision for doubtful accounts was $240.9 million, or 14.1% of net revenue before the provision for doubtful accounts, compared to $214.6 million, or 12.7% of net revenue before the provision of doubtful accounts, for the same quarter a year ago.

Uninsured self-pay patient discounts for the second quarter were $369.0 million, compared to $311.9 million for the same quarter a year ago. Charity/indigent care write-offs were $28.2 million for the second quarter, compared to $24.3 million for the same quarter a year ago.

The sum of uninsured discounts, charity/indigent write-offs and the provision for doubtful accounts, as a percent of the sum of net revenue before the provision for doubtful accounts, uninsured discounts and charity/indigent write-offs (which Health Management refers to as its Uncompensated Patient Care Percentage) was 30.3% for the second quarter, compared to 27.2% for the second quarter a year ago, and 28.6% for the quarter ended March 31, 2013. Health Management believes that its Uncompensated Patient Care Percentage provides key information regarding the aggregate level of patient care for which it does not receive payment.

Cash flow from continuing operating activities for the second quarter was $108.3 million, after cash interest and cash tax payments aggregating $61.7 million. At June 30, 2013, Health Management’s total leverage ratio and interest coverage ratio were 4.1, both being well within its debt covenant requirements.

Health Management hospitals recognized $23.2 million and $2.9 million of incentive payments in the three months ended June 30, 2013 and 2012, respectively.

For the six months ended June 30, 2013, Health Management reported net revenue of $2.947 billion and Adjusted EBITDA of $380.1 million. As shown in the tables accompanying this press release, excluding the impact of approximately $37.0 million, or $0.09 per diluted share, for interest rate swap accounting as well as mark-to-market adjustments on the swap due to interest rate conditions, for the six months ended June 30, 2013, diluted earnings per share from continuing operations were $0.21. Consolidated diluted earnings per share from continuing operations were $0.12 for the six months ended June 30, 2013.

As previously announced, Community Health Systems, Inc. (NYSE: CYH) (“CHS”) and Health Management Associates have entered into a definitive merger agreement pursuant to which CHS will acquire HMA for approximately $7.6 billion, including the assumption of approximately $3.7 billion of indebtedness. The transaction is expected to close by the end of the first quarter of 2014 and is subject to approval by a 70 percent vote of Health Management’s stockholders, antitrust clearance, receipt of other regulatory approvals, the absence of certain adverse developments, and customary closing conditions.

Health Management enables America’s best local health care by providing the people, processes, capital and expertise necessary for its hospital and physician partners to fulfill their local missions of delivering superior health care services. Health Management, through its subsidiaries, operates 71 hospitals with approximately 11,100 licensed beds in non-urban communities located throughout the United States.

All references to “Health Management,” “HMA” or the “Company” used in this release refer to Health Management Associates, Inc. and its affiliates.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “intends,” “plans,” “may,” “pending,” “continues,” “should,” “could” and other similar words. All statements addressing operating performance, events or developments that Health Management Associates, Inc. expects or anticipates will occur in the future, including but not limited to projections of revenue, provisions for doubtful accounts, income or loss, capital expenditures, debt structure, principal payments on debt, capital structure, the amount and timing of funds under the meaningful use measurement standard of various Healthcare Information Technology incentive programs, other financial items and operating statistics, statements regarding our plans and objectives for future operations, the impact of changes in observation stays, our ability to achieve process efficiencies, factors we believe may have an impact on our deductibles and co-pays, acquisitions, acquisition financing, divestitures, joint ventures, market service development and other transactions, statements of future economic performance, statements regarding our legal proceedings and other loss contingencies (including, but not limited to, the timing and estimated costs of such matters), statements regarding market risk exposures, statements regarding our ability to achieve cost efficiencies and/or reductions, statements regarding the effects and/or interpretations of recently enacted or future health care laws and regulations, statements regarding the potential impact of health care exchanges, statements of the beliefs or assumptions underlying or relating to any of the foregoing statements, and statements that are other than statements of historical fact, are considered to be “forward-looking statements.”

Because they are forward-looking, such statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Health Management Associates, Inc.’s most recent Annual Report on Form 10-K, including under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of Health Management Associates, Inc.’s underlying beliefs or assumptions prove incorrect, actual results could vary materially from those currently anticipated. In addition, undue reliance should not be placed on Health Management Associates, Inc.’s forward-looking statements. Except as required by law, Health Management Associates, Inc. disclaims any obligation to update its risk factors or to publicly announce updates to the forward-looking statements contained in this press release to reflect new information, future events or other developments.

HEALTH MANAGEMENT ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share amounts)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net revenue before the provision for doubtful accounts	$	1,705,267		$	1,686,541		$	3,429,108		$	3,373,059
Provision for doubtful accounts		(240,926	)		(214,563	)		(481,805	)		(415,824	)
Net revenue		1,464,341			1,471,978			2,947,303			2,957,235
Salaries and benefits		681,138			645,933			1,365,329			1,305,017
Supplies		232,744			226,154			468,512			460,597
Rent expense		43,207			43,839			85,363			88,864
Other operating expenses		349,238			325,635			675,013			637,415
Medicare and Medicaid HCIT incentive payments		(23,228	)		(2,871	)		(27,054	)		(7,461	)
Depreciation and amortization		96,464			85,712			190,339			164,106
Interest expense		69,934			75,166			139,363			163,929
Other		(1,841	)		(1,022	)		(3,732	)		618
		1,447,656			1,398,546			2,893,133			2,813,085
Income from continuing operations before income taxes		16,685			73,432			54,170			144,150
Provision for income taxes		(4,662	)		(25,291	)		(14,380	)		(50,018	)
Income from continuing operations		12,023			48,141			39,790			94,132
Loss from discontinued operations, net of income taxes		-			(3,021	)		-			(4,416	)
Consolidated net income		12,023			45,120			39,790			89,716
Net income attributable to noncontrolling interests		(4,654	)		(8,166	)		(9,319	)		(15,072	)
Net income attributable to Health Management Associates, Inc.	$	7,369		$	36,954		$	30,471		$	74,644
Earnings per share attributable to Heath Management
Associates, Inc. common stockholders:
Basic and Diluted:
Continuing operations	$	0.03		$	0.16		$	0.12		$	0.31
Discontinued operations		-			(0.02	)		-			(0.02	)
Net income	$	0.03		$	0.14		$	0.12		$	0.29
Weighted average number of shares outstanding:
Basic		258,522			254,496			257,381			253,906
Diluted		262,620			256,030			261,629			255,864
Net income attributable to Health Management Associates, Inc.
Income from continuing operations, net of income taxes	$	7,369		$	39,975		$	30,471		$	79,060
Loss from discontinued operations, net of income taxes		-			(3,021	)		-			(4,416	)
Net income attributable to Health Management Associates, Inc.	$	7,369		$	36,954		$	30,471		$	74,644

HEALTH MANAGEMENT ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
				Six Months Ended
				June 30,
				2013			2012
Cash flows from operating activities:
	Consolidated net income			$	39,790		$	89,716
	Adjustments to reconcile consolidated net income to net cash
		provided by continuing operating activities:
			Depreciation and amortization		196,385			169,612
			Amortization related to interest rate swap contract		36,307			40,533
			Fair value adjustment related to interest rate swap contract		665			18,448
			Provision for doubtful accounts		481,805			415,824
			Stock-based compensation expense		14,441			13,204
			(Gains) losses on sales of assets, net		(1,259	)		2,191
			Gains on sales of available-for-sale securities, net		(2,354	)		(583	)
			Write-offs of deferred debt issuance costs		584			-
			Deferred income tax (benefit) expense		24,164			(22,092	)
	Changes in assets and liabilities of continuing operations,
		net of the effects of acquisitions:
			Accounts receivable		(506,697	)		(446,976	)
			Supplies, prepaid expenses and other current assets		168			(2,673	)
			Prepaid and recoverable income taxes		(15,976	)		53,931
			Deferred charges and other long-term assets		(5,216	)		18
			Accounts payable, accrued expenses and other liabilities		(130,736	)		(43,161	)
	Equity compensation excess income tax benefits				(4,402	)		(1,407	)
	Loss from discontinued operations, net of income taxes				-			4,416
Net cash provided by continuing operating activities					127,669			291,001
Cash flows from investing activities:
	Additions to property, plant and equipment				(142,988	)		(194,175	)
	Acquisitions of hospitals and other				(172,900	)		(66,673	)
	Proceeds from sales of assets and insurance recoveries				3,403			1,367
	Proceeds from sales of discontinued operations				-			1,392
	Purchases of available-for-sale securities				(454,468	)		(901,735	)
	Proceeds from sales of available-for-sale securities				519,135			906,117
	Decrease (increase) in restricted funds				11,663			(1,783	)
Net cash used in continuing investing activities					(236,155	)		(255,490	)
Cash flows from financing activities:
	Principal payments on debt and capital lease obligations				(248,020	)		(61,072	)
	Proceeds from long-term borrowings				318,400			17,000
	Proceeds from exercise of stock options				25,026			-
	Cash payments to noncontrolling shareholders				(19,715	)		(23,281	)
	Payments for debt issuance costs				(1,588	)		-
	Cash received from noncontrolling shareholders				-			3,591
	Equity compensation excess income tax benefits				4,402			1,407
Net cash provided by (used in) continuing financing activities					78,505			(62,355	)
Net decrease in cash and cash equivalents before
	discontinued operations				(29,981	)		(26,844	)
Net decreases in cash and cash equivalents from
	discontinued operations:
		Operating activities			-			(864	)
		Investing activities			-			(135	)
Net decrease in cash and cash equivalents					(29,981	)		(27,843	)
Cash and cash equivalents at the beginning of the period					59,173			64,143
Cash and cash equivalents at the end of the period				$	29,192		$	36,300

HEALTH MANAGEMENT ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AND STATISTICS
	June 30,		December 31,
(unaudited, dollars in thousands)	2013		2012
Assets
Current assets:
Cash and cash equivalents	$	29,192	$	59,173
Available-for-sale securities		56,722		121,106
Accounts receivable, net		990,458		976,872
Other current assets		330,005		307,847
Assets of discontinued operations		6,250		6,250
Property, plant and equipment, net		3,594,290		3,463,052
Restricted funds		112,607		125,532
Other assets		1,440,392		1,340,957
Total assets	$	6,559,916	$	6,400,789
Liabilities and Stockholders' Equity
Current liabilities	$	821,904	$	972,423
Deferred income taxes		336,912		301,237
Other long-term liabilities		728,319		673,344
Long-term debt		3,578,288		3,433,260
Stockholders' equity		1,094,493		1,020,525
Total liabilities and stockholders' equity	$	6,559,916	$	6,400,789

	Three Months Ended June 30,								Six Months Ended June 30,
	2013			2012			% Change		2013			2012			% Change
Continuing Operations
Occupancy		37.4	%		39.4	%				39.4	%		41.6	%
Patient days		361,464			361,924		-0.1	%		740,830			763,029		-2.9	%
Admissions		84,462			86,467		-2.3	%		170,741			179,845		-5.1	%
Adjusted admissions		172,911			172,194		0.4	%		343,194			350,148		-2.0	%
Average length of stay		4.3			4.2					4.3			4.2
Surgeries		99,996			99,808		0.2	%		195,996			199,924		-2.0	%
Emergency room visits		452,201			453,964		-0.4	%		908,313			897,079		1.3	%
Net revenue (in thousands)	$	1,464,341		$	1,471,978		-0.5	%	$	2,947,303		$	2,957,235		-0.3	%
Net revenue per adjusted admission	$	8,469		$	8,548		-0.9	%	$	8,588		$	8,446		1.7	%
Total inpatient revenue percentage		42.7	%		45.1	%				43.5	%		46.1	%
Total outpatient revenue percentage		57.3	%		54.9	%				56.5	%		53.9	%
Same Hospitals
Occupancy		37.0	%		39.4	%				39.5	%		41.6	%
Patient days		342,085			361,924		-5.5	%		718,002			763,029		-5.9	%
Admissions		80,658			86,467		-6.7	%		165,840			179,845		-7.8	%
Adjusted admissions		168,009			172,194		-2.4	%		335,580			350,148		-4.2	%
Average length of stay		4.2			4.2					4.3			4.2
Surgeries		97,605			99,808		-2.2	%		192,580			199,924		-3.7	%
Emergency room visits		439,704			453,964		-3.1	%		883,207			897,079		-1.5	%
Net revenue (in thousands)	$	1,398,084		$	1,471,978		-5.0	%	$	2,868,116		$	2,957,235		-3.0	%
Net revenue per adjusted admission	$	8,321		$	8,548		-2.7	%	$	8,547		$	8,446		1.2	%
Total inpatient revenue percentage		42.2	%		45.1	%				43.3	%		46.1	%
Total outpatient revenue percentage		57.8	%		54.9	%				56.7	%		53.9	%

HEALTH MANAGEMENT ASSOCIATES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME INFORMATION (unaudited, dollars in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net revenue	$	1,464,341		$	1,471,978		$	2,947,303		$	2,957,235
Less acquisitions		66,257			-			79,187			-
Same hospital net revenue	$	1,398,084		$	1,471,978		$	2,868,116		$	2,957,235
Consolidated net income	$	12,023		$	45,120		$	39,790		$	89,716
Adjustments:
Loss from discontinued operations, net of income taxes		-			3,021			-			4,416
Provision for income taxes		4,662			25,291			14,380			50,018
(Gains) losses on sales of assets, net		(1,169	)		(146	)		(1,259	)		2,191
Interest and other income, net		(672	)		(876	)		(2,473	)		(1,573	)
Interest expense		69,934			75,166			139,363			163,929
Depreciation and amortization		96,464			85,712			190,339			164,106
Adjusted EBITDA (a)		181,242			233,288			380,140			472,803
Adjustment for acquisitions, corporate and other		66,554			53,977			146,048			109,139
Same hospital operating Adjusted EBITDA (a)	$	247,796		$	287,265		$	526,188		$	581,942
Same hospital operating Adjusted EBITDA margins =
Same hospital operating Adjusted EBITDA / Same hospital net revenue (a)		17.7	%		19.5	%		18.3	%		19.7	%

(a) Adjusted EBITDA is defined as consolidated net income before discontinued operations, net (gains) losses on sales of assets, net interest and other income, interest expense, income taxes and depreciation and amortization. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenue. Adjusted EBITDA is not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP. Nevertheless, Health Management believes that providing non-GAAP information such as Adjusted EBITDA is important for investors and other readers of Health Management’s consolidated financial statements, as it is commonly used as an analytical indicator within the health care industry and Health Management’s debt facilities contain covenants that use Adjusted EBITDA in their calculations. Because Adjusted EBITDA is a non-GAAP measure and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be directly comparable to other similarly titled measures used by other companies.

HEALTH MANAGEMENT ASSOCIATES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME INFORMATION (unaudited, in thousands, except per share amounts)
The following tables provide information regarding income from continuing operations attributable to Health Management, excluding the impact of the interest rate swap amortization and mark-to-market adjustments. These tables are a non-GAAP presentation; nonetheless, Health Management believes that providing this detail is beneficial to investors and other readers of Health Management’s financial statements due to the significant impact these items had on income from continuing operations attributable to Health Management.
Three Months Ended June 30, 2013
				Interest Rate Swap
				Amortization and
	Continuing			Mark-To-Market			Total, As
	Operations			Adjustments			Reported
Income from continuing operations before income taxes	$	36,001		$	(19,316	)	$	16,685
Net income from continuing operations attributable to noncontrolling interests		(4,654	)		-			(4,654	)
Income from continuing operations before income taxes attributable to
Health Management Associates, Inc.		31,347			(19,316	)		12,031
Provision for income taxes		(12,147	)		7,485			(4,662	)
Income from continuing operations attributable to Health Management
Associates, Inc. common stockholders	$	19,200		$	(11,831	)	$	7,369
Earnings per share from continuing operations attributable to
Health Management Associates, Inc. common stockholders:
Basic and Diluted	$	0.07		$	(0.04	)	$	0.03
Three Months Ended June 30, 2012
				Interest Rate Swap
				Amortization and
	Continuing			Mark-To-Market			Total, As
	Operations			Adjustments			Reported
Income from continuing operations before income taxes	$	95,692		$	(22,260	)	$	73,432
Net income from continuing operations attributable to noncontrolling interests		(8,166	)		-			(8,166	)
Income from continuing operations before income taxes attributable to
Health Management Associates, Inc.		87,526			(22,260	)		65,266
Provision for income taxes		(33,917	)		8,626			(25,291	)
Income from continuing operations attributable to Health Management
Associates, Inc. common stockholders	$	53,609		$	(13,634	)	$	39,975
Earnings per share from continuing operations attributable to
Health Management Associates, Inc. common stockholders:
Basic and Diluted	$	0.21		$	(0.05	)	$	0.16

HEALTH MANAGEMENT ASSOCIATES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME INFORMATION (unaudited, in thousands, except per share amounts)
Six Months Ended June 30, 2013
				Interest Rate Swap
				Amortization and
	Continuing			Mark-To-Market			Total, As
	Operations			Adjustments			Reported
Income from continuing operations before income taxes	$	91,142		$	(36,972	)	$	54,170
Net income from continuing operations attributable to noncontrolling interests		(9,319	)		-			(9,319	)
Income from continuing operations before income taxes attributable to
Health Management Associates, Inc.		81,823			(36,972	)		44,851
Provision for income taxes		(28,707	)		14,327			(14,380	)
Income from continuing operations attributable to Health Management
Associates, Inc. common stockholders	$	53,116		$	(22,645	)	$	30,471
Earnings per share from continuing operations attributable to
Health Management Associates, Inc. common stockholders:
Basic and Diluted	$	0.21		$	(0.09	)	$	0.12
Six Months Ended June 30, 2012
				Interest Rate Swap
				Amortization and
	Continuing			Mark-To-Market			Total, As
	Operations			Adjustments			Reported
Income from continuing operations before income taxes	$	203,131		$	(58,981	)	$	144,150
Net income from continuing operations attributable to noncontrolling interests		(15,072	)		-			(15,072	)
Income from continuing operations before income taxes attributable to
Health Management Associates, Inc.		188,059			(58,981	)		129,078
Provision for income taxes		(72,873	)		22,855			(50,018	)
Income from continuing operations attributable to Health Management
Associates, Inc. common stockholders	$	115,186		$	(36,126	)	$	79,060
Earnings per share from continuing operations attributable to
Health Management Associates, Inc. common stockholders:
Basic and Diluted	$	0.45		$	(0.14	)	$	0.31