Health Management Associates, Inc. Reports First Quarter Earnings

Health Management Associates, Inc. (NYSE:HMA) announced its consolidated financial results for the first quarter ended March 31, 2008. HMA reported net revenue of $1,152.6 million; earnings before interest, income taxes, depreciation, amortization, gain on sale of assets, write-offs of deferred financing costs and after minority interests ("EBITDA”) of $180.8 million; income from continuing operations of $161.6 million; net income of $133.9 million; diluted earnings per share ("EPS”) from continuing operations of $0.66; and diluted EPS of $0.55. Excluding a $124.5 million after-tax gain on the sale of a 27% minority interest in certain hospitals to Novant Health, HMA reported diluted EPS from continuing operations of $0.15, as shown on the table accompanying this release. For continuing operations at hospitals owned and operated by HMA for one year or more, referred to as same hospital continuing operations, net revenue increased 3.1%, admissions increased 0.4%, adjusted admissions increased 1.2%, emergency room visits increased 6.3%, and surgeries decreased 0.8%, all compared to the prior year’s first quarter. Net revenue per adjusted admission from same hospital continuing operations increased 1.8%, or 5.1% on a pro forma basis after adjusting for the impact of the Company’s transition to new discount and charity care policies in 2007 and lower uninsured patient volume in 2008. Same hospital EBITDA from continuing operations for the quarter was $202.1 million, which represented a margin of 17.8%. Provision for doubtful accounts, or bad debt expense, was $129.0 million, or 11.2% of net revenue, for the quarter compared to $118.8 million, or 10.7% of net revenue for the same quarter a year ago and $132.7 million, or 12.3% of net revenue, for the fourth quarter ended December 31, 2007. Since February 2007, HMA has given a 60% discount to uninsured patients for non-elective services. Uninsured discounts for the quarter were $153.4 million compared to $112.1 million for the same quarter a year ago, and charity/indigent care write-offs for the quarter were $18.1 million, compared to $20.4 million for the same period a year ago. The sum of uninsured discounts, charity/indigent write-offs, and bad debt expense, as a percent of the sum of net revenue, uninsured discounts and charity/indigent write-offs, was 22.7% for the first quarter, compared to 20.3% for the same quarter a year ago and 23.9% for the fourth quarter ended December 31, 2007. Results for the quarter included a pre-tax loss from discontinued operations of approximately $45.3 million. The majority of the loss relates to the Company’s decision to dispose of the Women’s Center campus of its Dallas Regional Medical Center and includes both the hospital’s operating loss for the period and a write-down of the hospital’s assets to their estimated net realizable disposal value. The loss from discontinued operations also includes HMA’s employed physician practices in North and South Carolina, the ownership of which will be assumed by Novant Health as part of the Company’s recently announced joint venture with Novant. The Company continues to account for its Little Rock, Arkansas hospital and one campus of its Biloxi, Mississippi hospital as discontinued operations. Prior periods have been reclassified for these discontinued operations, as well as for two Virginia-based hospitals that the Company sold during the third quarter of 2007. Total net revenue from continuing operations for the quarter increased 4.1%, total admissions from continuing operations increased 1.2%, and total adjusted admissions from continuing operations increased 2.0%, in each case as compared to the same quarter a year ago. Cash flow from continuing operating activities for the three month period was $145.1 million, after cash interest and cash tax payments aggregating $19.7 million. The Company reiterated its 2008 earnings objective of between $0.40 and $0.50 per diluted share from continuing operations on net revenue of between $4.5 and $4.7 billion, excluding the gain from the Novant Health joint venture transaction. HMA’s management team will discuss HMA’s 2008 first quarter performance in greater detail on a live conference call and audio webcast later this morning. Interested investors are invited to access the webcast at 11:00 a.m. ET, via HMA’s website located at www.hma.com or via www.streetevents.com or join the conference call by dialing 877-476-3476. A copy of the audio webcast, along with any related information that HMA may be required to provide pursuant to Securities and Exchange Commission rules, will be archived on HMA’s website under the heading "Investor Relations.” HMA owns and operates 57 hospitals, with approximately 8,100 licensed beds, in non-urban communities located throughout the United States. HMA’s mission is the delivery of compassionate and high quality health care services that improve the quality of life for its patients, physicians, and the communities it serves. All references to "HMA” or the "Company” used in this release refer to Health Management Associates, Inc. or its affiliates. Certain statements contained in this release, including, without limitation, statements containing the words "believes,” "anticipates,” "intends,” "expects,” "optimistic,” "objective,” and words of similar import, constitute "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include projections of revenue, income or loss, capital expenditures, debt structure, bad debt expense, capital structure, or other financial items, statements regarding the plans and objectives of management for future operations, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact. Statements made throughout this release are based on current estimates of future events, and HMA has no obligation to update or correct these estimates. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of these various factors. HEALTH MANAGEMENT ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except per share amounts)   Three Months Ended March 31, 2008   2007 Net revenue $ 1,152,572 $ 1,107,336   Operating expenses: Salaries and benefits 467,803 432,846 Supplies 156,873 153,877 Provision for doubtful accounts 128,970 118,808 Depreciation and amortization 57,458 50,297 Rent expense 22,135 20,424 Other operating expenses   195,173     186,661     Total operating expenses   1,028,412     962,913     Income from operations 124,160 144,423   Other income (expense): Gain on sales of assets, including minority equity interests, net 203,320 673 Interest expense (62,204 ) (33,242 ) Write-offs of deferred financing costs   (629 )   (761 ) Income from continuing operations before minority interests and income taxes   264,647 111,093 Minority interests in earnings of consolidated entities   (800 )   (690 )   Income from continuing operations before income taxes 263,847 110,403 Income tax expense   (102,239 )   (42,783 )   Income from continuing operations 161,608 67,620   Loss from discontinued operations, net of income taxes     (27,732 )   (2,581 )   Net income $ 133,876   $ 65,039     Earnings (loss) per share: Basic earnings (loss) per share: Continuing operations $ 0.66 $ 0.28 Discontinued operations   (0.11 )   (0.01 ) Net income $ 0.55   $ 0.27     Diluted earnings (loss) per share: Continuing operations $ 0.66 $ 0.28 Discontinued operations   (0.11 )   (0.01 ) Net income $ 0.55   $ 0.27     Dividends per share $ -   $ 10.00       Weighted average number of shares outstanding: Basic 243,187 241,652 Add: Stock-based compensation arrangements 547 2,747 Convertible debt   -     1   Diluted   243,734     244,400   HEALTH MANAGEMENT ASSOCIATES, INC.   CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in thousands)       Three Months Ended March 31, 2008 2007 Cash flows from operating activities: Net income $ 133,876 $ 65,039 Adjustments to reconcile net income to net cash provided by continuing operating activities: Depreciation and amortization 59,235 50,913 Provision for doubtful accounts 128,970 118,808 Stock-based compensation expense 4,300 4,821 Minority interests in earnings of consolidated entities 800 171 Gains on sales of assets, including minority equity interests, net (203,320 ) (673 ) Write-off of deferred financing costs 629 761 Long-lived asset impairment charge 921 - Deferred income tax (benefit) expense 66,466 (1,172 ) Changes in assets and liabilities of continuing operations: Accounts receivable (170,753 ) (168,813 ) Supplies and prepaid expenses (3,281 ) 1,937 Prepaid and recoverable income taxes and income taxes payable 77,427 4,611 Deferred charges and other long-term assets (467 ) (1,048 ) Accounts payable 9,526 5,175 Accrued expenses and other current liabilities 11,859 (10,646 ) Other long-term liabilities 1,188 5,306 Equity compensation excess income tax benefit - (231 ) Loss from discontinued operations, net of income taxes   27,732     2,581   Net cash provided by continuing operating activities   145,108     77,540     Cash flows from investing activities: Acquisitions of minority interests and other (2,420 ) - Additions to property, plant and equipment (46,805 ) (68,821 ) Proceeds from sales of assets and insurance recoveries 178 18,621 Proceeds from sale of discontinued operations 3,500 - Increases in restricted funds, net   (2,923 )   (2,773 ) Net cash used in continuing investing activities   (48,470 )   (52,973 )   Cash flows from financing activities: Proceeds from long-term debt, net - 2,706,598 Principal payments on debt and capital lease obligations (62,095 ) (300,397 ) Proceeds from exercises of stock options - 23,019 Payments of financing costs - (1,855 ) Investments by minority shareholders 302,878 7,699 Cash distributions to minority shareholders (1,803 ) (124 ) Payments of cash dividends - (2,425,217 ) Equity compensation excess income tax benefit   -     231   Net cash provided by continuing financing activities   238,980     9,954     Net increase in cash and cash equivalents before discontinued operations 335,618 34,521 Net decrease in cash and cash equivalents from discontinued operations: Operating activities (3,007 ) (1,466 ) Investing activities (871 ) (1,213 ) Financing activities   (859 )   (81 )   Net increase in cash and cash equivalents 330,881 31,761 Cash and cash equivalents at beginning of period   123,987     66,814     Cash and cash equivalents at end of period $ 454,868   $ 98,575   HEALTH MANAGEMENT ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)     March 31, December 31, 2008   2007 (unaudited) Assets Current Assets: Cash and cash equivalents $ 454,868 $ 123,987 Accounts receivable, net 657,799 627,879 Other current assets 234,186 287,404 Assets of discontinued operations 51,135 79,150 Property, plant and equipment, net 2,405,352 2,403,746 Restricted funds 74,750 76,179 Other assets   1,043,253   1,045,574   $ 4,921,343 $ 4,643,919     Liabilities and Stockholders' Equity Current liabilities $ 569,209 $ 597,432 Deferred income taxes 95,876 70,457 Other long-term liabilities 425,595 308,210 Minority interests 118,055 20,223 Long-term debt 3,554,559 3,566,569 Stockholders' equity   158,049   81,028   $ 4,921,343 $ 4,643,919 Three Months Ended March 31, 2008   2007 Same Hospitals(a) Admissions 82,302 81,997 Adjusted Admissions 138,424 136,721 Average length of stay 4.4 4.3 Patient Days 365,023 352,257 Surgeries 69,800 70,357 Outpatient Revenue percentage 47.1 % 48.3 % Inpatient Revenue percentage 52.9 % 51.7 %     Total Hospitals(a) Admissions 83,551 82,531 Adjusted Admissions 140,324 137,571 Average length of stay 4.4 4.3 Patient Days 369,659 354,335 Surgeries 70,527 70,615 Outpatient Revenue percentage 47.1 % 48.4 % Inpatient Revenue percentage 52.9 % 51.6 %   (a) Continuing Operations HEALTH MANAGEMENT ASSOCIATES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME INFORMATION (unaudited, in thousands)   Three Months Ended March 31, 2008(a) 2007(a)   Net revenue $ 1,152,572 $ 1,107,336   Less acquisitions, corporate and other   19,387     7,874     Same hospital net revenue $ 1,133,185   $ 1,099,462     Income from continuing operations before income taxes $ 263,847 $ 110,403   Adjustments: Interest expense 62,204 33,242 Gain on sales of assets, including minority equity interests (203,320 ) (673 ) Depreciation and amortization 57,458 50,297 Write-offs of deferred financing costs   629     761     EBITDA (b) 180,818 194,030   Adjustment for acquisitions, corporate and other   21,262     26,863     Same hospital EBITDA $ 202,080   $ 220,893       Same hospital EBITDA margins = Same hospital EBITDA / same hospital net revenue (b)   17.8 %   20.1 %   (a) Continuing operations.   (b) EBITDA is defined as earnings, before interest, write-offs of deferred financing costs, income taxes, depreciation and amortization, gains and losses on sales of assets and after minority interest. EBITDA margin is defined as EBITDA divided by net revenue.  EBITDA does not represent cash flows from operations as defined by generally accepted accounting principles in the United States, commonly known as GAAP, and should not be considered as either an alternative to net income or as an indicator of HMA’s operating performance or as an alternative to cash flows as a measure of HMA's liquidity. Nevertheless, HMA believes that providing non-GAAP information regarding EBITDA is important for investors and other readers of HMA's financials statements, as it provides a measure of HMA's liquidity. In addition, EBITDA is commonly used as an analytical indicator within the health care industry and HMA's debt facilities contain covenants that use EBITDA in their calculations.  Because EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, 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 table provides information regarding income from continuing operations, excluding the impact of the gain on sale of minority interests in certain hospitals to Novant Health.  This table is a non-GAAP presentation; nonetheless, HMA believes that providing this detail is beneficial to investors and other readers of HMA's financial statements due to the significant impact this transaction had on income from continuing operations.   For the Three Months Ended March 31, 2008   Gain on   Continuing Sale of Minority Total, As Operations Interests Reported Income from continuing operations before income taxes $ 60,527 $ 203,320 $ 263,847   Income tax expense   (23,453 )   (78,787 )   (102,239 )   Income from continuing operations $ 37,075   $ 124,534   $ 161,608     Earnings per share from continuing operations: Basic $ 0.15   $ 0.51   $ 0.66     Diluted $ 0.15   $ 0.51   $ 0.66