Health Management Associates, Inc. Reports Second Quarter Earnings

Health Management Associates, Inc. (NYSE:HMA) today announced its consolidated financial results for the second quarter ended June 30, 2008. HMA reported net revenue of $1,105.3 million; earnings before interest, income taxes, depreciation, amortization, gains on sales of assets, refinancing costs and minority interests ("EBITDA”) of $163.3 million; income from continuing operations of $21.9 million; net income of $12.4 million; diluted earnings per share ("EPS”) of $0.05; diluted EPS from continuing operations of $0.09; and diluted EPS from continuing operations excluding refinancing costs and gains from the sales of assets (as shown in the accompanying table) of $0.10. For continuing operations, compared to the prior year’s second quarter, net revenue increased 3.9%; net revenue per adjusted admission increased 5.4%; adjusted admissions, reflecting total admissions adjusted for outpatient volume, decreased 1.5% (approximately 0.8% from fewer uninsured); admissions decreased 3.8% (approximately 0.8% from fewer uninsured); emergency room visits increased 1.6%; and surgeries decreased 0.8%. EBITDA from continuing hospital operations for the quarter was $183.5 million, which represented a margin of 16.6%. "While patient volumes in the second quarter declined, we believe the changes were due in part to short-term issues that we have begun to address,” said Burke Whitman, HMA’s President and Chief Executive Officer, "and we minimized the impact upon earnings and cash flow through focused managerial discipline.” "I am particularly encouraged by the unambiguous progress we are making toward achieving our new vision to lead the industry in quality and satisfaction within two to three years. We had a long way to go in a number of our markets when we launched the Company’s new direction on January 1, 2008, but we have made sizable improvements to quality and patient satisfaction. As we continue to improve in quality and patient satisfaction we expect to earn stronger patient and physician loyalty to our hospitals, resulting in meaningful volume growth beginning within one to two years, possibly sooner.” Provision for doubtful accounts, or bad debt expense, was $124.8 million, or 11.3% of net revenue, for the quarter compared to $142.7 million, or 13.4% of net revenue, for the same quarter a year ago and $129.0 million, or 11.2% of net revenue, for the first quarter ended March 31, 2008. The provision for doubtful accounts for the quarter ended June 30, 2007 included $39.0 million of additional reserves to reflect a decline in the collectibility of accounts receivable from uninsured patients. Uninsured discounts from continuing operations for the quarter were $149.7 million compared to $147.7 million for the same quarter a year ago, and charity/indigent care write-offs for the quarter were $20.3 million, compared to $18.3 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 23.1% for the second quarter, compared to 25.1% for the same quarter a year ago. Cash flow from continuing operating activities for the six month period ended June 30, 2008 was $286.2 million, after cash interest and cash tax payments aggregating $83.4 million. As previously announced on May 21, 2008, during the second quarter HMA completed a $250.0 million private placement of convertible senior subordinated notes due 2028. The notes pay interest semi-annually at a rate of 3.75% per annum. The notes are convertible into cash and, in select circumstances, shares of the Company's common stock, or a combination thereof, calculated on a proportionate basis over a 20 trading day observation period at a base conversion rate of 85.0340 shares per $1,000 principal amount of notes, which is equal to a base conversion price of approximately $11.76 per share, subject to adjustment upon the occurrence of certain events. HMA utilized the net proceeds from the offering together with additional cash-on-hand to repurchase, in the open market, approximately $292.0 million of HMA’s 4.375% convertible senior subordinated notes due 2023, leaving approximately $282.7 million of the 4.375% convertible senior subordinated notes outstanding as of June 30, 2008. On August 1, 2008, holders of HMA’s 4.375% convertible senior subordinated notes exercised a put-right and HMA used cash-on-hand to purchase approximately $282.5 million in principal value or 99.9% of the notes outstanding. HMA also reported that it has updated its fiscal 2008 diluted EPS from continuing operations objective range to be between $0.41 and $0.47, excluding the previously reported gain from the Novant Health joint venture transaction and other items. This new EPS objective is based on a net revenue objective range of $4.4 to $4.6 billion, and an admissions decrease for the full year of between 1% and 3%. HMA’s management team will hold a conference call to discuss HMA’s consolidated financial results and the contents of this press release on Tuesday, August 5, 2008 at 11:00 a.m. ET. Investors are invited to access the webcast via HMA’s website located at www.hma.com or via www.streetevents.com or join the conference call by dialing 877-476-3476. HMA will archive 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, on its website under the heading "Investor Relations,” for a period of 60 days following the conference call. 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. HMA owns and operates 57 hospitals, with approximately 8,100 licensed beds, in non-urban communities located throughout the United States. 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 June 30,   Six Months Ended June 30,   2008     2007   2008     2007   Net revenue $ 1,105,299 $ 1,064,104 $ 2,257,871 $ 2,171,440   Operating expenses: Salaries and benefits 448,617 424,990 916,420 857,836 Supplies 149,248 146,097 306,121 299,974 Provision for doubtful accounts 124,837 142,734 253,807 261,542 Depreciation and amortization 59,626 52,364 117,084 102,661 Rent expense 22,681 20,384 44,816 40,808 Other operating expenses   196,637   192,152   391,810   378,813   Total operating expenses   1,001,646   978,721   2,030,058   1,941,634   Income from operations 103,653 85,383 227,813 229,806   Other income (expense): Gains on sales of assets including minority equity interests, net 6,184 2,586 209,504 3,259 Interest expense (58,656) (61,625) (120,860) (94,867) Refinancing and debt modification costs   (10,834)   -   (11,463)   (761) Income from continuing operations before minority interest and income taxes 40,347 26,344 304,994 137,437 Minority interests in earnings of consolidated entities   (5,385)   (217)   (6,185)   (907)   Income from continuing operations before income taxes 34,962 26,127 298,809 136,530 Income tax expense   (13,039)   (10,131)   (115,278)   (52,914)   Income from continuing operations 21,923 15,996 183,531 83,616 Loss from discontinued operations, net of income taxes   (9,526)   (4,090)   (37,258)   (6,671)   Net income $ 12,397 $ 11,906 $ 146,273 $ 76,945   Earnings (loss) per share: Basic : Continuing operations $ 0.09 $ 0.07 $ 0.75 $ 0.35 Discontinued operations   (0.04)   (0.02)   (0.15)   (0.03)   Net income $ 0.05 $ 0.05 $ 0.60 $ 0.32   Diluted : Continuing operations $ 0.09 $ 0.07 $ 0.75 $ 0.34 Discontinued operations   (0.04)   (0.02)   (0.15)   (0.03)   Net income $ 0.05 $ 0.05 $ 0.60 $ 0.31   Dividends per share $ - $ - $ - $ 10.00   Weighted average number of shares outstanding: Basic 243,268 242,355 243,229 242,016 Add: Stock-based compensation arrangements 2,510 4,438 1,528 3,592 Convertible debt   -   1   -   1 Diluted   245,778   246,794   244,757   245,609           HEALTH MANAGEMENT ASSOCIATES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)   Six Months Ended June 30, 2008 2007 Cash flows from operating activities: Net income $ 146,273 $ 76,945 Adjustments to reconcile net income to net cash provided by continuing operating activities: Depreciation and amortization 120,636 105,079 Provision for doubtful accounts 253,807 261,542 Stock-based compensation expense 8,732 9,860 Minority interests in earnings of consolidated entities 6,185 907 Gains on sales of assets, including minority equity interests, net (209,504 ) (3,259 ) Refinancing and debt modification costs 11,463 761 Long-lived asset impairment charge 921 - Deferred income tax expense (benefit) 56,687 (42,058 ) Changes in assets and liabilities of continuing operations: Accounts receivable (260,941 ) (285,082 ) Supplies and prepaid expenses (7,293 ) 389 Prepaid and recoverable income taxes and income taxes payable 100,773 38,958 Deferred charges and other long-term assets 965 (2,882 ) Accounts payable 9,561 47,044 Accrued expenses and other current liabilities 12,047 (6,662 ) Other long-term liabilities (1,321 ) 16,207 Equity compensation excess income tax benefit - (273 ) Loss from discontinued operations, net of income taxes   37,258     6,671   Net cash provided by continuing operating activities   286,249     224,147     Cash flows from investing activities: Acquisitions of minority interests and other (2,420 ) (36,127 ) Additions to property, plant and equipment (93,512 ) (144,098 ) Proceeds from sales of assets and insurance recoveries 7,334 21,937 Proceeds from sale of discontinued operations 3,500 - (Increases) decreases in restricted funds, net   2,780     (12,267 ) Net cash used in continuing investing activities   (82,318 )   (170,555 )   Cash flows from financing activities: Proceeds from long-term debt, net 244,452 2,706,735 Principal payments on debt and capital lease obligations (438,197 ) (313,655 ) Proceeds from exercises of stock options - 24,719 Payments of financing costs (88 ) (3,277 ) Investments by minority shareholders 302,938 8,456 Cash distributions to minority shareholders (2,287 ) (2,397 ) Payments of cash dividends - (2,425,217 ) Equity compensation excess income tax benefit   -     273   Net cash provided by (used in) continuing financing activities   106,818     (4,363 )   Net increase in cash and cash equivalents before discontinued operations 310,749 49,229 Net decrease in cash and cash equivalents from discontinued operations: Operating activities (19,893 ) (2,570 ) Investing activities (311 ) (2,711 ) Financing activities   (46 )   (350 )   Net increase in cash and cash equivalents 290,499 43,598 Cash and cash equivalents at beginning of period   123,987     66,814     Cash and cash equivalents at end of period $ 414,486   $ 110,412           HEALTH MANAGEMENT ASSOCIATES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)   June 30, December 31, 2008       2007 Assets Current Assets: Cash and cash equivalents $ 414,486 $ 123,987 Accounts receivable, net 624,122 627,879 Other current assets 220,549 287,404 Assets of discontinued operations 48,129 79,150 Property, plant and equipment, net 2,405,927 2,403,746 Restricted funds 63,831 76,179 Other assets   1,038,839     1,045,574     $ 4,815,883   $ 4,643,919     Liabilities and Stockholders' Equity Current liabilities $ 748,049 $ 597,432 Deferred income taxes 129,224 70,457 Other long-term liabilities 310,213 308,210 Minority interests 123,016 20,223 Long-term debt 3,266,580 3,566,569 Stockholders' equity   238,801     81,028     $ 4,815,883   $ 4,643,919         Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Total Hospitals(a) Occupancy 44.2 % 44.8 % 47.4 % 47.0 % Patient Days 317,431 323,639 684,528 677,974 Admissions 73,809 76,757 157,360 159,288 Adjusted Admissions 129,749 131,684 270,817 269,260 Average Length of Stay 4.3 4.2 4.4 4.3 Surgeries 69,649 70,187 140,175 140,802 Outpatient Revenue Percentage 48.8 % 48.0 % 47.7 % 48.2 % Inpatient Revenue Percentage 51.2 % 52.0 % 52.3 % 51.8 %   (a) Continuing Operations         HEALTH MANAGEMENT ASSOCIATES, INC. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME INFORMATION (unaudited, in thousands)   Three Months Ended Six Months Ended June 30, June 30, 2008 (a) 2007 (a) 2008 (a) 2007 (a)   Net revenue $ 1,105,299 $ 1,064,104 $ 2,257,871 $ 2,171,440   Less acquisitions, corporate and other   -     -     32,773     21,028     Same hospital net revenue $ 1,105,299   $ 1,064,104   $ 2,225,098   $ 2,150,412     Income from continuing operations before income taxes $ 34,962 $ 26,127 $ 298,809 $ 136,530   Adjustments: Interest expense 58,656 61,625 120,860 94,867 Gains on sales of assets, including minority equity interests (6,184 ) (2,586 ) (209,504 ) (3,259 ) Depreciation and amortization 59,626 52,364 117,084 102,661 Minority interests in earnings of consolidated entities 5,385 217 6,185 907 Refinancing and debt modification costs   10,834     -     11,463     761     EBITDA (b) 163,279 137,747 344,897 332,467   Adjustment for acquisitions, corporate and other   20,229     19,657     42,632     49,709     Same hospital EBITDA $ 183,508   $ 157,404   $ 387,529   $ 382,176       Same hospital EBITDA margins = Same hospital EBITDA / same hospital net revenue (b)   16.6 %   14.8 %   17.4 %   17.8 %   (a) Continuing operations.   (b) EBITDA is defined as earnings before interest, refinancing costs, income taxes, depreciation and amortization, gains and losses on sales of assets and minority interests. 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 GA         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, excluding the impact of the gains on sales of assets and minority interests and refinancing costs.  These tables are 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 these items had on income from continuing operations.     For the Three Months Ended June 30, 2008         Continuing Operations Gains onSales of Assetsand MinorityInterests Refinancingand DebtModificationCosts Total,AsReported   Income from continuing operations before income taxes $ 39,612 $ 6,184 $ (10,834 ) $ 34,962   Income tax expense   (14,773 )   (2,307 )   4,041     (13,039 )   Income from continuing operations $ 24,839   $ 3,877   $ (6,793 ) $ 21,923       Earnings per share:   Basic $ 0.10   $ 0.02   $ (0.03 ) $ 0.09     Diluted $ 0.10   $ 0.02   $ (0.03 ) $ 0.09           For the Six Months Ended June 30, 2008         Continuing Operations Gains onSales of Assetsand MinorityInterests Refinancingand DebtModificationCosts Total,AsReported   Income from continuing operations before income taxes $ 100,768 $ 209,504 $ (11,463 ) $ 298,809   Income tax expense   (38,875 )   (80,825 )   4,422     (115,278 )   Income from continuing operations $ 61,893   $ 128,679   $ (7,041 ) $ 183,531       Earnings per share:   Basic $ 0.25   $ 0.53   $ (0.03 ) $ 0.75     Diluted $ 0.25   $ 0.53   $ (0.03 ) $ 0.75