UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

or

For the transition period from ___________________ to ___________________

Commission File Number: 0-29818

(615) 372-8500
(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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     As of April 21, 2004, the number of outstanding shares of Common Stock of LifePoint Hospitals, Inc. was 38,218,611.

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts)

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LIFEPOINT HOSPITALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)

(1) Derived from audited financial statements.

See accompanying notes.

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LIFEPOINT HOSPITALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In millions)

See accompanying notes.

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LIFEPOINT HOSPITALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
UNAUDITED

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

     As of March 31, 2004, LifePoint Hospitals, Inc. (the “Company”) operated 29 general, acute care hospitals with an aggregate of 2,727 licensed beds in non-urban communities. The Company’s hospitals are located in the states of Alabama, Florida, Kansas, Kentucky, Louisiana, Tennessee, Utah, West Virginia and Wyoming.

     The Company became independent and publicly traded on May 11, 1999 when HCA Inc. (“HCA”) distributed all outstanding shares of the Company’s common stock to HCA’s stockholders in a spin-off transaction.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

     Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no impact on total assets, liabilities, stockholders’ equity, net income or cash flows.

NOTE 2 - EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share (dollars in millions, except per share amounts, and shares in thousands):

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NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In December 2003, the Financial Accounting Standards Board (“FASB”) issued Revised Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46R”), which requires the consolidation of variable interest entities. FIN 46R, as revised, was applicable to financial statements of companies that had interests in “special purpose entities” during 2003. Effective as of the first quarter of 2004, FIN 46R is applicable to financial statements of companies that have interests in all other types of entities. Adoption of FIN 46R had no effect on the Company’s financial position, results of operations or cash flows.

     The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”), on July 1, 2003. SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity, such as redeemable preferred stock and certain equity derivatives that frequently are used in connection with share repurchase programs. On October 29, 2003, the FASB voted to defer for an indefinite period the application of SFAS No. 150 to classification of noncontrolling interests of limited-life subsidiaries. Neither the adoption of SFAS No. 150 nor the deferral had a material impact on the Company’s results of operations or financial position.

NOTE 4 - STOCK BENEFIT PLANS

     The Company issues stock options and other stock-based awards to key employees and directors under stock-based compensation plans, which are described more fully in Note 6 (stockholders’ equity) to the consolidated financial statements in the Company’s 2003 Annual Report on Form 10-K. SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for companies making a voluntary change to fair value-based accounting for stock-based employee compensation. The Company continues to account for its stock-based compensation plans under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. SFAS No. 148 also requires disclosure of pro-forma results on a quarterly basis as if the Company had applied the fair value recognition provisions of SFAS No. 123.

     The Company granted 175,000 shares of nonvested stock to certain key executives during the first quarter of 2004. The nonvested stock awards vest three years from the grant date and contain no vesting requirements other than continued employment of the executive. The fair market value at the date of grant of these nonvested stock awards was $33.17 per share and was recorded as unearned compensation as a component of stockholders’ equity. Unearned compensation is being amortized in the statement of income over the three-year vesting period of the awards.

     Since the exercise price of all options granted under the Company’s incentive plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation is recognized in net income related to stock options. The following table illustrates the effect on net income and earnings per share (in millions, expect per share amounts) if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended, to options granted under the stock option plans. For purposes of this pro-forma disclosure, the value of the options is estimated using a Black-Scholes option pricing model and amortized ratably to expense over the options’ vesting periods. Because the estimated value is determined as of the date of grant, the actual value ultimately realized by the employee may be significantly different.

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     The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Company’s employee stock options have characteristics significantly different from those of traded options. Changes in the subjective input assumptions can materially affect the fair value estimate. Other option valuation models may produce significantly different fair values of the Company’s employee stock options.

     The weighted average estimated value of stock options granted during the first quarter of 2004 was $12.41 ($7.82 for the first quarter of 2003). These options were granted with an exercise price equal to the market price at the date of grant. These options become exercisable beginning in part from one year after the date of grant to three years after the date of grant and expire 10 years after the grant date. The above table includes the impact of these additional stock options for the period subsequent to their grant. The values were estimated at the date of grant using the following weighted average assumptions:

     Additional information with respect to stock benefit plan activity is as follows:

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NOTE 5 - CONTINGENCIES

Americans with Disabilities Act Claim

     On January 12, 2001, Access Now, Inc., a disability rights organization, filed a class action lawsuit against each of the Company’s hospitals alleging non-compliance with the accessibility guidelines under the Americans with Disabilities Act (the “ADA”). The lawsuit, filed in the United States District Court for the Eastern District of Tennessee, seeks injunctive relief requiring facility modification, where necessary, to meet the ADA guidelines, along with attorneys fees and costs. In January 2002, the District Court certified the class action and issued a scheduling order that requires the parties to complete discovery and inspection for approximately six facilities per year. The Company intends to vigorously defend the lawsuit, recognizing the Company’s obligation to correct any deficiencies in order to comply with the ADA. As of March 31, 2004, the plaintiffs have conducted inspections at 18 of the Company’s hospitals.

HCA Investigations, Litigation and Indemnification Rights

     HCA has been the subject of various federal and state investigations, qui tam actions, shareholder derivative and class action suits, patient/payor actions and general liability claims. These investigations, actions and claims relate to HCA and its subsidiaries, including subsidiaries that, before the Company’s formation as an independent company, owned many of the facilities that the Company now owns.

     In June 2003, HCA announced agreements with the Department of Justice that settled all federal criminal and civil litigation brought by the Department of Justice against HCA with respect to cost reports, physician relations and wound care issues. The settlement of these issues does not affect qui tam actions in which the Department of Justice has not intervened. Additionally, HCA has announced that it made payments to the Centers for Medicare and Medicaid Services (“CMS”) in accordance with an agreement to resolve all Medicare cost report, home office cost statement and appeal issues.

     HCA has agreed to indemnify the Company for any losses, other than consequential damages, arising from the governmental investigations of HCA’s business practices prior to the date of the distribution of the outstanding shares of the Company’s common stock to the stockholders of HCA and losses arising from legal proceedings, present or future, related to the investigation or actions engaged in before the distribution that relate to the investigation. However, the Company could be held responsible for any claims that are not covered by the agreements reached with the federal government or for which HCA is not required to, or fails to, indemnify the Company.

Corporate Integrity Agreement

     In December 2000, the Company entered into a corporate integrity agreement with the Office of Inspector General and agreed to maintain its compliance program in accordance with the corporate integrity agreement. This agreement was amended in April 2002. Complying with the compliance measures and reporting and auditing requirements of the corporate integrity agreement requires additional efforts and costs. Failure to comply with the terms of the corporate integrity agreement could subject the Company to significant monetary penalties.

Legal Proceedings and General Liability Claims

     The Company is, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries, medical malpractice, breach of management contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request punitive or other damages against the Company which may not be covered by insurance. The Company is currently not a party to any proceeding which, in management’s opinion, would have a material adverse effect on the Company’s business, financial condition or results of operations.

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Physician Commitments

     The Company has committed to provide certain financial assistance pursuant to recruiting agreements with various physicians practicing in the communities it serves. In consideration for a physician relocating to one of its communities and agreeing to engage in private practice for the benefit of the respective community, the Company may loan certain amounts of money to a physician, normally over a period of one year, to assist in establishing his or her practice. The Company had committed to advance a maximum amount of approximately $26.2 million at March 31, 2004. The actual amount of such commitments to be subsequently advanced to physicians is estimated at $10.5 million and often depends upon the financial results of a physician’s private practice during the guaranteed period. Generally, amounts advanced under the recruiting agreements may be forgiven pro rata over a period of 48 months, contingent upon the physician continuing to practice in the respective community.

Capital Expenditure Commitments

     The Company is reconfiguring some of its facilities to accommodate more effectively patient services and restructuring existing surgical capacity in some of its hospitals to permit additional patient volume and a greater variety of services. The Company had incurred approximately $37.2 million in uncompleted projects as of March 31, 2004, which is included in construction in progress in the Company’s accompanying consolidated balance sheet. At March 31, 2004, the Company had projects under construction with an estimated additional cost to complete and equip of approximately $89.4 million.

     Pursuant to the asset purchase agreement for Ville Platte Medical Center, the Company has agreed to make certain capital improvements, the cost of which, together with the initial cash payment, defeasement of certain bonds and liabilities assumed, is not required to exceed $25.0 million. The capital improvements must be completed by December 1, 2004. The initial cash payment and liabilities assumed totaled $15.1 million, which leaves $9.9 million required for capital improvements. The Company had incurred approximately $3.4 million of the required capital improvements as of March 31, 2004.

     Pursuant to the asset purchase agreement for Logan Regional Medical Center, the Company has agreed to expend, regardless of the results of the hospital’s operations, at least $20.0 million in the aggregate for capital expenditures and improvements during the ten-year period following the date of acquisition of December 1, 2002. The Company had incurred approximately $1.9 million of the required capital improvements as of March 31, 2004.

Acquisitions

     The Company has acquired and will continue to acquire businesses with prior operating histories. Acquired companies may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company institutes policies designed to conform practices to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification, or if covered, that such indemnification will be adequate to cover potential losses and fines.

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NOTE 6 – MEDICARE REIMBURSEMENT

     During the third quarter of 2003, the Company received correspondence from one of its fiscal intermediaries questioning a particular Medicare disproportionate share designation at one of its hospitals. This hospital has had this designation since 2001 and was previously approved for this designation by its fiscal intermediary. The Company and the fiscal intermediary worked together and contacted CMS for resolution of the designation. The Company reduced revenues by $3.0 million and $0.2 million during the third and fourth quarters of 2003, respectively, representing the three year difference in reimbursement from this change in designation. The Company received notification from CMS late in the first quarter of 2004 reconfirming the original designation. Based upon the favorable resolution of this issue, the Company increased revenues by $3.2 million in the first quarter of 2004.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     We recommend that you read this discussion together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report.

     This report, including the condensed consolidated financial statements and related notes contains forward-looking statements about the Company. Broadly speaking, forward-looking statements include forecasts of future financial results and conditions, expectations for future operations and business, and any assumptions underlying those forecasts and expectations. You should not unduly rely on forward-looking statements. Actual outcomes and results might differ significantly from forecasts and expectations. Please refer to “Factors that May Affect Future Results” later in this report for a discussion of some of the factors that may cause results to differ.

Executive Overview

     The first quarter of 2004 was encouraging based upon our solid operating performance and increased patient volume levels. We continue to be guardedly optimistic regarding our outlook for the remainder of 2004 as a result of the improved reimbursement environment related to the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) and patient volumes more consistent with historical trends. During 2004, we are continuing to focus on physician recruiting and retention, investing capital in our hospitals and seeking additional hospital acquisitions that fit our non-urban strategy. The following table reflects our summarized operating results:

Revenue/Volume Trends

     The key metrics we use internally to evaluate our revenues are equivalent admissions, which equate to volume, and revenues per equivalent admission, which relate to pricing and acuity. We anticipate our patient volumes and related revenues will continue to be impacted by the following factors:

•		Physician Recruitment and Retention. Recruiting and retaining both primary care physicians and specialists for our non-urban communities is a key to increasing revenues and patient volumes. Continuing to add specialists should help our hospitals increase volumes by offering new services. We signed 52 admitting physicians during the first quarter of 2004. Of these 52 physicians signed, 20 started in the first quarter of 2004 and 32 are scheduled to start in the remainder of 2004.
•		Medicare Rate Increases. MMA provides a prescription drug benefit for Medicare beneficiaries and also contains numerous provisions that provide incremental funding to hospitals. The initial increases in reimbursement under MMA are effective in April 2004. Please refer to our 2003 Annual Report on Form 10-K for a discussion of MMA’s provisions that affect our reimbursement.
•		Growth in Outpatient Services. We anticipate that the long-term growth trend in outpatient services will continue. A number of procedures once performed only on an inpatient basis have been, and will continue to

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be, converted to outpatient procedures. This conversion has occurred through continuing advances in pharmaceutical and medical technologies, and as a result of efforts made by payors to control costs. Generally, the payments we receive for outpatient procedures are less than those for similar procedures performed in an inpatient setting. The following table shows net outpatient, inpatient and other revenues as a percentage of our total revenues:

Other Trends

•

Increases in Provision for Doubtful Accounts. We continued to experience an increase in our provision for doubtful accounts during the first quarter of 2004. The increase was the result of a combination of broad economic factors, including an increased number of uninsured patients. The following table reflects our self-pay revenues (in millions):

		For the next several quarters, we anticipate that our provision for doubtful accounts will continue to be approximately 9% to 10% of revenues. We are implementing a number of operating strategies, which should increase our cash collections of self-pay revenues. If this trend of increasing self-pay revenues continues, it could have a material adverse effect on our results of operations and financial position in the future.
•		Shortage of Clinical Personnel and Increased Contract Labor Usage. In recent years, many hospitals, including the hospitals we own, have encountered difficulty in recruiting and retaining nursing and other clinical personnel. When we are unable to staff our nursing and clinical positions, we are required to use contract labor to ensure adequate patient care. Contract labor generally costs more per hour than employed labor. We have adopted a number of human resources strategies in an attempt to improve our ability to recruit and retain nursing and other clinical personnel. We expect that the staffing difficulties related to nurses and other clinical personnel will continue in the near term.

Critical Accounting Estimates

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

•		it requires assumptions to be made that were uncertain at the time the estimate was made; and
•		changes in the estimate or different estimates that could have been made could have a material impact on our consolidated results of operations or financial condition.

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Our critical accounting estimates are more fully described in our 2003 Annual Report on Form 10-K and continue to include the following areas:

•		Allowance for doubtful accounts and provision for doubtful accounts;
•		Revenue recognition and allowance for contractual discounts;
•		Professional and general liability claims; and
•		Accounting for income taxes.

Results of Operations

Operating Results Summary

     The following tables present summaries of results of operations for the three months ended March 31, 2003 and 2004 (dollars in millions, except for revenues per equivalent admission):

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For the Quarters Ended March 31, 2003 and 2004

Revenues

     Our revenues for the quarter ended March 31, 2004 increased by $35.7 million, or 16.2%, to $256.6 million compared to the quarter ended March 31, 2003. This increase is attributable to a number of factors, including:

	•		$29.1 million from our same-hospital revenues; and
	•		$6.6 million from our 2003 acquisition of Spring View Hospital.

     Adjustments to estimated reimbursement amounts increased our revenues by $1.4 million for the quarter ended March 31, 2004 compared to $2.9 million for the same period in 2003. In addition, as discussed in Note 6 to our condensed consolidated financial statements, we recognized $3.2 million in additional revenues for the quarter ended March 31, 2004 following the confirmation by CMS of a Medicare disproportionate share designation at one of our hospitals.

     Our same-hospital inpatient revenues for the quarter ended March 31, 2004 increased by $16.0 million, or 15.0%, to $123.2 million compared to the quarter ended March 31, 2003. The primary drivers for this change were increases in admissions and inpatient surgeries.

     Our same-hospital outpatient revenues for the quarter ended March 31, 2004 increased by $13.2 million, or 11.9%, to $124.0 million compared to the quarter ended March 31, 2003. This outpatient growth was largely driven by a 2.6% increase in same-hospital outpatient surgeries and a 2.8% increase in same-hospital emergency room visits. In addition, the $13.2 million increase includes the $3.2 million revenues from the Medicare disproportionate share designation described in Note 6 to our condensed consolidated financial statements.

     After factoring all of the above, our equivalent admissions increased by 5.5% on a same-hospital basis for the quarter ended March 31, 2004 compared to the same period in 2003. As it relates to pricing and acuity, our same-hospital revenues per equivalent admission for the quarter ended March 31, 2004 increased 7.3%, or $360 per equivalent admission, over the same period in 2003.

     The table below shows the sources of our revenues for the quarters ended March 31, expressed as percentages of total revenues:

     Our historical sources of revenues table in our quarterly and annual reports filed with the Securities and Exchange Commission prior to our 2003 Annual Report on Form 10-K required certain reclassifications. Specifically, contractual discounts relating to certain Medicaid state managed care programs were historically classified incorrectly against the HMOs, PPOs and other private insurers revenues as opposed to Medicaid revenues. This change produced no impact on our historical results of operations. Generally, these reclassifications reduced Medicaid as a percentage of total revenues and increased HMOs, PPOs and other private insurers as a percentage of total revenues.

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Expenses

     Salaries and benefits decreased as a percentage of revenues to 39.2% for the quarter ended March 31, 2004 from 40.9% for the quarter ended March 31, 2003, primarily as a result of improvements in labor productivity and the 16.2% increase in our revenues. Man-hours per equivalent admission decreased 2.5% for the quarter ended March 31, 2004 over the same period last year. However, we had a 5.3% increase in salaries and benefits per man-hour in the quarter ended March 31, 2004 compared to the same period in 2003. In addition, our contract labor costs increased by 5.4% to $4.3 million in the quarter ended March 31, 2004 compared to $4.1 million in the quarter ended March 31, 2003, as a result of continuing clinical labor shortages in some of our communities.

     Supply costs as a percentage of revenues increased slightly to 13.0% in the quarter ended March 31, 2004 from 12.9% in the quarter ended March 31, 2003, on both a consolidated and same-hospital basis. On a consolidated and same-hospital basis, our cost of supplies per equivalent admission increased 7.9% in the quarter ended March 31, 2004 as a result of rising supply costs compared to the same period in 2003, particularly in the pharmaceutical, cardiac and spine and joint implant areas. In addition, our same-hospital surgeries, which generally incur higher supply costs per equivalent admission, increased by 4.0% for the quarter ended March 31, 2004 over the same period last year.

      Other operating expenses decreased as a percentage of revenues to 16.7% in the quarter ended March 31, 2004 from 17.5% in the quarter ended March 31, 2003 primarily as a result of the 16.2% increase in our revenues. A portion of our other operating expenses are fixed and not volume driven. Our professional and general liability insurance expense was $3.6 million during the quarter ended March 31, 2004 compared to $3.8 million in the quarter ended March 31, 2003. This decrease relates to favorable loss experience as reflected in our external actuarial reports and our 2003 change to using multiple actuaries to estimate projected losses under the self-insured portion of our insurance program, as further discussed in Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates in our 2003 Annual Report on Form 10-K. However, our physician recruiting costs increased from $2.4 million in the quarter ended March 31, 2003 to $3.5 million in the quarter ended March 31, 2004 as a result of our increased number of recruited physicians.

      Provision for doubtful accounts increased as a percentage of revenues to 8.9% in the quarter ended March 31, 2004 from 7.9% in the quarter ended March 31, 2003. The provision for doubtful accounts related primarily to self-pay amounts due from patients. Our self-pay revenues increased by 23.0% from $18.8 million for the quarter ended March 31, 2003 to $23.1 million for the quarter ended March 31, 2004. The factors influencing this increase are primarily a combination of broad economic factors, including the increased number of uninsured patients. On a same-hospital basis, the provision for doubtful accounts increased as a percentage of revenues to 9.0% in the quarter ended March 31, 2004 from 7.9% in the quarter ended March 31, 2003.

      Depreciation and amortization expense increased to $11.6 million in the quarter ended March 31, 2004 from $11.2 million in the quarter ended March 31, 2003, primarily as a result of our acquisition of Spring View Hospital in the fourth quarter of 2003 and depreciation associated with recently completed capital improvements at our facilities.

     The provision for income taxes increased to $15.4 million in the quarter ended March 31, 2004 from $12.2 million in the quarter ended March 31, 2003. The income tax provisions reflected an effective income tax rate of 39.3% for the quarter ended March 31, 2004 compared to 40.9% for the quarter ended March 31, 2003. The effective tax rate decreased primarily as a result of the decline in the permanent differences between book and taxable income as a percentage of pre-tax income and utilization of state net operating losses.

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Liquidity and Capital Resources

Liquidity

     Our primary sources of liquidity are cash flows provided by our operations and our revolving credit facility. Our liquidity for the quarters ended March 31, 2003 and 2004 was derived primarily from net cash provided by operating activities.

     Cash flows for the quarters ended March 31 were as follows (in millions):

Operating activities

     The $18.0 million increase in cash flows from operating activities in the three months ended March 31, 2004 as compared to the same period in 2003 is primarily a result of:

	•		increased net income of $6.2 million in the three months ended March 31, 2004 as compared to the same period in 2003; and
	•		improved cash flows from operations related to changes in working capital of $9.1 million provided primarily by increased cash collections related to accounts receivable and increases in accounts payable, accrued expenses and income taxes payable in the first three months of 2004 as compared to the same period in 2003.

Investing activities

     Cash used in investing activities for the three months ended March 31, 2004 primarily consisted of purchases of equipment of $15.1 million, the direct transaction costs and working capital settlement of Spring View Hospital of $0.5 million, and $1.2 million related to our purchase of a surgery center in Sulligent, Alabama. Our routine capital expenditures increased from $4.4 million in the quarter ended March 31, 2003 to $5.2 million in the quarter ended March 31, 2004 as a result of an increased base of fixed assets.

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Financing activities

     Cash used in financing activities consisted primarily of a $20.0 million payment we made under our revolving credit facility, partially offset by $2.4 million in proceeds from stock option exercises and employee stock purchase plans.

Capital Resources

     Our revolving credit facility, which expires in June 2006, provides for borrowings up to $200.0 million in the aggregate, is guaranteed by substantially all of our current and future subsidiaries and is secured by substantially all of our assets. The revolving credit facility requires that we comply with certain financial covenants, including:

     The revolving credit facility also contains various other covenants, including, but not limited to, restrictions on new indebtedness, the ability to merge or consolidate, asset sales, capital expenditures, acquisitions and dividends. We were in compliance with these covenants as of March 31, 2004. As of March 31, 2004, we had no outstanding indebtedness under our revolving credit facility and letters of credit in the aggregate amount of $17.1 million outstanding, leaving $182.9 million available under our revolving credit facility. We repaid the $20.0 million of indebtedness outstanding at December 31, 2003 under our revolving credit facility in February 2004 with our available cash.

     The applicable interest rate under the revolving credit facility is based on a rate, at our option, equal to either (i) LIBOR plus a margin ranging from 1.25% to 2.25% or (ii) prime plus a margin ranging from 0% to 0.5%, both depending on our consolidated total debt to consolidated EBITDA ratio, as defined, for the most recent four quarters.

     Our revolving credit facility does not contain provisions that would accelerate the maturity date of our debt upon a downgrade in our credit rating. However, a downgrade in our credit rating could adversely affect our ability to renew our existing credit facility or obtain access to new credit facilities or other capital sources in the future and could increase the cost of such facilities and other capital sources. Our credit ratings as of March 31, 2004 are as follows:

     We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

     On May 22, 2002, we sold 4 ½% Convertible Subordinated Notes due 2009 in the aggregate principal amount of $250 million (the “Convertible Notes”). The net proceeds of approximately $242.5 million were used for acquisitions, capital improvements at our existing facilities, repurchase of our 10 ¾% Senior Subordinated Notes, working capital and general corporate purposes. The Convertible Notes bear interest at the rate of 4 ½% per year, payable semi-annually on June 1 and December 1. The Convertible Notes are convertible at the option of the holder at any time on or prior to maturity into shares of our common stock at a conversion price of $47.36 per share. The

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conversion price is subject to adjustment in certain circumstances. We may redeem all or a portion of the Convertible Notes on or after June 3, 2005, at the then current redemption prices, plus accrued and unpaid interest. Holders of the Convertible Notes may require us to repurchase all of the holder’s Convertible Notes at 100% of their principal amount plus accrued and unpaid interest in some circumstances involving a change of control. The Convertible Notes are unsecured and subordinated to our existing and future senior indebtedness and senior subordinated indebtedness. The Convertible Notes rank junior to our other liabilities. The indenture governing the Convertible Notes does not contain any financial covenants. A total of 5,278,825 shares of common stock have been reserved for issuance upon conversion of the Convertible Notes.

Liquidity and Capital Resources Outlook

     We expect the level of capital expenditures in 2004 to be approximately $90.0 million, of which $15.1 million has been spent in the first quarter. We have large projects in process at a number of our facilities. We are reconfiguring some of our hospitals to more effectively accommodate patient services and restructuring existing surgical capacity in some of our hospitals to permit additional patient volume and a greater variety of services. At March 31, 2004, we had projects under construction with an estimated additional cost to complete and equip of approximately $89.4 million. We anticipate that these projects will be completed over the next three years. We anticipate funding these expenditures through cash provided by operating activities, available cash and borrowings under our revolving credit facility.

     Our business strategy contemplates the acquisition of additional hospitals, and we regularly review potential acquisitions. These acquisitions may, however, require additional financing. We regularly evaluate opportunities to sell additional equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt or equity for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders.

     We have never declared or paid dividends on our common stock. We intend to retain future earnings to finance the growth and development of our business and, accordingly, do not currently intend to declare or pay any dividends on our common stock. Our Board of Directors will evaluate our future earnings, results of operations, financial condition and capital requirements in determining whether to declare or pay cash dividends. Delaware law prohibits us from paying any dividends unless we have capital surplus or net profits available for this purpose. In addition, our credit facilities impose restrictions on our ability to pay dividends. We repurchased approximately 2.1 million shares of our common stock for an aggregate price of approximately $45.7 million during 2003. Please refer to Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our 2003 Annual Report on Form 10-K for a discussion of our share repurchase program.

     We believe that cash flows from operations, amounts available under our revolving credit facility and our anticipated access to capital markets are sufficient to meet expected liquidity needs, planned capital expenditures, potential acquisitions and other expected operating needs over the next three years.

Contractual Obligations

     During the quarter ended March 31, 2004, there were no material changes in our contractual obligations presented in our 2003 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

     We had standby letters of credit outstanding of approximately $17.1 million as of March 31, 2004. Of this amount, $16.9 million was related to the self-insured retention levels of our professional and general liability insurance programs as security for the payment of claims and $0.2 million was related to obligations to certain utility companies.

Impact of Recently Issued Accounting Pronouncements

     Please refer to Note 3 of our condensed consolidated financial statements included in this report for a discussion of the impact of recently issued accounting pronouncements.

Contingencies

     Please refer to Note 5 of our condensed consolidated financial statements included in this report for a discussion of our material financial contingencies, including:

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An Americans with Disabilities Act claim;

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HCA investigations, litigation and indemnification rights;

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Our Corporate Integrity Agreement;

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Legal proceedings and general liability claims;

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Physician commitments;

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Capital expenditure commitments; and

•

Acquisitions.

Factors That May Affect Future Results

     We make forward-looking statements in this report and in other reports and proxy statements we file with the United States Securities and Exchange Commission. In addition, our senior management makes forward-looking statements orally to analysts, investors, the media and others. Broadly speaking, forward-looking statements include:

•

projections of our revenues, net income, earnings per share, capital expenditures or other financial items;

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descriptions of plans or objectives of our management for future operations or services, including pending acquisitions;

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forecasts of our future economic performance; and

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descriptions of assumptions underlying or relating to any of the foregoing.

In this report, for example, we make forward-looking statements discussing our expectations about:

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future financial performance;

•

future liquidity;

•

industry trends;

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•		patient volumes and related revenues;
•		recruiting and retention of clinical personnel;
•		future capital expenditures;
•		the impact of new accounting standards; and
•		physician recruiting.

     Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “can,” “could,” “may,” “should,” “believe,” “will,” “would,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “intend,” “target,” “continue” or similar expressions. Do not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we might not update them to reflect changes that occur after the date they are made.

     There are several factors, many beyond our control, that could cause results to differ significantly from our expectations. Some of these factors are described below under “Risk Factors.” Other factors, such as market, operational, liquidity, interest rate and other risks, are described elsewhere in this report or in our 2003 Annual Report on Form 10-K. Any factor described in this report or in our 2003 Annual Report on Form 10-K could, by itself or together with one or more factors, adversely affect our business, results of operations and/or financial condition. There may be factors not described in this report or in our 2003 Annual Report on Form 10-K that could cause results to differ from our expectations.

Risk Factors

Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments or managed care companies reduce our reimbursements.

     In recent years, federal and state governments made significant changes in the Medicare and Medicaid programs. A number of states have incurred budget deficits and adopted legislation designed to reduce their Medicaid expenditures and to reduce Medicaid enrollees. In addition, insurance and managed care companies and other third parties from whom we receive payment for our services increasingly attempt to control healthcare costs by requiring that hospitals discount their fees in exchange for exclusive or preferred participation in their benefit plans. We believe that this trend may continue and may reduce the payments we receive for our services.

We may be subjected to allegations that we failed to comply with governmental regulation, which could result in sanctions that reduce our revenue and profitability.

     All participants in the healthcare industry are required to comply with many laws and regulations at the federal, state and local government levels. These laws and regulations require that hospitals meet various requirements, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, billing and cost reports, payment for services and supplies, maintenance of adequate records, privacy, compliance with building codes and environmental protection. These laws often contain safe harbor provisions, which describe some of the conduct and business relationships that are immune from prosecution. Not all of our business arrangements fit wholly within safe harbors. This does not automatically render our arrangements illegal. However, we may be subject to scrutiny by enforcement authorities. If we fail to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate our hospitals and our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs.

     Significant media and public attention recently has focused on the hospital industry as a result of ongoing investigations related to referrals, physician recruiting practices, cost reporting and billing practices, laboratory and home healthcare services and physician ownership and joint ventures involving hospitals. Both federal and state government agencies have announced heightened and coordinated civil and criminal enforcement efforts. In addition, the Office of Inspector General (the “OIG”) and the Department of Justice periodically establish enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Recent initiatives include a focus on hospital billing practices, rehabilitation and outpatient therapy.

     In public statements, governmental authorities have taken positions on issues for which little official interpretation was previously available. Some of these positions appear to be inconsistent with common practices

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within the industry and which have not previously been challenged in this manner. Moreover, some government investigations that have in the past been conducted under the civil provisions of federal law are now being conducted as criminal investigations under the Medicare fraud and abuse laws.

     The laws and regulations that we must comply with are complex and subject to change. In the future, different interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses.

We may be subjected to actions brought by individuals on the government’s behalf under the False Claims Act’s “qui tam” or whistleblower provisions.

     Whistleblower provisions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government. Defendants determined to be liable under the False Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each separate false claim.

     There are many potential bases for liability under the False Claims Act. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The False Claims Act defines the term “knowingly” broadly. Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard to its truth or falsity constitutes a “knowing” submission under the False Claims Act and, therefore, will qualify for liability.

     In some cases, whistleblowers or the federal government have taken the position that providers who allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law, have thereby submitted false claims under the False Claims Act. In addition, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court.

If we become subject to malpractice and related legal claims, we could be required to pay significant damages, which may not be covered by insurance.

     Given the nature of our operating environment, we are subject to medical malpractice lawsuits and other claims. To mitigate a portion of this risk, we maintain liability insurance in amounts that we believe are appropriate for our operations. During 2003, we maintained professional and general liability insurance that provided coverage on a claims-made basis for individual claims in excess of $5.0 million. For 2004, the self-insured retention level amount for individual claims is $10.0 million. It is possible that successful claims against us that are within the self-insured retention level amounts, when considered in the aggregate, could have an adverse effect on our financial condition or liquidity. Insurance coverage may not continue to be available at a cost allowing us to maintain adequate levels of insurance with acceptable self-insured retention level amounts. In addition, physicians using our hospitals may be unable to obtain insurance on acceptable terms.

If we fail to effectively recruit and retain physicians, nurses and medical technicians, our ability to deliver healthcare services efficiently will suffer.

     Physicians generally direct the majority of hospital admissions. Our success, in part, depends on the number and quality of physicians on our hospitals’ medical staffs, the admissions practices of these physicians and the maintenance of good relations with these physicians. We generally do not employ physicians. Only a limited number of physicians practice in the non-urban communities where our hospitals are located. Our primary method of adding or expanding medical services is the recruitment of new physicians into our communities.

     The success of our recruiting efforts depends on several factors. In general, there is a shortage of specialty care physicians. We face intense competition in the recruitment of specialists because of the difficulty convincing these individuals of the benefits of practicing in a non-urban community. Physicians are concerned with the patient volume in non-urban hospitals and whether the volume will allow them to generate income comparable to that

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which they would generate in an urban setting. If the growth rate in the non-urban communities where our hospitals operate slows, then we could experience difficulty attracting physicians to practice in our communities.

      There is generally a shortage of nurses and certain medical technicians in the healthcare industry. Our hospitals may be forced to hire expensive contract personnel if they are unable to recruit and retain full-time employees. The shortage of nurses and medical technicians may affect our hospitals’ ability to deliver healthcare services efficiently.

Our revenue is heavily concentrated in Kentucky and Tennessee, which makes us particularly sensitive to regulatory and economic changes in those states.

     Our revenue is particularly sensitive to regulatory and economic changes in Kentucky and Tennessee. As of March 31, 2004, we operated 29 hospitals with eight located in the commonwealth of Kentucky and seven located in the state of Tennessee. We generated 32.0% and 34.2% of our revenue from our Kentucky hospitals (including 3.3% and 4.0% from state-sponsored Medicaid programs) and 17.4% and 18.5% from our Tennessee hospitals (including 2.8% and 2.5% from the state-sponsored TennCare program) for the three months ended March 31, 2003 and 2004, respectively. Certain managed care organizations that participate in the Medicaid programs of Tennessee and Kentucky have been placed in receivership or encountered other financial difficulties. Other managed care organizations in the states in which we derive significant revenue may encounter similar difficulties in paying claims in the future.

We may have difficulty acquiring hospitals on favorable terms and, because of regulatory scrutiny, acquiring nonprofit entities.

     One element of our business strategy is expansion through the acquisition of acute care hospitals in growing, non-urban markets. We face significant competition to acquire other attractive, non-urban hospitals. We may not find suitable acquisitions on favorable terms. We also may incur or assume additional indebtedness as a result of the consummation of acquisitions. Our failure to acquire non-urban hospitals consistent with our growth plans could prevent us from increasing our revenues.

     The cost of acquiring hospitals continues to increase. In some cases, the cost of an acquisition could result in a dilutive effect on our results of operations depending on various factors, including the acquired hospital’s results of operations, allocation of tangible and intangible assets, effects of subsequent legislation changes and limitations on rate increases. In addition, our acquisition activity requires transitions from, and the integration of, various information systems that are used by hospitals we acquire.

     In recent years, the legislatures and attorneys general of several states have become more interested in sales of hospitals by nonprofit entities. This heightened scrutiny may increase the cost and difficulty, or prevent our completion, of transactions with nonprofit organizations in the future.

We may encounter numerous business risks in acquiring additional hospitals, and may have difficulty operating and integrating those hospitals.

     We may not be able to timely and effectively integrate the hospitals that we acquire with our ongoing operations. We may experience delays in implementing operating procedures and systems in newly acquired hospitals. Integrating a new hospital could be expensive and time consuming and could disrupt our ongoing business and distract our management and other key personnel. In addition, we rely heavily on HCA for information systems integration as part of our contractual arrangement for information technology services.

     We also may acquire businesses with unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations. We have policies to conform the practices of acquired facilities to our standards and applicable law and generally will seek indemnification from prospective sellers covering these matters. We may, however, incur material liabilities for past activities of acquired businesses.

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Certificate of need laws and licensing regulations may prohibit or limit any future expansion by us in some states.

     Some states require prior approval for the purchase, construction and expansion of healthcare facilities, based on a state’s determination of need for additional or expanded healthcare facilities or services. Five states in which we currently own hospitals, Alabama, Florida, Kentucky, Tennessee and West Virginia, require a certificate of need for capital expenditures exceeding a prescribed amount, changes in bed capacity or services and certain other matters. We may not be able to obtain certificates of need required for expansion activities in the future. In addition, all of the states in which we operate require hospitals and most healthcare providers to maintain one or more licenses. If we fail to obtain any required certificate of need or licenses, our ability to operate or expand operations in these states could be impaired.

Our ability to complete our construction projects on a required timetable and within the original cost estimates.

      In certain states, where prior approval is required for the construction and expansion of healthcare facilities, such approval is predicated on a timetable and within a certain cost threshold. In addition, all projects are evaluated internally based on certain rates of return. If costs of raw materials and labor increase dramatically, the originally imputed rates of returns may not materialize. In addition, projects could be delayed pending state approval of cost overruns.

Our ability to increase our indebtedness and become substantially leveraged may limit our ability to successfully run our business.

      At March 31, 2004, our consolidated long-term debt was approximately $250 million. We also may draw on a revolving credit commitment of up to $200 million under our revolving credit facility, of which $182.9 million was available as of March 31, 2004. In addition, we have the ability to incur additional debt, subject to limitations imposed by our credit agreement. Our leverage and debt service requirements could have important consequences to our stockholders, including the following:

•

make us more vulnerable to economic downturns and to adverse changes in business conditions, such as further limitations on reimbursement under Medicare and Medicaid programs;

•

limit our ability to obtain additional financing at favorable interest rates in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes;

•

require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, reducing the funds available for our operations and capital improvements;

•

make us vulnerable to increases in interest rates because our bank credit agreement is at a variable rate of interest; and

•

require us to pay the indebtedness immediately if we default on any of the numerous financial and other restrictive covenants, including restrictions on our payments of dividends, incurrence of indebtedness and sale of assets.

Federal and state investigations of HCA could subject our hospitals and operations to increased governmental scrutiny.

     HCA has been the subject of various federal and state investigations, qui tam actions, shareholder derivative and class action suits, patient/payor actions and general liability claims. These investigations, actions and claims relate to HCA and its subsidiaries, including subsidiaries that, before our formation as an independent company, owned some of the facilities we now own. For additional information about these matters, please refer to Part I, Item 3. Legal Proceedings in our 2003 Annual Report on Form 10-K.

     We could be held responsible for any claims that are not covered by the agreements HCA reached with the federal government or for which HCA is not required to, or fails to, indemnify us. If indemnified matters were asserted successfully against us or any of our facilities, and HCA failed to meet its indemnification obligations, then such an event could have a material adverse effect on our business, financial condition, results of operations, liquidity or prospects.

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     We cannot predict with accuracy the extent to which we may or may not continue to be affected by the initiation of additional investigations of HCA, if any. If these matters result in a successful claim against us, it could have a material adverse effect on our business, financial condition, results of operations, liquidity or prospects in future periods.

We depend significantly on key personnel, and the loss of one or more senior or local management personnel could limit our ability to execute our business strategy.

     We depend on the continued services and management experience of Kenneth C. Donahey and our other executive officers. If Mr. Donahey or any of our other executive officers resign their positions or otherwise are unable to serve, our management expertise and ability to deliver healthcare services efficiently could be weakened. In addition, if we fail to attract and retain managers at our hospitals and related facilities, our operations will suffer.

Other hospitals provide similar services, which may raise the level of competition faced by our hospitals.

     Competition among hospitals and other healthcare providers for patients has intensified in recent years. All but one of our hospitals operate in geographic areas where we are currently the sole provider of hospital services in these communities. While our hospitals face less direct competition in our immediate service areas, we do compete with other hospitals, including larger tertiary care centers. Although these competing hospitals may be in excess of 30 to 50 miles away from our facilities, patients in these markets may migrate to, may be referred by local physicians to, or may be lured by incentives from managed care plans to travel to these distant hospitals. Some of these competing hospitals use equipment and services more specialized than those available at our hospitals. In addition, some of the hospitals that compete with us are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals can make capital expenditures without paying sales, property and income taxes. We also face competition from other specialized care providers, including outpatient surgery, orthopedic, oncology, physical therapy and diagnostic centers, as well as competing services rendered in physician offices. To the extent that other providers are successful in developing specialized outpatient facilities, our market share for those specialized services will likely decrease. Where necessary to prevent such competition, a few of our hospitals have developed specialized outpatient facilities.

If our access to HCA’s information systems is restricted or we are not able to integrate changes to our existing information systems or information systems of acquired hospitals, our operations could suffer.

      Our business depends significantly on effective information systems to process clinical and financial information. Information systems require an ongoing commitment of significant resources to maintain and enhance existing systems and develop new systems in order to keep pace with continuing changes in information processing technology. We rely heavily on HCA for information systems. Under a contract with an initial term that will expire on May 11, 2006, HCA provides financial, clinical, patient accounting and network information services to us. If our access to these systems is limited in the future or if HCA develops systems more appropriate for the urban healthcare market and not suited for our hospitals, our operations could suffer.

      In addition, as new information systems are developed, we must integrate them into our existing systems. Evolving industry and regulatory standards, including the Health Insurance Portability and Accountability Act of 1996, commonly known as “HIPAA,” may require changes to our information systems. We may not be able to integrate new systems or changes required to our existing systems or systems of acquired hospitals in the future effectively. Please refer to Part I, Item 1. Business — Government Regulation in our 2003 Annual Report on Form 10-K for a discussion of HIPAA.

     A key element of our business strategy is growth through the acquisition of additional acute care hospitals. Our acquisition activity requires transitions from, and the integration of, various information systems that are used by the hospitals we acquire. If we experience difficulties with the integration of the information systems of acquired hospitals, we could suffer, among other things, operational disruptions and increases in administrative expenses.

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If we fail to comply with our corporate integrity agreement, we could be required to pay significant monetary penalties.

     In December 2000, we entered into a corporate integrity agreement with the OIG. Under this agreement, we have an affirmative obligation to report violations of applicable laws and regulations. This obligation could result in greater scrutiny of us by regulatory authorities. Complying with our corporate integrity agreement requires additional efforts and costs. Our failure to comply with the terms of the corporate integrity agreement could subject us to significant monetary penalties.

Our anti-takeover provisions may discourage acquisitions of control even though our stockholders may consider these proposals desirable.

     Provisions in our certificate of incorporation and bylaws may have the effect of discouraging an acquisition of control not approved by our board of directors. These provisions include:

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the issuance of “blank check” preferred stock by the board of directors without stockholder approval;

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higher stockholder voting requirements for some transactions, including business combinations with related parties (i.e., a “fair price provision”);

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a prohibition on taking actions by the written consent of stockholders;

•

restrictions on the persons eligible to call a special meeting of stockholders;

•

classification of the board of directors into three classes; and

•

the removal of directors only for cause and by a vote of 80% of the outstanding voting power.

     These provisions may also have the effect of discouraging third parties from making proposals involving our acquisition or change of control, although a proposal, if made, might be considered desirable by a majority of our stockholders. These provisions could further have the effect of making it more difficult for third parties to cause the replacement of our board of directors.

     We have also adopted a stockholder rights plan. This stockholder rights plan is designed to protect stockholders in the event of an unsolicited offer and other takeover tactics, which, in the opinion of the board of directors, could impair our ability to represent stockholder interests. The provisions of this stockholder rights plan may render an unsolicited takeover more difficult or might prevent a takeover.

     We are subject to provisions of Delaware corporate law, which may also restrict some business combination transactions. Delaware law may further discourage, delay or prevent someone from acquiring or merging with us.

We have never paid and have no current plans to pay a dividend on our common shares.

     We have never paid a cash dividend and we do not currently anticipate paying any cash dividends. Our senior credit facility also restricts the payment of cash dividends. If we incur any future indebtedness to refinance our existing indebtedness or to fund our future growth, our ability to pay dividends may be further restricted by the terms of this indebtedness. Our board of directors will evaluate our future earnings, results of operations, financial condition and capital requirements in determining whether to declare or pay cash dividends.

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Our stock price has been and may continue to be volatile.

     The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors, including:

•

quarterly variations in operating results;

•

changes in financial estimates and recommendations by securities analysts;

•

changes in government regulations as it relates to reimbursement and operational policies and procedures;

•

the operating and stock price performance of other companies that investors may deem comparable; and

•

news reports relating to trends in our markets.

     Broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     During the quarter ended March 31, 2004, there were no material changes in the quantitative and qualitative disclosures about market risks presented in our 2003 Annual Report on Form 10-K.

Item 4. Controls and Procedures.

     We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us (including our consolidated subsidiaries) in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported on a timely basis. There has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II-OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

     (a) List of Exhibits:

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     (b) Reports on Form 8-K filed during the three months ended March 31, 2004:

         On January 8, 2004, we furnished a Current Report on Form 8-K pursuant to Item 12 announcing our earnings projections for 2004.

        On February 17, 2004, we furnished a Current Report on Form 8-K pursuant to Item 12 announcing our 2003 fourth quarter and year-end earnings results.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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