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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2004

OR

For the Transition Period from              to             

Commission File Number 001-11141

HEALTH MANAGEMENT ASSOCIATES, INC.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (239) 598-3131

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

At August 5, 2004, 243,404,283 shares of the Registrant’s Class A Common Stock were outstanding.

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HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

INDEX

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

See accompanying notes.

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HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

See accompanying notes.

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HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

See accompanying notes.

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HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

See accompanying notes.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The condensed consolidated balance sheet as of September 30, 2003 has been derived from the audited consolidated financial statements included in our 2003 Annual Report on Form 10-K. The interim condensed consolidated financial statements at June 30, 2004, and for the three and nine month periods ended June 30, 2004 and 2003 are unaudited; however, such interim statements reflect all adjustments (consisting only of a normal recurring nature) which are, in the opinion of our management, necessary for a fair presentation of our financial position and results of operations for the interim periods presented. Our results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our 2003 Annual Report on Form 10-K.

The interim condensed consolidated financial statements include all assets, liabilities, revenues and expenses of certain entities which are controlled by us but not wholly-owned. Accordingly, we have recorded minority interests in the earnings and equity of such entities to reflect the ownership interests of such minority shareholders in the respective entities.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements. Our actual results could differ from these estimates.

2. Stock Compensation

We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. As a result, pro forma disclosure of alternative fair value accounting is required under Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, utilizing an option valuation model.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Stock Compensation (continued)

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over their vesting period. Our pro forma information is as follows (in thousands, except per share data):

3. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share of our common stock (in thousands, except per share data):

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Acquisitions

On November 1, 2003, we acquired five non-urban hospitals totaling 1,061 licensed beds. The five hospitals were: Seven Rivers Community Hospital, a 128-bed hospital located in Crystal River, Florida; Harton Regional Medical Center, a 137-bed hospital located in Tullahoma, Tennessee; University Medical Center, a two-campus 257-bed hospital located in Lebanon, Tennessee; Three Rivers Healthcare, a two-campus 423-bed hospital located in Poplar Bluff, Missouri; and Twin Rivers Regional Medical Center, a 116-bed hospital located in Kennett, Missouri. The aggregate cost of this acquisition was approximately $515.0 million. We financed this transaction using a combination of cash on hand and borrowings of $275.0 million under our then existing $450.0 million credit facility.

The operating results of the above hospitals have been included in our accompanying condensed consolidated statements of income from the date of acquisition. The following unaudited pro forma combined summary of operations for the three and nine month periods ended June 30, 2004 and 2003, respectively, give effect to the operation of the five hospitals purchased on November 1, 2003 as if such hospitals had been acquired as of October 1, 2003 and 2002, respectively:

The unaudited pro forma data gives effect to actual operating results prior to our acquisition of the above hospitals. No effect has been given to cost reductions or operating efficiencies in this presentation. As a result, the unaudited pro forma results of operations are for comparative purposes only and are not necessarily indicative of the results that we would have obtained if the acquisition of the above hospitals had occurred as of the beginning of the periods presented or that may occur in the future.

5. Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. FIN 46 also requires disclosure about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Recent Accounting Pronouncements (continued)

The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to special purpose entities in the first fiscal year or interim period ending after December 15, 2003 and for all other variable interest entities beginning in the first financial reporting period ending after March 15, 2004. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Our adoption of FIN 46 did not have a material effect on our consolidated financial statements.

6. Long-term debt

On May 14, 2004, we entered into a new credit agreement with a syndicate of banks. The new credit agreement expires on May 14, 2009 and replaced our previous $450.0 million credit agreement, which was due to expire in accordance with its terms on November 30, 2004. The new credit agreement allows us to borrow, on a revolving, unsecured basis, up to $600.0 million (including standby letters of credit). The new credit agreement also requires our subsidiaries (other than certain exempted subsidiaries) to guarantee our borrowings in the event our credit rating falls below certain thresholds. Under the new credit agreement, we can choose whether the interest charged on our loans is based upon the prime rate or the LIBOR rate. The interest rate we pay includes a spread above the base rate we select, which is subject to change in the event our debt rating changes. The applicable interest rate under the new credit agreement at June 30, 2004 was 1.72%. On May 14, 2004, we borrowed $150.0 million under the new credit agreement to repay the amounts outstanding under our former credit agreement upon our termination of such agreement. At June 30, 2004, $100.0 million was outstanding under our new credit agreement and on July 14, 2004, we repaid an additional $50.0 million of such indebtedness.

Under the terms of the new credit agreement, we are obligated to pay certain commitment fees based upon amounts available to us for borrowing. In addition, this credit agreement contains covenants which, without prior consent of the lenders under such facility, limit certain of our activities, including those relating to mergers, consolidations, our ability to borrow additional money, make guarantees and grant security interests. We are also required to comply with certain financial covenants.

7. Subsequent Events

On July 14, 2004, we repaid $50.0 million of the amount outstanding under our $600.0 million credit agreement.

On July 27, 2004, we announced that our Board of Directors declared a quarterly cash dividend of $0.02 per share on our common stock, payable on August 31, 2004 to stockholders of record at the close of business on August 9, 2004.

On July 19, 2004, we announced the signing of a definitive agreement to acquire the 82-bed Chester County Hospital in Chester, South Carolina. The transaction is expected to close during the fourth quarter of our year ended September 30, 2004.

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.

We consider our critical accounting policies to be those that require us to make more significant judgments and estimates when we prepare our financial statements, including the following:

Net Patient Service Revenues

We derive a significant portion of our revenues from the Medicare and Medicaid programs, and from managed care health plans. Payments for services we render to patients covered by these programs are generally less than billed charges. For Medicare and Medicaid revenues, provisions for contractual adjustments are made to reduce the charges to these patients to estimated receipts based upon the programs’ respective principles of payment or reimbursement (either prospectively determined or retrospectively determined costs). Final payment under these programs is subject to administrative review and audit, and we currently make provisions for any adjustments which we believe may result. Our provisions for contractual allowances under managed care health plans are based primarily on payment terms of contractual arrangements such as predetermined rates per diagnosis, per diem rates or a discounted percent from charges. We closely monitor our historical collection rates as well as changes in applicable laws, rules and regulations and contract terms to help assure that provisions are made using the most accurate information we believe to be available. However, due to the complexities involved in making these estimates, the actual payments we receive could be different from the amounts we estimate and record.

Provision for Doubtful Accounts

Collection of receivables from third party payors and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patient accounts and to patient accounts for which the primary insurance payor has paid, but patient responsibility amounts (generally deductibles and co-payments) remain outstanding. We estimate provisions for doubtful accounts based primarily upon the age of patients’ accounts, the economic ability of patients to pay and the effectiveness of our collection efforts. We routinely review accounts receivable balances in conjunction with our historical collection rates and other economic conditions which might ultimately affect the collectibility of patient accounts when we consider the adequacy of the amounts we record as reserves for doubtful accounts. Significant changes in payer mix, business office operations, economic conditions or trends in federal and state governmental health care coverage could affect our collection of accounts receivable, cash flows and results of operations.

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

Impairment of Long-Lived Assets

Long-Lived Assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. Assessment of possible impairment of a particular asset is based on our ability to recover the carrying value of such asset based on our estimate of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of such asset, an impairment charge is recognized for the difference between the asset’s estimated fair value and its carrying value. As of the date of the condensed consolidated financial statements included as part of this report, we were not aware of any items or events that would cause us to adjust the recorded value of any of our long-lived assets, including amortizable intangible assets, for impairment.

Goodwill. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), we do not amortize goodwill. We review goodwill for impairment at the reporting unit level, as defined by SFAS No. 142, on an annual basis or sooner if indicators of impairment arise. We periodically evaluate each reporting unit for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on market conditions and the operating performance of each reporting unit. During the last quarter of our fiscal year ended September 30, 2003, we completed our most recent annual impairment review of our goodwill. This impairment review indicated that our goodwill was not impaired. Future changes in the estimates we use to conduct the impairment review, including revenue and profitability projections or market values, could cause our analysis to indicate that our goodwill is impaired in subsequent periods, and could result in the write-off of a portion or all of our goodwill.

Income Taxes

We make estimates in recording our provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize these benefits, and, therefore, have not recorded any valuation allowance against our deferred tax asset.

We operate in multiple states with varying tax laws. We are subject to both federal and state audits of tax returns. Our federal income tax returns were examined by the Internal Revenue Service through our fiscal year ended September 30, 1999, which resulted in no material adjustments. Our federal income tax returns for our fiscal years ended September 30, 2000 and 2001 are currently being audited by the Internal Revenue Service. We make estimates we believe are accurate in order to determine that tax reserves are adequate to cover any potential audit adjustments.

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

Professional Liability Insurance Claims

We insure a significant portion of our primary professional and general liability risks through a wholly-owned captive insurance subsidiary. Our captive subsidiary reinsures risk up to $1.0 million per claim and $3.0 million in the aggregate per hospital, and further acts as an excess insurer for all of our hospitals in combination with three commercial insurance companies.

We determine our accruals for self-insured professional liability risks using asserted and unasserted claims identified by our incident reporting system, and by using actuarially-determined estimates based on our internal as well as industry-wide historical loss payment patterns. We have discounted our accruals for self-insured professional liability risks to their present value using a discount rate of 4.5%. Although the ultimate settlement of these accruals may vary from our estimates, we believe that the amounts provided in our consolidated financial statements are adequate. However, if the actual payments of claims exceed our projected estimates of claims or we are not able to obtain commercial excess insurance on reasonable terms, our insurance accruals could be materially adversely affected.

Results of Operations

Overview

During our third quarter ended June 30, 2004, which we refer to as the 2004 Period, we reported net revenue growth over our third quarter ended June 30, 2003, which we refer to as the 2003 Period, of 26%, net income growth of 18% and net earnings per diluted share growth of 20%. Our revenue and net income growth resulted from increases in same hospital admissions, which are admissions to hospitals in operation for the entire 2004 Period and 2003 Period, rate increases and from hospitals acquired by us in the 12 month period ended June 30, 2004. In addition, our earnings per diluted share increased both as a result of our increased net income and a reduction in diluted shares outstanding following our redemption on August 16, 2003 of our Convertible Senior Subordinated Debentures due 2020.

Same hospital admissions increased 1.2% in the 2004 Period compared to the 2003 Period. We believe this increase is due in part to our adherence to the acquisition criteria we have strictly followed for many years, whereby we acquire hospitals in growing areas and in areas where we believe the opportunity to reverse outmigration to other hospitals exists. Furthermore, our hospitals continue to add additional physicians to their respective medical staffs and medical equipment to their hospitals in order to meet the needs of the communities they serve. We believe these investments ultimately result in higher same hospital admissions.

Outpatient services continue to play an important role in the delivery of health care in our markets, with roughly half of our net revenue during the 2004 Period generated on an outpatient basis. We continue to focus on emergency room operations and diagnostic imaging services to meet the needs of the communities we serve and have invested capital in nearly every one of our hospitals over the last five years in one of these two areas. As a result, our same hospital adjusted admissions, which adjusts admissions for outpatient volume, increased 2.7% in the 2004 Period compared to the 2003 Period.

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

Results of Operations (continued)

Overview (continued)

Our surgery volumes have been affected by changes in physician practices related to increased expenses due to malpractice costs and declining or flat reimbursement. Outpatient surgeries for gastrointestinal, ENT and ophthalmology have been impacted most severely, as physicians continue to move these procedures into their offices. We believe that although this trend effects the number of surgeries performed at our hospitals, it does not have a material financial impact on our hospitals. We had a decrease in same hospital surgeries of 1.7% for the 2004 Period compared to the 2003 Period.

Our bad debt expense in the 2004 Period increased 40 basis points to 7.6% of net revenue. We believe that this percent to net revenue is lower than our industry peer group average because of our long-standing and consistently applied bad debt and charity care policies. Economic conditions and changes in commercial health insurance benefit plan structure over the past several years have contributed to an increase in the number of uninsured and under-insured patients seeking health care in the United States. Although we are not immune to these trends, we believe that the demographic profiles of our non-urban markets, combined with our consistent application of charity care, indigent and bad debt policies over many years, have contributed to a relatively stable level of bad debt expense as compared to the rest of our industry.

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

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

The following tables summarize our results of operations for the three months ended June 30, 2004 and 2003:

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

Our net patient service revenue for the 2004 Period was $817.3 million as compared to $647.1 million for the 2003 Period. This represented an increase in net patient service revenue of $170.2 million or 26%. Hospitals in operation for the entire 2003 Period and 2004 Period, which we refer to as same hospitals, provided $30.5 million, or 18%, of the increase in net patient service revenue as a result of increases in inpatient and outpatient volumes and from rate increases. $139.5 million of the increase came from two hospitals we acquired in August 2003, one hospital we acquired in September 2003, and five hospitals we acquired in November 2003. The remaining $.2 million of the increase came from miscellaneous other revenue.

Net revenue per adjusted admission at our same hospitals increased 2.1% for the 2004 Period. Contributing factors to the net revenue per adjusted admission increase included rate increases, our renegotiation of managed care contracts from July 1, 2003 through the end of the 2004 Period and increased volumes in our higher margin outpatient business.

Accounts written off as charity and indigent care are not recognized in net patient service revenue. Our charity care and indigent write-offs were $105.9 million or 4.0% of gross revenue for the 2004 Period and $68.6 million or 3.4% of gross revenue in the 2003 Period. The policy and practice at each of our hospitals is to write off a patient’s entire account upon the determination that the patient qualifies under a hospital’s charity care and/or indigent policy. We believe that our practice of timely recognition of charity and indigent accounts, and their subsequent write-off, results in more accurate and collectible levels of accounts receivable, and correspondingly appropriate bad debt expense levels. Our bad debt policy is to reserve 100% of all non-governmental accounts receivable over 150 days old. We believe that our decentralized management strategy, including maintaining local business office operations in each of our hospitals, contributes greatly to our effective accounts receivable management. Our hospitals also work diligently to assist uninsured patients in the process of qualifying for Medicaid, charity care, and other state and local assistance programs.

Consolidated salaries and benefits increased as a percent of net patient service revenue to 38.6% for the 2004 Period from 37.9% for the 2003 Period. Same hospital salaries and benefits decreased from 37.0% of net patient service revenue in the 2003 Period to 36.9% in the 2004 Period as a result of our continued effective management of salary and benefits costs. The increase in consolidated salaries and benefits is due to the eight recent acquisitions mentioned previously.

Supplies and other costs increased as a percent of net patient service revenue to 29.3% for the 2004 Period from 28.6% for the 2003 Period. The majority of this increase was due to higher supply costs related to implants.

Our provision for income taxes reflected an effective income tax rate of approximately 38.1% for the 2004 Period and 39.0% for the 2003 Period. The rate decrease was due to a lower effective state income tax rate in effect during the 2004 Period.

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

Nine months Ended June 30, 2004 Compared to Nine months Ended June 30, 2003

The following tables summarize our results of operations for the nine months ended June 30, 2004 and 2003:

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

Our net patient service revenue for the nine months ended June 30, 2004, which we refer to as the 2004 Nine Month Period, was $2,407.8 million as compared to $1,903.0 million for the nine months ended June 30, 2003, which we refer to as the 2003 Nine Month Period. This represented an increase in net patient service revenue of $504.8 million or approximately 27%. Hospitals in operation for the entire 2004 Nine Month Period and 2003 Nine Month Period, which we refer to as same hospitals, provided $116.7 million, or 23%, of the increase in net patient service revenue as a result of increases in inpatient and outpatient volumes and from rate increases. The remaining 77%, or $388.1 million, of the increase came from two hospitals we acquired in August 2003, one hospital we acquired in September 2003, five hospitals we acquired in November 2003, as well as from other miscellaneous revenue.

Net revenue per adjusted admission at our same hospitals increased 2.6% for the 2004 Nine Month Period. Contributing factors to the net revenue per adjusted admission increase included rate increases, our renegotiation of managed care contracts from July 1, 2003 through the end of the 2004 Nine Month Period and increased volumes in our higher margin outpatient business.

Accounts written off as charity and indigent care are not recognized in net patient service revenue. Our charity care and indigent write-offs were $301.6 million or 3.8% of gross revenue for the 2004 Nine Month Period and $197.3 million or 3.4% of gross revenue in the 2003 Nine Month Period. The policy and practice at each of our hospitals is to write off a patient’s entire account upon the determination that the patient qualifies under a hospital’s charity care and/or indigent policy. We believe that our practice of timely recognition of charity and indigent accounts, and their subsequent write-off, results in more accurate and collectible levels of accounts receivable, and correspondingly appropriate bad debt expense levels. Our bad debt policy is to reserve 100% of all non-governmental accounts receivable over 150 days old. We believe that our decentralized management strategy, including maintaining local business office operations in each of our hospitals, contributes greatly to our effective accounts receivable management. Our hospitals also work diligently to assist uninsured patients in the process of qualifying for Medicaid, charity care, and other state and local assistance programs.

Consolidated salaries and benefits increased as a percent of net patient service revenue to 39.2 % for the 2004 Nine Month Period from 38.6% for the 2003 Nine Month Period, primarily as a result of the eight acquisitions previously mentioned.

Supplies and other costs increased as a percent of net patient service revenue to 29.5% for the 2004 Nine Month Period from 28.8% for the 2003 Nine Month Period. The majority of this increase was due to higher supply costs related to implants.

Our provision for income taxes reflected an effective income tax rate of approximately 38.2% for the 2004 Nine Month Period and 39.0% for the 2003 Nine Month Period. The rate decrease was due to a lower effective state income tax rate in effect during the 2004 Nine Month Period.

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

Liquidity and Capital Resources

Liquidity

Our cash flows from operations provide the primary source of funding for our ongoing cash needs. We have historically utilized cash on hand, credit facility borrowings and proceeds from debt issuances, or a combination of the preceding, to fund acquisitions.

The following is a summary of cash flows for the nine month periods ended June 30, 2004 and 2003, respectively:

2004 Nine Month Period Cash Flows Compared to 2003 Nine Month Period Cash Flows

Operating Activities

Our cash flows from operations increased 23.7% during the 2004 Nine Month Period when compared to the 2003 Nine Month Period. An increase in our working capital during the 2004 Nine Month Period offset our increased profitability. The primary cause for the increase in our working capital was the increase in accounts receivable. The increase in accounts receivable in the 2004 Nine Month Period as compared to the 2003 Nine Month Period resulted primarily from our recent acquisitions, as receivables were not purchased by us as part of such transactions and we therefore experienced a build up in accounts receivable during the 2004 Nine Month Period. Days sales outstanding were up two days to 70 days at the end of the 2004 Nine Month Period versus 68 days at the end of the 2003 Nine Month Period and down three days sequentially from 73 days at March 31, 2004.

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

Investing activities

Cash used in investing activities in the 2004 Nine Month Period consisted primarily of the cash paid for the five hospitals we acquired on November 1, 2003 and cash paid for additions to property, plant and equipment. These additions consisted of renovation and expansion projects at certain of our facilities and capital expenditures associated with three ongoing replacement hospital projects.

During the 2003 Nine Month Period, cash used in investing activities consisted primarily of the cash paid for one hospital acquisition and cash paid for additions to property, plant and equipment. These additions consisted of renovation and expansion projects at certain of our facilities and capital expenditures associated with one replacement hospital project.

Financing activities

The cash provided by financing activities in the 2004 Nine Month Period was primarily the net result of our borrowing $275.0 million under our credit agreement during the period for the five hospital acquisitions described above and repayment of $175.0 million of such debt during the same period. Proceeds from the exercise of stock options provided an additional $26.2 million.

The payment of dividends was our primary use of cash by financing activities in the 2003 Nine Month Period.

Capital Resources

Credit Facilities

On May 14, 2004, we entered into a new credit agreement with a syndicate of banks. The new credit agreement expires on May 14, 2009 and replaced our previous $450.0 million credit agreement, described below, which was due to expire in accordance with its terms on November 30, 2004. The new credit agreement allows us to borrow, on a revolving, unsecured basis, up to $600.0 million (including standby letters of credit). The new credit agreement also requires our subsidiaries (other than certain exempted subsidiaries) to guarantee our borrowings in the event our credit rating falls below certain thresholds. Under the new credit agreement, we can choose whether the interest charged on our loans is based upon the prime rate or the LIBOR rate. The interest rate we pay includes a spread above the base rate we select, which is subject to change in the event our debt rating changes. The applicable interest rate under the new credit agreement at June 30, 2004 was 1.72%. On May 14, 2004, we borrowed $150.0 million under the new credit agreement to repay the amounts outstanding under our former credit agreement upon our termination of such agreement. At June 30, 2004, $100.0 million was outstanding under our new credit agreement and on July 14, 2004, we repaid an additional $50.0 million of such indebtedness.

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