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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2005

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 May 6, 2005, 246,544,711 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 MARCH 31, 2005

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, 2004 has been derived from the audited consolidated financial statements included in our 2004 Annual Report on Form 10-K. The interim condensed consolidated financial statements at March 31, 2005, and for the three and six month periods ended March 31, 2005 and 2004 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. Due to the seasonal nature of our business, our results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal 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 2004 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.

Certain amounts have been reclassified in the prior year to conform with the current year presentation.

2. Stock compensation

We have elected to follow Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion No. 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. See Note 5 – Recent accounting pronouncements.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. Stock compensation (continued)

For purposes of pro forma disclosure, the estimated fair value of 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

Effective October 1, 2004, we acquired, via a long-term lease, Chester County Hospital, an 82-bed hospital located in Chester, South Carolina. The cash paid for this acquisition was approximately $20.5 million for the lease of property, plant, and equipment and approximately $5.4 million for working capital. We funded this transaction using cash on hand.

Effective February 1, 2005, we acquired three non-urban hospitals with a total of 657 licensed beds. The three hospitals acquired are: Venice Hospital, a 312-bed hospital located in Venice, Florida; St. Joseph’s Hospital, a 212-bed hospital located in Port Charlotte, Florida; and St. Mary’s Hospital, a 133-bed hospital located in Norton, Virginia. The cash paid for this acquisition was approximately $251.4 million for property, plant and equipment and approximately $30.8 million for working capital. We funded this transaction using a combination of cash on hand and borrowings of $180.0 million under our $600.0 million credit facility.

Effective April 1, 2005, we acquired Bartow Memorial Hospital, a 56-bed hospital located in Bartow, Florida. The cash paid for this acquisition was approximately $32.7 million. We funded this transaction using cash on hand. The transaction closed on March 31, 2005 with an effective date of April 1, 2005. The purchase price is reflected in our balance sheet at March 31, 2005 in Deferred charges and other assets and is included in the statement of cash flows for the six month period ended March 31, 2005 as an investing activity.

The future operations of the above acquisitions are not expected to materially affect our results of operations.

5. Recent accounting pronouncements

On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, which revised FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Statement No. 123(R) is similar to Statement No. 123, except that Statement No. 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. In addition, under Statement No. 123(R), pro forma disclosure is no longer permitted as an alternative. On April 19, 2005, the Securities and Exchange Commission adopted a rule to allow issuers to implement Statement No. 123(R) at the beginning of their next fiscal year rather than July 1, 2005, the original effective date for Statement No. 123(R) proposed by the FASB. We expect to adopt Statement No. 123(R) on October 1, 2005, the first day of our next fiscal year. Based on our historical stock option grants, we expect the impact of our adoption of Statement No. 123 (R) to be approximately $0.04 per share for our fiscal year ending September 30, 2006. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current accounting standards. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in the fiscal year ended September 30, 2004 for such excess tax deductions was $18.1 million.

On September 30, 2004, the Emerging Issues Task Force (“EITF”) affirmed its previous consensus regarding Issue 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share. Issue 04-8 requires contingently convertible debt instruments, if dilutive, to be included in diluted earnings per share calculations, regardless of whether or not the market price trigger contained in the applicable convertible debt instrument has been met. Issue 04-8 became effective for reporting periods ending after December 15, 2004, and retroactive restatement of earnings per share calculations is required for contingent convertible debt issuances outstanding at such date. See Note 6 – Long-term debt for a description of actions we took with respect to our outstanding Zero-Coupon Convertible Senior Subordinated Notes due 2022 (the “2022 Notes”) and our outstanding 1.50% Convertible Senior Subordinated Notes due 2023 (the “2023 Notes”) to prevent the common stock underlying such notes from being immediately included in our diluted earnings per share calculations.

On December 15, 2003, the FASB issued an Exposure Draft entitled Earnings Per Share, an Amendment of FASB Statement No. 128 (the “Amendment”). The Amendment requires, in part, that for contracts that can be settled in either cash or shares, issuing entities should assume share settlement for purposes of calculating diluted earnings per share. In conjunction with the Amendment, the FASB determined that retroactive restatement of earnings per share is not required for contracts appropriately

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Recent accounting pronouncements (continued)

modified to eliminate share settlement prior to December 31, 2004. The Amendment is effective for reporting periods ending after December 15, 2004. See Note 6 – Long-term debt for a description of actions we took with respect to the 2022 Notes and the 2023 Notes to prevent the common stock underlying such notes from being immediately included in our diluted earnings per share calculations.

6. Long-term debt

2022 Notes. On December 29, 2004, we completed an exchange offer with respect to our 2022 Notes, whereby holders of approximately 99.95% of the aggregate principal amount of the 2022 Notes outstanding exchanged their 2022 Notes for Exchange Zero-Coupon Convertible Senior Subordinated Notes due 2022 (the “New 2022 Notes”). The New 2022 Notes have terms substantially similar to the terms of the 2022 Notes, except that: (i) upon conversion, we will pay holders cash equal to the accreted value of the New 2022 Notes being converted and the remainder will be paid in cash or shares of common stock, at our option; (ii) holders may also require us to repurchase their New 2022 Notes on January 28, 2006 for a purchase price per note of $869.62; (iii) the New 2022 Notes contain additional anti-dilution protection for cash dividends until January 28, 2007; (iv) the New 2022 Notes require us to pay only cash (in lieu of cash, common stock or a combination of cash and common stock) when New 2022 Notes are repurchased by us at the option of the holders, whether on a specified purchase date or upon the occurrence of a fundamental change; and (v) contingent interest payable will be equal to 0.125% of the average price of the New 2022 Notes during the relevant period. Approximately $172,000 in principal face value of 2022 Notes were not exchanged in the exchange offer. The common stock underlying the unexchanged portion of our 2022 Notes is included in our earnings per share calculations. The common stock underlying the New 2022 Notes is not considered immediately dilutive and is not included in our earnings per share calculation. To the extent holders of the New 2022 Notes exercise their January 28, 2006 put option, we intend to use amounts available under our long term $600.0 million line of credit to purchase such New 2022 Notes, therefore, we have not included this amount in current liabilities at March 31, 2005.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Long-term debt (continued)

2023 Notes. On November 24, 2004, we completed a consent solicitation that amended the indenture governing our 2023 Notes to eliminate a provision that prohibited us from paying cash upon conversion of the 2023 Notes if an event of default, as defined in the indenture, exists at the time of conversion. On November 30, 2004, we further amended the indenture governing the 2023 Notes to provide that, in lieu of providing shares of common stock upon a conversion event, we will satisfy any conversion of the 2023 Notes, up to their principal face amount, by making a cash payment. As a result of such modifications to the indenture governing the 2023 Notes, the common stock underlying such notes is not considered immediately dilutive and is not included in our earnings per share calculations.

7. Subsequent events

On May 3, 2005, we announced that our Board of Directors declared a quarterly cash dividend of $0.04 per share on our common stock, payable on June 6, 2005, to stockholders of record at the close of business on May 13, 2005.

On April 29, 2005, we repaid an additional $65.0 million under our credit agreement which reduced the outstanding balance to $100.0 million.

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

Results of Operations

Overview

During our second quarter ended March 31, 2005, which we refer to as the 2005 Period, we reported net revenue growth over our second quarter ended March 31, 2004, which we refer to as the 2004 Period, of 10.0%, net income growth of 10.3% and net earnings per diluted share growth of 8.1%. Our revenue and net income growth resulted from increases in total hospital admissions, rate increases and from hospitals acquired by us since January 1, 2004.

Same hospital admissions increased 1.8% in the 2005 Period compared to the 2004 Period. 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 that, over time, these investments coupled with improved demographics have resulted in and will continue to result in same hospital admissions increases.

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 2005 Period generated on an outpatient basis. We continue to focus on emergency room services 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. Reflective of this continuous focus, our same hospital adjusted admissions, which adjusts admissions for outpatient volume, increased 3.3% in the 2005 Period compared to the 2004 Period.

During the 2004 Period, our surgery volumes were affected by changes in physician practices related to increased expenses due to malpractice costs and declining or flat reimbursement. Outpatient gastrointestinal, ENT and ophthalmology surgeries were impacted most severely as physicians moved a number of these procedures into their offices. We believe that while this trend has affected the number of surgeries performed at our hospitals, it has not had a material financial impact on our hospitals. In spite of this trend, our same hospital surgeries increased 1.8% in the 2005 Period when compared to the 2004 Period, due in part to surgeries performed by newly recruited physicians.

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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 bad debt expense in the 2005 Period decreased 10 basis points to 7.0% of net revenue compared to 7.1% of net revenue in the 2004 Period. We believe that this percentage of net revenue is lower than our industry peer group average because our long-standing and consistently applied bad debt and charity care policies result in a higher percentage of uninsured patients’ accounts written off as charity or indigent accounts instead of as bad debts. Economic conditions and changes in commercial health insurance benefit plans 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. This general industry trend has also affected us, with our same hospital self-pay admissions increasing to 6.2% of total admissions in the 2005 Period compared to 5.9% for the 2004 Period. Certain providers are evaluating or modifying their policies regarding discounts and write-offs for the uninsured. We continually evaluate our policies and programs in light of these trends, and consider changes or modifications to our policies as circumstances warrant.

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

Three Months Ended March 31, 2005 Compared to

Three Months Ended March 31, 2004

The following tables summarize our results of operations for the three months ended March 31, 2005 and 2004, respectively (unaudited):

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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 2005 Period was $917.4 million as compared to $833.9 million for the 2004 Period. This represented an increase in net patient service revenue of $83.5 million or 10.0%. Hospitals in operation for the entire 2005 Period and 2004 Period, which we refer to as same hospitals, provided $31.4 million, or 37.8%, of the increase in net patient service revenue as a result of increases in admissions, surgeries and from rate increases. Included in the $31.4 million is approximately $2.6 million of revenue recognized for business interruption insurance related to the disruption caused by the four hurricanes that struck Florida in the fourth quarter of our fiscal year ended September 30, 2004. The remaining $52.1 million of the increase came from three hospitals we acquired in February 2005 and one hospital we acquired in October 2004.

Net revenue per adjusted admission at our same hospitals increased 1.9% for the 2005 Period from the 2004 Period. Contributing factors to the net revenue per adjusted admission increase included improvements in Medicare pricing as well as the effect of favorably renegotiated agreements with commercial providers.

Accounts written off as charity and indigent care are not recognized in net patient service revenue. Our charity care and indigent write-offs were $134.1 million or 4.1% of gross revenue for the 2005 Period and $98.0 million or 3.5% of gross revenue in the 2004 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 recognizing charity and indigent accounts results in the conservative recognition of net revenue and the appropriate level of bad debt expense. Our bad debt policy is to reserve 100% of all non-governmental accounts receivable over 150 days old. However, additional reserves for bad debt for certain accounts receivable are established where circumstances warrant additional reserves before an account becomes 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 39.1% for the 2005 Period from 39.0% for the 2004 Period due to the three hospitals we acquired in February 2005. Same hospital salaries and benefits decreased from 38.2% of net patient service revenue in the 2004 Period to 37.4% in the 2005 Period. We believe that this decrease is a result of our continued effective management of our salary costs.

Supplies and other costs increased as a percent of net patient service revenue to 29.8% for the 2005 Period from 29.3% for the 2004 Period. The increase was due to higher costs at the hospital we acquired in October 2004 and the three hospitals we acquired in February 2005 as well as increased costs for drug eluding stents and orthopedic implants.

Our provision for income taxes reflected an effective income tax rate of approximately 38.25% for the 2005 Period and 38.3% for the 2004 Period.

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Six Months Ended March 31, 2005 Compared to

        Six Months Ended March 31, 2004

The following tables summarize our results of operations for the six months ended March 31, 2005 and 2004, respectively (unaudited):

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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 six months ended March 31, 2005, which we refer to as the 2005 Six Month Period, was $1,739.6 million as compared to $1,590.5 million for the six months ended March 31, 2004, which we refer to as the 2004 Six Month Period. This represented an increase in net patient service revenue of $149.1 million or 9.4%. Hospitals in operation for the entire 2005 Six Month Period and 2004 Six Month Period, which we refer to as same hospitals, provided $49.3 million, or 33.3%, of the increase in net patient service revenue as a result of increases in surgeries and from rate increases. Included in the $149.1 million is approximately $10.7 million of revenue recognized for business interruption insurance related to the disruption caused by the hurricanes that struck Florida in the fourth quarter of our fiscal year ended September 30, 2004. The remaining $99.8 million of the increase came from five hospitals we acquired in November 2003, one hospital we acquired in October 2004 and three hospitals we acquired in February 2005.

Net revenue per adjusted admission at our same hospitals increased 2.4% for the 2005 Six Month Period from the 2004 Six Month Period. Contributing factors to the net revenue per adjusted admission increase included improvements in Medicare pricing as well as the effect of favorably renegotiated agreements with commercial providers.

Accounts written off as charity and indigent care are not recognized in net patient service revenue. Our charity care and indigent write-offs were $264.8 million or 4.4% of gross revenue for the 2005 Six Month Period and $195.7 million or 3.7% of gross revenue in the 2004 Six 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 recognizing charity and indigent accounts results in the conservative recognition of net revenue and the appropriate level of bad debt expense. Our bad debt policy is to reserve 100% of all non-governmental accounts receivable over 150 days old. However, additional reserves for bad debt for certain accounts receivable are established where circumstances warrant additional reserves before an account becomes 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 decreased as a percent of net patient service revenue to 39.4% for the 2005 Six Month Period from 39.5% for the 2004 Six Month Period. Same hospital salaries and benefits decreased from 38.6% of net patient service revenue in the 2004 Six Month Period to 38.0% in the 2005 Six Month Period. We believe that these decreases are a result of our continued effective management of salary costs.

Supplies and other costs increased as a percent of net patient service revenue to 30.0% for the 2005 Six Month Period from 29.7% for the 2004 Six Month Period. The increase was due to higher costs at the hospital we acquired in October 2004 and the three hospitals we acquired in February 2005 as well as increased costs for drug eluding stents and orthopedic implants.

Our provision for income taxes reflected an effective income tax rate of approximately 38.25% for the 2005 Six Month Period and 38.3% for the 2004 Six 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 thereof, to fund acquisitions.

The following is a summary of cash flows for the 2005 Six Month Period and 2004 Six Month Period, respectively:

2005 Six Month Period Cash Flows Compared to 2004 Six Month Period Cash Flows

Operating Activities

Our cash flows from operating activities increased $81.1 million or 45.8% during the 2005 Six Month Period when compared to the 2004 Six Month Period. Increased income and management of our working capital led to the increased cash flows during the 2005 Six Month Period. The increase in accounts receivable were a use of funds in each of the 2005 Six Month Period and the 2004 Six Month Period. The use of funds due to receivables in the 2005 Six Month Period was $67.2 million versus a use of funds in the 2004 Six Month Period of $138.0 million, resulting in an increase to net operating cash of $70.8 million in the 2005 Six Month Period. The build up of receivables from acquisitions made in both periods account for the majority of the increase in receivables. Days sales outstanding were down to 71 days at the end of the 2005 Six Month Period versus 73 days at the end of the 2004 Six Month Period. This change in accounts receivable between periods and the resulting impact to cash flows was the significant contributor to the change in cash flows from operations between the 2005 Six Month Period and the 2004 Six Month Period.

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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 2005 Six Month Period consisted primarily of $340.0 million cash paid for the one hospital we acquired on October 1, 2004 and the three hospitals we acquired on February 1, 2005 and $110.4 million 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 two ongoing replacement hospital projects.

During the 2004 Six Month Period, cash used in investing activities consisted primarily of $519.0 million paid for the five hospitals we acquired on November 1, 2003 and $118.4 million 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 replacement hospital projects.

Financing Activities

The cash provided by financing activities in the 2005 Six Month Period was primarily the net result of our borrowing $180.0 million under our credit agreement during the period for the acquisition of three hospitals on February 1, 2005, net of the repayment of $15.0 million of such debt during the same period. Also, proceeds from the exercise of stock options provided an additional $37.5 million. The payment of dividends and an increase in restricted funds of $37.2 million represented the primary use of cash by financing activities in the 2005 Six Month Period.

The cash provided by financing activities in the 2004 Six Month Period was primarily the net result of our borrowing $275.0 million under our credit agreement during the period for the acquisition of five hospitals on November 1, 2003, net of the repayment of $100.0 million of such debt during the same period. Also, proceeds from the exercise of stock options provided an additional $20.8 million. The payment of dividends and an increase in restricted funds of $31.1 million represented the primary use of cash by financing activities in the 2004 Six Month Period.

Capital Resources

Credit Facilities

We currently have a 5-year $600.0 million credit agreement with a syndicate of banks that expires on May 14, 2009. The credit agreement allows us to borrow, on a revolving, unsecured basis, up to $600.0 million (including standby letters of credit). The 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 credit agreement, we can choose whether the interest charged on our borrowings 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 credit agreement at March 31, 2005 was 4.0%.

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

Capital Resources (continued)

Under the terms of the credit agreement, we are obligated to pay certain commitment fees based upon amounts available to us for borrowing. In addition, our credit agreement contains covenants that, without the 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. The following are the required covenants calculated as of March 31, 2005:

At March 31, 2005, we were in compliance with the above covenants.

As of March 31, 2004, we had a $450.0 million credit agreement that permitted us to borrow under an unsecured revolving credit line at any time during the term of the agreement. The terms of this credit agreement permitted us to choose a loan based on an interest rate equal to the prime interest rate or an interest rate based on the LIBOR interest rate. At March 31, 2004, the interest rate for a loan based on the LIBOR interest rate was the LIBOR rate plus 1.00 percent. The interest rate on the outstanding balance at March 31, 2004 was 2.1%. All outstanding borrowings under this credit agreement were repaid using borrowings under our new $600.0 million credit agreement described above. Upon this repayment, our $450.0 million credit agreement was terminated.

During the term of our credit agreement in effect at March 31, 2004, we were obligated to pay certain commitment fees based upon amounts available to us for borrowing. In addition, this credit agreement contained covenants which, without the prior consent of the lenders, limited certain of our activities, including those relating to mergers, consolidations, our ability to borrow additional money, make guarantees, grant security interests and declare dividends. Furthermore, such credit agreement required that we comply with certain financial covenants. The following were the required covenants under such facility calculated as of March 31, 2004:

At March 31, 2004, we were in compliance with the above covenants.

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

Capital Resources (continued)

We also have a $15.0 million unsecured revolving working capital credit commitment with a commercial bank. This credit commitment, which also contains covenants of the types applicable to the credit facilities described above, is tied to our cash management system and renews annually each November 1. We must pay interest on any outstanding balance monthly at a fluctuating rate not to exceed the bank’s prime rate less 0.25%. The interest rate at March 31, 2005 and 2004 was 5.50% and 3.75%, respectively. At March 31, 2005 and 2004, we did not have any amounts outstanding under this credit commitment.

Outstanding Debt Securities

2022 Notes. On January 28, 2002, we sold $330.0 million in face value of our Zero-Coupon Convertible Senior Subordinated Notes due 2022, or 2022 Notes. Our sale of 2022 Notes resulted in gross proceeds to us of approximately $277.0 million. The 2022 Notes and the New 2022 Notes, which are discussed below, are our general unsecured obligations and are subordinated in right of payment to our existing and future indebtedness that is not expressly subordinated or equal in right of payment to such notes. Our 2023 Notes, which are also discussed below, rank equally with the 2022 Notes and the New 2022 Notes. The 2022 Notes and New 2022 Notes mature on January 28, 2022, unless they are converted or redeemed earlier. Upon the occurrence of certain events, the 2022 Notes and New 2022 Notes become convertible into shares of our common stock at a conversion rate of 32.1644 shares of common stock for each $1,000 principal amount of notes converted (which conversion rate is subject to adjustment in certain events). The accrual of the original issue discount on the 2022 Notes and New 2022 Notes represents a yield to maturity of 0.875% per year calculated from January 28, 2002, excluding any contingent interest which could be payable under certain circumstances in accordance with the terms of such notes.

Holders had the right to require us to purchase all or a portion of their 2022 Notes on January 28, 2005 at a cash purchase price per note of $862.07, plus accrued but unpaid interest to such date. In addition, holders may require us to purchase all or a part of their 2022 Notes on January 28, 2007, January 28, 2012 and January 28, 2017 for a purchase price per note of $877.25, $916.40 and $957.29, respectively, plus accrued and unpaid interest to each purchase date. On January 28, 2005, we paid approximately $19,000 to redeem the 2022 Notes put to us on such date under the terms of the 2022 Notes. We may choose to pay the purchase price in cash or common stock or a combination of cash and common stock for purchases on or after January 28, 2007. In addition, if we undergo certain types of fundamental changes on or before January 28, 2007, each holder of the 2022 Notes may require us to purchase all or a portion of their 2022 Notes. We may choose to pay the purchase price in cash or common stock or a combination of cash and common stock. In addition, we may redeem all or a portion of the 2022 Notes at any time on or after January 28, 2007 for cash.

On December 29, 2004, we completed an exchange offer with respect to the 2022 Notes, whereby holders of approximately 99.95% of the aggregate principal amount of 2022 Notes outstanding exchanged their 2022 Notes for Exchange Zero-Coupon Convertible Senior subordinated Notes due 2022, referred to as New 2022 Notes. The New 2022 Notes have terms substantially similar to the terms of the 2022 Notes, described above, except that: (i) upon conversion, we will pay holders cash equal to

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Outstanding Debt Securities (continued)

the accreted value of the New 2022 Notes being converted and the remainder will be paid in cash or common stock, at our option; (ii) holders may also require us to repurchase their New 2022 Notes on January 28, 2006 for a purchase price per note of $869.02; (iii) the New 2022 Notes contain additional anti-dilution protection for cash dividends until January 28, 2007; (iv) the New 2022 Notes require us to pay only cash (in lieu of cash, common stock or a combination of cash and common stock) when New 2022 Notes are repurchased at the option of the holders, whether on a specified purchase date or upon the occurrence of a fundamental change; and (v) contingent interest payable will equal to 0.125% of the average price of the New 2022 Notes during the relevant specified period. Approximately $172,000 in principal face value of our 2022 Notes were not exchanged in the exchange offer. The common stock underlying the unexchanged portion of the 2022 Notes is included in our earnings per share calculations. The remaining common stock underlying the New 2022 Notes is not considered immediately dilutive and is not included in our earnings per share calculations.

2023 Notes. On July 29 and August 8, 2003, we sold an aggregate of $575.0 million in face value of our 1.50% Convertible Senior Subordinated Notes due 2023. The 2023 Notes were sold at their principal face amount, plus accrued interest, if any, from July 29, 2003. Our sale of 2023 Notes resulted in net proceeds to us of approximately $563.5 million. The 2023 Notes are our general unsecured obligations and are subordinated in right of payment to our existing and future indebtedness that is not expressly subordinated or equal in right of payment to the 2023 Notes. Our 2022 Notes and New 2022 Notes, which are discussed above, rank equally with our 2023 Notes. The 2023 Notes mature on August 1, 2023, unless they are converted or redeemed earlier. Upon the occurrence of certain events, the 2023 Notes become convertible into shares of our common stock at a conversion rate of 36.5097 shares of common stock for each $1,000 principal amount of 2023 Notes converted (which conversion rate is subject to adjustment in certain events).

Holders may require us to purchase all or a portion of their 2023 Notes on August 1, 2006, August 1, 2008, August 1, 2013 and August 1, 2018 for a cash purchase price per note equal to 100% of its principal face amount, plus accrued but unpaid interest. In addition, if we undergo certain types of fundamental changes on or before August 1, 2008, each holder of the 2023 Notes may require us to purchase, for cash, all or a portion of their 2023 Notes. Furthermore, we may redeem all or a portion of the 2023 Notes at any time on or after August 5, 2008 for a cash redemption price per note equal to its principal face amount, plus accrued but unpaid interest.

On November 24, 2004, we completed a consent solicitation that amended the indenture governing the 2023 Notes to eliminate a provision that prohibited us from paying cash upon conversion of the 2023 Notes if an event of default, as defined in the indenture, exists at the time of conversion. On November 30, 2004, we further amended the indenture governing the 2023 Notes to provide that, in lieu of providing shares of common stock upon a conversion event, we will satisfy any conversion of the 2023 Notes, up to their principal face amount, by making a cash payment. The remaining common stock underlying our 2023 Notes is not considered immediately dilutive and is not included in our earnings per share calculations.

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Off-Balance Sheet Arrangements

During the six months ended March 31, 2005, there was no material change to the information provided by us in Item 7 of our Annual Report on Form 10-K for the year ended September 30, 2004.

Forward-Looking Statements

Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may include projections of revenue, income or loss, capital expenditures, capital structure, other financial items, statements regarding our plans and objectives for future operations, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following:

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this quarterly report in order to reflect future events or developments.

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