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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q
 (Mark One) [X]
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2004 or
 [  ]
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 0-23639 PROVINCE HEALTHCARE COMPANY  Delaware
    
    
    62-1710772(State or Other Jurisdiction of
    
    
    (I.R.S. EmployerIncorporation or Organization)
    
    
    Identification No.)105 Westwood PlaceSuite 400Brentwood, Tennessee
    
    
    37027(Address of Principal Executive Offices)
    
    
    (Zip Code)
 (615) 370-1377
(Registrants Telephone Number, Including Area Code) 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 [  ] Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date. Class
Common Stock, $.01 par value
    
    Outstanding at April 30, 2004
49,343,838 shares




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PART IFINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets March 31, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Income Three Months Ended March 31, 2004 and 2003
    
    
    2Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition And Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 CEO & CFO SECTION 906 CERTIFICATIONS




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts) March 31,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    56,624
    
    
    $
    46,134Accounts receivable, less allowance for doubtful accounts
of $62,937 in 2004 and $66,875 in 2003
    
    
    117,103
    
    
    
    111,957Inventories
    
    
    18,235
    
    
    
    18,424Prepaid expenses and other
    
    
    12,901
    
    
    
    11,832Assets of discontinued operations
    
    
    13,787
    
    
    
    14,569Total current assets
    
    
    218,650
    
    
    
    202,916Property and equipment, net
    
    
    468,431
    
    
    
    460,031Goodwill
    
    
    309,271
    
    
    
    309,271Other assets
    
    
    35,502
    
    
    
    36,907$
    1,031,854
    
    
    $
    1,009,125LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,059
    
    
    $
    16,343Accrued salaries and benefits
    
    
    23,817
    
    
    
    28,740Accrued expenses
    
    
    22,044
    
    
    
    14,238Current portion of long-term debt
    
    
    473
    
    
    
    743Liabilities of discontinued operations
    
    
    2,875
    
    
    
    2,749Total current liabilities
    
    
    67,268
    
    
    
    62,813Long-term debt, less current portion
    
    
    451,537
    
    
    
    447,956Other liabilities
    
    
    49,151
    
    
    
    49,573Minority interests
    
    
    1,946
    
    
    
    1,910Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock  $0.01 par value, 100,000 shares
authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock  $0.01 par value; 150,000,000 shares
authorized; 49,337,188 shares
and 48,841,157 shares issued and outstanding at
March 31, 2004 and December 31, 2003, respectively
    
    
    493
    
    
    
    488Additional paid-in-capital
    
    
    309,477
    
    
    
    306,091Retained earnings
    
    
    152,746
    
    
    
    141,186Accumulated other comprehensive loss
    
    
    (764
    )
    
    
    (892
    )Total stockholders equity
    
    
    461,952
    
    
    
    446,873$
    1,031,854
    
    
    $
    1,009,125
 1




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts) Three Months Ended March 31,2004
    
    2003Revenues:Net patient revenue
    
    $
    198,241
    
    
    $
    179,680Other
    
    
    6,635
    
    
    
    6,784204,876
    
    
    
    186,464Expenses:Salaries, wages and benefits
    
    
    75,564
    
    
    
    72,355Purchased services
    
    
    18,870
    
    
    
    16,650Supplies
    
    
    26,060
    
    
    
    24,022Provision for doubtful accounts
    
    
    20,245
    
    
    
    16,041Other operating expenses
    
    
    25,254
    
    
    
    23,698Rentals and leases
    
    
    2,370
    
    
    
    2,319Depreciation and amortization
    
    
    10,202
    
    
    
    8,878Interest expense
    
    
    6,920
    
    
    
    5,722Minority interest
    
    
    67
    
    
    
    67Loss on sale of assets
    
    
    
    
    
    
    3Total expenses
    
    
    185,552
    
    
    
    169,755Income from continuing operations before
provision for income taxes
    
    
    19,324
    
    
    
    16,709Income taxes
    
    
    7,180
    
    
    
    6,670Income from continuing operations
    
    
    12,144
    
    
    
    10,039Discontinued operations, net of tax:Loss from operations
    
    
    (414
    )
    
    
    (188
    )Impairment of assets
    
    
    (170
    )
    
    
    (584
    )
    
    
    (188
    )Net income
    
    $
    11,560
    
    
    $
    9,851Earnings (loss) per common share:Basic:Continuing operations
    
    $
    0.25
    
    
    $
    0.21Discontinued operations:Loss from operations
    
    
    (0.01
    )
    
    
    (0.01
    )Impairment of assets
    
    
    
    
    
    
    Net income
    
    $
    0.24
    
    
    $
    0.20Diluted:Continuing operations
    
    $
    0.24
    
    
    $
    0.20Discontinued operations:Loss from operations
    
    
    (0.01
    )
    
    
    Impairment of assets
    
    
    
    
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.20
 2




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands) Three Months Ended March 31,2004

    

    
    

    2003Cash flows from operating activities:Income from continuing operations
    
    
    
    
    
    $
    12,144
    
    
    
    
    
    
    $
    10,039Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    
    
    
    
    10,202
    
    
    
    
    
    
    
    8,878Deferred income taxes
    
    
    
    
    
    
    2,375
    
    
    
    
    
    
    
    830Provision for professional liability
    
    
    
    
    
    
    1,603
    
    
    
    
    
    
    
    1,979Loss of sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Changes in operating assets and liabilities,
net of effects from acquisitions and disposals:Accounts receivable
    
    
    
    
    
    
    (5,146
    )
    
    
    
    
    
    
    (1,302
    )Inventories
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    145Prepaid expenses and other
    
    
    
    
    
    
    (2,335
    )
    
    
    
    
    
    
    (5,476
    )Accounts payable and accrued expenses
    
    
    
    
    
    
    8,988
    
    
    
    
    
    
    
    21,735Accrued salaries and benefit
    
    
    
    
    
    
    (4,923
    )
    
    
    
    
    
    
    167Other
    
    
    
    
    
    
    1,898
    
    
    
    
    
    
    
    (941
    )Net cash provided by operating activities
    
    
    
    
    
    
    24,995
    
    
    
    
    
    
    
    36,057Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (18,476
    )
    
    
    
    
    
    
    (15,178
    )Net cash used in investing activities
    
    
    
    
    
    
    (18,476
    )
    
    
    
    
    
    
    (15,178
    )Cash flows from financing activities:Repayments of debt
    
    
    
    
    
    
    (255
    )
    
    
    
    
    
    
    (20,387
    )Issuance of common stock
    
    
    
    
    
    
    3,902
    
    
    
    
    
    
    
    1,163Net cash provided by (used in) financing activities
    
    
    
    
    
    
    3,647
    
    
    
    
    
    
    
    (19,224
    )Net cash provided by continuing operations
    
    
    
    
    
    
    10,166
    
    
    
    
    
    
    
    1,655Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    (289
    )Increase in cash and cash equivalents
    
    
    
    
    
    
    10,490
    
    
    
    
    
    
    
    1,366Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    46,134
    
    
    
    
    
    
    
    14,648Cash and cash equivalents at end of period
    
    
    
    
    
    $
    56,624
    
    
    
    
    
    
    $
    16,014Interest payments
    
    
    
    
    
    $
    350
    
    
    
    
    
    
    $
    1,742Income taxes paid (received), net
    
    
    
    
    
    $
    2,080
    
    
    
    
    
    
    $
    (6,500
    )
 3




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION Province Healthcare Company (the Company) was founded on February 2,
1996, and is engaged in the business of owning, leasing and managing hospitals
in non-urban communities throughout the United States. At March 31, 2004, the
Company owned or leased 20 general acute care hospitals in 13 states. On
January 5, 2004, the Company signed a letter of intent to permit a wholly-owned
subsidiary of the Health Care District of Palm Beach County to reacquire Glades
General Hospital in Belle Glade, Florida and subsequently closed on the sale
effective April 30, 2004. Pursuant to the 2003 plan of divestiture, the
operations of this hospital are reported as discontinued operations. The
Companys remaining 19 hospitals are reported as continuing operations, with a
total of 2,200 licensed beds at March 31, 2004. At March 31, 2004, the Company
also provided management services to 36 primarily non-urban hospitals in 14
states. The condensed consolidated balance sheet as of December 31, 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 March 31, 2004, and for the three month periods ended March 31,
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 management, necessary for a fair presentation of the Companys
financial position and results of operations for the interim periods presented.
The 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 in accordance with the 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. Certain
information and disclosures normally included in the financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. 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 the Company but not wholly-owned. Accordingly, the Company has
recorded minority interests in the earnings and equity of such entities to
reflect the ownership interests of such minority shareholders in the respective
entities. 2. USE OF ESTIMATES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management of the
Company to make estimates and 4




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) assumptions that affect the amounts reported in the condensed consolidated
financial statements. Actual results could differ from the estimates. 3. DISCONTINUED OPERATIONS In the fourth quarter of 2003, management of the Company approved a plan
of divestiture for Glades General Hospital (Glades) in Belle Glade, Florida,
and the Company closed on the sale of Glades to a wholly-owned subsidiary of
the Health Care District of Palm Beach County on April 30, 2004. Accordingly,
the operations of Glades are reported as discontinued operations and the
consolidated financial statements for all prior periods have been adjusted to
reflect this presentation. Impairment of long-lived assets other than goodwill is governed by
Statement of Financial Accounting Standards No. 144, (SFAS No. 144)
Accounting for the Impairment or Disposal of Long-Lived Assets. The Company
adopted this statement effective January 1, 2002. In accordance with SFAS No.
144, in connection with the proposed sale of Glades, the Company recorded a
pretax impairment charge of $0.3 million (after tax of $0.2 million) during the
quarter ended March 31, 2004 related to the write down of other long-lived
assets of the hospital to their net realizable value. Operating results for Glades for the quarters ended March 31, 2004 and
2003 are presented in the following table (in thousands): Three Months Ended December 31,2004
    
    2003Revenues
    
    $
    7,023
    
    
    $
    7,936Operating expenses
    
    
    7,551
    
    
    
    7,690Depreciation and amortization
    
    
    
    
    
    
    399Interest expense
    
    
    109
    
    
    
    137Impairment charge
    
    
    262
    
    
    
    Total expenses
    
    
    7,922
    
    
    
    8,226Loss before income tax benefit
    
    
    (899
    )
    
    
    (290
    )Income tax benefit
    
    
    (315
    )
    
    
    (102
    )Loss from discontinued operations
    
    $
    (584
    )
    
    $
    (188
    )
 5




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) The major classes of assets and liabilities of discontinued operations in
the condensed consolidated balance sheets as of March 31, 2004 and December 31,
2003 are as follows (in thousands): March 31, 2004
    
    December 31, 2003Accounts receivable, net
    
    $
    4,592
    
    
    $
    5,309Inventories
    
    
    525
    
    
    
    529Prepaid expenses and other current assets
    
    
    1,601
    
    
    
    1,928Property and equipment, net
    
    
    2,740
    
    
    
    2,969Deferred income taxes
    
    
    4,329
    
    
    
    3,834Total assets of discontinued operations
    
    
    13,787
    
    
    
    14,569Accounts payable
    
    
    638
    
    
    
    552Accrued salaries and benefits
    
    
    632
    
    
    
    715Accrued expenses
    
    
    608
    
    
    
    500Long-term debt
    
    
    997
    
    
    
    982Total liabilities of discontinued operations
    
    
    2,875
    
    
    
    2,749Net assets of discontinued operations
    
    $
    10,912
    
    
    $
    11,820
 4. GOODWILL AND INTANGIBLE ASSETS The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS No. 142), Goodwill and Other Intangible Assets, effective January 1,
2002. Under SFAS No. 142, goodwill is no longer amortized, but is subject to
annual impairment tests, or more frequently if certain indicators arise. The
Company performed its annual impairment test of goodwill on October 1, 2003.
The results of the test had no effect on the operations or financial position
of the Company. The Company currently is not aware of any impairment
indicators at March 31, 2004. The Company has other intangible assets, net of accumulated amortization
of $1.0 million as of March 31, 2004, which are included in other assets on
the condensed consolidated balance sheet. Amortization expense on the
Companys other intangible assets during each of the quarters ended March 31,
2004 and 2003 was $0.1 million. The intangible assets relate primarily to
non-compete agreements and are amortized over a period of two years. 5. LONG-TERM DEBT Effective April 30, 2004, the Company amended its senior bank credit
facility to, among other items, (i) obtain consent for a limited repurchase of
a portion of the Companys 41⁄2% Convertible Subordinated Notes due 2005
and/or the 41⁄4% Convertible Subordinated Notes due 2008, (ii) adjust the
timing of the step down of leverage covenants, and (iii) approve a specific
hospital acquisition as a Permitted Acquisition, as defined in the senior bank
credit agreement. 6




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) 6. COMPREHENSIVE INCOME The following table presents the components of comprehensive income, net
of related taxes (in thousands): Three Months EndedMarch 31,2004
    
    2003Net income
    
    $
    11,560
    
    
    $
    9,851Net amortization of fair value of interest rate swap
    
    
    128
    
    
    
    Comprehensive income
    
    $
    11,688
    
    
    $
    9,851
 The net amortization of the fair value of the interest rate swap which was
terminated in May 2003 is included in accumulated other comprehensive loss on
the condensed consolidated balance sheets. 7. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data): Three Months EndedMarch 31,2004
    
    2003Earnings per common share:Income from continuing operations
    
    $
    12,144
    
    
    $
    10,039Add convertible notes interest, net of tax
    
    
    1,898
    
    
    
    Income from continuing operations
    
    
    14,042
    
    
    
    10,039Discontinued operations
    
    
    (584
    )
    
    
    (188
    )Net income
    
    $
    13,458
    
    
    $
    9,851Weighted average shares:Weighted average shares  basic
    
    
    49,071
    
    
    
    48,681Dilution for employee stock options
    
    
    1,267
    
    
    
    77Dilution for convertible notes
    
    
    9,099
    
    
    
    Weighted-average shares  diluted
    
    
    59,437
    
    
    
    48,758Basic earnings per common share:Income from continuing operations
    
    $
    0.25
    
    
    $
    0.21Discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )Net income
    
    $
    0.24
    
    
    $
    0.20Diluted earnings per common share:Income from continuing operations
    
    $
    0.24
    
    
    $
    0.20Discontinued operations
    
    
    (0.01
    )
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.20
 7




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) The add-back of the interest and potential issuance of shares related to the
Companys two outstanding series of convertible notes was not included in the
computation for 2003 because the effect would have been anti-dilutive. 8. STOCK BASED COMPENSATION The Company, from time to time, grants stock options for a fixed number of
common shares to employees and directors at a fixed exercise price. The
Company accounts for employee stock option grants using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees(Opinion 25), and related
interpretations, and accordingly, recognizes no compensation expense for the
stock option grants when the exercise price of the options equals, or is
greater than, the market price of the underlying stock on the date of grant. The following pro forma information is being presented in accordance with
Statement of Financial Accounting Standards No. 148 (SFAS No. 148),
Accounting for Stock-Based Compensation-Transition and Disclosure,which was
adopted by the Company effective January 1, 2003. Had compensation cost for
the Companys stock-based compensation plans been determined based on the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation, net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the following table (in thousands, except per share data): Three Months EndedMarch 31,2004
    
    2003Net income  as reported
    
    $
    11,560
    
    
    $
    9,851Less pro forma effect of stock option
grants, net of tax
    
    
    (1,170
    )
    
    
    (1,042
    )Pro forma net income
    
    $
    10,390
    
    
    $
    8,809Earnings per share-as reportedBasic
    
    $
    0.24
    
    
    $
    0.20Diluted
    
    $
    0.23
    
    
    $
    0.20Earnings per share- proformaBasic
    
    $
    0.21
    
    
    $
    0.18Diluted
    
    $
    0.21
    
    
    $
    0.18
 The fair values of stock options granted used to compute pro forma net
income were estimated at the date of grant using a Black-Scholes option
valuation model based on the following weighted-average assumptions: 8




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) Three Months EndedMarch 31,2004
    
    2003Risk-free interest rate
    
    
    2.55
    %
    
    
    2.43
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    .567
    
    
    
    .638Expected life (in years)
    
    
    4.0
    
    
    
    4.0
 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. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because changes in subjective input assumptions can materially
affect the fair value estimate, in managements opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. 9. CONTINGENCIES Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Companys
results of operations or financial position. 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. Net Patient Revenue Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent periods because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Differences between original estimates and subsequent revisions (including
settlements) are included in the consolidated statements of income in the
period in which revisions are made, and result in adjustments in net patient
revenue. 9




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PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)  (continued) Financial Instruments The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The Company maintains a $100.0 million
interest rate swap agreement with a LIBOR plus 2.79% floating interest rate
over the term of the agreement. This agreement exposes the Company to credit
losses in the event of non-performance by the counterparty to the financial
instrument. The Company anticipates that the counterparty will fully satisfy
its obligations under the contract. 10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46)
to expand upon and strengthen existing accounting guidance that addresses when
a company should include in its financial statements the assets, liabilities
and activities of another entity. Until now, a company generally has included
another entity in its consolidated financial statements only if it controlled
the entity through voting interests. FIN 46 changes that guidance by requiring
a variable interest entity, as defined, to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities, or is entitled to receive a majority of the entitys
residual returns, or both. FIN 46 also requires disclosure about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. On December 24, 2003, the FASB issued
a revision of FIN 46 that replaced the original interpretation and codified
proposed modifications and other decisions previously issued through certain
FASB Staff Positions, including the deferral of the effective date of applying
FIN 46 to certain variable interests. The revised FIN 46 requires the Company
to apply the provisions of FIN 46 immediately to any special purpose entities
and to any variable interest entities created after January 31, 2003.
Application of the provisions will be required for all other variable interest
entities in financial statements for periods ending after March 15, 2004. The
Companys adoption of FIN 46 did not have an impact on the consolidated
financial statements. 10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS You should read the following discussion along with the Condensed
Consolidated Financial Statements and accompanying notes included in Item 1 of
this report. Overview We are a healthcare services company focused on acquiring and operating
hospitals in attractive non-urban communities throughout the United States. As
of March 31, 2004, we owned or leased 20 general acute care hospitals in 13
states, with a total of 2,273 licensed beds, and managed 36 hospitals in 14
states, with a total of 3,033 licensed beds. On April 30, 2004, we completed
the sale of Glades General Hospital in Belle Glade, Florida. Pursuant to the
2003 plan of divestiture, the operations and non-cash impairment of assets
charge related to this hospital are reported as discontinued operations for all
periods covered in this report. Our remaining 19 owned and leased hospitals are reported as continuing
operations, with a total of 2,200 licensed beds at March 31, 2004. These 19
hospitals accounted for 97.9% of our revenues in each of the quarters ended
March 31, 2004 and 2003. In
the third quarter of 2003, we announced the construction of a
new 41-bed acute care hospital in Hardeeville, South Carolina, which is
scheduled for completion by late 2004 or early 2005. In the first quarter of
2004, we announced the construction of a new 60-bed acute care
hospital in Ft. Mohave, Arizona, near our existing hospital in Needles,
California. Construction on the Ft. Mohave facility is expected to be
completed in late 2005. Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase with the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system, based upon the diagnosis of a patient. While these
rates are indexed for inflation annually, the increases historically have been
less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
paying standard hospital rates. The trend toward managed care, including
health maintenance organizations, preferred provider organizations and various
other forms of managed care, may affect our hospitals ability to maintain
their current rate of net operating revenue growth. We continually monitor the cost/benefit relationship of services provided
at our hospitals, and make decisions about adding new services or discontinuing
existing services. Net patient revenue is reported net of contractual adjustments and policy
discounts. The adjustments principally result from differences between our
hospitals customary charges and payment rates under the Medicare, Medicaid and
other third-party payor programs. Customary charges generally have increased
at a faster rate than the rate of increase for Medicare and Medicaid payments.
Operating expenses of our hospitals primarily consist of salaries, wages and
benefits, purchased services, supplies, provision for doubtful accounts,
rentals and leases, and 11




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other operating expenses, principally consisting of utilities, insurance,
property taxes, travel, physician recruiting, telephone, advertising, and
repairs and maintenance. Other revenue is primarily comprised of fees from management and
professional consulting services provided to third-party hospitals pursuant to
management contracts and consulting arrangements, reimbursable expenses and
miscellaneous other revenue items. Management and professional services
revenue plus reimbursable expenses represented 2.1% of revenues from continuing
operations in each of the quarters ended March 31, 2004 and 2003. Operating
expenses for the management and professional services business primarily
consist of salaries, wages and benefits and reimbursable expenses. Subsequent Event On April 30, 2004, we completed the sale of Glades General Hospital in
Belle Glade, Florida to a wholly-owned subsidiary of the Health Care District
of Palm Beach County (the District). The District reacquired the operating
assets of the hospital for a purchase price of approximately $1.4 million in
cash at closing, net of assumed and contractual obligations. Under the
purchase agreement, we retained the hospitals accounts receivable, income tax
receivable and deferred income taxes, from which we anticipate collecting
approximately $4.6 million, $1.5 million and $4.3 million, respectively. We
also retained certain payroll-related liabilities and other accrued expenses
totaling approximately $0.9 million. 12




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Results of Operations Operating Results Summary The following are comparative summaries of results from operations for the
three months ended March 31, 2004 and 2003 (dollars in thousands, except per
share data): Three Months Ended March 31,2004
    
    2003% of
    
    
    
    
    
    % of
    
    % ChangeAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    From Prior YearRevenues:Net patient revenue
    
    $
    198,241
    
    
    
    
    
    
    $
    179,680Other
    
    
    6,635
    
    
    
    
    
    
    
    6,784204,876
    
    
    
    100.0
    %
    
    
    186,464
    
    
    
    100.0
    %
    
    
    9.9
    %Expenses:Salaries, wages and benefits
    
    
    75,564
    
    
    
    36.9
    
    
    
    72,355
    
    
    
    38.8Purchased services
    
    
    18,870
    
    
    
    9.2
    
    
    
    16,650
    
    
    
    8.9Supplies
    
    
    26,060
    
    
    
    12.7
    
    
    
    24,022
    
    
    
    12.9Provision for doubtful accounts
    
    
    20,245
    
    
    
    9.9
    
    
    
    16,041
    
    
    
    8.6Other operating expenses
    
    
    25,254
    
    
    
    12.3
    
    
    
    23,698
    
    
    
    12.7Rentals and leases
    
    
    2,370
    
    
    
    1.2
    
    
    
    2,319
    
    
    
    1.2Depreciation and amortization
    
    
    10,202
    
    
    
    5.0
    
    
    
    8,878
    
    
    
    4.8Interest expense
    
    
    6,920
    
    
    
    3.4
    
    
    
    5,722
    
    
    
    3.1Minority interest
    
    
    67
    
    
    
    
    
    
    
    67
    
    
    
    Loss on sale of assets
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    Total expenses
    
    
    185,552
    
    
    
    90.6
    
    
    
    169,755
    
    
    
    91.0
    
    
    
    9.3Income from continuing operations
before provision for income taxes
    
    
    19,324
    
    
    
    9.4
    
    
    
    16,709
    
    
    
    9.0
    
    
    
    15.7Income taxes
    
    
    7,180
    
    
    
    3.5
    
    
    
    6,670
    
    
    
    3.6Income from continuing operations
    
    
    12,144
    
    
    
    5.9
    %
    
    
    10,039
    
    
    
    5.4
    %
    
    
    21.0Discontinued operations, net of tax:Loss from operations
    
    
    (414
    )
    
    
    
    
    
    
    (188
    )Impairment of assets
    
    
    (170
    )
    
    
    
    
    
    
    (584
    )
    
    
    
    
    
    
    (188
    )Net income
    
    $
    11,560
    
    
    
    
    
    
    $
    9,851
    
    
    
    
    
    
    
    17.3
    %Net income per common share:Basic
    
    $
    0.24
    
    
    
    
    
    
    $
    0.20Diluted
    
    $
    0.23
    
    
    
    
    
    
    $
    0.20
 13




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Three Months Ended March 31,2004
    
    2003
    
    % ChangeActual and Same Store
(Continuing Operations) (a):Number of hospitals at end of period
    
    
    19
    
    
    
    19
    
    
    
    
    %Licensed beds at end of period (b)
    
    
    2,200
    
    
    
    2,208
    
    
    
    (0.4
    )Beds in service at end of period
    
    
    1,933
    
    
    
    1,933
    
    
    
    Net patient revenue (in thousands)
    
    $
    198,241
    
    
    $
    179,680
    
    
    
    10.3Inpatient admissions (c)
    
    
    18,993
    
    
    
    18,724
    
    
    
    1.4Adjusted admissions (d)
    
    
    33,984
    
    
    
    33,109
    
    
    
    2.6Net revenue per adjusted admission
    
    $
    5,833
    
    
    $
    5,427
    
    
    
    7.5Patient days (e)
    
    
    81,247
    
    
    
    80,583
    
    
    
    0.8Adjusted patient days (f)
    
    
    145,320
    
    
    
    142,518
    
    
    
    2.0Average length of stay (days) (g)
    
    
    4.28
    
    
    
    4.30
    
    
    
    (0.5
    )Gross revenue (in thousands) (h):Inpatient
    
    $
    253,943
    
    
    $
    227,764
    
    
    
    11.5Outpatient
    
    
    200,276
    
    
    
    175,004
    
    
    
    14.4$
    454,219
    
    
    $
    402,768
    
    
    
    12.8
    %
   (a)
    
    All statistics at March 31, 2004 and 2003 have been restated to
exclude the ownership and operations of Glades General Hospital,
which was sold on April 30, 2004.(b)
    
    Beds for which a hospital has been granted approval to operate from
the applicable state licensing agency.(c)
    
    Represents the total number of patients admitted (in a facility
for a period in excess of 23 hours) and used by management and
investors as a general measure of inpatient volume.(d)
    
    Used by management and investors as a general measure of combined
inpatient and outpatient volume. Adjusted admissions are computed by
multiplying admissions (inpatient volume) by the outpatient factor.
The outpatient factor is the sum of gross inpatient revenue and gross
outpatient revenue divided by gross inpatient revenue. The adjusted
admissions computation equates outpatient revenue to the volume
measure (admissions) used to measure inpatient volume, resulting in a
general measure of combined inpatient and outpatient volume.(e)
    
    Represents the total number of days the patients who are admitted
stay in our hospitals.(f)
    
    Adjusted patient days are computed by multiplying patient days
(inpatient volume) by the outpatient factor. The outpatient factor
is the sum of gross inpatient revenue and gross outpatient revenue
divided by gross inpatient revenue. The adjusted patient days
computation equates outpatient revenue to the volume measure (patient
days) used to measure inpatient volume, resulting in a general
measure of combined inpatient and outpatient volume.(g)
    
    The average number of days admitted patients stay in our hospitals.(h)
    
    Represents revenues prior to reductions for discounts and
contractual allowances. For the Quarters Ended March 31, 2004 and 2003 Revenues increased 9.9% to $204.9 million for the quarter ended March 31,
2004, compared to $186.5 million for the quarter ended March 31, 2003. This
increase is primarily due to increases in adjusted admissions of 2.6% and net
patient revenue per adjusted admission of 7.5%. The increase in adjusted
admissions was attributable, in part, to the addition of 32 new doctors in our
communities during the quarter ended March 31, 2004 and the maturity of the
physician practices for the doctors we recruited in our communities in 2003.
The increase in net 14




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patient revenue per adjusted admission was due, in part, by acuity as our
Medicare case mix index increased approximately 3.7% from 1.191 for the quarter
ended March 31, 2003 to 1.235 for the quarter ended March 31, 2004. Cost
report settlements and the filing of cost reports also increased revenues by
$1.6 million and $0.2 million for the quarter ended March 31, 2004 and 2003,
respectively. The table below reflects the sources of our net patient revenue for the
quarters ended March 31, expressed as a percentage of total net patient
revenue: Three Months Ended March 31,2004
    
    2003Medicare
    
    
    40.7
    %
    
    
    39.5
    %Medicaid
    
    
    9.1
    
    
    
    10.7Other and self-pay
    
    
    50.2
    
    
    
    49.8100.0
    %
    
    
    100.0
    %
 Salaries, wages and benefits as a percentage of revenues decreased to
36.9% in the quarter ended March 31, 2004 from 38.8% for the quarter ended
March 31, 2003. The decrease is primarily due to improvements resulting from
continued implementation of our flexible staffing standards throughout our
hospitals, which effectively matches labor with hospital volume trends. Our
improvement in productivity was partially offset by an overall increase in
medical benefit costs. Purchased services, as a percentage of revenues, increased to 9.2% in the
quarter ended March 31, 2004 from 8.9% for the quarter ended March 31, 2003.
The increase is primarily due to an increase in legal fees of $1.0 million and
a $0.7 million increase in contract labor for the quarter ended March 31, 2004
compared to the prior year. Provision for doubtful accounts, as a percentage of revenues, increased to
9.9% in the quarter ended March 31, 2004 from 8.6% for the quarter ended March
31, 2003, due primarily to the increase in bad debts resulting from the
increase in self-pay revenue. During the quarter ended March 31, 2004,
self-pay revenue as a percentage of gross revenues increased to 4.8% from 3.9%
for the quarter ended March 31, 2003. The increase in self-pay revenue is due
to the current economic environment and slow employment recovery, coupled with
changes in benefit plan design toward increased co-payments and deductibles as
employers pass a greater percentage of healthcare costs to individual
employees. Net patient revenue associated with self-pay patients is generally
recorded at gross charges, which are higher than what government programs and
managed care plans pay. As a result, failure to receive payment from self-pay
and uninsured patients results in a higher provision for doubtful accounts as a
percentage of total net patient revenue. We are monitoring the self-pay
revenue category closely and expect provision for doubtful accounts expense to
be in the 10% of revenues range for 2004. Other operating expenses decreased as a percentage of revenues to 12.3% in
the quarter ended March 31, 2004 from 12.7% for the quarter ended March 31,
2003. While other operating expenses as a percentage of revenues declined,
other operating expenses increased by $1.6 million due primarily to increases
in physician recruiting costs and repairs and maintenance costs of $1.0
million. 15




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Depreciation and amortization expense increased $1.3 million to $10.2
million in the quarter ended March 31, 2004 from $8.9 million in the quarter
ended March 31, 2003. The increase is primarily due to depreciation associated
with recently completed capital improvements at our facilities. Interest expense increased $1.2 million to $6.9 million in the quarter
ended March 31, 2004 from $5.7 million in the quarter ended March 31, 2003.
The increase is primarily due to the issuance in May 2003 of $200.0 million
aggregate principal amount of 71⁄2% Senior Subordinated Notes due 2013,
offset by repayments subsequent to March 31, 2003, of outstanding borrowings on
our senior bank credit facility, repurchases of a portion of our 41⁄2%
Convertible Subordinated Notes due 2005 and entering into a $100.0 million
fixed to floating interest rate swap agreement in the third quarter of 2003. The provision for income taxes totaled $7.2 million, or a 37.2% effective
tax rate, in the quarter ended March 31, 2004 compared to $6.7 million, or a
39.9% effective tax rate, in the quarter ended March 31, 2003. The reduction
in the effective tax rate in the quarter ended March 31, 2004 was primarily
attributable to a reduction in our tax liabilities due to the final and
favorable resolution of examinations by taxing authorities as we recently
concluded audits that have been ongoing for over one year. In the quarter ended March 31, 2004, our discontinued operations incurred
an after-tax impairment of assets charge of $0.2 million and a loss from
operations totaling $0.4 million. In the quarter ended March 31, 2003, our
discontinued operations incurred a loss from operations totaling $0.2 million.
The impairment of assets charge represented an adjustment to the net realizable
value of equipment. The increase in the loss from discontinued operations was
primarily due to $0.2 million in increased medical malpractice costs. Liquidity and Capital Resources At March 31, 2004, we had working capital from continuing operations of
$140.5 million, including cash and cash equivalents of $56.6 million, compared
to working capital from continuing operations of $86.9 million, including $16.0
million in cash and cash equivalents at March 31, 2003. Net cash provided by operating activities was $25.0 million for the
quarter ended March 31, 2004, compared to $36.1 million for the quarter ended
March 31, 2003. The $11.1 million reduction in cash provided by operating
activities is primarily due to the payment of $4.9 million of 2003 incentive
compensation payments made in the quarter ended March 31, 2004, a $7.0 million
federal income tax refund received in the quarter ended March 31, 2003, and a
decrease of $6.7 million in accrued insurance premiums for the quarter ended
March 31, 2003 compared to the quarter ended March 31, 2004, due to the timing
of payment of the insurance premiums. Net cash used in investing activities increased to $18.5 million for the
quarter ended March 31, 2004 from $15.2 million for the quarter ended March 31,
2003, as a result of our capital expenditure program focusing on revenue
generating projects. 16




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Net cash provided by financing activities totaled $3.6 million for the
quarter ended March 31, 2004 compared to $19.2 million of net cash used in
financing activities for the quarter ended March 31, 2003, primarily due to
repayments of borrowings under our senior bank credit facility in the quarter
ended March 31, 2003. We
maintain a senior bank credit facility with Wachovia Bank, National
Association, as agent and issuing bank for a syndicate of lenders with
aggregate commitments up to $250.0 million. At March 31, 2004, we had $241.7
million, net of outstanding letters of credit of $8.3 million, available for
borrowing under the senior bank credit facility. Loans under the
senior bank credit
facility bear interest, at our option, at the adjusted base rate or at the
adjusted LIBOR rate. We pay a commitment fee, which varies from one-half to
three-eighths of one percent of the unused portion, depending on our compliance
with certain financial ratios. We may prepay any principal amount outstanding
under the senior bank credit facility at any time before the maturity date of
November 13, 2006. In
May 2003, we completed a public offering of $200.0 million aggregate
principal amount of 71⁄2% Senior Subordinated Notes due June 1, 2013. Net
proceeds of the offering totaling $194.2 million were used to repay $114.3
million in existing borrowings under the senior bank credit facility and to
repurchase $74.0 million of our 41⁄2% Convertible Subordinated Notes due
2005. The 71⁄2% Notes bear interest from May 27, 2003 at the rate of 71⁄2%
per year, payable semi-annually on June 1 and December 1, beginning on December
1, 2003. We may redeem all or a portion of the 71⁄2% Notes on or after June
1, 2008, at the then current redemption prices, plus accrued and unpaid
interest. In addition, at any time prior to June 1, 2006, we may redeem up to
35% of the aggregate principal amount of the 71⁄2% Notes within 60 days of
one or more common stock offerings with the net proceeds of such offerings at a
redemption price of 107.5% of the principal amount, plus accrued and unpaid
interest. Note holders may require us to repurchase all of the holders notes
at 101% of their principal amount plus accrued and unpaid interest in some
circumstances involving a change of control. The 71⁄2% Notes are unsecured
and subordinated to our existing and future senior indebtedness. The 71⁄2%
Notes rank equal in right of payment to our 41⁄2% Convertible Subordinated
Notes due 2005 and our 41⁄4% Convertible Subordinated Notes due 2008. The
71⁄2% Notes effectively rank junior to our subsidiary liabilities. The
indenture contains limitations on our ability to incur additional indebtedness,
sell material assets, retire, redeem or otherwise reacquire its capital stock,
acquire the capital stock or assets of another business, and pay dividends. In 2000, we sold $150 million aggregate principal amount of 41⁄2%
Convertible Subordinated Notes due November 20, 2005. The 41⁄2% Notes bear
interest at the rate of 41⁄2% per year, payable semi-annually on each May 20
and November 20. The 41⁄2% 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 $26.45 per share. The conversion price is subject to
adjustment. We may redeem all or a portion of the 41⁄2% Notes on or after
November 20, 2003, at the then current redemption prices, plus accrued and
unpaid interest. Note holders may require us to repurchase all of the holders
notes at 100% of their principal amount plus accrued and unpaid interest in
some circumstances involving a change of control. The 41⁄2% Notes are
unsecured obligations and rank junior in right of payment to all of our
existing and future senior indebtedness. The 41⁄2% Notes rank equal in right
of payment to our 41⁄4% Convertible Subordinated Notes due 2008 and our
71⁄2% Senior Subordinated Notes. The 41⁄2% Notes effectively rank junior to
our subsidiary 17




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##### Table of Contents



liabilities. The indenture does not contain any financial covenants. At
March 31, 2004, $76.0 million principal amount of the 41⁄2% Notes remained
outstanding, and a total of 2,872,760 shares of common stock have been reserved
for issuance upon conversion of the remaining 41⁄2% Notes. In October 2001, we sold $172.5 million of 41⁄4% Convertible
Subordinated Notes due October 10, 2008. Net proceeds of approximately $166.4
million were used to reduce the outstanding balance on our senior bank credit
facility and for acquisitions. The 41⁄4% Notes bear interest at the rate of
41⁄4% per year, payable semi-annually on each April 10 and October 10. The
41⁄4% 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
$27.70 per share. The conversion price is subject to adjustment. We may redeem
all or a portion of the 41⁄4% Notes on or after October 10, 2004, at the then
current redemption prices, plus accrued and unpaid interest. Note holders may
require us to repurchase all of the holders notes at 100% of their principal
amount plus accrued and unpaid interest in some circumstances involving a
change of control. The 41⁄4% Notes are unsecured and subordinated to our
existing and future senior indebtedness. The 41⁄4% Notes rank equal in right
of payment to our 41⁄2% Convertible Subordinated Notes due in 2005 and our
71⁄2% Senior Subordinated Notes. The 41⁄4% Notes effectively rank junior to
our subsidiary liabilities. The indenture does not contain any financial
covenants. A total of 6,226,767 shares of our common stock have been reserved
for issuance upon conversion of the 41⁄4% Notes. Our Board of Directors has authorized the repurchase from time to time and
subject to market conditions of our outstanding 41⁄2% Notes and 41⁄4% Notes
in the open market or in privately negotiated transactions. During 2003, we
repurchased $74.0 principal amount of the 41⁄2% Notes from the proceeds from
the sale of the 71⁄2% Senior Subordinated Notes as discussed above. We
recorded a $486,000 pretax loss associated with the early extinguishment of
debt related to the repurchase of the 41⁄2% Notes. We have not repurchased
any of the 41⁄4% Notes. Additional repurchases of either series of notes,
if any, will be made out of cash provided by operations or amounts available
under our senior bank credit facility. Our shelf registration statement, providing for the offer, from time to
time, of common stock and/or debt securities up to an aggregate of $300.0
million remains effective with the Securities and Exchange Commission.
Following the issuance of $200.0 million aggregate principal amount of our
71⁄2% Senior Subordinated Notes due 2013, the shelf registration statement
remains available for the issuance of up to $100.0 million of additional
securities, subject to market conditions and our capital needs. We intend to acquire additional acute care facilities and are actively
seeking out such acquisitions. There can be no assurance that we will not
require additional debt or equity financing for any particular acquisition.
Also, we continually review our capital needs and financing opportunities and
may seek additional equity or debt financing for our acquisition program or
other needs. Capital expenditures for our owned and leased hospitals may vary from year
to year depending on facility improvements and service enhancements undertaken
by our hospitals. We expect to make capital expenditures in 2004 of
approximately $50.0 million, exclusive of any acquisitions of businesses or new
hospital construction projects. Planned capital expenditures for 2004 consist
principally of capital improvements to owned and leased hospitals. In
addition, we 18




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expect to incur approximately $46.0 million in new hospital construction
projects in Hardeeville, South Carolina and Ft. Mohave, Arizona. We anticipate
opening the South Carolina hospital in late 2004 or in early 2005 and the
Arizona hospital in late 2005. We are obligated to construct a replacement
hospital for our existing Eunice, Louisiana facility contingent upon the
existing facility meeting specified operating targets. At March 31, 2004, the
specified operating targets had not been met. A replacement facility at
Eunice, if constructed, is estimated to cost approximately $26.5 million. We
expect to fund these expenditures through cash provided by operating activities
and borrowings under our senior bank credit facility. Our management anticipates that cash flows from operations, amounts
available under our senior bank 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 twelve months. 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. Critical Accounting Policies and Impact of Recently Issued Accounting Standards A description of our critical accounting policies is contained in our
Annual Report on Form 10-K for the year ended December 31, 2003. We have made
no changes in those policies since year end. Market Risks Associated with Financial Instruments Our interest expense is sensitive to changes in the general level of
interest rates. To mitigate the impact of fluctuations in interest rates, we
generally maintain 50%  80% of our debt at a fixed rate, either by borrowing
on a long-term basis or entering into an interest rate swap. At March 31, 2004,
approximately 78% of our outstanding debt was effectively at a fixed rate. We entered into an interest rate swap agreement which effectively
converted, for a ten-year period, $100.0 million of the $200.0 million
fixed-rate borrowings under our 71⁄2% Senior Subordinated Notes to floating
rate borrowings. Floating rate borrowings are based on LIBOR plus 2.79% over
the term of the agreement. Our interest rate swap is a fair value hedge. We
are exposed to credit losses in the event of nonperformance by the counterparty
to the financial instrument. We anticipate that the counterparty will fully
satisfy its obligations under the contract. General 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 financial
statements. Resolution of matters, for example, final settlements with third
party payors, may result in changes from those estimates. The timing and amount
of such changes in estimates may cause fluctuations in our quarterly or annual
operating results. 19




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Forward-Looking Statements Our disclosure and analysis in this report contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Such statements may
include words such as anticipate, estimate, expect, project, intend,
plan, believe and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. Any or all
of our forward-looking statements in this report may turn out to be wrong. They
can be affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Many factors mentioned in our discussion in this
report will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially. Factors that may cause our plans, expectations, future financial
condition and results to change include, but are not limited to:  
    
    the highly competitive nature of the healthcare business;
    
    the efforts of insurers, healthcare providers and others to contain healthcare costs;
    
    the financial condition of managed care organizations that
pay us for healthcare services;
    
    possible changes in the levels and terms of reimbursement for
our charges by government programs, including Medicare and Medicaid
or other third-party payors;
    
    changes in or failure to comply with federal, state or local
laws and regulations affecting the healthcare industry;
    
    the possible enactment of federal or state healthcare reform;
    
    the departure of key members of our management;
    
    claims and legal actions relating to professional liability;
    
    our ability to implement successfully our acquisition and development strategy;
    
    our ability to recruit and retain qualified personnel and physicians;
    
    potential federal or state investigations;
    
    fluctuations in the market value of our common stock or notes;
    
    changes in accounting principles generally accepted in the
United States or in our critical accounting policies;
    
    changes in demographic, general economic and business
conditions, both nationally and in the regions in which we operate; 20




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
    
    changes in the availability, cost and terms of insurance
coverage for our hospitals and physicians who practice at our
hospitals; and
    
    other risks described in this report. Except as required by law, we undertake no obligation to publicly update
any forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any additional
disclosures we make in our Form 10-K, 10-Q and 8-K reports to the Securities
and Exchange Commission. These are factors that we think could cause our
actual results to differ materially from expected results. Other factors
besides those listed here also could affect us adversely. You should not rely
on such forward-looking statements contained in this report, as we cannot
predict or control many of the factors that may cause future events or results
to differ from those forecasted. This discussion is provided as permitted by
the Private Securities Litigation Reform Act of 1995. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the three months ended March 31, 2004, there were no material
changes in the quantitative and qualitative disclosures about market risks
presented in our Annual Report on Form 10-K for the year ended December 31,
2003. Our only derivative instrument relates to an interest rate swap
agreement. SeeItem 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations  Market Risks Associated with Financial
Instruments. 
 ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We carried out an evaluation, under the supervision and with the
participation of our 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 their evaluation
of such controls and procedures, our 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 in
reports we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. 21




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Changes in Internal Controls We continue to evaluate our internal controls and procedures and implement
additional procedures to ensure accurate and consistent reporting of financial
results from period to period. There have been no significant changes in our
internal controls over financial reporting that occurred during the first
quarter of 2004 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. 22




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PART II
OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits ExhibitNumber
    
    Description of Exhibits3.1
    
    Amended and Restated Certificate of Incorporation of Province
Healthcare Company, as filed with the Delaware Secretary of State on
June 16, 2000 (a)3.2
    
    Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of Province Healthcare Company, as
filed with the Delaware Secretary of State on May 22, 2002 (b)3.3
    
    Amended and Restated Bylaws of Province Healthcare Company
(c)31.1
    
    Certification pursuant to Rule 13a  14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification pursuant to Rule 13a  14(a) under the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*32.1
    
    Certifications pursuant to Rule 13a  14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
  (a)
    
    Incorporated by reference to the exhibits filed with the
Registrants Quarterly Report filed on Form 10-Q, for the quarterly
period ended June 30, 2000, Commission File No. 0-23639.(b)
    
    Incorporated by reference to the exhibits filed with the
Registrants Registration Statement on Form S-3A, filed June 11,
2002, Registration No. 333-86578.(c)
    
    Incorporated by reference to the exhibits filed with the
Registrants Current Report on Form 8-K, dated December 12, 2002,
Commission File No. 0-23639*
    
    filed herewith**
    
    furnished herewith 23




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(b)
    
    Reports on Form 8-KDuring the three months ended March 31, 2004, we filed the following
current reports on
Form 8-K: On January 30, 2004, we filed a Current Report on Form 8-K to
announce the retirement of John M. Rutledge as our Companys President
and Chief Operating Officer. On February 18, 2004, we filed a Current Report on Form 8-K to
announce financial results for the fourth quarter and the fiscal year
ended December 31, 2003. On March 1, 2004, we filed a Current Report on Form 8-K to announce
the retirement of David L. Steffy from the Board of Directors and the
appointment of Michael P. Haley to the Board of Directors. 24




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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. Province Healthcare CompanyDate: May 10, 2004
    
    By:
    
    /s/Steven R. BrumfieldSteven R. BrumfieldAssistant Vice President and Controller
 25