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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  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 September 30, 2004 or o
    
    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: 0-29818 (LIFEPOINT HOSPITALS, INC. LOGO)  Delaware
    
    52-2165845(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)103 Powell Court, Suite 200
    
    37027Brentwood, Tennessee
    
    (Zip Code)(Address of principal executive offices)
 (615) 372-8500
(Registrants telephone number, including area code) Not Applicable
(Former name, former address and former fiscal year,
if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). x o
 As of October 21, 2004, the number of outstanding shares of Common Stock
of LifePoint Hospitals, Inc. was 38,716,903.




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TABLE OF CONTENTS  PART I-FINANCIAL INFORMATIONItem 1. Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II-OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSIGNATURESEXHIBIT INDEXEX-31.1  SECTION 302 CERTIFICATION OF THE CEOEX-31.2  SECTION 302 CERTIFICATION OF THE CFOEX-32.1  SECTION 906 CERTIFICATION OF THE CEOEX-32.2  SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
 PART I-FINANCIAL INFORMATION 
 Item 1. Financial Statements. LIFEPOINT HOSPITALS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
 (Dollars in millions, except per share amounts)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Revenues
    
    $
    219.4
    
    
    $
    253.7
    
    
    $
    646.4
    
    
    $
    739.4Salaries and benefits
    
    
    87.4
    
    
    
    102.1
    
    
    
    262.2
    
    
    
    296.7Supplies
    
    
    28.0
    
    
    
    32.2
    
    
    
    83.3
    
    
    
    95.4Other operating expenses
    
    
    38.6
    
    
    
    44.1
    
    
    
    116.1
    
    
    
    123.9Provision for doubtful accounts
    
    
    22.4
    
    
    
    24.4
    
    
    
    53.3
    
    
    
    64.0Depreciation and amortization
    
    
    10.2
    
    
    
    12.1
    
    
    
    31.5
    
    
    
    34.5Interest expense, net
    
    
    3.3
    
    
    
    3.1
    
    
    
    9.9
    
    
    
    9.7Debt retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5ESOP expense
    
    
    1.8
    
    
    
    2.3
    
    
    
    4.9
    
    
    
    7.1191.7
    
    
    
    220.3
    
    
    
    561.2
    
    
    
    632.8Income from continuing operations before minority
interests and
income taxes
    
    
    27.7
    
    
    
    33.4
    
    
    
    85.2
    
    
    
    106.6Minority interests in earnings of consolidated entities
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.7Income from continuing operations before income taxes
    
    
    27.4
    
    
    
    33.3
    
    
    
    84.7
    
    
    
    105.9Provision for income taxes
    
    
    11.0
    
    
    
    13.2
    
    
    
    34.2
    
    
    
    42.1Income from continuing operations
    
    
    16.4
    
    
    
    20.1
    
    
    
    50.5
    
    
    
    63.8Loss from discontinued operations, net of income taxes
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (1.3
    )
    
    
    (1.5
    )Net income
    
    $
    16.2
    
    
    $
    19.7
    
    
    $
    49.2
    
    
    $
    62.3Basic earnings (loss) per share:Continuing operations
    
    $
    0.44
    
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    1.73Discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.04
    )Net income
    
    $
    0.43
    
    
    $
    0.53
    
    
    $
    1.31
    
    
    $
    1.69Diluted earnings (loss) per share:Continuing operations
    
    $
    0.42
    
    
    $
    0.51
    
    
    $
    1.29
    
    
    $
    1.61Discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Net income
    
    $
    0.42
    
    
    $
    0.50
    
    
    $
    1.26
    
    
    $
    1.58Weighted average shares and dilutive securities
outstanding (in thousands):Basic
    
    
    37,242
    
    
    
    37,231
    
    
    
    37,505
    
    
    
    36,914Diluted
    
    
    43,422
    
    
    
    42,618
    
    
    
    43,558
    
    
    
    42,839
 See accompanying notes. 2




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LIFEPOINT HOSPITALS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in millions, except per share amounts)
 December 31,
    
    September 30,2003
    
    2004(1)
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20.6
    
    
    $
    9.3Accounts receivable, less allowances for doubtful accounts of $111.7 at December
31, 2003 and $102.2 at September 30, 2004
    
    
    101.4
    
    
    
    115.3Inventories
    
    
    21.7
    
    
    
    23.9Assets held for sale
    
    
    34.7
    
    
    
    33.1Income taxes receivable
    
    
    7.4
    
    
    
    6.1Deferred income taxes and other current assets
    
    
    19.5
    
    
    
    25.6205.3
    
    
    
    213.3Property and equipment:Land
    
    
    18.1
    
    
    
    18.9Buildings and improvements
    
    
    338.7
    
    
    
    356.2Equipment
    
    
    314.6
    
    
    
    328.7Construction in progress (estimated cost to complete and equip after
September 30, 2004 is $91.0)
    
    
    28.2
    
    
    
    55.9699.6
    
    
    
    759.7Accumulated depreciation
    
    
    (265.7
    )
    
    
    (291.3
    )433.9
    
    
    
    468.4Deferred loan costs, net
    
    
    7.0
    
    
    
    5.3Unallocated purchase price
    
    
    16.4
    
    
    
    28.8Intangible assets, net
    
    
    3.6
    
    
    
    3.5Other
    
    
    
    
    
    
    0.7Goodwill
    
    
    132.8
    
    
    
    138.7$
    799.0
    
    
    $
    858.7LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    30.9
    
    
    $
    24.8Accrued salaries
    
    
    25.7
    
    
    
    31.0Other current liabilities
    
    
    9.7
    
    
    
    30.5Estimated third-party payor settlements
    
    
    2.5
    
    
    
    2.768.8
    
    
    
    89.0Revolving credit facility
    
    
    20.0
    
    
    
    Convertible notes
    
    
    250.0
    
    
    
    221.0Deferred income taxes
    
    
    35.9
    
    
    
    39.1Professional and general liability claims and other liabilities
    
    
    28.6
    
    
    
    30.6Minority interests in equity of consolidated entities
    
    
    1.4
    
    
    
    1.3Stockholders equity:Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value; 90,000,000 shares authorized; 39,084,396
shares and 39,915,887 shares issued at December 31, 2003
and September 30, 2004, respectively
    
    
    0.4
    
    
    
    0.4Capital in excess of par value
    
    
    301.7
    
    
    
    325.8Unearned ESOP compensation
    
    
    (16.1
    )
    
    
    (13.7
    )Unearned compensation on nonvested stock
    
    
    
    
    
    
    (5.3
    )Retained earnings
    
    
    137.2
    
    
    
    199.4Common stock in treasury, at cost, 1,198,800 shares at December 31, 2003
and September 30, 2004
    
    
    (28.9
    )
    
    
    (28.9
    )394.3
    
    
    
    477.7$
    799.0
    
    
    $
    858.7
  (1)
    
    Derived from audited financial statements. See accompanying notes. 3




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LIFEPOINT HOSPITALS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
 (In millions)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Cash flows from continuing operating activities:Net income
    
    $
    16.2
    
    
    $
    19.7
    
    
    $
    49.2
    
    
    $
    62.3Adjustments to reconcile net income to net cash
provided by continuing operating activities:Loss from discontinued operations, net of income taxes
    
    
    0.2
    
    
    
    0.4
    
    
    
    1.3
    
    
    
    1.5Depreciation and amortization
    
    
    10.2
    
    
    
    12.1
    
    
    
    31.5
    
    
    
    34.5Debt retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5ESOP expense
    
    
    1.8
    
    
    
    2.3
    
    
    
    4.9
    
    
    
    7.1Minority interests in earnings of consolidated entities
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.7Deferred income taxes (benefit)
    
    
    5.0
    
    
    
    
    
    
    
    7.1
    
    
    
    (0.9
    )Reserve for professional and general liability claims, net
    
    
    (0.5
    )
    
    
    1.6
    
    
    
    3.3
    
    
    
    2.1Tax benefit from employee stock plans
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    4.4Increase (decrease) in cash from operating assets and liabilities,
net of effects from acquisitions:Accounts receivable
    
    
    2.0
    
    
    
    (11.3
    )
    
    
    (6.9
    )
    
    
    (14.3
    )Inventories and other current assets
    
    
    (0.9
    )
    
    
    0.1
    
    
    
    (4.4
    )
    
    
    (3.1
    )Accounts payable and accrued expenses
    
    
    14.1
    
    
    
    9.6
    
    
    
    16.8
    
    
    
    15.9Income taxes payable
    
    
    (4.8
    )
    
    
    6.4
    
    
    
    (9.1
    )
    
    
    1.3Estimated third-party payor settlements
    
    
    (1.9
    )
    
    
    1.4
    
    
    
    (4.1
    )
    
    
    0.2Other
    
    
    0.2
    
    
    
    0.3
    
    
    
    1.2
    
    
    
    1.5Net cash provided by continuing operating activities
    
    
    42.4
    
    
    
    42.8
    
    
    
    92.0
    
    
    
    114.7Cash flows from continuing investing activities:Purchase of property and equipment
    
    
    (14.9
    )
    
    
    (21.3
    )
    
    
    (52.4
    )
    
    
    (56.7
    )Acquisitions, net of cash acquired
    
    
    (15.7
    )
    
    
    (1.3
    )
    
    
    (16.3
    )
    
    
    (27.8
    )Other
    
    
    
    
    
    
    (0.2
    )
    
    
    1.0
    
    
    
    (0.8
    )Net cash used in continuing investing activities
    
    
    (30.6
    )
    
    
    (22.8
    )
    
    
    (67.7
    )
    
    
    (85.3
    )Cash flows from continuing financing activities:Repurchase of convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29.9
    )Borrowing under revolving credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.0Repayment under revolving credit facility
    
    
    
    
    
    
    (30.0
    )
    
    
    
    
    
    
    (50.0
    )Repurchase of common stock
    
    
    (11.0
    )
    
    
    
    
    
    
    (28.0
    )
    
    
    Proceeds from exercise of stock options
    
    
    0.8
    
    
    
    0.2
    
    
    
    1.3
    
    
    
    7.7Other
    
    
    0.6
    
    
    
    (0.2
    )
    
    
    1.1
    
    
    
    0.6Net cash used in continuing financing activities
    
    
    (9.6
    )
    
    
    (30.0
    )
    
    
    (25.6
    )
    
    
    (41.6
    )Net cash provided by (used in) continuing operations
    
    
    2.2
    
    
    
    (10.0
    )
    
    
    (1.3
    )
    
    
    (12.2
    )Net cash provided by (used in) discontinued operations
    
    
    (1.6
    )
    
    
    0.9
    
    
    
    (1.6
    )
    
    
    0.9Change in cash and cash equivalents
    
    
    0.6
    
    
    
    (9.1
    )
    
    
    (2.9
    )
    
    
    (11.3
    )Cash and cash equivalents at beginning of period
    
    
    19.5
    
    
    
    18.4
    
    
    
    23.0
    
    
    
    20.6Cash and cash equivalents at end of period
    
    $
    20.1
    
    
    $
    9.3
    
    
    $
    20.1
    
    
    $
    9.3Interest payments
    
    $
    0.3
    
    
    $
    0.4
    
    
    $
    6.6
    
    
    $
    7.1Income taxes paid, net
    
    $
    10.1
    
    
    $
    6.6
    
    
    $
    34.8
    
    
    $
    36.6
 See accompanying notes. 4




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LIFEPOINT HOSPITALS, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2004
 UNAUDITED
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION LifePoint Hospitals, Inc. is a holding company. Its subsidiaries own,
lease and operate their respective facilities and other assets. The term
LifePoint or the Company as used herein refers to LifePoint Hospitals, Inc.
and its subsidiaries, unless otherwise stated or indicated by context. As of
September 30, 2004, the Company operated 30 general, acute care hospitals with
an aggregate of 2,793 licensed beds in non-urban communities. The Companys
hospitals are located in the states of Alabama, Florida, Kansas, Kentucky,
Louisiana, Tennessee, Utah, West Virginia and Wyoming. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) and disclosures considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2003. The majority of the Companys expenses are cost of revenue items. Costs
that could be classified as general and administrative by the Company would
include the LifePoint corporate office costs, which were $5.3 million and $7.7
million for the three months ended September 30, 2003 and 2004, respectively,
and $16.9 million and $21.5 million for the nine months ended September 30,
2003 and 2004, respectively. Certain prior period amounts have been reclassified to conform to the
current period presentation. These reclassifications, primarily for the
discontinued operations as described in Note 4, have no impact on total assets,
liabilities, stockholders equity, net income or cash flows. NOTE 2  EARNINGS (LOSS) PER SHARE The following table sets forth the computation of basic and diluted
earnings (loss) per share (dollars in millions, except per share amounts, and
shares in thousands): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Numerator:Numerator for basic earnings per share -
income from
continuing operations
    
    $
    16.4
    
    
    $
    20.1
    
    
    $
    50.5
    
    
    $
    63.8Interest on convertible notes, net of taxes
    
    
    2.0
    
    
    
    1.7
    
    
    
    5.9
    
    
    
    5.5Numerator for diluted earnings per share -
income from
continuing operations
    
    
    18.4
    
    
    
    21.8
    
    
    
    56.4
    
    
    
    69.3Loss from discontinued operations
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (1.3
    )
    
    
    (1.5
    )$
    18.2
    
    
    $
    21.4
    
    
    $
    55.1
    
    
    $
    67.8
 5




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Denominator:Denominator for basic earnings (loss) per
share  weighted average shares
outstanding
    
    
    37,242
    
    
    
    37,231
    
    
    
    37,505
    
    
    
    36,914Effect of dilutive securities:Employee stock benefit plans
    
    
    901
    
    
    
    721
    
    
    
    774
    
    
    
    872Convertible notes
    
    
    5,279
    
    
    
    4,666
    
    
    
    5,279
    
    
    
    5,053Denominator for diluted earnings (loss)
per share  adjusted weighted average
shares
    
    
    43,422
    
    
    
    42,618
    
    
    
    43,558
    
    
    
    42,839Basic earnings (loss) per share:Continuing operations
    
    $
    0.44
    
    
    $
    0.54
    
    
    $
    1.35
    
    
    $
    1.73Discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.04
    )Net income
    
    $
    0.43
    
    
    $
    0.53
    
    
    $
    1.31
    
    
    $
    1.69Diluted earnings (loss) per share:Continuing operations
    
    $
    0.42
    
    
    $
    0.51
    
    
    $
    1.29
    
    
    $
    1.61Discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Net income
    
    $
    0.42
    
    
    $
    0.50
    
    
    $
    1.26
    
    
    $
    1.58
 For the third quarter of 2004, approximately 1.9 million of the Companys
stock options outstanding, which represents approximately 41% of the Companys
total options outstanding, (1.5 million for the nine months ended September 30,
2004) were excluded from the calculation of diluted earnings (loss) per share
because the exercise prices of the stock options were greater than or equal to
the average share price for the quarter and nine month period, and therefore
their inclusion would have been anti-dilutive. These options could be dilutive
in the future if the average share price increases and is greater than the
exercise price of these options. For the third quarter of 2003, approximately
1.9 million of the Companys stock options outstanding (2.1 million for the
nine months ended September 30, 2003) were excluded from the calculation of
diluted earnings (loss) per share. NOTE 3   ACQUISITION OF PROVINCE HEALTHCARE COMPANY LifePoint announced on August 16, 2004 that it entered into a definitive
agreement to acquire Province Healthcare Company (Province) for approximately
$1.7 billion in cash, stock and the assumption of debt. The transaction will
create a leading hospital company focused on providing healthcare services in
non-urban communities, with 51 hospitals, of which 48 are located in markets where
the combined company will be the sole hospital provider in the community. The transaction
is expected to close in the first quarter of 2005. Pursuant
to the definitive agreement, if the proposed transaction is
consummated, the businesses of LifePoint and Province will be combined under a
newly formed company, which will be renamed LifePoint Hospitals, Inc. (New
LifePoint). Each Province stockholder will receive a per share consideration comprised of $11.375 in cash and a number of shares of New
LifePoint common stock equal to an exchange ratio of between 0.3447 and 0.2917,
which will represent a value of $11.375, if the volume weighted average of the
daily sale prices for shares of LifePoint common stock for the 20 consecutive
trading day period ending at the close of business on the third trading day
prior to closing, (the LifePoint average share price), is between $33.00 and
$39.00. If the LifePoint average share price is $33.00 or less, the exchange
ratio will be 0.3477, and if the LifePoint average share price is $39.00 or
more, the exchange ratio will be 0.2917. Based on the closing price of a share
of LifePoint common stock on October 18, 2004 of $30.87, each Province
stockholder would have received a total per share consideration valued
at approximately $22.016. Based
on the closing price of LifePoint common stock and the number of outstanding shares
of Province common stock, each as of October 18, 2004, LifePoint will pay approximately
$566.3 million in cash and issue approximately 17.2 million shares of common stock to Province stockholders. Each LifePoint stockholder will receive
one share of New LifePoint common stock for each share of LifePoint common
stock. The agreement provides for alternative structures. While it is
anticipated that shares received by Province stockholders will be received in a
tax-free 6




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exchange, the parties have agreed to a taxable alternative structure at
the same price if necessary to complete the acquisition. Each of the Boards of Directors of LifePoint and Province have unanimously
approved the proposed transaction. Completion of the transaction is subject to
approval by each companys stockholders, receipt
of necessary financing and certain other conditions. LifePoint has received a
commitment from Citigroup Global Markets, Inc. (Citigroup) to finance the
cash consideration for the acquisition, to refinance Provinces existing debt
and to provide for the ongoing working capital and general corporate needs of
New LifePoint. The commitment provides for up to $1.325 billion in term loans and
up to $400 million in revolving loans on customary terms and conditions. NOTE 4  DISCONTINUED OPERATIONS During the third quarter of 2004, the Company committed to a divestiture
plan of its 56-bed Bartow Memorial Hospital (Bartow) located in Bartow,
Florida. Subsequently, the Company announced on October 7, 2004, that it had
entered into an asset exchange agreement with Health Management Associates,
Inc. (HMA) under which LifePoint will acquire 76-bed Williamson
Memorial Hospital, located in Williamson, West Virginia, and, simultaneously,
HMA will acquire Bartow Memorial Hospital. The transaction is expected to
close in the fourth quarter of 2004 or in the first quarter of 2005.
The asset exchange is subject to certain conditions, including
completion of due diligence by both parties. The
assets and operations of Bartow Memorial Hospital that are subject to the asset
exchange have been reflected as discontinued operations in the Companys
financial statements for the third quarter of 2004. The Company has reflected Bartow as discontinued operations, consistent
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
No. 144). The results of operations, net of taxes, and the carrying value of
the assets of Bartow that are expected to be sold have been reflected in the
accompanying condensed consolidated financial statements as discontinued
operations/assets held for sale in accordance with SFAS No. 144. All prior
periods have been reclassified to conform to this presentation for all periods
presented. These required reclassifications to the prior period financial
statements did not impact total assets, liabilities, stockholders equity, net
income or cash flows. The revenues and loss before income taxes of Bartow reported in
discontinued operations for the three months and nine months ended September
30, 2003 and 2004 are as follows (in millions): Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Revenues
    
    $
    7.9
    
    
    $
    7.6
    
    
    $
    23.4
    
    
    $
    24.9Loss before income taxes
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (2.0
    )
    
    
    (2.2
    )
 The following assets of Bartow to be sold are reported as assets held for
sale in the accompanying condensed consolidated balance sheets (in millions): December 31, 2003
    
    September 30, 2004Inventories
    
    $
    0.7
    
    
    $
    0.7Property and equipment, net
    
    
    30.2
    
    
    
    28.6Goodwill
    
    
    3.8
    
    
    
    3.8Assets held for sale
    
    $
    34.7
    
    
    $
    33.1
 7




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NOTE 5  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board (FASB) issued
Revised Interpretation No. 46, Consolidation of Variable Interest Entities
(FIN 46R), which requires the consolidation of variable interest entities.
FIN 46R, as revised, was applicable to financial statements of companies that
had interests in special purpose entities during 2003. Effective as of the
first quarter of 2004, FIN 46R is applicable to financial statements of
companies that have interests in all other types of entities. Adoption of FIN
46R had no effect on the Companys financial position, results of operations or
cash flows. The Company adopted SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS No.
150), on July 1, 2003. SFAS No. 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody obligations
of the issuer and have characteristics of both liabilities and equity, such as
redeemable preferred stock and certain equity derivatives that frequently are
used in connection with share repurchase programs. On October 29, 2003, the
FASB voted to defer for an indefinite period the application of SFAS No. 150 to
classification of noncontrolling interests of limited-life subsidiaries.
Neither the adoption of SFAS No. 150 nor the deferral had a material impact on
the Companys results of operations or financial position. NOTE 6  STOCK BENEFIT PLANS The Company issues stock options and other stock-based awards to key
employees and directors under stock-based compensation plans, which are
described more fully in Note 6 (stockholders equity) to the consolidated
financial statements in the Companys 2003 Annual Report on Form 10-K. SFAS No.
123, Accounting for Stock-Based Compensation (SFAS No. 123), encourages,
but does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment of FASB Statement No. 123 (SFAS No. 148). SFAS No.
148 amends SFAS No. 123 to provide alternative methods of transition for
companies making a voluntary change to fair value-based accounting for
stock-based employee compensation. The Company continues to account for its
stock-based compensation plans under the intrinsic value recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. SFAS
No. 148 also requires disclosure of pro-forma results on a quarterly basis as
if the Company had applied the fair value recognition provisions of SFAS No.
123. During the first quarter of 2004, the Company granted 175,000 shares of
nonvested stock awards to certain key executives under the Companys 1998
Long-Term Incentive Plan. The nonvested stock awards vest three years from the
grant date and contain no vesting requirements other than continued employment
of the executive. The fair market value at the date of grant of these nonvested
stock awards was $33.17 per share and was recorded as unearned compensation as
a component of stockholders equity. During the second quarter of 2004, the
Company granted 21,000 shares of nonvested stock awards to its outside
directors under the Companys Outside Directors Stock and Incentive Plan. These
nonvested stock awards also vest three years from the grant date and contain no
vesting requirements other than continued service of the director. The fair
market value at the date of grant of these nonvested stock awards was $37.86
and was recorded as unearned compensation as a component of stockholders
equity. Unearned compensation is being amortized on a straight-line basis in
the statements of income over the three-year vesting period of the awards. Since the exercise price of all options granted under the Companys
incentive plans was equal to the market price of the underlying common stock on
the grant date, no stock-based employee compensation is recognized in net
income related to stock options. The following table illustrates the effect on
net income and earnings per share (in millions, except per share amounts) as if
the Company had applied the fair value recognition provisions of SFAS No. 123,
as amended, to options granted under the stock option plans. For purposes of
this pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over the
options vesting periods. Because the estimated value is determined as of the
date of grant, the actual value ultimately realized by the employee may be
significantly different. 8




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003 (a)
    
    2004
    
    2003
    
    2004Net income, as reported
    
    $
    16.2
    
    
    $
    19.7
    
    
    $
    49.2
    
    
    $
    62.3Add: Stock-based compensation expense included in
reported net income, net of related tax effects
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    0.8Less: Stock-based compensation expense determined under fair
value based method for all awards, net of related tax effects
    
    
    (2.0
    )
    
    
    (2.1
    )
    
    
    (6.7
    )
    
    
    (6.8
    )Pro forma net income
    
    
    14.2
    
    
    
    17.9
    
    
    
    42.5
    
    
    
    56.3Interest on convertible notes, net of taxes
    
    
    
    
    
    
    1.7
    
    
    
    5.9
    
    
    
    5.5Diluted pro forma net income
    
    $
    14.2
    
    
    $
    19.6
    
    
    $
    48.4
    
    
    $
    61.8Denominator for basic earnings per share  weighted average
shares
    
    
    37.2
    
    
    
    37.2
    
    
    
    37.5
    
    
    
    36.9Effect of dilutive securities:Employee stock benefit plans
    
    
    0.9
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.9Convertible notes
    
    
    
    
    
    
    4.7
    
    
    
    5.3
    
    
    
    5.1Denominator for diluted earnings per share  adjusted weighted
average shares
    
    
    38.1
    
    
    
    42.6
    
    
    
    43.6
    
    
    
    42.9Earnings per share:Basic  as reported
    
    $
    0.43
    
    
    $
    0.53
    
    
    $
    1.31
    
    
    $
    1.69Basic  pro forma
    
    $
    0.38
    
    
    $
    0.48
    
    
    $
    1.13
    
    
    $
    1.52Diluted  as reported
    
    $
    0.42
    
    
    $
    0.50
    
    
    $
    1.26
    
    
    $
    1.58Diluted  pro forma
    
    $
    0.37
    
    
    $
    0.46
    
    
    $
    1.11
    
    
    $
    1.44
   (a)
    
    The impact of the 5.3 million potential weighted average shares of common
stock, if converted, and the interest expense related to the convertible
notes was not included in the computation of the diluted earnings per
share because the effect would have been anti-dilutive. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Companys employee stock options have characteristics significantly different
from those of traded options. Changes in the subjective input assumptions can
materially affect the fair value estimate. Other option valuation models may
produce significantly different fair values of the Companys employee stock
options. The weighted average estimated value of stock options granted during the
third quarter of 2004 was $11.40 ($10.41 for the third quarter of 2003) and for
the nine months ended September 30, 2004 was $12.54 ($14.13 for the nine months
ended September 30, 2003). These options were granted with an exercise price
equal to the market price at the date of grant. These options become
exercisable beginning in part from one year after the date of grant to three
years after the date of grant and expire 10 years after the grant date. The
above table includes the impact of these additional stock options for the
period subsequent to their grant. The values were estimated at the date of
grant using the following weighted average assumptions: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Expected life (in years)
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0Risk free interest rate
    
    
    2.64
    %
    
    
    2.88
    %
    
    
    1.88
    %
    
    
    2.20
    %Volatility
    
    
    53
    %
    
    
    53
    %
    
    
    53
    %
    
    
    53
    %Forfeiture rate
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %
 9




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##### Table of Contents



Additional information with respect to stock benefit plan activity in the
Companys 1998 Long-Term Incentive Plan and Outside Directors Stock and
Incentive Plan is as follows: Outstanding OptionsShares
    
    
    
    
    
    WeightedAvailable for
    
    Number of
    
    AverageGrant
    
    Shares
    
    Exercise PriceDecember 31, 2002
    
    
    3,366,700
    
    
    
    4,016,400
    
    
    $
    23.81Stock Option Grants
    
    
    (1,066,800
    )
    
    
    1,066,800
    
    
    $
    21.60Stock Option Exercises
    
    
    
    
    
    
    (333,000
    )
    
    $
    11.20Stock Option Cancellations
    
    
    356,800
    
    
    
    (356,800
    )
    
    $
    27.75December 31, 2003
    
    
    2,656,700
    
    
    
    4,393,400
    
    
    $
    23.91Increase in Shares Available for
Grant (Approved by Stockholders)
    
    
    2,200,000
    
    
    
    
    
    
    
    N/AStock Option Grants
    
    
    (877,800
    )
    
    
    877,800
    
    
    $
    33.43Nonvested Stock Grants
    
    
    (196,000
    )
    
    
    
    
    
    $
    33.67Stock Option Exercises
    
    
    
    
    
    
    (556,400
    )
    
    $
    13.89Adjustments
    
    
    (16,200
    )
    
    
    
    
    
    
    N/AStock Option Cancellations
    
    
    111,100
    
    
    
    (111,100
    )
    
    $
    35.24September 30, 2004
    
    
    3,877,800
    
    
    
    4,603,700
    
    
    $
    26.66
 NOTE 7  COMMITMENTS AND CONTINGENCIES Americans with Disabilities Act Claim On January 12, 2001, Access Now, Inc., a disability rights organization,
filed a class action lawsuit against each of the Companys hospitals alleging
non-compliance with the accessibility guidelines under the Americans with
Disabilities Act (the ADA). The lawsuit, filed in the United States District
Court for the Eastern District of Tennessee, seeks injunctive relief requiring
facility modification, where necessary, to meet the ADA guidelines, along with
attorneys fees and costs. In January 2002, the District Court certified the
class action and issued a scheduling order that requires the parties to
complete discovery and inspection for approximately six facilities per year.
The Company is vigorously defending the lawsuit, recognizing the Companys
obligation to correct any deficiencies in order to comply with the ADA. As of
September 30, 2004, the plaintiffs have conducted inspections at 22 of the
Companys hospitals. On July 19, 2004, the United States District Court
approved the settlement agreements between the parties relating to two of the
Companys facilities. These facilities have completed the litigation process
and now will move forward in implementing facility modifications in accordance
with the terms of the settlement. Corporate Integrity Agreement In December 2000, the Company entered into a corporate integrity agreement
with the Office of Inspector General (OIG) and agreed to maintain its
compliance program in accordance with the corporate integrity agreement. This
agreement has been amended since that time in April and October 2002, December
2003 and March 2004. Complying with the compliance measures and reporting and
auditing requirements of the corporate integrity agreement requires additional
efforts and costs. Failure to comply with the terms of the corporate integrity
agreement could subject the Company to significant monetary penalties. Legal Proceedings and General Liability Claims The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, medical malpractice, breach of management contracts, wrongful
restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request punitive or
other damages against the Company which may not be covered by insurance. The
Company is currently not a party to any proceeding which, in managements
opinion, would have a material adverse effect on the Companys business,
financial condition or results of operations. 10




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##### Table of Contents



Physician Commitments The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of its
communities and agreeing to engage in private practice for the benefit of the
respective community, the Company may loan certain amounts of money to a
physician, normally over a period of one year, to assist in establishing his or
her practice. The Company had committed to advance a maximum amount of
approximately $26.6 million at September 30, 2004. The actual amount of such
commitments to be subsequently advanced to physicians is estimated at $10.7
million and often depends upon the financial results of a physicians private
practice during the guaranteed period. Generally, amounts advanced under the
recruiting agreements may be forgiven pro rata over a period of 48 months,
contingent upon the physician continuing to practice in the respective
community. Capital Expenditure Commitments The Company is reconfiguring some of its facilities to accommodate more
effectively patient services and restructuring existing surgical capacity in
some of its hospitals to permit additional patient volume and a greater variety
of services. The Company had incurred approximately $55.9 million in
uncompleted projects as of September 30, 2004, which is included in
construction in progress in the Companys accompanying condensed consolidated
balance sheet. At September 30, 2004, the Company had projects under
construction with an estimated additional cost to complete and equip of
approximately $91.0 million. Pursuant to the asset purchase agreement for Ville Platte Medical Center,
the Company has agreed to make certain capital improvements, the cost of which,
together with the initial cash payment, defeasance of certain bonds and
liabilities assumed, is not required to exceed $25.0 million.
The asset purchase agreement provides that the capital
improvements must be committed by December 1, 2004. The initial cash payment
and liabilities assumed totaled $15.1 million, which leaves $9.9 million
required for capital improvements. The Company had incurred approximately $6.2
million of the required capital improvements as of September 30, 2004. Pursuant to the asset purchase agreement for Logan Regional Medical
Center, the Company has agreed to expend, regardless of the results of the
hospitals operations, at least $20.0 million in the aggregate for capital
expenditures and improvements during the ten-year period following the date of
acquisition of December 1, 2002. The Company had incurred approximately $7.6
million of the required capital improvements as of September 30, 2004. Tax Matters During 2003, the Internal Revenue Service (IRS) notified the Company
regarding its findings related to the examination of the Companys federal
income tax returns for the years ended December 31, 1999, 2000 and 2001. The
Company reached a settlement with the IRS on all issues except for the
Companys method of determining its bad debt deduction for which the IRS has
proposed an additional assessment of $7.4 million. All of the adjustments
proposed by the IRS are temporary differences. The IRS has delayed final
settlement of this assessment until resolution of certain pending court
proceedings related to the use of this bad debt deduction method by HCA. HCA
filed a petition with the United States Supreme Court on May 17, 2004 to appeal
the ruling of the lower court on the bad debt deduction method. The Company
applied its 2002 federal income tax refund in the amount of $6.6 million as a
deposit against any potential settlement to forestall the tolling of interest
on such settlement beyond the March 15, 2003 deposit date. Management believes
that adequate provisions have been reflected in the consolidated financial
statements to satisfy final resolution of the remaining disputed issue based
upon current facts and circumstances and that final resolution of this dispute
will not have a material adverse impact on the Companys results of operations
or financial position. HCA and the Company entered into a tax sharing and indemnification
agreement as part of the Companys 1999 spin-off from HCA. Under the agreement,
HCA maintains full control and absolute discretion with regard to any combined
or consolidated tax filings for periods prior to the 1999 spin-off from HCA
(the Spin-off). In addition, the agreement provides that HCA will generally
be responsible for all taxes that are allocable to periods prior to the
Spin-off and HCA and the Company will each be responsible for their own tax
liabilities for periods after the Spin-off. The tax sharing and indemnification
agreement does not have an impact on the realization of deferred tax assets 11




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##### Table of Contents



or the payment of deferred tax liabilities of the Company, except to the extent
that the temporary differences give rise to such deferred tax assets and
liabilities after the Spin-off and are adjusted as a result of final tax
settlements after the Spin-off. In the event of such adjustments, the tax
sharing and indemnification agreement provides for certain payments between HCA
and the Company, as appropriate. Acquisitions The Company has acquired and will continue to acquire businesses with
prior operating histories. Acquired companies may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws
and regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. Although the Company institutes policies designed to
conform practices to its standards following completion of acquisitions, there
can be no assurance that the Company will not become liable for past activities
that may later be asserted to be improper by private plaintiffs or government
agencies. Although the Company generally seeks to obtain indemnification from
prospective sellers covering such matters, there can be no assurance that any
such matter will be covered by indemnification, or if covered, that such
indemnification will be adequate to cover potential losses and fines. NOTE 8  LONG-TERM DEBT Long-term debt consists of the following (in millions): December 31, 2003
    
    September 30, 2004Revolving Credit Facility
    
    $
    20.0
    
    
    $
    Convertible Notes
    
    
    250.0
    
    
    
    221.0$
    270.0
    
    
    $
    221.0
 During the second quarter of 2004, the Company repurchased $29.0 million
of its $250.0 million 41⁄2% Convertible Subordinated Notes due 2009 (the
Convertible Notes) and paid a $0.9 million premium on these repurchases. In
connection with these repurchases, the Company expensed $0.6 million of
deferred loan costs attributable to the $29.0 million Convertible Note
repurchases. The deferred loan cost charge and the $0.9 million premium paid
comprise the $1.5 million debt retirement costs in the Companys accompanying
condensed consolidated statements of income for the nine months ended September
30, 2004. The $1.5 million of debt retirement costs had a negative $0.02 per
diluted share impact for the nine months ended September 30, 2004. The Company borrowed $30.0 million under its $200.0 million, five-year
amended and restated credit agreement (Revolving Credit Facility) in June
2004 to fund the acquisition of River Parishes Hospital, as described in Note
11, and for general corporate purposes. In the third quarter of 2004, the
Company used available cash to repay the $30.0 million of indebtedness
outstanding at June 30, 2004 under the Revolving Credit Facility. In February
2004, the Company used available cash to repay the $20.0 million of
indebtedness outstanding at December 31, 2003 under the Revolving Credit
Facility. NOTE 9  PROFESSIONAL AND GENERAL LIABILITY RESERVES The Company is subject to medical malpractice lawsuits and other claims as
part of providing healthcare services. To mitigate a portion of this risk, the
Company maintains insurance for individual malpractice claims exceeding $10.0
million. The Companys reserves for professional and general liability claims
are based upon independent actuarial calculations, which consider historical
claims data, demographic considerations, severity factors and other actuarial
assumptions in determining reserve estimates. Reserve estimates are discounted
to present value using a 5.0% discount rate and are revised twice each year by
the Companys independent actuaries. The estimated reserve for professional and
general liability claims will be significantly affected if current and future
claims differ from historical trends. While management monitors reported claims
closely and considers potential outcomes as estimated by its actuaries when
determining its professional and general liability reserves, the complexity of
the claims, the extended period of time to settle the claims and the wide range
of potential outcomes complicates the estimation process. 12




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##### Table of Contents



The Company implemented enhanced processes in monitoring claims and
managing losses in high risk areas during 2002 and 2003 to attempt to reduce
loss levels and appropriately manage risk. During the second quarter of 2004,
the Company received revised reserve estimates for professional and general
liability claims from its actuaries based upon more current loss experience
information. In addition, the Company ceased receiving reserve estimates from
one of the three actuaries that had historically been used to calculate loss
reserve estimates. This change in the Companys estimation process reduced its
reserve levels and related professional and general liability insurance expense
in the third quarter of 2004 and nine months ended September 30, 2004 by $1.4
million and $2.8 million, respectively, on a pretax basis, or $0.02 and $0.04
per diluted share, respectively. The Company continues to derive its estimates
for financial reporting purposes by using a mathematical average of the
actuarial valuations from its other two actuaries. The results of the updated
actuarial valuations from these two actuaries reduced the Companys reserve
estimates for years prior to 2004 by $1.0 million on a pretax basis, or $0.01
per diluted share, which reduced its professional and general liability expense
in the second quarter of 2004. The reserve for professional and general liability claims was $27.5
million and $29.5 million at December 31, 2003 and September 30, 2004,
respectively. The total cost of professional and general liability coverage for
continuing operations, including the changes discussed above, for the three
months ended September 30, 2003 and 2004 was $1.1 million and $2.1 million,
respectively. The total cost of professional and general liability coverage
for continuing operations, including the changes discussed above, for the nine
months ended September 30, 2003 and 2004 was $7.5 million and $6.5 million,
respectively. NOTE 10  MEDICARE REIMBURSEMENT During the third quarter of 2003, the Company received correspondence from
one of its fiscal intermediaries questioning a particular Medicare
disproportionate share designation at one of its hospitals. This hospital has
had this designation since 2001 and was previously approved for this
designation by its fiscal intermediary. The Company and the fiscal intermediary
worked together and contacted the Centers for Medicare and Medicaid Services
(CMS) for resolution of the designation. The Company reduced revenues by $3.0
million and $0.2 million during the third and fourth quarters of 2003,
respectively, representing the three-year difference in reimbursement from this
change in designation. The Company received notification from CMS late in the
first quarter of 2004 reconfirming the original designation. Based upon the
favorable resolution of this issue, the Company increased revenues by $3.2
million in the first quarter of 2004. NOTE 11  ACQUISITION OF RIVER PARISHES HOSPITAL Effective July 1, 2004, the Company acquired the 106-bed River Parishes
Hospital in LaPlace, Louisiana from Universal Health Services, Inc. for
approximately $24.8 million in cash, including certain working capital and
direct transaction costs, which is included in unallocated purchase price on
the Companys accompanying condensed consolidated balance sheet as of September
30, 2004. The Company borrowed from its Revolving Credit Facility and paid the
purchase price for this acquisition on June 30, 2004. Revenues for this
facility were approximately $36.0 million during 2003, exclusive of physician
revenues. The hospital is located approximately 30 miles west of New Orleans,
Louisiana and is the only hospital located in St. John the Baptist Parish. 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. We recommend that you read this discussion together with our unaudited
condensed consolidated financial statements and related notes included
elsewhere in this report. This report, including the condensed consolidated financial statements and
related notes, contains forward-looking statements about the Company. Broadly
speaking, forward-looking statements include forecasts of future financial
results and conditions, expectations for future operations and business, and
any assumptions underlying those forecasts and expectations. You should not
unduly rely on forward-looking statements. Actual outcomes and results might
differ significantly from forecasts and expectations. Please refer to Factors
that May Affect Future Results later in this report for a discussion of some
of the factors that may cause results to differ. Executive Overview Acquisition of Province Healthcare Company We announced on August 16, 2004 that we entered into a definitive
agreement to acquire Province Healthcare Company for approximately $1.7 billion
in cash, stock and the assumption of debt. The transaction will create a
leading hospital company focused on providing healthcare services in non-urban
communities, with 51 hospitals, of which 48 are located in markets
where the combined company will be the sole hospital in the community. The transaction is expected to
close in the first quarter of 2005. Please refer to Note 3 of our condensed
consolidated financial statements included elsewhere herein for a discussion of
this proposed transaction. Continuing Operations The first nine months of 2004 were encouraging because of our solid
operating performance and increased patient volume levels. We continue to be
guardedly optimistic regarding our outlook for the remainder of 2004 as a
result of the improved reimbursement environment resulting from the passage of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA) and patient volumes more consistent with historical trends. During
2004, we are continuing to focus on physician recruiting and retention,
investing capital in our hospitals and seeking additional hospital acquisitions
that fit our non-urban strategy. As part of that strategy, we acquired the
106-bed River Parishes Hospital in LaPlace, Louisiana effective July 1, 2004,
for approximately $24.8 million including certain working capital and direct
transaction costs. The following table reflects our summarized operating
results: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Number of hospitals in continuing operations
at end of period
    
    
    27
    
    
    
    29
    
    
    
    27
    
    
    
    29Revenues from continuing operations
(in millions)
    
    $
    219.4
    
    
    $
    253.7
    
    
    $
    646.4
    
    
    $
    739.4Income from continuing operations
(in millions)
    
    $
    16.4
    
    
    $
    20.1
    
    
    $
    50.5
    
    
    $
    63.8Diluted earnings per share from continuing
operations
    
    $
    0.42
    
    
    $
    0.51
    
    
    $
    1.29
    
    
    $
    1.61
 Discontinued Operations During
the third quarter of 2004, we committed to a divestiture plan of our
56-bed Bartow Memorial Hospital, located in Bartow, Florida.
Subsequently, we announced that we entered into an asset exchange
agreement with HMA under which we will acquire 76-bed Williamson
Memorial Hospital, located in Williamson, West Virginia, and,
simultaneously HMA will acquire Bartow. Please refer to Note 4 of our condensed consolidated financial statements
included elsewhere herein for a discussion of our discontinued
operations of Bartow. Certain prior period amounts in this report have been reclassified to
conform to the current periods presentation of financial information. These
reclassifications, primarily for discontinued operations as described in Note 4
of our condensed consolidated financial statements included elsewhere herein,
have no impact on total assets, liabilities, 14




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##### Table of Contents



stockholders equity, net income or cash flows. Unless otherwise indicated, all
relevant financial and statistical information included herein relates to our
continuing operations. Revenue/Volume Trends The key metrics we use internally to evaluate our revenues are equivalent
admissions, which equate to volume, and revenues per equivalent admission,
which relate to pricing and acuity. We anticipate our patient volumes and
related revenues will continue to be impacted by the following factors:  
    
    Physician Recruitment and Retention. Recruiting and retaining both
primary care physicians and specialists for our non-urban communities
is a key to increasing revenues and patient volumes. Continuing to add
specialists should help our hospitals increase volumes by offering new
services. We recruited 79 admitting physicians during the nine months
ended September 30, 2004. Of these 79 physicians recruited, 70
started in the nine months ended September 30, 2004 and 9 are
scheduled to start in the fourth quarter of 2004.  
    
    Medicare Rate Increases.MMA provides a prescription drug benefit for
Medicare beneficiaries and also contains numerous provisions that
provide incremental funding to hospitals. Hospitals qualify for
Medicare disproportionate share hospital (DSH) payments when their
percentage of low-income patients exceeds 15%. A majority of our
hospitals qualify to receive DSH payments. Effective April 1, 2004,
MMA raised the cap on the DSH payment adjustment percentage from 5.25%
to 12.0% for rural and small urban hospitals and specified that
payments to all hospitals are based on the same conversion factor,
regardless of geographic location. A majority of our hospitals are
benefiting from these provisions. The following table lists our DSH payments from Medicare (in millions): Medicare DSH Payments2003
    
    2004First Quarter
    
    $
    2.3
    
    
    $
    3.1Second Quarter
    
    
    2.6
    
    
    
    5.4Third Quarter
    
    
    2.7
    
    
    
    5.9$
    7.6
    
    
    $
    14.4
 Please refer to our 2003 Annual Report on Form 10-K for a discussion of
other MMA provisions that affect our reimbursement.  
    
    Growth in Outpatient Services. A number of procedures once performed
only on an inpatient basis have been, and will continue to be, converted
to outpatient procedures. This conversion has occurred through continuing
advances in pharmaceutical and medical technologies, and as a result of
efforts made by payors to control costs. We anticipate that the long-term
growth trend in outpatient services will continue. Generally, the payments
we receive for outpatient procedures are less than those for similar
procedures performed in an inpatient setting. The following table shows
net outpatient, inpatient and other revenues as a percentage of our total
revenues: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2003
    
    2004
    
    2003
    
    2004Outpatient
    
    
    51.8
    %
    
    
    53.3
    %
    
    
    51.5
    %
    
    
    51.3
    %Inpatient
    
    
    46.9
    
    
    
    45.6
    
    
    
    47.4
    
    
    
    47.6Other
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Other Trends  
    
    Increases in Provision for Doubtful Accounts. We continued to experience
an increase in our provision for doubtful accounts during the nine months
ended September 30, 2004. The increase was the result of a combination of
broad economic factors, including an increased number of uninsured
patients and health care plan design changes that resulted in
increased copayments and
deductibles. The provision for doubtful accounts relates 15




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##### Table of Contents



primarily to self-pay revenues. The following table reflects our self-pay
revenues, net of charity and indigent care write-offs (in millions): Self-Pay Revenues2003
    
    2004First Quarter
    
    $
    17.6
    
    
    $
    21.0Second Quarter
    
    
    16.6
    
    
    
    21.4Third Quarter
    
    
    21.4
    
    
    
    26.8$
    55.6
    
    
    $
    69.2
  Our revenues are reduced when we write-off patient accounts identified as
charity and indigent care. Our hospitals write-off a portion of a patients
account upon the determination that the patient qualifies under a hospitals
charity/indigent care policy. The following table reflects our charity and
indigent care write-offs (in millions): Charity and Indigent Care Write-Offs2003
    
    2004First Quarter
    
    $
    1.0
    
    
    $
    1.9Second Quarter
    
    
    1.4
    
    
    
    2.4Third Quarter
    
    
    1.0
    
    
    
    1.7$
    3.4
    
    
    $
    6.0
  The following table shows our revenue days in accounts receivable, including
the discontinued operations of Bartow: Revenue Days in Accounts Receivable2003
    
    2004First Quarter
    
    
    39.8
    
    
    
    39.1Second Quarter
    
    
    38.7
    
    
    
    38.8Third Quarter
    
    
    37.7
    
    
    
    40.6Fourth Quarter
    
    
    39.3
    
    
    
    N/A
 The approximate percentages of billed hospital receivables (which is a
component of total receivables) is summarized as follows: December 31, 2003
    
    March 31, 2004
    
    June 30, 2004
    
    September 30, 2004Insured receivables
    
    
    41.1
    %
    
    
    41.3
    %
    
    
    42.5
    %
    
    
    42.7
    %Uninsured receivables
(including copayments
and deductibles)
    
    
    58.9
    
    
    
    58.7
    
    
    
    57.5
    
    
    
    57.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  The approximate percentages of billed hospital receivables in summarized
aging categories is as follows: December 31, 2003
    
    March 31, 2004
    
    June 30, 2004
    
    September 30, 20040 to 60 days
    
    
    47.5
    %
    
    
    51.6
    %
    
    
    51.8
    %
    
    
    53.3
    %61 to 150 days
    
    
    23.6
    
    
    
    17.5
    
    
    
    20.4
    
    
    
    19.3Over 150 days
    
    
    28.9
    
    
    
    30.9
    
    
    
    27.8
    
    
    
    27.4Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  For the next several quarters, we anticipate that our provision for doubtful
accounts will be approximately 9% to 10% of revenues. We are implementing a
number of operating strategies which should increase our cash collections of
self-pay revenues. If the trend of increasing self-pay revenues continues,
it could have a material adverse effect on our results of operations and
financial position in the future.
    
    Shortage of Clinical Personnel and Increased Contract Labor Usage.In
recent years, many hospitals, including the hospitals we own, have
encountered difficulty in recruiting and retaining nursing and other
clinical personnel. When we are unable to staff our nursing and clinical
positions, we are required to use 16




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##### Table of Contents



contract labor to ensure adequate patient care. Contract labor generally
costs more per hour than employed labor. We have adopted a number of human
resources strategies in an attempt to improve our ability to recruit and
retain nursing and other clinical personnel. These strategies are working
as we have an 8.3% decrease in contract labor costs in the nine months ended
September 30, 2004 compared to the same period in 2003. However, we expect
that the staffing shortages related to nurses and other clinical personnel
will continue in the near term. Critical Accounting Estimates The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect reported amounts and related disclosures.
We consider an accounting estimate to be critical if:  
    
    it requires assumptions to be made that were uncertain at the time the estimate was made; and  
    
    changes in the estimate or different estimates that could have been made could have a material impact on our consolidated
results of operations or financial condition. Our critical accounting estimates are more fully described in our 2003
Annual Report on Form 10-K and continue to include the following areas:  
    
    Allowance for doubtful accounts and provision for doubtful accounts;  
    
    Revenue recognition and allowance for contractual discounts;  
    
    Professional and general liability claims; and  
    
    Accounting for income taxes. Update of Critical Accounting Estimates.Please refer to Note 9 of our
condensed consolidated financial statements included elsewhere herein for a
discussion of the impact of recent changes in our reserve for professional and
general liability claims. 17




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##### Table of Contents



Results of Operations Operating Results Summary The following tables present summaries of results of operations for our
continuing operations for the three and nine months ended September 30, 2003
and 2004 (dollars in millions, except for revenues per equivalent admission): Three Months Ended September 30,2003
    
    2004% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    RevenuesRevenues
    
    $
    219.4
    
    
    
    100.0
    %
    
    $
    253.7
    
    
    
    100.0
    %Salaries and benefits (a)
    
    
    87.4
    
    
    
    39.9
    
    
    
    102.1
    
    
    
    40.3Supplies (b)
    
    
    28.0
    
    
    
    12.8
    
    
    
    32.2
    
    
    
    12.7Other operating expenses (c)
    
    
    38.6
    
    
    
    17.5
    
    
    
    44.1
    
    
    
    17.4Provision for doubtful accounts
    
    
    22.4
    
    
    
    10.2
    
    
    
    24.4
    
    
    
    9.6Depreciation and amortization
    
    
    10.2
    
    
    
    4.7
    
    
    
    12.1
    
    
    
    4.8Interest expense, net
    
    
    3.3
    
    
    
    1.5
    
    
    
    3.1
    
    
    
    1.2Debt retirement costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ESOP expense
    
    
    1.8
    
    
    
    0.8
    
    
    
    2.3
    
    
    
    0.9191.7
    
    
    
    87.4
    
    
    
    220.3
    
    
    
    86.9Income from continuing operations before minority
interests and income taxes
    
    
    27.7
    
    
    
    12.6
    
    
    
    33.4
    
    
    
    13.1Minority interests in earnings of consolidated entities
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Income from continuing operations before income taxes
    
    
    27.4
    
    
    
    12.5
    
    
    
    33.3
    
    
    
    13.1Provision for income taxes
    
    
    11.0
    
    
    
    5.1
    
    
    
    13.2
    
    
    
    5.2Income from continuing operations
    
    $
    16.4
    
    
    
    7.5
    %
    
    $
    20.1
    
    
    
    7.9
    %
 Three Months Ended September 30,2003
    
    2004
    
    % ChangeAmount
    
    Amount
    
    From Prior YearContinuing Operations (k):Number of hospitals at end of period
    
    
    27
    
    
    
    29
    
    
    
    7.4
    %Admissions (d)
    
    
    20,846
    
    
    
    22,480
    
    
    
    7.8Equivalent admissions (e)
    
    
    42,651
    
    
    
    46,331
    
    
    
    8.6Revenues per equivalent admission
    
    $
    5,145
    
    
    $
    5,476
    
    
    
    6.4Outpatient factor (e)
    
    
    2.05
    
    
    
    2.06
    
    
    
    0.5Emergency room visits (f)
    
    
    104,227
    
    
    
    110,369
    
    
    
    5.9Inpatient surgeries (j)
    
    
    6,212
    
    
    
    6,427
    
    
    
    3.5Outpatient surgeries (g), (j)
    
    
    18,074
    
    
    
    19,367
    
    
    
    7.2Total surgeries (j)
    
    
    24,286
    
    
    
    25,794
    
    
    
    6.2Licensed beds at end of period
    
    
    2,568
    
    
    
    2,737
    
    
    
    6.6Weighted average licensed beds
    
    
    2,568
    
    
    
    2,737
    
    
    
    6.6Average daily census
    
    
    899
    
    
    
    976
    
    
    
    8.6Average length of stay (days)
    
    
    4.0
    
    
    
    4.0
    
    
    
    Outpatient revenues as a percentage of total revenues
    
    
    51.8
    %
    
    
    53.3
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.16
    
    
    
    1.19
    
    
    
    2.6
 18




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##### Table of Contents



Three Months Ended September 30,2003
    
    2004
    
    % ChangeAmount
    
    Amount
    
    From Prior YearSame-Hospital (h):Revenues
    
    $
    219.4
    
    
    $
    237.5
    
    
    
    8.4
    %Number of hospitals at end of period
    
    
    27
    
    
    
    27
    
    
    
    Admissions (d)
    
    
    20,846
    
    
    
    21,395
    
    
    
    2.6Equivalent admissions (e)
    
    
    42,651
    
    
    
    43,453
    
    
    
    1.9Revenues per equivalent admission
    
    $
    5,145
    
    
    $
    5,474
    
    
    
    6.4Outpatient factor (e)
    
    
    2.05
    
    
    
    2.03
    
    
    
    (1.0
    )Emergency room visits (f)
    
    
    104,227
    
    
    
    101,914
    
    
    
    (2.2
    )Inpatient surgeries (j)
    
    
    6,212
    
    
    
    6,027
    
    
    
    (3.0
    )Outpatient surgeries (g), (j)
    
    
    18,074
    
    
    
    17,882
    
    
    
    (1.1
    )Total surgeries (j)
    
    
    24,286
    
    
    
    23,909
    
    
    
    (1.6
    )Licensed beds at end of period
    
    
    2,568
    
    
    
    2,556
    
    
    
    (0.5
    )Weighted average licensed beds
    
    
    2,568
    
    
    
    2,556
    
    
    
    (0.5
    )Average daily census
    
    
    899
    
    
    
    934
    
    
    
    3.9Average length of stay (days)
    
    
    4.0
    
    
    
    4.0
    
    
    
    Outpatient revenues as a percentage of total revenues
    
    
    51.8
    %
    
    
    51.0
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.16
    
    
    
    1.19
    
    
    
    2.6
 Nine Months Ended September 30,2003
    
    2004% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    RevenuesRevenues
    
    $
    646.4
    
    
    
    100.0
    %
    
    $
    739.4
    
    
    
    100.0
    %Salaries and benefits (a)
    
    
    262.2
    
    
    
    40.6
    
    
    
    296.7
    
    
    
    40.1Supplies (b)
    
    
    83.3
    
    
    
    12.9
    
    
    
    95.4
    
    
    
    12.9Other operating expenses (c)
    
    
    116.1
    
    
    
    18.0
    
    
    
    123.9
    
    
    
    16.7Provision for doubtful accounts
    
    
    53.3
    
    
    
    8.2
    
    
    
    64.0
    
    
    
    8.7Depreciation and amortization
    
    
    31.5
    
    
    
    4.8
    
    
    
    34.5
    
    
    
    4.7Interest expense, net
    
    
    9.9
    
    
    
    1.5
    
    
    
    9.7
    
    
    
    1.3Debt retirement costs

    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    0.2ESOP expense
    
    
    4.9
    
    
    
    0.8
    
    
    
    7.1
    
    
    
    1.0561.2
    
    
    
    86.8
    
    
    
    632.8
    
    
    
    85.6Income from continuing operations before minority
interests and income taxes
    
    
    85.2
    
    
    
    13.2
    
    
    
    106.6
    
    
    
    14.4Minority interests in earnings of consolidated entities
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.1Income from continuing operations before income taxes
    
    
    84.7
    
    
    
    13.1
    
    
    
    105.9
    
    
    
    14.3Provision for income taxes
    
    
    34.2
    
    
    
    5.3
    
    
    
    42.1
    
    
    
    5.7Income from continuing operations
    
    $
    50.5
    
    
    
    7.8
    %
    
    $
    63.8
    
    
    
    8.6
    %
 19




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##### Table of Contents



Nine Months Ended September 30,2003
    
    2004
    
    % ChangeAmount
    
    Amount
    
    From Prior YearContinuing Operations (k):Number of hospitals at end of period
    
    
    27
    
    
    
    29
    
    
    
    7.4
    %Admissions (d)
    
    
    64,973
    
    
    
    69,003
    
    
    
    6.2Equivalent admissions (e)
    
    
    129,101
    
    
    
    138,075
    
    
    
    7.0Revenues per equivalent admission
    
    $
    5,007
    
    
    $
    5,355
    
    
    
    7.0Outpatient factor (e)
    
    
    1.99
    
    
    
    2.00
    
    
    
    0.5Emergency room visits (f)
    
    
    297,479
    
    
    
    312,208
    
    
    
    5.0Inpatient surgeries (j)
    
    
    18,247
    
    
    
    19,735
    
    
    
    8.2Outpatient surgeries (g), (j)
    
    
    53,211
    
    
    
    56,375
    
    
    
    5.9Total surgeries (j)
    
    
    71,458
    
    
    
    76,110
    
    
    
    6.5Licensed beds at end of period
    
    
    2,568
    
    
    
    2,737
    
    
    
    6.6Weighted average licensed beds
    
    
    2,566
    
    
    
    2,683
    
    
    
    4.6Average daily census
    
    
    960
    
    
    

    1,021
    
    
    
    6.4Average length of stay (days)
    
    
    4.0
    
    
    
    4.1
    
    
    
    2.5Outpatient revenues as a percentage of total revenues
    
    
    51.5
    %
    
    
    51.3
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.17
    
    
    
    1.17
    
    
    
    
 Nine Months Ended September 30,2003
    
    2004
    
    % Change FromAmount
    
    Amount
    
    Prior YearSame-Hospital (h):Revenues
    
    $
    646.4
    
    
    $
    710.7
    
    
    
    10.0
    %Number of hospitals at end of period
    
    
    27
    
    
    
    27
    
    
    
    Admissions (d)
    
    
    64,973
    
    
    
    66,840
    
    
    
    2.9Equivalent admissions (e)
    
    
    129,101
    
    
    
    132,343
    
    
    
    2.5Revenues per equivalent admission
    
    $
    5,007
    
    
    $
    5,370
    
    
    
    7.2Outpatient factor (e)
    
    
    1.99
    
    
    
    1.98
    
    
    
    (0.5
    )Emergency room visits (f)
    
    
    297,479
    
    
    
    296,659
    
    
    
    (0.3
    )Inpatient surgeries (j)
    
    
    18,247
    
    
    
    18,967
    
    
    
    3.9Outpatient surgeries (g), (j)
    
    
    53,211
    
    
    
    53,495
    
    
    
    0.5Total surgeries (j)
    
    
    71,458
    
    
    
    72,462
    
    
    
    1.4Licensed beds at end of period
    
    
    2,568
    
    
    
    2,556
    
    
    
    (0.5
    )Weighted average licensed beds
    
    
    2,566
    
    
    
    2,560
    
    
    
    (0.2
    )Average daily census
    
    
    960
    
    
    
    993
    
    
    
    3.4Average length of stay (days)
    
    
    4.0
    
    
    
    4.1
    
    
    
    2.5Outpatient revenues as a percentage of total revenues
    
    
    51.5
    %
    
    
    50.3
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.17
    
    
    
    1.17
    
    
    
    
   N/M   Not Meaningful  (a)
    
    Represents our cost of salaries and benefits, including employee health
benefits and workers compensation
insurance, for all hospital and corporate employees and contract labor.  (b)
    
    Includes our hospitals costs for pharmaceuticals, blood, surgical
instruments and all general supply items, including the cost of freight.  (c)
    
    Consists primarily of contract services, physician recruitment,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance, information systems fees paid to HCA Information Technology and
Services, Inc. (HCA-IT), marketing and non-income taxes. 20




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##### Table of Contents



(d)
    
    Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals and is used by management
and investors as a general measure of inpatient volume.  (e)
    
    Management and investors use equivalent admissions as a general measure
of combined inpatient and outpatient volume. We compute equivalent
admissions by multiplying admissions (inpatient volume) by the outpatient
factor (the sum of gross inpatient revenue and gross outpatient revenue
and then dividing the resulting amount by gross inpatient revenue). The
equivalent 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.  (f)
    
    Represents the total number of hospital-based emergency room visits.  (g)
    
    Outpatient surgeries are those surgeries that do not require admission to
our hospitals.  (h)
    
    Same-hospital information excludes the operations of hospitals that we
acquired after January 1, 2003 and Bartow Memorial Hospital, which we are
expecting to exchange for another hospital in the fourth quarter of 2004
or the first quarter of 2005. Please refer to Note 4 of our condensed
consolidated financial statements included elsewhere herein for a
discussion of this potential asset exchange.  (i)
    
    Refers to acuity or severity of illness of an average Medicare patient at
our hospitals.  (j)
    
    Inpatient and outpatient surgeries for 2003 and the first quarter of 2004
were restated to reflect appropriate amounts during these periods. This
change produced no impact on our historical results of operations.  (k)
    
    Continuing operations information excludes the operations of Bartow
Memorial Hospital, which we are expecting to exchange for another hospital
in the fourth quarter of 2004 or first quarter of 2005. All historical
amounts as of and for the three months and nine months ended September 30,
2003 have been restated to exclude the operations of Bartow Memorial
Hospital. Please refer to Note 4 of our condensed consolidated financial
statements included elsewhere herein for a discussion of this potential
asset exchange. For the Quarters Ended September 30, 2003 and 2004 Revenues Our revenues for the quarter ended September 30, 2004 increased by $34.3
million, or 15.6%, to $253.7 million compared to the quarter ended September
30, 2003. This increase is attributable to:  
    
    $18.1 million increase in our same-hospital revenues; and
    
    $16.2 million in revenues from our 2003 acquisition of Spring
View Hospital and 2004 acquisition of River Parishes Hospital. Adjustments to estimated reimbursement amounts increased our revenues by
$1.6 million for the quarter ended September 30, 2004 compared to $1.8 million
for the same period in 2003. Our DSH payments from Medicare for the quarter
ended September 30, 2004 were $5.9 million, an increase of $3.2 million over
the same period in 2003. This increase is primarily the result of the DSH
payment increases under MMA. Our same-hospital inpatient revenues for the quarter ended September 30,
2004 increased by $11.0 million, or 10.7%, to $113.9 million compared to the
quarter ended September 30, 2003. The primary factors causing this change were
increases in musculoskeletal, rehabilitation and digestive-related admissions,
which involve higher intensive procedures. The increase in higher intensive
procedures is the result of capital spending at our facilities and strong
physician recruitment in the past year. Our same-hospital outpatient revenues for the quarter ended September 30,
2004 increased by $7.5 million, or 6.7%, to $121.3 million compared to the
quarter ended September 30, 2003. This outpatient growth was largely driven by
an increase in radiology procedures such as CT-scans and MRIs, as well as
cardiac catheterization procedures. This increase was partially offset by a
1.1% decrease in same-hospital outpatient surgeries and a 2.2% 21




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##### Table of Contents



decrease in same-hospital emergency room visits. Outpatient surgeries declined
predominately as a result of a new physician-owned surgery center near our Dodge City, Kansas
hospital. After factoring all of the above, our equivalent admissions increased by
1.9% on a same-hospital basis for the quarter ended September 30, 2004 compared
to the same period in 2003. As it relates to pricing and acuity, our
same-hospital revenues per equivalent admission for the quarter ended September
30, 2004 increased 6.4%, or $329 per equivalent admission, over the same period
in 2003, reflecting positive reimbursement trends and higher intensive
procedures as discussed above. The table below shows the sources of our revenues for the quarters ended
September 30, expressed as percentages of total revenues: Continuing Operations
    
    Same-hospital2003
    
    2004
    
    2003
    
    2004Medicare
    
    
    35.2
    %
    
    
    35.5
    %
    
    
    35.2
    %
    
    
    35.0
    %Medicaid
    
    
    10.6
    
    
    
    11.6
    
    
    
    10.6
    
    
    
    11.8HMOs, PPOs and other private insurers
    
    
    40.2
    
    
    
    39.2
    
    
    
    40.2
    
    
    
    39.4Self Pay
    
    
    9.8
    
    
    
    10.6
    
    
    
    9.8
    
    
    
    10.1Other
    
    
    4.2
    
    
    
    4.1
    
    
    
    4.2
    
    
    
    3.7Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Our historical sources of revenues table in our quarterly and annual
reports filed with the Securities and Exchange Commission (the SEC) prior to
our 2003 Annual Report on Form 10-K required certain reclassifications.
Specifically, contractual discounts relating to certain Medicaid state managed
care programs were historically classified incorrectly as HMOs, PPOs and other
private insurers revenues, instead of as Medicaid revenues. This change
produced no impact on our historical results of operations. Generally, these
reclassifications reduced Medicaid as a percentage of total revenues and
increased HMOs, PPOs and other private insurers as a percentage of total
revenues. Expenses Salaries and benefits increased as a percentage of revenues to 40.3% for
the quarter ended September 30, 2004 from 39.9% for the quarter ended September
30, 2003, primarily as a result of our two recently acquired
hospitals, River Parishes Hospital and Spring View Hospital, which
had higher salaries and benefits as a percentage of revenues than our average.
Salaries and benefits as a percentage of revenues was 47.5% at our two recently
acquired hospitals, on a
combined basis. Man-hours per equivalent admission increased 1.2% for the
quarter ended September 30, 2004 over the same period last year. We had a 6.4%
increase in salaries and benefits per man-hour in the quarter ended September
30, 2004 compared to the same period in 2003. However, our contract labor
costs decreased by 9.7% to $2.6 million in the quarter ended September 30, 2004
compared to $2.9 million in the quarter ended September 30, 2003. Appropriate
staffing and minimizing the use of contract labor will continue to be a
significant initiative for us. Supply costs as a percentage of revenues decreased to 12.7% in the quarter
ended September 30, 2004 from 12.8% for the quarter ended September 30, 2003,
on a consolidated basis. On a consolidated and same-hospital basis, our cost
of supplies per equivalent admission increased 5.8% and 5.3%, respectively, in
the quarter ended September 30, 2004 as a result of rising supply costs
compared to the same period in 2003, particularly in the pharmaceutical,
cardiac and spine and joint implant areas. This was partially offset because
our same-hospital surgeries, which generally incur higher supply costs per
equivalent admission, decreased by 1.6% for the quarter ended September 30,
2004 over the same period last year. Other operating expenses decreased as a percentage of revenues to 17.4% in
the quarter ended September 30, 2004 from 17.5% in the quarter ended September
30, 2003, primarily as a result of the 15.6% increase in our revenues, which
grew at a faster rate than our other operating expenses. This is because a
portion of our other operating expenses are fixed and not volume driven. Our
professional and general liability insurance expense was $2.1 million during
the quarter ended September 30, 2004 compared to $1.1 million in the quarter
ended September 30, 2003, as discussed further in Note 9 of our
condensed consolidated financial statements included elsewhere herein. In addition, our physician recruiting costs increased from
$3.9 million in 22




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##### Table of Contents



the quarter ended September 30, 2003 to $4.6 million in the quarter ended
September 30, 2004 as a result of our increased number of
recruited physicians. Our HCA information technology services
expenses for the quarter ended September 30, 2004 was $3.7 million
compared to $3.0 million for the same period in 2003 as a result of
an increased number of hospitals. Provision for doubtful accounts decreased as a percentage of revenues to
9.6% in the quarter ended September 30, 2004 from 10.2% in the quarter ended
September 30, 2003. The provision for doubtful accounts related primarily to
self-pay amounts due from patients. Our self-pay revenues, net of charity and
indigent care write-offs, increased by 25.2% from $21.4 million for the quarter
ended September 30, 2003 to $26.8 million for the quarter ended September 30,
2004. The factors influencing this increase are primarily a combination of
broad economic factors, including the increased number of uninsured patients
and health care plan design changes that resulted in increased copayments and deductibles. On
a same-hospital basis, the provision for doubtful accounts decreased as a
percentage of revenues to 9.4% in the quarter ended September 30, 2004 from
10.2% in the quarter ended September 30, 2003. Depreciation and amortization expense increased to $12.1 million in the
quarter ended September 30, 2004 from $10.2 million in the quarter ended
September 30, 2003, primarily as a result of our acquisitions and depreciation
associated with recently completed capital improvements at our facilities. The provision for income taxes increased to $13.2 million in the quarter
ended September 30, 2004 from $11.0 million in the quarter ended September 30,
2003. The income tax provisions reflected an effective income tax rate of 39.7%
for the quarter ended September 30, 2004 compared to 40.2% for the quarter
ended September 30, 2003. The effective tax rate decreased primarily as a
result of the decrease in nondeductible ESOP expense as a percentage of income
from continuing operations before taxes. For the Nine Months Ended September 30, 2003 and 2004 Revenues Our revenues for the nine months ended September 30, 2004 increased by
$93.0 million, or 14.4%, to $739.4 million compared to the nine months ended
September 30, 2003. This increase is attributable to:  
    
    $64.3 million increase in our same-hospital revenues; and
    
    $28.7 million in revenues from our 2003 acquisition of Spring
View Hospital and 2004 acquisition of River Parishes Hospital. Adjustments to estimated reimbursement amounts increased our revenues by
$3.9 million for the nine months ended September 30, 2004 compared to $6.1
million for the same period in 2003. In addition, as discussed in Note 10 to
our condensed consolidated financial statements, we recognized $3.2 million in
additional revenues for the quarter ended March 31, 2004 following the
confirmation by CMS of a Medicare DSH designation at one of our hospitals. Our
DSH payments from Medicare for the nine months ended September 30, 2004 were
$14.4 million, an increase of $6.8 million over the same period in 2003. This
increase is primarily the result of the DSH payment increases under MMA. Our same-hospital inpatient revenues for the nine months ended September
30, 2004 increased by $39.1 million, or 12.8%, to $345.3 million compared to
the nine months ended September 30, 2003. The primary factors causing this
change were increases in admissions and inpatient surgeries, which involve
higher intensive procedures. The increase in higher intensive procedures is the
result of capital spending at our facilities and strong physician recruitment
in the past year. Our same-hospital outpatient revenues for the nine months ended September
30, 2004 increased by $24.7 million, or 7.4%, to $357.4 million compared to the
nine months ended September 30, 2003. This outpatient growth was largely driven
by a 0.5% increase in same-hospital outpatient surgeries and an increase in
radiology procedures such as CT-scans and MRIs, as well as cardiac
catheterization procedures. In addition, the $24.7 million increase in revenues
includes $3.2 million from the Medicare DSH designation described in Note 10 to
our condensed consolidated financial statements. After factoring all of the above, our equivalent admissions increased by
2.5% on a same-hospital basis for the nine months ended September 30, 2004
compared to the same period in 2003. As it relates to pricing and acuity, our 23




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##### Table of Contents



same-hospital revenues per equivalent admission for the nine months ended
September 30, 2004 increased 7.2%, or $363 per equivalent admission, over the
same period in 2003 reflecting positive reimbursement trends and higher
intensive procedures as discussed above. The table below shows the sources of our revenues for the nine months
ended September 30, expressed as percentages of total revenues: Continuing Operations
    
    Same-hospital2003
    
    2004
    
    2003
    
    2004Medicare
    
    
    36.6
    %
    
    
    37.0
    %
    
    
    36.6
    %
    
    
    37.3
    %Medicaid
    
    
    10.9
    
    
    
    11.1
    
    
    
    10.9
    
    
    
    11.1HMOs, PPOs and other private insurers
    
    
    39.8
    
    
    
    38.7
    
    
    
    39.8
    
    
    
    38.7Self Pay
    
    
    8.6
    
    
    
    9.4
    
    
    
    8.6
    
    
    
    9.1Other
    
    
    4.1
    
    
    
    3.8
    
    
    
    4.1
    
    
    
    3.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Our historical sources of revenues table in our quarterly and annual
reports filed with the SEC prior to our 2003 Annual Report on Form 10-K
required certain reclassifications. Specifically, contractual discounts
relating to certain Medicaid state managed care programs were historically
classified incorrectly as HMOs, PPOs and other private insurers revenues,
instead of as Medicaid revenues. This change produced no impact on our
historical results of operations. Generally, these reclassifications reduced
Medicaid as a percentage of total revenues and increased HMOs, PPOs and other
private insurers as a percentage of total revenues. Expenses Salaries and benefits decreased as a percentage of revenues to 40.1% for
the nine months ended September 30, 2004 from 40.6% for the nine months ended
September 30, 2003, primarily as a result of improvements in labor productivity
and the 14.4% increase in our revenues. Man-hours per equivalent admission
decreased 0.2% for the nine months ended September 30, 2004 over the same
period last year. However, we had a 6.0% increase in salaries and benefits per
man-hour in the nine months ended September 30, 2004 compared to the same
period in 2003. Our contract labor costs decreased by 8.3% to $9.5 million in
the nine months ended September 30, 2004 compared to $10.3 million in the nine
months ended September 30, 2003. Appropriate staffing and minimizing the use of
contract labor will continue to be a significant initiative for us. Supply costs as a percentage of revenues remained constant at 12.9% in the
nine months ended September 30, 2004 compared to the nine months ended
September 30, 2003, on both a consolidated and same-hospital basis. On a
consolidated and same-hospital basis, our cost of supplies per equivalent
admission increased 7.0% and 7.1%, respectively, in the nine months ended
September 30, 2004 as a result of rising supply costs compared to the same
period in 2003, particularly in the pharmaceutical, cardiac and spine and joint
implant areas. In addition, our same-hospital surgeries, which generally incur
higher supply costs per equivalent admission, increased by 1.4% for the nine
months ended September 30, 2004 over the same period last year. Other operating expenses decreased as a percentage of revenues to 16.7% in
the nine months ended September 30, 2004 from 18.0% in the nine months ended
September 30, 2003, primarily as a result of the 14.4% increase in our revenues
and a $1.0 million decrease in our professional and general liability insurance
expense. A portion of our other operating expenses are fixed and not volume
driven. Our professional and general liability insurance expense was $6.5
million during the nine months ended September 30, 2004 compared to $7.5
million in the nine months ended September 30, 2003. This decrease relates to
favorable loss experience as reflected in our external actuarial reports and a
change in actuaries to estimate projected losses under the self-insured portion
of our insurance program, as further discussed in Note 9 of our condensed
consolidated financial statements included elsewhere herein. However, our
physician recruiting costs increased from $8.6 million in the nine months ended
September 30, 2003 to $10.2 million in the nine months ended September 30, 2004
as a result of our increased number of recruited physicians. Our HCA
information technology services expenses for the nine months ended
September 30, 2004 was $11.4 million compared to $10.2 million for
the same period in 2003 as a result of an increased number of
hospitals and information system conversion fees. Provision for doubtful accounts increased as a percentage of revenues to
8.7% in the nine months ended September 30, 2004 from 8.2% in the nine months
ended September 30, 2003. The provision for doubtful accounts 24




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##### Table of Contents



related primarily to self-pay amounts due from patients. Our self-pay
revenues, net of charity and indigent care write-offs, increased by 24.5% from
$55.6 million for the nine months ended September 30, 2003 to $69.2 million for
the nine months ended September 30, 2004. The factors influencing this
increase are primarily a combination of broad economic factors, including the
increased number of uninsured patients and plan design changes increasing
copayments and deductibles. On a same-hospital basis, the provision for
doubtful accounts increased as a percentage of revenues to 8.5% in the nine
months ended September 30, 2004 from 8.2% in the nine months ended September
30, 2003. Depreciation and amortization expense increased to $34.5 million in the
nine months ended September 30, 2004 from $31.5 million in the nine months
ended September 30, 2003, primarily as a result of our acquisitions and
depreciation associated with recently completed capital improvements at our
facilities. The provision for income taxes increased to $42.1 million in the nine
months ended September 30, 2004 from $34.2 million in the nine months ended
September 30, 2003. The income tax provisions reflected an effective income tax
rate of 39.8% for the nine months ended September 30, 2004 compared to 40.4%
for the nine months ended September 30, 2003. The effective tax rate decreased
primarily as a result of changes related to state net operating losses. Liquidity and Capital Resources Liquidity Our primary sources of liquidity are cash flows provided by our operations
and our Revolving Credit Facility. Our liquidity for the nine months ended
September 30, 2003 and 2004 was derived primarily from net cash provided by
operating activities. Cash flows from continuing operations for the nine months ended September
30 were as follows (in millions): Source (use) of cash flow
    
    2003
    
    2004Operating activities
    
    $
    92.0
    
    
    $
    114.7Investing activities
    
    
    (67.7
    )
    
    
    (85.3
    )Financing activities
    
    
    (25.6
    )
    
    
    (41.6
    )Net change in cash and cash equivalents
from continuing operations
    
    $
    (1.3
    )
    
    $
    (12.2
    )Interest payments
    
    $
    6.6
    
    
    $
    7.1Income taxes paid
    
    $
    34.8
    
    
    $
    36.6Working capital, excluding assets held
for sale, as of September 30
    
    $
    75.4
    
    
    $
    91.2
 Operating activities The
$22.7 million increase in cash flows provided by operating activities
in the nine months ended September 30, 2004 as compared to the same period in
2003 is primarily a result of:  
    
    increased income from continuing operations of $13.3 million in the
nine months ended September 30, 2004 as compared to the same period in
2003; and
    
    improved cash flows from operations related to changes in working
capital of $7.7 million in the first nine months of 2004 as compared to the same
period 25




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##### Table of Contents



in 2003. Our revenue days in patient accounts receivable were 40.6 days
at September 30, 2004 compared to 39.3 days at December 31, 2003 due to
an increase in our 0-60 day accounts receivable aging bucket at River
Parishes Hospital, which we acquired effective July 1, 2004 and we did
not acquire accounts receivable. However, we paid $1.8 million more in
income taxes during the nine months ended September 30, 2004 as compared
to the nine months ended September 30, 2003 as a result of an increase in
our net income. Investing activities Cash used in investing activities for the nine months ended September 30,
2004 consisted primarily of capital improvement costs of $56.7 million, the
purchase price and direct transaction costs of River Parishes Hospital of $24.8
million, the direct transaction costs and working capital settlement of Spring
View Hospital of $0.5 million, the direct transaction costs related to the
Province acquisition of $1.0 million, and $1.5 million related to our purchase
of a surgery center in Sulligent, Alabama. Our routine capital expenditures
decreased from $17.3 million in the nine months ended September 30, 2003 to
$14.5 million in the nine months ended September 30, 2004 as a result of a
higher number of routine projects during the nine months ended September 30,
2003. Cash used in investing activities for the nine months ended September
30, 2003 primarily consisted of capital improvement costs of $52.4 million and
the initial purchase price of Spring View Hospital of $15.7 million. Financing activities Cash used in financing activities for the nine months ended September 30,
2004 consisted primarily of $29.9 million used to repurchase our Convertible
Notes during the second quarter of 2004, including $0.9 million
in cash premium
costs, and $50.0 million repayments under our Revolving Credit Facility during
the nine months ended September 30, 2004. These activities were partially
offset by $30.0 million borrowed under our Revolving Credit Facility and $7.7
million in proceeds from stock option exercises and purchases of shares under
our employee stock purchase plans. We used approximately $24.5 million of the
$30.0 million Revolving Credit Facility borrowing to acquire River Parishes
Hospital on June 30, 2004. Cash used in financing activities for the nine
months ended September 30, 2003 primarily consisted of $28.0 million used to
repurchase our common stock, offset by proceeds from stock option exercises and
purchases of shares under our employee stock purchase plans. Capital Resources Revolving Credit Facility Our Revolving Credit Facility, which expires in June 2006, provides for
borrowings up to $200.0 million in the aggregate, is guaranteed by
substantially all of our current and future subsidiaries and is secured by
substantially all of our assets. The Revolving Credit Facility requires that
we comply with certain financial covenants, including: Requirement
    Level at September 30, 2004Maximum permitted consolidated leverage ratio
    
    <3.50 to 1.00
    
    
    1.14 to 1.00Maximum permitted consolidated senior leverage ratio
    
    <2.50 to 1.00
    
    
    0.08 to 1.00Minimum permitted consolidated interest coverage ratio
    
    >3.50 to 1.00
    
    
    14.30 to 1.00Minimum permitted consolidated net worth
    
    >$301.2 million
    
    $477.7 millionMaximum capital expenditures  last twelve months
    
    <$150.2 million
    
    $72.9 million
 The Revolving Credit Facility also contains various other covenants,
including, but not limited to, restrictions on new indebtedness, the ability to
merge or consolidate, asset sales, capital expenditures, acquisitions and
dividends. We were in compliance with these covenants as of September 30, 2004.
During the second quarter of 2004, we entered into an amendment under the
Revolving Credit Facility that allows us to repurchase up to $150.0 million of
our Convertible Notes. As of September 30, 2004, we had no outstanding
indebtedness under our Revolving Credit Facility and letters of credit in the
aggregate amount of $16.4 million outstanding, leaving $183.6 million available
under our Revolving Credit Facility. We repaid the $20.0 million of
indebtedness outstanding at December 31, 2003 under our Revolving Credit
Facility in February 2004 with our available cash. In addition, we repaid the
$30.0 26




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##### Table of Contents



million of indebtedness outstanding at June 30, 2004 under our Revolving
Credit Facility in the third quarter of 2004 with our available cash.
We intend to replace the Revolving Credit Facility with a new debt
arrangement as part of the Province acquisition. The applicable interest rate under the Revolving Credit Facility is based
on a rate, at our option, equal to either (i) LIBOR plus a margin ranging from
1.25% to 2.25% or (ii) prime plus a margin ranging from 0% to 0.5%, both
depending on our consolidated total debt to consolidated EBITDA ratio, as
defined, for the most recent four quarters. Our Revolving Credit Facility does not contain provisions that would
accelerate the maturity date of our debt upon a downgrade in our credit rating.
However, a downgrade in our credit rating could adversely affect our ability to
renew our existing credit facility or obtain access to new credit facilities or
other capital sources in the future and could increase the cost of such
facilities and other capital sources. Our credit ratings as of September 30,
2004 are as follows: Standard & Poors
    
    MoodysCorporate Credit Rating/Senior Implied
Senior Secured Bank Credit Facility
    
    BB
BB+
    
    Ba3
Ba2Senior Unsecured/Issuer
    
    
    
    B2Subordinated
    
    
    
    B3Outlook
    
    Watch, Negative
    
    Positive
 Standard & Poors placed our ratings on credit watch with negative
implications on August 16, 2004, after we announced our agreement to acquire
Province. We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance, special
purpose or variable interest entities, established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Accordingly, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships. Convertible Notes On May 22, 2002, we sold 41⁄2% Convertible Subordinated Notes due 2009
in the aggregate principal amount of $250 million (the Convertible Notes).
The net proceeds of approximately $242.5 million were used for acquisitions,
capital improvements at our existing facilities, repurchase of our 103⁄4%
Senior Subordinated Notes, working capital and general corporate purposes. The
Convertible Notes bear interest at the rate of 41⁄2% per year, payable
semi-annually on June 1 and December 1. The Convertible Notes are convertible
at the option of the holder at any time on or prior to maturity into shares of
our common stock at a conversion price of $47.36 per share. The conversion
price is subject to adjustment in certain circumstances. We may redeem all or a
portion of the Convertible Notes on or after June 3, 2005, at the then current
redemption prices, plus accrued and unpaid interest. Holders of the Convertible
Notes may require us to repurchase all of the holders Convertible Notes at
100% of their principal amount plus accrued and unpaid interest in some
circumstances involving a change of control. The Convertible Notes are
unsecured and subordinated to our existing and future senior indebtedness and
senior subordinated indebtedness. The Convertible Notes rank junior to our
other liabilities. The indenture governing the Convertible Notes does not
contain any financial covenants. We repurchased $29.0 million of our $250.0 million Convertible Notes
during the second quarter of 2004 and paid a premium of $0.9 million on these
repurchases. These repurchases reduced the number of shares of common stock
that were reserved for issuance upon conversion of the Convertible Notes from
5,278,825 shares to 4,666,481 shares. 27




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Liquidity and Capital Resources Outlook We have received a commitment from Citigroup to finance the cash
consideration for the acquisition of Province, to refinance Provinces existing
debt and to provide for the ongoing working capital and general corporate needs
of New LifePoint. The commitment provides for up to $1.325 billion in term loans
and up to $400 million in revolving loans on customary terms and conditions. We expect the level of capital expenditures in 2004 to be approximately
$83.0 million, of which $56.7 million has been spent in the nine months ended
September 30, 2004. We have large projects in process at a number of our
facilities. We are reconfiguring some of our hospitals to more effectively
accommodate patient services and restructuring existing surgical capacity in
some of our hospitals to permit additional patient volume and a greater variety
of services. At September 30, 2004, we had projects under construction with an
estimated additional cost to complete and equip of approximately $91.0 million.
We anticipate that these projects will be completed over the next three years.
We anticipate funding these expenditures through cash provided by operating
activities, available cash and borrowings under our Revolving Credit Facility
and, after the Province acquisition, through the committed funds from
Citigroup, as described above. Our business strategy contemplates the acquisition of additional
hospitals, and we regularly review potential acquisitions. These acquisitions
may, however, require additional financing. We regularly evaluate opportunities
to sell additional equity or debt securities, obtain credit facilities from
lenders or restructure our long-term debt or equity for strategic reasons or to
further strengthen our financial position. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. We have never declared or paid dividends on our common stock. We intend to
retain future earnings to finance the growth and development of our business
and, accordingly, do not currently intend to declare or pay any dividends on
our common stock. Our Board of Directors will evaluate our future earnings,
results of operations, financial condition and capital requirements in
determining whether to declare or pay cash dividends. Delaware law prohibits us
from paying any dividends unless we have capital surplus or net profits
available for this purpose. In addition, our Revolving Credit Facility imposes
restrictions on our ability to pay dividends. We repurchased approximately 2.1
million shares of our common stock for an aggregate price of approximately
$45.7 million during 2003. Please refer to Part II, Item 2. Unregistered Sales
of Equity Securities and Use of Proceedselsewhere in this report for a
discussion of our share repurchase program. We believe that cash flows from operations, amounts available under our
Revolving Credit Facility, amounts committed from Citigroup, and our
anticipated access to capital markets are sufficient to meet expected liquidity
needs, planned capital expenditures, the acquisition of Province, potential
other acquisitions and other expected operating needs over the next three
years. Contractual Obligations During the nine months ended September 30, 2004, there were no material
changes in our contractual obligations presented in our 2003 Annual Report on
Form 10-K except for our obligation under our contract with HCA related to the
purchase of information technology services, which was recently extended
through December 31, 2009. The following is an update of our contractual
obligation to HCA, reflecting our amended agreement, which was signed during
the second quarter of 2004 (in millions): Payments Due by PeriodPurchase Obligation
    
    Total
    
    10/04-12/04
    
    2005-2007
    
    2008-2009
    
    After 2009HCA-IT services
    
    $
    69.6
    
    
    $
    3.1
    
    
    $
    39.1
    
    
    $
    27.4
    
    
    $
    
 Off-Balance Sheet Arrangements We had standby letters of credit outstanding of approximately $16.4
million as of September 30, 2004. Of this amount, $16.3 million was related to
the self-insured retention levels of our professional and general liability
insurance programs as security for the payment of claims and $0.1 million was
related to obligations to certain utility companies. 28




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##### Table of Contents



Impact of Recently Issued Accounting Pronouncements Please refer to Note 5 of our condensed consolidated financial statements
included in this report for a discussion of the impact of recently issued
accounting pronouncements. Contingencies Please refer to Note 7 of our condensed consolidated financial statements
included in this report for a discussion of our material financial
contingencies, including:  
    
    An Americans with Disabilities Act claim;
    
    Our Corporate Integrity Agreement;
    
    Legal proceedings and general liability claims;
    
    Physician commitments;
    
    Capital expenditure commitments;
    
    Tax matters; and
    
    Acquisitions. Factors That May Affect Future Results We make forward-looking statements in this report and in other reports and
proxy statements we file with the SEC. In addition, our senior management
makes forward-looking statements orally to analysts, investors, the media and
others. Broadly speaking, forward-looking statements include:  
    
    projections of our revenues, net income, earnings per share, capital
expenditures or other financial items;
    
    descriptions of plans or objectives of our management for future
operations or services, including pending acquisitions;
    
    forecasts of our future economic performance; and
    
    descriptions of assumptions underlying or relating to any of the foregoing. In this report, for example, we make forward-looking statements discussing our expectations about:  
    
    completion of the Province acquisition;
    
    future financial performance;
    
    future liquidity;
    
    industry trends;
    
    patient volumes and related revenues;
    
    recruiting and retention of clinical personnel;
    
    future capital expenditures; 29




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
    
    the impact of new accounting standards; and
    
    physician recruiting. Forward-looking statements discuss matters that are not historical facts.
Because they discuss future events or conditions, forward-looking statements
often include words such as can, could, may, should, believe, will,
would, expect, project, estimate, anticipate, plan, intend,
target, continue or similar expressions. Do not unduly rely on
forward-looking statements. They give our expectations about the future and are
not guarantees. Forward-looking statements speak only as of the date they are
made, and we might not update them to reflect changes that occur after the date
they are made. There are several factors, many beyond our control that could cause
results to differ significantly from our expectations. Some of these factors
are described below under Risk Factors. Other factors, such as market,
operational, liquidity, interest rate and other risks, are described elsewhere
in this report or in our 2003 Annual Report on Form 10-K. Any factor described
in this report or in our 2003 Annual Report on Form 10-K could, by itself or
together with one or more factors, adversely affect our business, results of
operations and/or financial condition. There may be factors not described in
this report or in our 2003 Annual Report on Form 10-K that could cause results
to differ from our expectations. Risk Factors Our proposed acquisition of Province, announced on August 16, 2004, exposes us
to a number of significant risks. There are a number of significant risks associated with our acquisition of
Province as more fully described in our joint proxy statement / prospectus on
Form S-4, as filed with the SEC on October 25, 2004, including:  
    
    the risk that required approvals will not be obtained or
conditions to closing will not be satisfied in a timely manner or at
all;  
    
    the risks associated with the opinions of counsel of LifePoint
and Province and the possible changes in the structure of the
transaction;  
    
    the uncertainty related to the number of shares of common stock
to be issued in the transaction;  
    
    the risk of decreases in the market price of our common stock if
the transaction is delayed or not completed or, if the transaction is
completed, as a result of the issuance of shares in the acquisition
and the sale of additional shares of stock that may become eligible
for sale in the public market from time to time upon exercise of
options or other rights;  
    
    risks associated with the early vesting of stock options,
restricted shares and purchased restricted shares held by our
directors and executive officers;  
    
    risks associated with our ability to successfully integrate the
operations and businesses of Province, and the related diversion of
management resources necessary to complete the transaction and
integrate the businesses;  
    
    risks associated with our ability to realize the full projected
cost savings and benefits from the transaction;  
    
    the possibility of loss of key personnel as a result of the
transaction and the risk that the resulting company will be unable to
attract qualified individuals in the future;  
    
    the significance of the expenses to be incurred related to the
acquisition;  
    
    risks associated with the increased level of indebtedness to pay
the cash portion of the acquisition and to refinance certain
indebtedness and risks associated with our ability to finance
operations, pursue desirable opportunities or successfully run our
business in the future; and  
    
    other risks as more fully described in our joint proxy statement
/ prospectus on Form S-4 filed with the SEC on October 25, 2004. We may have difficulty acquiring hospitals on favorable terms and, because of
regulatory scrutiny, acquiring nonprofit entities. One element of our business strategy is expansion through the acquisition
of acute care hospitals in growing, non-urban markets. We face significant
competition to acquire other attractive, non-urban hospitals, and we may not
find suitable acquisitions on favorable terms. We may also may incur or assume
additional indebtedness as a result of the consummation of acquisitions
following consummation of the proposed transaction. Our failure to acquire
non-urban hospitals consistent with our growth plans could prevent us from
increasing revenues. The cost of our acquisitions could result in a dilutive effect on our
results of operations depending on various factors, including the amount paid
for the acquisition, the acquired hospitals results of operations, allocation
of tangible and intangible assets, effects of subsequent legislation changes
and limitations on rate increases. 30




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In recent years, the legislatures and attorneys general of several states
have become more interested in sales of hospitals by not-for-profit entities.
This heightened scrutiny may increase the cost and difficulty, or prevent the
completion, of transactions with not-for-profit organizations in the future. We may encounter numerous business risks in acquiring additional hospitals, and
may have difficulty operating and integrating those hospitals. We may be unable to timely and effectively integrate hospitals that we
acquire with our ongoing operations. We may experience delays in
implementing operating procedures and systems in newly acquired hospitals.
Integrating a new hospital could be expensive and time consuming and could
disrupt our ongoing business, negatively affect cash flow and distract its
management and other key personnel. In addition, acquisition activity requires
transitions from, and the integration of, operations and, usually, information
systems that are used by our acquired hospitals, and we will rely heavily on
HCA for information systems integration as part of a contractual arrangement
for information technology services. We may not be successful in causing HCA to
convert newly acquired hospitals information systems in a timely manner. We also may acquire businesses with unknown or contingent liabilities,
including liabilities for failure to comply with healthcare laws and
regulations. We have policies to conform the practices of acquired facilities
to our standards and to applicable law, and generally will seek indemnification
from prospective sellers covering these matters. We may, however, incur
material liabilities for past activities of acquired businesses, including
those of Province. Although we have historically obtained, and will likely
obtain, contractual indemnification from sellers covering these matters, this
indemnification may be insufficient to cover material claims or liabilities for
past activities of acquired hospitals. We depend significantly on key personnel, and the loss of one or more senior or
local management personnel could limit our ability to execute our business
strategy. We depend on the continued services and management experience of Kenneth
C. Donahey and our other executive officers. If Mr. Donahey or any of our other
executive officers resign their positions or otherwise are unable to serve, our
management expertise and ability to deliver healthcare services efficiently
could be weakened. In addition, if we fail to attract and retain managers at
our hospitals and related facilities, our operations will suffer. If we fail to effectively recruit and retain physicians, nurses and medical
technicians, our ability to deliver healthcare services efficiently will be
adversely affected. Physicians generally direct the majority of hospital admissions and
services. Our success, in part, will depend on the number and quality of
physicians on our hospitals medical staffs, the admissions practices of these
physicians and the maintenance of good relations with these physicians. Only a
limited number of physicians practice in the non-urban communities where our
hospitals are located. The primary method employed by us to add or expand
medical services will be the recruitment of new physicians into our
communities. The success of our recruiting efforts will depend on several factors. In
general, there is a shortage of specialty care physicians. We will face intense
competition in the recruitment of specialists because of the difficulty in
convincing these individuals as to the benefits of practicing in non-urban
communities. Physicians are concerned with the patient volume in non-urban
hospitals and whether or not this volume will allow them to generate income
comparable to that which they would generate in an urban setting. If the growth
rate slows in the non-urban communities where our hospitals operate,
then we could experience difficulty attracting physicians to practice in our
communities. There is generally a shortage of nurses and certain medical technicians in
the healthcare field. Our hospitals may be forced to hire expensive contract
personnel if they are unable to recruit and retain full-time employees. The
shortage of nurses and medical technicians may affect the ability of our
hospitals to deliver healthcare services efficiently. 31




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Our revenues may decline if federal or state programs reduce our Medicare or
Medicaid payments or managed care companies reduce our reimbursements. In 2003, we derived 46.4% of our revenues from continuing operations, from
the Medicare and Medicaid programs. In recent years, federal and state
governments have made significant changes in the Medicare and Medicaid
programs. A number of states have incurred budget deficits and adopted
legislation designed to reduce their Medicaid expenditures and to reduce
Medicaid enrollees. Employers have also passed more costs on to employees to reduce the
employers health insurance expenses. This trend has caused the
self-pay/deductible component of healthcare services to become more common.
This payor shifting increases collection costs and reduces overall collections. During the past several years, major purchasers of healthcare, such as
federal and state governments, insurance companies and employers, have
undertaken initiatives to revise payment methodologies and monitor healthcare
costs. As part of their efforts to contain healthcare costs, purchasers
increasingly are demanding discounted fee structures or the assumption by
healthcare providers of all or a portion of the financial risk through prepaid
capitation arrangements, often in exchange for exclusive or preferred
participation in their benefit plans. We expect efforts to impose reduced
allowances, greater discounts and more stringent cost controls by government
and other payors to continue, thereby reducing the payments that we will
receive for our services. In addition, we anticipate that organizations offering prepaid and
discounted medical services packages may represent an increasing portion of our
patient admissions. An increasing number of managed care organizations have
experienced financial difficulties in recent years, in some cases resulting in
bankruptcy or insolvency. In some instances, organizations which currently have
provider agreements with certain of our hospitals have become insolvent, and
the hospitals have been unable to collect the full amounts due from these
organizations. Other managed care organizations with whom we do business may
encounter similar difficulties in paying claims in the future. We believe that
reductions in the payments that we receive for our services, coupled with the
increased percentage of patient admissions from organizations offering prepaid
and discounted medical services and difficulty in collecting receivables from
managed care organizations, could reduce our overall revenue and profitability. Our revenue is heavily concentrated in Kentucky and Tennessee, which makes us
particularly sensitive to regulatory and economic changes in those states. Our revenue is particularly sensitive to regulatory and economic changes
in Kentucky and Tennessee. As of September 30, 2004, we operated 30 hospitals
with eight located in the commonwealth of Kentucky and seven located in the
state of Tennessee. We generated 34.2% and 35.0% of our revenues from
continuing operations from our Kentucky hospitals (including 3.5% and 4.2% from
state-sponsored Medicaid programs) and 20.8% and 19.6% from our Tennessee
hospitals (including 2.9% and 2.7% from the state-sponsored TennCare program)
for the nine months ended September 30, 2003 and 2004, respectively. Certain
managed care organizations that participate in the Medicaid programs of
Tennessee and Kentucky have been placed in receivership or encountered other
financial difficulties. Other managed care organizations in the states in which
we derive significant revenue may encounter similar difficulties in paying
claims in the future. Accordingly, any change in the current demographic,
economic, competitive or regulatory conditions in Kentucky and Tennessee could
have a material adverse effect on our business, financial condition, results of
operations and/or prospects. Other hospitals provide similar services, which may raise the level of
competition faced by our hospitals. Competition among hospitals and other healthcare providers for patients
has intensified in recent years, and we will compete with other hospitals,
including larger tertiary care centers. Although the hospitals which will
compete with us may be a significant distance away from our facility, patients
in these markets may migrate to, may be referred by local physicians to, or may
be lured by incentives from managed care plans to travel to these hospitals.
Furthermore, some of the hospitals which compete with us may use equipment and
services more specialized than those available at our competing hospital. Also,
some of the hospitals that will compete with us will be owned by tax-supported
governmental agencies or not-for-profit entities supported by endowments and
charitable contributions. These hospitals will be able to make capital
expenditures without paying sales, property and income taxes. 32




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We will also face competition from other specialized care providers,
including outpatient surgery, oncology, physical therapy and diagnostic centers
(in which physicians may have an ownership interest), as well as competing
services rendered in physician offices. Where necessary to prevent this type of
competition, some of our hospitals may develop specialized outpatient
facilities. However, to the extent that other providers are successful in
developing specialized outpatient facilities, our market share for these
specialized services will likely decrease in the future. Moreover, many of our
current hospitals attempt to attract patients from surrounding counties and
communities, including communities in which a competing facility exists.
However, if our competitors are able to finance capital improvements and expand
services at their facilities, we may be unable to attract patients away from
these facilities in the future. We may be subjected to allegations that we failed to comply with governmental
regulation, which could result in sanctions that reduce our revenue and
profitability. All participants in the healthcare industry are required to comply with
many laws and regulations at the federal, state and local government levels.
These laws and regulations require that hospitals meet various requirements,
including those relating to the adequacy of medical care, equipment, personnel,
operating policies and procedures, billing and cost reports, payment for
services and supplies, maintenance of adequate records, privacy, compliance
with building codes and environmental protection. If we fail to comply with
applicable laws and regulations, we could suffer civil or criminal penalties,
including the loss of our licenses to operate our hospitals and our ability to
participate in the Medicare, Medicaid and other federal and state healthcare
programs. Significant media and public attention recently has focused on the
hospital industry as a result of ongoing investigations related to referrals,
physician recruiting practices, cost reporting and billing practices,
laboratory and home healthcare services and physician ownership and joint
ventures involving hospitals. Both federal and state government agencies have
announced heightened and coordinated civil and criminal enforcement efforts. In
addition, the OIG and the DOJ periodically establish enforcement initiatives
that focus on specific billing practices or other suspected areas of abuse.
Recent initiatives include a focus on hospital billing practices,
rehabilitation and outpatient therapy. In public statements, governmental authorities have taken positions on
issues for which little official interpretation was previously available. Some
of these positions appear to be inconsistent with common practices within the
industry but have not previously been challenged. Moreover, some government
investigations that have in the past been conducted under the civil provisions
of federal law are now being conducted as criminal investigations under the
Medicare fraud and abuse laws. The laws and regulations with which we must comply are complex and subject
to change. In the future, different interpretations or enforcement of these
laws and regulations could subject our current practices to allegations of
impropriety or illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure programs and
operating expenses. Finally, we are subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment. Our
current healthcare operations generate and will generate medical waste, such as
pharmaceuticals, biological materials and disposable medical instruments, that
must be disposed of in compliance with federal, state and local environmental
laws, rules and regulations. Our operations also will be subject to various
other environmental laws, rules and regulations. Environmental regulations also
may apply when we renovate or refurbish hospitals, particularly older
facilities. We may be subjected to
actions brought by the government under anti-fraud and abuse
provisions, or by individuals on the governments
behalf under the False Claims Acts qui tam or whistleblower provisions. Medicare and Medicaid anti-fraud and abuse provisions, known as the
anti-kickback statute, prohibit some business practices and relationships
related to items or services reimbursable under Medicare, Medicaid and other
federal healthcare programs. For instance, the anti-kickback statute prohibits
healthcare service providers from paying or receiving remuneration to induce or
arrange for the referral of patients or items or services covered by a federal
or state healthcare program. If regulatory authorities determine that any of
our hospitals arrangements 33




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violate the anti-kickback statute, we could be subject to liabilities under the
Social Security Act, including criminal penalties, civil monetary penalties
and/or exclusion from participation in Medicare, Medicaid or other federal
healthcare programs, any of which could impair our ability to operate one or
more of our hospitals profitably. Whistleblower provisions allow private individuals to bring actions on
behalf of the government alleging that the defendant has defrauded the federal
government. Defendants found to be liable under the False Claims Act may be
required to pay three times the actual damages sustained by the government,
plus mandatory civil penalties ranging between $5,500 and $11,000 for each
separate false claim. There are many potential bases for liability under the False Claims Act.
Liability often arises when an entity knowingly submits a false claim for
reimbursement to the federal government. The False Claims Act defines the term
knowingly broadly. Although simple negligence will not give rise to
liability under the False Claims Act, submitting a claim with reckless
disregard to its truth or falsity constitutes a knowing submission under the
False Claims Act and, therefore, will qualify for liability. In some cases, whistleblowers or the federal government have taken the
position that providers who allegedly have violated other statutes, such as the
anti-kickback statute and the Stark Law, have thereby submitted false claims
under the False Claims Act. In addition, a number of states have adopted their
own false claims provisions as well as their own whistleblower provisions
whereby a private party may file a civil lawsuit in state court. We may be subject to liabilities because of malpractice and related legal
claims brought against our hospitals. If we become subject to these claims, we
could be required to pay significant damages, which may not be covered by
insurance. We will be subject to medical malpractice lawsuits, product liability
lawsuits and other legal actions arising out of the operations of its owned and
leased hospitals. These actions may involve large claims and significant
defense costs. To mitigate a portion of this risk, we maintain professional
malpractice liability and general liability insurance coverage for these claims
in amounts that we believe are appropriate for our operations. However, some
of these claims could exceed the scope of the coverage in effect, or coverage
of particular claims could be denied. It is possible that successful claims
against us that are within the self-insured retention level amounts, when
considered in the aggregate, could have an adverse effect on our results of
operations, cash flows, financial condition or liquidity. Furthermore,
insurance coverage in the future may not continue to be available at a cost
allowing us to maintain adequate levels of insurance with acceptable
self-insured retention level amounts. In addition, physicians using our
hospitals may be unable to obtain insurance on acceptable terms. Certificate of need laws and licensing regulations may prohibit or limit any
future expansion by us in some states. Some states require prior approval for the purchase, construction and
expansion of healthcare facilities, based on a states determination of need
for additional or expanded healthcare facilities or services. Five states in
which we currently own hospitals, Alabama, Florida, Kentucky, Tennessee and
West Virginia, require a certificate of need for capital expenditures exceeding
a prescribed amount, changes in bed capacity or services and certain other
matters. We may not be able to obtain certificates of need required for
expansion activities in the future. In addition, all of the states in which we
operate require hospitals and most healthcare providers to maintain one or more
licenses. If we fail to obtain any required certificate of need or licenses,
our ability to operate or expand operations in these states could be impaired. If our access to HCAs information systems is restricted or we are not able to
integrate changes to our existing information systems or information systems of
acquired hospitals, our operations could suffer. Our business will depend significantly on effective information systems to
process clinical and financial information. Information systems require an
ongoing commitment of significant resources to maintain and enhance existing
systems and develop new systems in order to keep pace with continuing changes
in information processing technology. We rely, and will continue to rely,
heavily on HCA for information systems. Under a contract with a term that will
expire on December 31, 2009, HCA provides us with financial, clinical, patient
accounting and 34




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network information services. If our access to these systems is limited in the
future, or if HCA develops systems more appropriate for the urban healthcare
market and not suited for our hospitals, our operations could suffer. In addition, as new information systems are developed in the future, we
will need to integrate them into its existing systems. Evolving industry and
regulatory standards, such as the Health Insurance Portability and
Accountability Act of 1996, commonly known as HIPAA, may require changes to
our information systems in the future. We may not be able to integrate new
systems or changes required to its existing systems or systems of acquired
hospitals in the future effectively or on a cost-efficient basis. Please
refer to Part I, Item 1. Business  Government Regulationin our 2003 Annual
Report on Form 10-K for a discussion of HIPAA. A key element of our business strategy is growth through the acquisition
of additional acute care hospitals. Our acquisition activity requires
transitions from, and the integration of, various information systems that are
used by the hospitals we acquire. If we experience difficulties with the
integration of the information systems of acquired hospitals, we could suffer,
among other things, operational disruptions and increases in administrative
expenses. If we fail to comply with our corporate integrity agreement, we could be
required to pay significant monetary penalties. In December 2000, we entered into a five-year corporate integrity
agreement with the OIG. Under the corporate integrity agreement, we have an
affirmative obligation to report violations of applicable laws and regulations.
This obligation could result in greater scrutiny of us by regulatory
authorities. Complying with our corporate integrity agreement requires
additional efforts and costs. Our failure to comply with the terms of the
corporate integrity agreement could subject us to significant monetary
penalties. Our anti-takeover provisions may discourage acquisitions of control even though
our stockholders may consider these proposals desirable. Provisions in our certificate of incorporation and bylaws may have the
effect of discouraging an acquisition of control not approved by our board of
directors. These provisions include:  
    
    the issuance of blank check preferred stock by the board of
directors without stockholder approval;  
    
    higher stockholder voting requirements for some transactions,
including business combinations with related parties (i.e., a fair
price provision);  
    
    a prohibition on taking actions by the written consent of stockholders;  
    
    restrictions on the persons eligible to call a special meeting of stockholders;  
    
    classification of the board of directors into three classes; and  
    
    the removal of directors only for cause and by a vote of 80% of the outstanding voting power. These provisions may also have the effect of discouraging third parties
from making proposals involving our acquisition or change of control, although
a proposal, if made, might be considered desirable by a majority of our
stockholders. These provisions could further have the effect of making it more
difficult for third parties to cause the replacement of our board of directors. We have also adopted a stockholder rights plan. This stockholder rights
plan is designed to protect stockholders in the event of an unsolicited offer
and other takeover tactics, which, in the opinion of the board of directors,
could impair our ability to represent stockholder interests. The provisions of
this stockholder rights plan may render an unsolicited takeover more difficult
or might prevent a takeover. We are subject to provisions of Delaware corporate law, which may also
restrict some business combination transactions. Delaware law may further
discourage, delay or prevent someone from acquiring or merging with us. 35




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We have never paid and have no current plans to pay a dividend on our common
shares. We have never paid a cash dividend and we do not currently anticipate
paying any cash dividends. Our present credit facilities, and our proposed
credit facility with Citigroup, restrict the payment of cash dividends. If we
incur any future indebtedness to refinance our existing indebtedness or to fund
our future growth, our ability to pay dividends may be further restricted by
the terms of this indebtedness. Our board of directors will evaluate our
future earnings, results of operations, financial condition and capital
requirements in determining whether to declare or pay cash dividends. Our revenues and volume trends may be adversely affected by certain factors
relevant to the markets in which we have hospitals. Our revenues and volume trends will be predicated on many factors,
including physicians clinical decisions on patients, physicians availability,
payor programs shifting to a more outpatient-based environment, whether or not
certain services are offered, seasonal weather conditions, the intensity of
yearly flu epidemics, and the judgment of the U.S. Centers for Disease Control
on the strains of flu that may circulate in the United States. Any of these
factors could have a material adverse effect on our revenues and volume trends,
and many of these factors will not be within the control of our management. We may be unable to complete our construction projects on a required timetable
and within the original cost estimates. In certain states, where prior approval is required for the construction
and expansion of healthcare facilities, such approval is predicated on a
timetable and within a certain cost threshold. In addition, all projects are
evaluated internally based on certain rates of return. If costs of raw
materials and labor increase dramatically, the originally imputed rates of
returns may not materialize. In addition, projects could be delayed pending
state approval of cost overruns. Our ability to increase our indebtedness and become substantially leveraged may
limit our ability to successfully run our business. At September 30, 2004, our consolidated long-term debt was approximately
$221.0 million. We also may draw on a revolving credit commitment of up to $200
million under our Revolving Credit Facility, of which $183.6 million was
available as of September 30, 2004. In addition, we have the ability to incur
additional debt, subject to limitations imposed by our Revolving Credit
Facility. Our leverage and debt service requirements could have important
consequences to our stockholders, including the following:  
    
    make us more vulnerable to economic downturns and to adverse
changes in business conditions, such as further limitations on
reimbursement under Medicare and Medicaid programs;  
    
    limit our ability to obtain additional financing at favorable
interest rates in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes;  
    
    require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal and interest on our
indebtedness, reducing the funds available for our operations and
capital improvements;  
    
    make us vulnerable to increases in interest rates because our
Revolving Credit Facility is at a variable rate of interest; and  
    
    require us to pay the indebtedness immediately if we default on any
of the numerous financial and other restrictive covenants in our
Revolving Credit Facility, including restrictions on our payments of
dividends, incurrence of indebtedness and sale of assets. Our stock price has been and may continue to be volatile. The trading price of our common stock has been and may continue to be
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, including:  
    
    the proposed transaction with Province;  
    
    quarterly variations in operating results;  
    
    changes in financial estimates and recommendations by securities analysts;  
    
    changes in government regulations as it relates to reimbursement and
operational policies and procedures;  
    
    the operating and stock price performance of other companies that investors may deem comparable; and  
    
    news reports relating to trends in our markets. Broad market and industry fluctuations may adversely affect the price of
our common stock, regardless of our operating performance. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk. During the nine months ended September 30, 2004, there were no material
changes in the quantitative and qualitative disclosures about market risks
presented in our 2003 Annual Report on Form 10-K. 
 Item 4. Controls and Procedures. We carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us (including our consolidated subsidiaries) in
reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported on a timely basis.
There has been no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. 36




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PART II-OTHER INFORMATION 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The following table sets forth information regarding repurchases of the
Companys common stock during the three months ended September 30, 2004: ISSUER PURCHASES OF EQUITY SECURITIES Approximate DollarValue of SharesTotal Number
    
    That May Yet BeOf Shares Purchased as
    
    Purchased Under theTotal Number
    
    
    
    
    
    Part of Publicly
    
    Plans orOf Shares
    
    Average Price Paid
    
    Announced Plans or
    
    Programs (2)Period
    
    Purchased (1)
    
    Per Share
    
    Programs
    
    (in millions)July 1, 2004 -
July 31, 2004
    
    
    1,413
    
    
    $
    36.88
    
    
    
    
    
    
    $
    54.3August 1, 2004 -
August 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54.3September 1, 2004 -
September 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54.3Total
    
    
    1,413
    
    
    $
    36.88
    
    
    
    
    
    
    $
    54.3
  (1)
    
    This relates to shares redeemed from employees upon vesting of restricted stock for tax withholding purposes under
the Companys Management Stock Purchase Plan. During January 2004, the Company redeemed 2,347 shares from employees
upon vesting of restricted stock at an average price of $29.45 per share for tax withholding purposes under the
Companys Management Stock Purchase Plan.(2)
    
    In April 2003, our Board of Directors authorized the repurchase of up to $100 million of our outstanding shares of
common stock either in the open market or through privately negotiated transactions, subject to market conditions,
regulatory constraints and other factors, to enable us to take advantage of opportunistic market conditions. Our
stock repurchase program was publicly announced on April 28, 2003 and expires on October 28, 2004. As of December
31, 2003, we repurchased 2,062,400 shares for an aggregate of
approximately $45.7 million. Currently, we
have not purchased in 2004 any shares of common stock under the share
repurchase program. We do not plan on purchasing any more shares of
our common stock prior to the expiration of our stock purchase
program. 37




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Item 6. Exhibits. EXHIBIT NUMBER
    
    DESCRIPTION2.1
    
    Agreement and Plan of Merger, dated as of August 15, 2004, by and among LifePoint
Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers Acquisition
Corp., and Province Healthcare Company (a)3.1
    
    Certificate of Incorporation (b)3.2
    
    Bylaws (b)3.3
    
    First Amendment to the Bylaws (c)4.1

    
    Form of Specimen Stock Certificate
(d)4.2
    
    Rights Agreement dated as of May 11, 1999 between LifePoint Hospitals, Inc. and
National City Bank as Rights Agent (b)4.3
    
    Indenture, dated as of May 22, 2002, between LifePoint Hospitals, Inc. and National
City Bank, as trustee, relating to the 41⁄2% Convertible Subordinated Notes due 2009
(e)4.4
    
    Registration Rights Agreement, dated as of May 22, 2002, among LifePoint Hospitals,
Inc., UBS Warburg LLC, Credit Suisse First Boston Corporation, Deutsche Bank
Securities, Inc., Lehman Brothers Inc., Salomon Smith Barney Inc., Banc of America
Securities LLC, and Fleet Securities, Inc. (e)4.5
    
    Form of 41⁄2% Convertible
Subordinated Note due 2009 of LifePoint Hospitals, Inc. (e)10.1
    
    Senior Secured Credit Facilities Commitment Letter, dated as of August 15, 2004, from
Citigroup North America, Inc. and Citigroup Global Markets, Inc. to LifePoint
Hospitals, Inc. (a)10.2
    
    Consulting Agreement, dated as of August 15, 2004, by and between LifePoint Hospitals,
Inc. and Martin S. Rash (f)31.1
    
    Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
   (a)
    
    Incorporated by reference from the exhibits to LifePoint Hospitals,
Inc.s Current Report on Form 8-K Filed on August 16, 2004, File No.
000-29818.(b)
    
    Incorporated by reference from the LifePoint Hospitals, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File Number
000-29818.(c)
    
    Incorporated by reference from exhibits to the LifePoint Hospitals, Inc.
Annual Report on Form 10-K for the year ended December 31, 2003, File No.
000-29818.(d)
    
    Incorporated by reference from exhibits to the LifePoint Hospitals, Inc.
Registration Statement on Form 10 under the Securities Exchange Act of
1934, as amended, File Number 000-29818.(e)
    
    Incorporated by reference from the exhibits to the LifePoint Hospitals,
Inc. Registration Statement on Form S-3 under the Securities Act of 1933,
as amended, File Number 333-90536.(f)
    
    Incorporated by reference from the exhibits to the LifePoint Hospitals,
Inc. Registration Statement on Form S-4 under the Securities Act of 1933,
as amended, File Number 333-119929-01. 38




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##### Table of Contents



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. Date: October 26, 2004
    LifePoint Hospitals, Inc.By:
    /s/  Michael J. CulottaMichael J. CulottaChief Financial Officer
(Principal Financial and Accounting Officer) 39




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##### Table of Contents



EXHIBIT INDEX EXHIBIT NUMBER
    
    DESCRIPTION2.1
    
    Agreement and Plan of Merger, dated as of August 15, 2004, by and among LifePoint
Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers Acquisition
Corp., and Province Healthcare Company (a)3.1
    
    Certificate of Incorporation (b)3.2
    
    Bylaws (b)3.3
    
    First Amendment to the Bylaws (c)4.1

    
    Form of Specimen Stock Certificate
(d)4.2
    
    Rights Agreement dated as of May 11, 1999 between LifePoint Hospitals, Inc. and
National City Bank as Rights Agent (b)4.3
    
    Indenture, dated as of May 22, 2002, between LifePoint Hospitals, Inc. and National
City Bank, as trustee, relating to the 41⁄2% Convertible Subordinated Notes due 2009
(e)4.4
    
    Registration Rights Agreement, dated as of May 22, 2002, among LifePoint Hospitals,
Inc., UBS Warburg LLC, Credit Suisse First Boston Corporation, Deutsche Bank
Securities, Inc., Lehman Brothers Inc., Salomon Smith Barney Inc., Banc of America
Securities LLC, and Fleet Securities, Inc. (e)4.5
    
    Form of 41⁄2% Convertible
Subordinated Note due 2009 of LifePoint Hospitals, Inc. (e)10.1
    
    Senior Secured Credit Facilities Commitment Letter, dated as of August 15, 2004, from
Citigroup North America, Inc. and Citigroup Global Markets, Inc. to LifePoint
Hospitals, Inc. (a)10.2
    
    Consulting Agreement, dated as of August 15, 2004, by and between LifePoint Hospitals,
Inc. and Martin S. Rash (f)31.1
    
    Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
   (a)
    
    Incorporated by reference from the exhibits to LifePoint Hospitals,
Inc.s Current Report on Form 8-K Filed on August 16, 2004, File No.
000-29818.(b)
    
    Incorporated by reference from the LifePoint Hospitals, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File Number
000-29818.(c)
    
    Incorporated by reference from exhibits to the LifePoint Hospitals, Inc.
Annual Report on Form 10-K for the year ended December 31, 2003, File No.
000-29818.(d)
    
    Incorporated by reference from exhibits to the LifePoint Hospitals, Inc.
Registration Statement on Form 10 under the Securities Exchange Act of
1934, as amended, File Number 000-29818.(e)
    
    Incorporated by reference from the exhibits to the LifePoint Hospitals,
Inc. Registration Statement on Form S-3 under the Securities Act of 1933,
as amended, File Number 333-90536.(f)
    
    Incorporated by reference from the exhibits to the LifePoint Hospitals,
Inc. Registration Statement on Form S-4 under the Securities Act of 1933,
as amended, File Number 333-119929-01.