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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 March 31, 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 LOGO)  Delaware
    
    52-2165845(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)103 Powell Court, Suite 200
    
    37027Brentwood, Tennessee
(Address of principal executive offices)
    
    (Zip Code)
 (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 April 21, 2004, the number of outstanding shares of Common Stock of
LifePoint Hospitals, Inc. was 38,218,611.




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|                                             |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I-FINANCIAL INFORMATION                
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                             | Item 4. Controls and Procedures                                                              
|PART II-OTHER INFORMATION                   
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                  
|EXHIBIT INDEX                               
|Ex-31.1 Section 302 Certification of the CEO
|Ex-31.2 Section 302 Certification of the CFO
|Ex-32.1 Section 906 Certification of the CEO
|Ex-32.2 Section 906 Certification of the CFO



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PART I-FINANCIAL INFORMATION 
 Item 1. Financial Statements. LIFEPOINT HOSPITALS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts) Three Months EndedMarch 31,2003
    
    2004Revenues
    
    $
    220.9
    
    
    $
    256.6Salaries and benefits
    
    
    90.3
    
    
    
    100.7Supplies
    
    
    28.5
    
    
    
    33.4Other operating expenses
    
    
    38.6
    
    
    
    42.6Provision for doubtful accounts
    
    
    17.5
    
    
    
    23.0Depreciation and amortization
    
    
    11.2
    
    
    
    11.6Interest expense, net
    
    
    3.3
    
    
    
    3.4ESOP expense
    
    
    1.6
    
    
    
    2.3191.0
    
    
    
    217.0Income before minority interests and income taxes
    
    
    29.9
    
    
    
    39.6Minority interests in earnings of consolidated
entities
    
    
    
    
    
    
    0.3Income before income taxes
    
    
    29.9
    
    
    
    39.3Provision for income taxes
    
    
    12.2
    
    
    
    15.4Net income
    
    $
    17.7
    
    
    $
    23.9Basic earnings per share
    
    $
    0.47
    
    
    $
    0.65Diluted earnings per share
    
    $
    0.45
    
    
    $
    0.60Weighted average shares and dilutive securities
outstanding (in thousands):Basic
    
    
    37,878
    
    
    
    36,582Diluted
    
    
    43,912
    
    
    
    42,881
  1




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LIFEPOINT HOSPITALS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts) December 31,
    
    March 31,2003
    
    2004(1)
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20.6
    
    
    $
    38.1Accounts receivable, less allowances for doubtful accounts of $111.7 at December
31, 2003 and $116.6 at March 31, 2004
    
    
    101.4
    
    
    
    110.2Inventories
    
    
    22.3
    
    
    
    22.3Income taxes receivable
    
    
    7.4
    
    
    
    Deferred income taxes and other current assets
    
    
    19.5
    
    
    
    20.8171.2
    
    
    
    191.4Property and equipment:Land
    
    
    19.0
    
    
    
    19.3Buildings and improvements
    
    
    357.1
    
    
    
    357.2Equipment
    
    
    337.2
    
    
    
    338.4Construction in progress (estimated cost to complete and equip after March 31,
2004 is $89.4)
    
    
    28.3
    
    
    
    37.2741.6
    
    
    
    752.1Accumulated depreciation
    
    
    (277.4
    )
    
    
    (284.8
    )464.2
    
    
    
    467.3Deferred loan costs, net
    
    
    7.0
    
    
    
    6.6Unallocated purchase price
    
    
    16.4
    
    
    
    17.9Intangible assets, net
    
    
    3.6
    
    
    
    3.4Goodwill
    
    
    136.6
    
    
    
    136.6$
    799.0
    
    
    $
    823.2LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    30.9
    
    
    $
    25.8Accrued salaries
    
    
    25.7
    
    
    
    23.8Income taxes payable
    
    
    
    
    
    
    7.2Other current liabilities
    
    
    9.7
    
    
    
    21.2Estimated third-party payor settlements
    
    
    2.5
    
    
    
    2.468.8
    
    
    
    80.4Long-term debt
    
    
    270.0
    
    
    
    250.0Deferred income taxes
    
    
    35.9
    
    
    
    36.5Professional and general liability claims and other liabilities
    
    
    28.6
    
    
    
    31.3Minority interests in equity of consolidated entities
    
    
    1.4
    
    
    
    1.4Stockholders 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 39,412,688 shares issued at December 31, 2003
and March 31, 2004, respectively
    
    
    0.4
    
    
    
    0.4Capital in excess of par value
    
    
    301.7
    
    
    
    311.9Unearned ESOP compensation
    
    
    (16.1
    )
    
    
    (15.3
    )Unearned compensation on nonvested stock
    
    
    
    
    
    
    (5.6
    )Retained earnings
    
    
    137.2
    
    
    
    161.1Less common stock in treasury, at cost, 1,198,800 shares at December 31, 2003
and March 31, 2004
    
    
    (28.9
    )
    
    
    (28.9
    )394.3
    
    
    
    423.6$
    799.0
    
    
    $
    823.2
 (1) Derived from audited financial statements. See accompanying notes. 2




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LIFEPOINT HOSPITALS, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In millions) Three Months EndedMarch 31,2003
    
    2004Cash flows from operating activities:Net income
    
    $
    17.7
    
    
    $
    23.9Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    11.2
    
    
    
    11.6ESOP expense
    
    
    1.6
    
    
    
    2.3Minority interests in earnings of consolidated entities
    
    
    
    
    
    
    0.3Deferred income taxes (benefit)
    
    
    (0.1
    )
    
    
    (0.5
    )Reserve for professional and general liability claims, net
    
    
    1.2
    
    
    
    2.7Tax benefit from stock option exercises
    
    
    
    
    
    
    0.5Increase (decrease) in cash from operating assets and liabilities,
net of effects from acquisitions:Accounts receivable
    
    
    (11.1
    )
    
    
    (8.5
    )Inventories and other current assets
    
    
    (2.8
    )
    
    
    (0.1
    )Accounts payable and accrued expenses
    
    
    2.4
    
    
    
    4.9Income taxes payable
    
    
    11.8
    
    
    
    14.6Estimated third-party payor settlements
    
    
    1.4
    
    
    
    (0.1
    )Other
    
    
    0.9
    
    
    
    0.6Net cash provided by operating activities
    
    
    34.2
    
    
    
    52.2Cash flows from investing activities:Purchase of property and equipment
    
    
    (17.2
    )
    
    
    (15.1
    )Purchase of facilities
    
    
    
    
    
    
    (1.7
    )Other
    
    
    (0.2
    )
    
    
    (0.3
    )Net cash used in investing activities
    
    
    (17.4
    )
    
    
    (17.1
    )Cash flows from financing activities:Repayment under revolving credit facility
    
    
    
    
    
    
    (20.0
    )Proceeds from exercise of stock options
    
    
    0.2
    
    
    
    1.6Other
    
    
    0.3
    
    
    
    0.8Net cash provided by (used in) financing activities
    
    
    0.5
    
    
    
    (17.6
    )Change in cash and cash equivalents
    
    
    17.3
    
    
    
    17.5Cash and cash equivalents at beginning of period
    
    
    23.0
    
    
    
    20.6Cash and cash equivalents at end of period
    
    $
    40.3
    
    
    $
    38.1Interest payments
    
    $
    0.2
    
    
    $
    0.6Income taxes paid, net
    
    $
    0.4
    
    
    $
    0.9
 See accompanying notes. 3




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LIFEPOINT HOSPITALS, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
UNAUDITED NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION As of March 31, 2004, LifePoint Hospitals, Inc. (the Company) operated
29 general, acute care hospitals with an aggregate of 2,727 licensed beds in
non-urban communities. The Companys hospitals are located in the states of
Alabama, Florida, Kansas, Kentucky, Louisiana, Tennessee, Utah, West Virginia
and Wyoming. The Company became independent and publicly traded on May 11, 1999 when
HCA Inc. (HCA) distributed all outstanding shares of the Companys common
stock to HCAs stockholders in a spin-off transaction. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) and disclosures considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2003. Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications have no impact on total
assets, liabilities, stockholders equity, net income or cash flows. NOTE 2 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted
earnings per share (dollars in millions, except per share amounts, and shares
in thousands): Three Months EndedMarch 31,2003
    
    2004Numerator:Numerator for basic earnings per share  net income
    
    $
    17.7
    
    
    $
    23.9Interest on convertible notes, net of taxes
    
    
    1.9
    
    
    
    2.0Numerator for diluted earnings per share
    
    $
    19.6
    
    
    $
    25.9Denominator:Denominator for basic earnings per share-weighted
average shares outstanding
    
    
    37,878
    
    
    
    36,582Effect of dilutive securities:Employee
stock benefit plans
    
    
    755
    
    
    
    1,020Convertible notes
    
    
    5,279
    
    
    
    5,279Denominator for diluted earnings per share - adjusted
weighted average shares
    
    
    43,912
    
    
    
    42,881Basic earnings per share
    
    $
    0.47
    
    
    $
    0.65Diluted earnings per share
    
    $
    0.45
    
    
    $
    0.60
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NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board (FASB) issued
Revised Interpretation No. 46, Consolidation of Variable Interest Entities
(FIN 46R), which requires the consolidation of variable interest entities. FIN
46R, as revised, was applicable to financial statements of companies that had
interests in special purpose entities during 2003. Effective as of the first
quarter of 2004, FIN 46R is applicable to financial statements of companies
that have interests in all other types of entities. Adoption of FIN 46R had no
effect on the Companys financial position, results of operations or cash
flows. The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity (SFAS No. 150), on July 1, 2003. SFAS No. 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity, such as redeemable preferred
stock and certain equity derivatives that frequently are used in connection
with share repurchase programs. On October 29, 2003, the FASB voted to defer
for an indefinite period the application of SFAS No. 150 to classification of
noncontrolling interests of limited-life subsidiaries. Neither the adoption of
SFAS No. 150 nor the deferral had a material impact on the Companys results of
operations or financial position. NOTE 4 - STOCK BENEFIT PLANS The Company issues stock options and other stock-based awards to key
employees and directors under stock-based compensation plans, which are
described more fully in Note 6 (stockholders equity) to the consolidated
financial statements in the Companys 2003 Annual Report on Form 10-K. SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, an
Amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS
No. 123 to provide
alternative methods of transition for companies making a voluntary change to
fair value-based accounting for stock-based employee compensation. The Company
continues to account for its stock-based compensation plans under the intrinsic
value recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. SFAS No. 148 also requires disclosure of pro-forma results on
a quarterly basis as if the Company had applied the fair value recognition
provisions of SFAS No. 123. The Company granted 175,000 shares of nonvested stock to certain key
executives during the first quarter of 2004. The nonvested stock awards
vest  three years from the grant date and contain no vesting requirements other
than continued employment of the executive. The fair market value at the date
of grant of these nonvested stock awards was $33.17 per share and was recorded
as unearned compensation as a component of stockholders equity. Unearned
compensation is being amortized in the statement of income over the three-year
vesting period of the awards. Since the exercise price of all options granted under the Companys incentive
plans was equal to the market price of the underlying common stock on the grant
date, no stock-based employee compensation is recognized in net
income related to stock options. The
following table illustrates the effect on net income and earnings per share (in millions, expect per share amounts) if
the Company had applied the fair value recognition provisions of SFAS No. 123,
as amended, to options granted under the stock option plans. For purposes of
this pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over the
options vesting periods. Because the estimated value is determined as of the
date of grant, the actual value ultimately realized by the employee may be
significantly different. Three Months EndedMarch 31,2003
    
    2004Net income, as reported
    
    $
    17.7
    
    
    $
    23.9Add: Stock-based compensation expense included in reported
net income, net of related tax effects
    
    
    
    
    
    
    0.2Less: Stock-based compensation expense determined under fair
value based method for all awards, net of related tax effects
    
    
    (2.4
    )
    
    
    (2.2
    )Pro forma net income
    
    
    15.3
    
    
    
    21.9Interest on
convertible notes, net of taxes
    
    
    1.9
    
    
    
    2.0Diluted pro
forma net income
    
    $
    17.2
    
    
    $
    23.9Denominator for basic earnings per share  weighted average
shares
    
    
    37.9
    
    
    
    36.6
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Three Months EndedMarch 31,2003
        
        2004Effect of dilutive
            securities:Employee stock benefit
            plans
        
        
        0.7
        
        
        
        1.0Convertible notes
        
        
        5.3
        
        
        
        5.3Denominator for diluted
            earnings per share  adjusted weighted average shares
        
        
        43.9
        
        
        
        42.9Earnings per share:Basic  as reported
        
        $
        0.47
        
        
        $
        0.65Basic  pro-forma
        
        $
        0.40
        
        
        $
        0.60Diluted  as
            reported
        
        $
        0.45
        
        
        $
        0.60Diluted  pro-forma
        
        $
        0.39
        
        
        $
        0.56
 The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Companys employee stock options have characteristics significantly different
from those of traded options. Changes in the subjective input assumptions can
materially affect the fair value estimate. Other option valuation models may
produce significantly different fair values of the Companys employee stock
options. The weighted average estimated value of stock options granted during the
first quarter of 2004 was $12.41 ($7.82 for the first quarter of 2003). These
options were granted with an exercise price equal to the market price at the
date of grant. These options become exercisable beginning in part from one
year after the date of grant to three years after the date of grant and expire
10 years after the grant date. The above table includes the impact of these
additional stock options for the period subsequent to their grant. The values
were estimated at the date of grant using the following weighted average
assumptions: Three Months EndedMarch 31,2003
    
    2004Expected life (in years)
    
    
    3.0
    
    
    
    3.0Risk free interest rate
    
    
    1.86
    %
    
    
    2.11
    %Volatility
    
    
    53
    %
    
    
    53
    %
 Additional
information with respect to stock benefit plan activity is as
follows: Outstanding OptionsShares
    
    
    
    
    
    WeightedAvailable for
    
    Number of
    
    AverageGrants
    
    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
    
    
    $
    23.91Stock Option Grants
    
    
    (797,900
    )
    
    
    797,900
    
    
    $
    33.17Nonvested Stock Grants
    
    
    (175,000
    )
    
    
    
    
    
    $
    33.17Stock Option Exercises
    
    
    
    
    
    
    (113,200
    )
    
    $
    14.36Adjustments
    
    
    (16,200
    )
    
    
    
    
    
    
    N/AStock Option Cancellations
    
    
    58,200
    
    
    
    (58,200
    )
    
    $
    38.53March 31, 2004
    
    
    1,725,800
    
    
    
    5,019,900
    
    
    $
    25.42
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NOTE 5 - CONTINGENCIES Americans with Disabilities Act Claim On January 12, 2001, Access Now, Inc., a disability rights organization,
filed a class action lawsuit against each of the Companys hospitals alleging
non-compliance with the accessibility guidelines under the Americans with
Disabilities Act (the ADA). The lawsuit, filed in the United States District
Court for the Eastern District of Tennessee, seeks injunctive relief requiring
facility modification, where necessary, to meet the ADA guidelines, along with
attorneys fees and costs. In January 2002, the District Court certified the
class action and issued a scheduling order that requires the parties to
complete discovery and inspection for approximately six facilities per year.
The Company intends to vigorously defend the lawsuit, recognizing the Companys
obligation to correct any deficiencies in order to comply with the ADA. As of
March 31, 2004, the plaintiffs have conducted inspections at 18
of the Companys hospitals. HCA Investigations, Litigation and Indemnification Rights HCA has been the subject of various federal and state investigations, qui
tamactions, shareholder derivative and class action suits, patient/payor
actions and general liability claims. These investigations, actions and claims
relate to HCA and its subsidiaries, including subsidiaries that, before the
Companys formation as an independent company, owned many of the facilities
that the Company now owns. In June 2003, HCA announced agreements with the Department of Justice that
settled all federal criminal and civil litigation brought by the Department of
Justice against HCA with respect to cost reports, physician relations and wound
care issues. The settlement of these issues does not affect qui tamactions in
which the Department of Justice has not intervened. Additionally, HCA has
announced that it made payments to the Centers for Medicare and Medicaid
Services (CMS) in accordance with an agreement to resolve all Medicare cost
report, home office cost statement and appeal issues. HCA has agreed to indemnify the Company for any losses, other than
consequential damages, arising from the governmental investigations of HCAs
business practices prior to the date of the distribution of the outstanding
shares of the Companys common stock to the stockholders of HCA and losses
arising from legal proceedings, present or future, related to the investigation
or actions engaged in before the distribution that relate to the investigation.
However, the Company could be held responsible for any claims that are not
covered by the agreements reached with the federal government or for which HCA
is not required to, or fails to, indemnify the Company. Corporate Integrity Agreement In December 2000, the Company entered into a corporate integrity agreement
with the Office of Inspector General and agreed to maintain its compliance
program in accordance with the corporate integrity agreement. This agreement
was amended in April 2002. Complying with the compliance measures and
reporting and auditing requirements of the corporate integrity agreement
requires additional efforts and costs. Failure to comply with the terms of the
corporate integrity agreement could subject the Company to significant monetary
penalties. Legal Proceedings and General Liability Claims The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, medical malpractice, breach of management contracts, wrongful
restriction of or interference with physicians staff privileges and employment
related claims. In certain of these actions, plaintiffs request punitive or
other damages against the Company which may not be covered by insurance. The
Company is currently not a party to any proceeding which, in managements
opinion, would have a material adverse effect on the Companys business,
financial condition or results of operations. 7




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Physician Commitments The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of its
communities and agreeing to engage in private practice for the benefit of the
respective community, the Company may loan certain amounts of money to a
physician, normally over a period of one year, to assist in establishing his or
her practice. The Company had committed to advance a maximum amount of
approximately $26.2 million at March 31, 2004. The actual amount of such
commitments to be subsequently advanced to physicians is estimated at
$10.5 million and often depends upon the
financial results of a physicians private practice during the guaranteed
period. Generally, amounts advanced under the recruiting agreements may be
forgiven pro rata over a period of 48 months, contingent upon the physician
continuing to practice in the respective community. Capital Expenditure Commitments The Company is reconfiguring some of its facilities to accommodate more
effectively patient services and restructuring existing surgical capacity in
some of its hospitals to permit additional patient volume and a greater variety
of services. The Company had incurred approximately $37.2 million in
uncompleted projects as of March 31, 2004, which is included in construction
in progress in the Companys accompanying consolidated balance sheet. At March
31, 2004, the Company had projects under construction with an estimated
additional cost to complete and equip of approximately $89.4 million. Pursuant to the asset purchase agreement for Ville Platte Medical Center,
the Company has agreed to make certain capital improvements, the cost of which,
together with the initial cash payment, defeasement of certain bonds and
liabilities assumed, is not required to exceed $25.0 million. The capital
improvements must be completed by December 1, 2004. The initial cash payment
and liabilities assumed totaled $15.1 million, which leaves $9.9 million
required for capital improvements. The Company had incurred approximately
$3.4 million of the required capital improvements
as of March 31, 2004. Pursuant to the asset purchase agreement for Logan Regional Medical
Center, the Company has agreed to expend, regardless of the results of the
hospitals operations, at least $20.0 million in the aggregate for capital
expenditures and improvements during the ten-year period following the date of
acquisition of December 1, 2002. The Company had incurred
approximately $1.9 million of the required capital improvements as of March 31, 2004. Acquisitions The Company has acquired and will continue to acquire businesses with
prior operating histories. Acquired companies may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws
and regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. Although the Company institutes policies designed to
conform practices to its standards following completion of acquisitions, there
can be no assurance that the Company will not become liable for past activities
that may later be asserted to be improper by private plaintiffs or government
agencies. Although the Company generally seeks to obtain indemnification from
prospective sellers covering such matters, there can be no assurance that any
such matter will be covered by indemnification, or if covered, that such
indemnification will be adequate to cover potential losses and fines. 8




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##### Table of Contents



NOTE 6  MEDICARE REIMBURSEMENT During the third quarter of 2003, the Company received correspondence from
one of its fiscal intermediaries questioning a particular Medicare disproportionate
share designation at one of its hospitals. This hospital has had this designation
since 2001 and was previously approved for this designation by its
fiscal intermediary. The Company and the fiscal intermediary worked together and contacted
CMS for resolution of the designation. The Company reduced revenues by $3.0 million and $0.2 million during the third and fourth
quarters of 2003, respectively, representing the three year difference in reimbursement from this change in designation. The Company received notification from
CMS late in the first quarter of 2004 reconfirming the original designation. Based upon the favorable resolution
of this issue, the Company increased revenues by $3.2 million in the first quarter of 2004. 9




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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 The first quarter of 2004 was encouraging based upon our solid operating
performance and increased patient volume levels. We continue to be guardedly
optimistic regarding our outlook for the remainder of 2004 as a result of the
improved reimbursement environment related to the passage of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (MMA) and
patient volumes more consistent with historical trends. During 2004, we are
continuing to focus on physician recruiting and retention, investing capital in
our hospitals and seeking additional hospital acquisitions that fit our
non-urban strategy. The following table reflects our summarized operating
results: Three Months EndedMarch 31,2003
    
    2004Number of hospitals at end of period
    
    
    28
    
    
    
    29Revenues (in millions)
    
    $
    220.9
    
    
    $
    256.6Net income (in millions)
    
    $
    17.7
    
    
    $
    23.9Diluted earnings per share
    
    $
    0.45
    
    
    $
    0.60
 Revenue/Volume Trends The key metrics we use internally to evaluate our revenues are equivalent
admissions, which equate to volume, and revenues per equivalent admission,
which relate to pricing and acuity. We anticipate our patient volumes and
related revenues will continue to be impacted by the following factors:  
    
    Physician Recruitment and Retention. Recruiting and retaining both
primary care physicians and specialists for our non-urban communities
is a key to increasing revenues and patient volumes. Continuing to add
specialists should help our hospitals increase volumes by offering new
services. We signed 52 admitting physicians during the first quarter of
2004. Of these 52 physicians signed, 20 started in the first
quarter of 2004 and 32 are scheduled to start in the remainder of
2004.
    
    Medicare Rate Increases.MMA provides a prescription drug benefit for
Medicare beneficiaries and also contains numerous provisions that
provide incremental funding to hospitals. The initial increases in reimbursement under MMA are effective in April 2004. Please refer to our 2003 Annual
Report on Form 10-K for a discussion of MMAs provisions that
affect our reimbursement.
    
    Growth in Outpatient Services. We anticipate that the long-term growth
trend in outpatient services will continue. A number of procedures
once performed only on an inpatient basis have been, and will continue
to 10




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##### Table of Contents



be, converted to outpatient procedures. This conversion has occurred through
continuing advances in pharmaceutical and medical technologies, and as a
result of efforts made by payors to control costs. Generally, the payments
we receive for outpatient procedures are less than those for similar
procedures performed in an inpatient setting. The following table shows net
outpatient, inpatient and other revenues as a percentage of our total
revenues: Three Months Ended March 31,2003
    
    2004Outpatient
    
    
    50.2
    %
    
    
    49.8
    %Inpatient
    
    
    48.5
    
    
    
    49.1Other
    
    
    1.3
    
    
    
    1.1Total
    
    
    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 first
quarter of 2004. The increase was the result of a combination of broad economic factors, including an increased number of uninsured patients. The following table reflects our self-pay revenues (in
millions): Self-Pay Revenues2003
    
    2004First Quarter
    
    $
    18.8
    
    
    $
    23.1
  For the next several quarters, we anticipate that our provision for doubtful
accounts will continue to be approximately 9% to 10% of revenues. We are
implementing a number of operating strategies, which should increase our
cash collections of self-pay revenues. If this trend of increasing self-pay
revenues continues, it could have a material adverse effect on our results
of operations and financial position in the future.
    
    Shortage of Clinical Personnel and Increased Contract Labor Usage.In
recent years, many hospitals, including the hospitals we own, have
encountered difficulty in recruiting and retaining nursing and other
clinical personnel. When we are unable to staff our nursing and clinical
positions, we are required to use contract labor to ensure adequate
patient care. Contract labor generally costs more per hour than employed
labor. We have adopted a number of human resources strategies in an
attempt to improve our ability to recruit and retain nursing and other
clinical personnel. We expect that the staffing difficulties related to
nurses and other clinical personnel will continue in the near term. Critical Accounting Estimates The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect reported amounts and related disclosures.
We consider an accounting estimate to be critical if:  
    
    it requires assumptions to be made that were uncertain at the time the estimate was made; and
    
    changes in the estimate or different estimates that could have been made could have a material impact on our consolidated
results of operations or financial condition. 11




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##### Table of Contents



Our critical accounting estimates are more fully described in our 2003
Annual Report on Form 10-K and continue to include the following areas:  
    
    Allowance for doubtful accounts and provision for doubtful accounts;
    
    Revenue recognition and allowance for contractual discounts;
    
    Professional and general liability claims; and
    
    Accounting for income taxes. Results of Operations Operating Results Summary The following tables present summaries of results of operations for the
three months ended March 31, 2003 and 2004 (dollars in millions, except for
revenues per equivalent admission): Three Months Ended March 31,2003
    
    2004% of
    
    
    
    
    
    % ofAmount
    
    Revenues
    
    Amount
    
    RevenuesRevenues
    
    $
    220.9
    
    
    
    100.0
    %
    
    $
    256.6
    
    
    
    100.0
    %Salaries and benefits (a)
    
    
    90.3
    
    
    
    40.9
    
    
    
    100.7
    
    
    
    39.2Supplies (b)
    
    
    28.5
    
    
    
    12.9
    
    
    
    33.4
    
    
    
    13.0Other operating expenses (c)
    
    
    38.6
    
    
    
    17.5
    
    
    
    42.6
    
    
    
    16.7Provision for doubtful accounts
    
    
    17.5
    
    
    
    7.9
    
    
    
    23.0
    
    
    
    8.9Depreciation and amortization
    
    
    11.2
    
    
    
    5.1
    
    
    
    11.6
    
    
    
    4.5Interest expense, net
    
    
    3.3
    
    
    
    1.5
    
    
    
    3.4
    
    
    
    1.3ESOP expense
    
    
    1.6
    
    
    
    0.7
    
    
    
    2.3
    
    
    
    0.9191.0
    
    
    
    86.5
    
    
    
    217.0
    
    
    
    84.5Income before minority interests and income
taxes
    
    
    29.9
    
    
    
    13.5
    
    
    
    39.6
    
    
    
    15.5Minority interests in earnings of consolidated
entities
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.2Income before income taxes
    
    
    29.9
    
    
    
    13.5
    
    
    
    39.3
    
    
    
    15.3Provision for income taxes
    
    
    12.2
    
    
    
    5.5
    
    
    
    15.4
    
    
    
    6.0Net
income
    
    $
    17.7
    
    
    
    8.0
    %
    
    $
    23.9
    
    
    
    9.3
    %
 Three Months Ended March 31,2003
    
    2004
    
    % ChangeAmount
    
    Amount
    
    From Prior YearConsolidated:Number of hospitals at end of period
    
    
    28
    
    
    
    29
    
    
    
    3.6Admissions (d)
    
    
    23,477
    
    
    
    25,465
    
    
    
    8.5Equivalent admissions (e)
    
    
    44,912
    
    
    
    48,842
    
    

    
    8.8Revenues per equivalent admission
    
    $
    4,919
    
    
    $
    5,255
    
    
    
    6.8Outpatient factor (e)
    
    
    1.91
    
    
    
    1.92
    
    
    
    0.5Emergency room visits (f)
    
    
    99,738
    
    
    
    105,754
    
    
    
    6.0Inpatient surgeries
    
    
    6,663
    
    
    
    7,420
    
    
    
    11.4Outpatient surgeries (g)
    
    
    18,859
    
    
    
    20,044
    
    
    
    6.3Total surgeries
    
    
    25,522
    
    
    
    27,464
    
    
    
    7.6Licensed beds at end of period
    
    
    2,624
    
    
    
    2,727
    
    
    
    3.9Weighted average licensed beds
    
    
    2,619
    
    
    
    2,730
    
    
    
    4.2Average daily census
    
    
    1,055
    
    
    
    1,156
    
    
    
    9.6Average length of stay (days)

    
    
    4.0
    
    
    
    4.1
    
    
    
    2.5Outpatient revenues as a percentage of total
revenues
    
    
    50.2
    %
    
    
    49.7
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.18
    
    
    
    1.15
    
    
    
    (2.5
    )
 12




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##### Table of Contents



Three Months Ended March 31,2003
    
    2004
    
    % ChangeAmount
    
    Amount
    
    From Prior YearSame-hospital (h):Revenues
    
    $
    220.9
    
    
    $
    250.0
    
    
    
    13.2Number of hospitals at end of period
    
    
    28
    
    
    
    28
    
    
    
    Admissions (d)
    
    
    23,477
    
    
    
    24,863
    
    
    
    5.9Equivalent admissions (e)
    
    
    44,912
    
    
    
    47,364
    
    
    
    5.5Revenues per equivalent admission
    
    $
    4,919
    
    
    $
    5,279
    
    
    
    7.3Outpatient factor (e)
    
    
    1.91
    
    
    
    1.91
    
    
    
    Emergency room visits (f)
    
    
    99,738
    
    
    
    102,528
    
    
    
    2.8Inpatient surgeries
    
    
    6,663
    
    
    
    7,213
    
    
    
    8.3Outpatient surgeries (g)
    
    
    18,859
    
    
    
    19,340
    
    
    
    2.6Total surgeries
    
    
    25,522
    
    
    
    26,553
    
    
    
    4.0Licensed beds at end of period
    
    
    2,624
    
    
    
    2,614
    
    
    
    (0.4
    )Weighted average licensed beds
    
    
    2,619
    
    
    
    2,617
    
    
    
    (0.1
    )Average daily census
    
    
    1,055
    
    
    
    1,131
    
    
    
    7.2Average length of stay (days)
    
    
    4.0
    
    
    
    4.1
    
    
    
    2.5Outpatient revenues as a percentage of total
revenues
    
    
    50.2
    %
    
    
    49.4
    %
    
    
    N/MMedicare case mix index (i)
    
    
    1.18
    
    
    
    1.16
    
    
    
    (1.7
    )
   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-IT, marketing and
non-income taxes.(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.(i)
    
    Refers to acuity or severity of illness of an average Medicare patient at
our hospitals. 13




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##### Table of Contents



For the Quarters Ended March 31, 2003 and 2004 Revenues Our revenues for the quarter ended March 31, 2004 increased by $35.7
million, or 16.2%, to $256.6 million compared to the quarter ended March 31,
2003. This increase is attributable to a number of factors, including:  
    
    $29.1 million from our same-hospital revenues; and
    
    $6.6 million from our 2003 acquisition of Spring View Hospital. Adjustments
to estimated reimbursement amounts increased our revenues by
$1.4 million for the quarter ended March 31, 2004 compared to $2.9 million for
the same period in 2003. In addition, as discussed in Note 6 to our
condensed consolidated financial statements, we
recognized $3.2 million in additional revenues for the quarter ended March 31,
2004 following the confirmation by CMS of a Medicare disproportionate share designation at one of our hospitals. Our same-hospital inpatient revenues for the quarter ended March 31, 2004
increased by $16.0 million, or 15.0%, to $123.2 million compared to the quarter
ended March 31, 2003. The primary drivers for this change were increases in
admissions and inpatient surgeries. Our same-hospital outpatient revenues for the quarter ended March 31, 2004
increased by $13.2 million, or 11.9%, to $124.0 million compared to the quarter
ended March 31, 2003. This outpatient growth was largely driven by a 2.6%
increase in same-hospital outpatient surgeries and a 2.8% increase in
same-hospital emergency room visits. In addition, the $13.2 million increase
includes the $3.2 million revenues from the Medicare disproportionate share designation described
in Note 6 to our condensed consolidated financial statements. After factoring all of the above, our equivalent admissions increased by
5.5% on a same-hospital basis for the quarter ended March 31, 2004 compared to
the same period in 2003. As it relates to pricing and acuity, our
same-hospital revenues per equivalent admission for the quarter ended March 31,
2004 increased 7.3%, or $360 per equivalent admission, over the same period in
2003. The table below shows the sources of our revenues for the quarters ended
March 31, expressed as percentages of total revenues: Consolidated
    
    Same-hospital2003
    
    2004
    
    2003
    
    2004Medicare
    
    
    37.6
    %
    
    
    37.8
    %
    
    
    37.6
    %
    
    
    38.0
    %Medicaid
    
    
    10.9
    
    
    
    10.9
    
    
    
    10.9
    
    
    
    10.8HMOs, PPOs and
other private
insurers
    
    
    39.5
    
    

    
    38.8
    
    
    
    39.5
    
    
    
    38.8Self Pay
    
    
    8.5
    
    
    
    9.0
    
    
    
    8.5
    
    
    
    8.8Other
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.6Total
    
    
    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 prior to our 2003
Annual Report on Form 10-K required certain reclassifications.
Specifically, contractual discounts relating to certain Medicaid state managed
care programs were historically classified incorrectly against the HMOs, PPOs
and other private insurers revenues  as opposed to  Medicaid revenues. This change produced no impact on our historical results of operations.
Generally, these reclassifications reduced Medicaid as a percentage of total
revenues and increased HMOs, PPOs and other private insurers as a percentage of
total revenues. 14




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##### Table of Contents



Expenses Salaries and benefits decreased as a percentage of revenues to 39.2% for
the quarter ended March 31, 2004 from 40.9% for the quarter ended March 31,
2003, primarily as a result of improvements in labor productivity and the 16.2%
increase in our revenues. Man-hours per equivalent
admission decreased 2.5% for the quarter ended March 31, 2004 over the same
period last year. However, we had a 5.3% increase in salaries and benefits per
man-hour in the quarter ended March 31, 2004 compared to the same period in
2003. In addition, our contract labor costs increased by 5.4% to $4.3 million
in the quarter ended March 31, 2004 compared to $4.1 million in the quarter
ended March 31, 2003, as a result of continuing clinical labor shortages in
some of our communities. Supply costs as a percentage of revenues increased slightly to 13.0% in
the quarter ended March 31, 2004 from 12.9% in the quarter ended March 31,
2003, on both a consolidated and same-hospital basis. On a consolidated and
same-hospital basis, our cost of supplies per equivalent admission increased
7.9% in the quarter ended March 31, 2004 as a result of rising supply costs
compared to the same period in 2003, particularly in the pharmaceutical,
cardiac and spine and joint implant areas. In addition, our same-hospital
surgeries, which generally incur higher supply costs per equivalent admission,
increased by 4.0% for the quarter ended March 31, 2004 over the same period
last year. Other operating expenses decreased as a percentage of revenues to 16.7% in
the quarter ended March 31, 2004 from 17.5% in the quarter ended March 31,
2003 primarily as a result of the 16.2% increase in our revenues. A
portion of our other operating expenses are fixed and not volume
driven. Our professional and general liability insurance expense was $3.6
million during the quarter ended March 31, 2004 compared to $3.8 million in the
quarter ended March 31, 2003. This decrease relates to favorable loss
experience as reflected in our external actuarial reports and our 2003 change
to using multiple actuaries to estimate projected losses under the self-insured
portion of our insurance program, as further discussed in Part I,
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations  Critical Accounting Estimates in our 2003 Annual Report on Form 10-K. However, our
physician recruiting costs increased from $2.4 million in the quarter ended
March 31, 2003 to $3.5 million in the quarter ended March 31, 2004 as a result
of our increased number of recruited physicians. Provision for doubtful accounts increased as a percentage of revenues to
8.9% in the quarter ended March 31, 2004 from 7.9% in the quarter ended March
31, 2003. The provision for doubtful accounts related primarily to self-pay
amounts due from patients. Our self-pay revenues increased by 23.0% from $18.8
million for the quarter ended March 31, 2003 to $23.1 million for the
quarter ended March 31, 2004. The factors influencing this
increase are primarily a combination of broad economic factors, including the increased number of
uninsured patients. On a same-hospital basis, the provision for doubtful
accounts increased as a percentage of revenues to 9.0% in the quarter ended
March 31, 2004 from 7.9% in the quarter ended March 31, 2003. Depreciation and amortization expense increased to $11.6 million in the
quarter ended March 31, 2004 from $11.2 million in the quarter ended March 31,
2003, primarily as a result of our acquisition of Spring View Hospital in the
fourth quarter of 2003 and depreciation associated with recently completed
capital improvements at our facilities. The provision for income taxes increased to $15.4 million in the quarter
ended March 31, 2004 from $12.2 million in the quarter ended March 31, 2003.
The income tax provisions reflected an effective income tax rate of 39.3% for
the quarter ended March 31, 2004 compared to 40.9% for the quarter ended March
31, 2003. The effective tax rate decreased primarily as a result of the
decline in the permanent differences between book and taxable income as a
percentage of pre-tax income and utilization of state net operating losses. 15




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##### Table of Contents



Liquidity and Capital Resources Liquidity Our primary sources of liquidity are cash flows provided by our operations
and our revolving credit facility. Our liquidity for the quarters ended March
31, 2003 and 2004 was derived primarily from net cash provided by operating
activities. Cash flows for the quarters ended March 31 were as follows (in millions): Source (use) of cash flows
    
    2003
    
    2004Operating activities
    
    $
    34.2
    
    
    $
    52.2Investing activities
    
    
    (17.4
    )
    
    
    (17.1
    )Financing activities
    
    
    0.5
    
    
    
    (17.6
    )Net increase in cash and cash equivalents
    
    $
    17.3
    
    
    $
    17.5Interest payments
    
    $
    0.2
    
    
    $
    0.6Income taxes paid
    
    $
    0.4
    
    
    $
    0.9Working capital as of March 31
    
    $
    86.6
    
    
    $
    111.0
 Operating activities The $18.0 million increase in cash flows from operating activities in the
three months ended March 31, 2004 as compared to the same period in 2003 is
primarily a result of:  
    
    increased net income of $6.2 million in the three months ended
March 31, 2004 as compared to the same period in 2003; and
    
    improved cash flows from operations related to changes in working
capital of $9.1 million provided primarily by increased cash
collections related to accounts receivable and increases in accounts
payable, accrued expenses and income taxes payable in the first three
months of 2004 as compared to the same period in 2003. Investing activities Cash used in investing activities for the three months ended March 31,
2004 primarily consisted of purchases of equipment of $15.1 million, the
direct transaction costs and working capital settlement of Spring View Hospital
of $0.5 million, and $1.2 million related to our purchase of a surgery center
in Sulligent, Alabama. Our routine capital expenditures increased from $4.4
million in the quarter ended March 31, 2003 to $5.2 million in the quarter
ended March 31, 2004 as a result of an increased base of fixed assets. 16




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##### Table of Contents



Financing activities Cash used in financing activities consisted primarily of a $20.0 million
payment we made under our revolving credit facility, partially offset by $2.4
million in proceeds from stock option exercises and employee stock purchase
plans. Capital Resources Our revolving credit facility, which expires in June 2006, provides for
borrowings up to $200.0 million in the aggregate, is guaranteed by
substantially all of our current and future subsidiaries and is secured by
substantially all of our assets. The revolving credit facility requires that
we comply with certain financial covenants, including: Requirement
    
    Level at March 31, 2004Maximum permitted consolidated leverage ratio
    
    <3.50 to 1.00
    
    1.40 to 1.00Maximum permitted consolidated senior leverage ratio
    
    <2.50 to 1.00
    
    0.09 to 1.00Minimum permitted consolidated interest coverage ratio
    
    >3.50 to 1.00
    
    13.36 to 1.00Minimum permitted consolidated net worth
    
    >$281.9 million
    
    $423.6 millionMaximum capital expenditures  last twelve months
    
    <$141.4 million
    
    $  68.1 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 March 31, 2004. As
of March 31, 2004, we had no outstanding indebtedness under our revolving
credit facility and letters of credit in the aggregate amount of $17.1 million
outstanding, leaving $182.9 million available under our revolving credit
facility. We repaid the $20.0 million of indebtedness
outstanding at December 31, 2003 under our
revolving credit facility in February 2004 with our available cash. The applicable interest rate under the revolving credit facility is based
on a rate, at our option, equal to either (i) LIBOR plus a margin ranging from
1.25% to 2.25% or (ii) prime plus a margin ranging from 0% to 0.5%, both
depending on our consolidated total debt to consolidated EBITDA ratio, as
defined, for the most recent four quarters. Our revolving credit facility does not contain provisions that would
accelerate the maturity date of our debt upon a downgrade in our credit rating.
However, a downgrade in our credit rating could adversely affect our ability to
renew our existing credit facility or obtain access to new credit facilities or
other capital sources in the future and could increase the cost of such
facilities and other capital sources. Our credit ratings as of March 31, 2004
are as follows: Standard & Poors
    
    MoodysCorporate Credit Rating/Senior Implied
    
    BB
    
    Ba3Senior Secured Bank Credit Facility
    
    BB+
    
    Ba2Senior Unsecured/Issuer
    
    
    
    B2Subordinated
    
    
    
    B3Outlook
    
    Stable
    
    Positive
 We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance, special
purpose or variable interest entities, established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Accordingly, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships. On May 22, 2002,
we sold 4 1⁄2% 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 10
3⁄4%
Senior Subordinated Notes, working capital and general corporate purposes. The
Convertible Notes bear interest at the rate of 4 1⁄2% 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 17




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conversion price is subject to adjustment in certain circumstances. We may
redeem all or a portion of the Convertible Notes on or after June 3, 2005, at
the then current redemption prices, plus accrued and unpaid interest. Holders
of the Convertible Notes may require us to repurchase all of the holders
Convertible Notes at 100% of their principal amount plus accrued and unpaid
interest in some circumstances involving a change of control. The Convertible
Notes are unsecured and subordinated to our existing and future senior
indebtedness and senior subordinated indebtedness. The Convertible Notes rank
junior to our other liabilities. The indenture governing the Convertible Notes
does not contain any financial covenants. A total of 5,278,825 shares of common
stock have been reserved for issuance upon conversion of the Convertible Notes. Liquidity and Capital Resources Outlook We expect the level of capital expenditures in 2004 to be approximately
$90.0 million, of which $15.1 million has been spent in the first quarter. We
have large projects in process at a number of our facilities. We are
reconfiguring some of our hospitals to more effectively accommodate patient
services and restructuring existing surgical capacity in some of our hospitals
to permit additional patient volume and a greater variety of services. At March
31, 2004, we had projects under construction with an estimated additional cost
to complete and equip of approximately $89.4 million. We anticipate that these
projects will be completed over the next three years. We anticipate funding
these expenditures through cash provided by operating activities, available
cash and borrowings under our revolving credit facility. Our business strategy contemplates the acquisition of additional
hospitals, and we regularly review potential acquisitions. These acquisitions
may, however, require additional financing. We regularly evaluate opportunities
to sell additional equity or debt securities, obtain credit facilities from
lenders or restructure our long-term debt or equity for strategic reasons or to
further strengthen our financial position. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. We have never declared or paid dividends on our common stock. We intend to
retain future earnings to finance the growth and development of our business
and, accordingly, do not currently intend to declare or pay any dividends on
our common stock. Our Board of Directors will evaluate our future earnings,
results of operations, financial condition and capital requirements in
determining whether to declare or pay cash dividends. Delaware law prohibits us
from paying any dividends unless we have capital surplus or net profits
available for this purpose. In addition, our credit facilities impose
restrictions on our ability to pay dividends. We repurchased approximately 2.1
million shares of our common stock for an aggregate price of approximately
$45.7 million during 2003. Please refer to Part II, Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securitiesin our 2003 Annual Report on Form 10-K for a discussion of our share
repurchase program. We believe that cash flows from operations, amounts available under our
revolving credit facility and our anticipated access to capital markets are
sufficient to meet expected liquidity needs, planned capital expenditures,
potential acquisitions and other expected operating needs over the next three
years. Contractual Obligations During the quarter ended March 31, 2004, there were no material changes in
our contractual obligations presented in our 2003 Annual Report on
Form 10-K.




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Off-Balance Sheet Arrangements We had standby letters of credit outstanding of approximately $17.1
million as of March 31, 2004. Of this amount, $16.9 million was related to the
self-insured retention levels of our professional and general liability
insurance programs as security for the payment of claims and $0.2 million was
related to obligations to certain utility companies. Impact of Recently Issued Accounting Pronouncements Please refer to Note 3 of our condensed consolidated financial statements
included in this report for a discussion of the impact of recently issued
accounting pronouncements. Contingencies Please refer to Note 5 of our condensed consolidated financial statements
included in this report for a discussion of our material financial
contingencies, including:  
    
    An Americans with Disabilities Act claim;  
    
    HCA investigations, litigation and indemnification rights;  
    
    Our Corporate Integrity Agreement;  
    
    Legal proceedings and general liability claims;  
    
    Physician commitments;  
    
    Capital expenditure commitments; and  
    
    Acquisitions. Factors That May Affect Future Results We make forward-looking statements in this report and in other reports and
proxy statements we file with the United States Securities and Exchange
Commission. In addition, our senior management makes forward-looking
statements orally to analysts, investors, the media and others. Broadly
speaking, forward-looking statements include:  
    
    projections of our revenues, net income, earnings per share, capital
expenditures or other financial items;  
    
    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:  
    
    future financial performance;  
    
    future liquidity;  
    
    industry trends; 19




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
    
    patient volumes and related revenues;
    
    recruiting and retention of clinical personnel;
    
    future capital expenditures;
    
    the impact of new accounting standards; and
    
    physician recruiting. Forward-looking statements discuss matters that are not historical facts.
Because they discuss future events or conditions, forward-looking statements
often include words such as can, could, may, should, believe, will,
would, expect, project, estimate, anticipate, plan, intend,
target, continue or similar expressions. Do not unduly rely on
forward-looking statements. They give our expectations about the future and are
not guarantees. Forward-looking statements speak only as of the date they are
made, and we might not update them to reflect changes that occur after the date
they are made. There are several factors, many beyond our control, that could cause
results to differ significantly from our expectations. Some of these factors
are described below under Risk Factors. Other factors, such as market,
operational, liquidity, interest rate and other risks, are described elsewhere
in this report or in our 2003 Annual Report on Form 10-K. Any factor described in this report or
in our 2003 Annual Report on Form 10-K could, by itself or together with one or more factors,
adversely affect our business, results of operations and/or financial
condition. There may be factors not described in this report or in our 2003
Annual Report on Form 10-K that could cause results to differ from our expectations. Risk Factors Our revenues may decline if federal or state programs reduce our Medicare or
Medicaid payments or managed care companies reduce our reimbursements. In recent years, federal and state governments made significant changes in
the Medicare and Medicaid programs. A number of states have incurred budget
deficits and adopted legislation designed to reduce their Medicaid expenditures
and to reduce Medicaid enrollees. In addition, insurance and managed care
companies and other third parties from whom we receive payment for our services
increasingly attempt to control healthcare costs by requiring that hospitals
discount their fees in exchange for exclusive or preferred participation in
their benefit plans. We believe that this trend may continue and may reduce the
payments we receive for our services. We may be subjected to allegations that we failed to comply with governmental
regulation, which could result in sanctions that reduce our revenue and
profitability. All participants in the healthcare industry are required to comply with
many laws and regulations at the federal, state and local government levels.
These laws and regulations require that hospitals meet various requirements,
including those relating to the adequacy of medical care, equipment, personnel,
operating policies and procedures, billing and cost reports, payment for
services and supplies, maintenance of adequate records, privacy, compliance
with building codes and environmental protection. These laws often contain safe
harbor provisions, which describe some of the conduct and business
relationships that are immune from prosecution. Not all of our business
arrangements fit wholly within safe harbors. This does not automatically render
our arrangements illegal. However, we may be subject to scrutiny by enforcement
authorities. If we fail to comply with applicable laws and regulations, we
could suffer civil or criminal penalties, including the loss of our licenses to
operate our hospitals and our ability to participate in the Medicare, Medicaid
and other federal and state healthcare programs. Significant media and public attention recently has focused on the
hospital industry as a result of ongoing investigations related to referrals,
physician recruiting practices, cost reporting and billing practices,
laboratory and home healthcare services and physician ownership and joint
ventures involving hospitals. Both federal and state government agencies have
announced heightened and coordinated civil and criminal enforcement efforts. In
addition, the Office of Inspector General (the OIG) and the Department of Justice
periodically establish enforcement initiatives that focus on specific billing
practices or other suspected areas of abuse. Recent initiatives include a focus
on hospital billing practices, rehabilitation and outpatient therapy. In public statements, governmental authorities have taken positions on
issues for which little official interpretation was previously available. Some
of these positions appear to be inconsistent with common practices 20




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within the industry and which have not previously been challenged in this
manner. Moreover, some government investigations that have in the past been
conducted under the civil provisions of federal law are now being conducted as
criminal investigations under the Medicare fraud and abuse laws. The laws and regulations that we must comply with are complex and subject
to change. In the future, different interpretations or enforcement of these
laws and regulations could subject our current practices to allegations of
impropriety or illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure programs and
operating expenses. We may be subjected to actions brought by individuals on the governments
behalf under the False Claims Acts qui tam or whistleblower provisions. Whistleblower provisions allow private individuals to bring actions on
behalf of the government alleging that the defendant has defrauded the federal
government. Defendants determined to be liable under the False Claims Act may
be required to pay three times the actual damages sustained by the government,
plus mandatory civil penalties ranging between $5,500 and $11,000 for each
separate false claim. There are many potential bases for liability under the False Claims Act.
Liability often arises when an entity knowingly submits a false claim for
reimbursement to the federal government. The False Claims Act defines the term
knowingly broadly. Although simple negligence will not give rise to
liability under the False Claims Act, submitting a claim with reckless
disregard to its truth or falsity constitutes a knowing submission under the
False Claims Act and, therefore, will qualify for liability. In some cases, whistleblowers or the federal government have taken the
position that providers who allegedly have violated other statutes, such as the
anti-kickback statute and the Stark Law, have thereby submitted false claims
under the False Claims Act. In addition, a number of states have adopted their
own false claims provisions as well as their own whistleblower provisions
whereby a private party may file a civil lawsuit in state court. If we become subject to malpractice and related legal claims, we could be
required to pay significant damages, which may not be covered by insurance. Given the nature of our operating environment, we are subject to medical
malpractice lawsuits and other claims. To mitigate a portion of this risk, we
maintain liability insurance in amounts that we believe are appropriate for our
operations. During 2003, we maintained professional and general liability
insurance that provided coverage on a claims-made basis for individual claims
in excess of $5.0 million. For 2004, the self-insured retention level amount
for individual claims is $10.0 million. It is possible that successful claims
against us that are within the self-insured retention level amounts, when
considered in the aggregate, could have an adverse effect on our financial
condition or liquidity. Insurance coverage may not continue to be available at
a cost allowing us to maintain adequate levels of insurance with acceptable
self-insured retention level amounts. In addition, physicians using our
hospitals may be unable to obtain insurance on acceptable terms. If we fail to effectively recruit and retain physicians, nurses and medical
technicians, our ability to deliver healthcare services efficiently will
suffer. Physicians generally direct the majority of hospital admissions. Our
success, in part, depends on the number and quality of physicians on our
hospitals medical staffs, the admissions practices of these physicians and the
maintenance of good relations with these physicians. We generally do not employ
physicians. Only a limited number of physicians practice in the non-urban
communities where our hospitals are located. Our primary method of adding or
expanding medical services is the recruitment of new physicians into our
communities. The success of our recruiting efforts depends on several factors. In
general, there is a shortage of specialty care physicians. We face intense
competition in the recruitment of specialists because of the difficulty
convincing these individuals of the benefits of practicing in a non-urban
community. Physicians are concerned with the patient volume in non-urban
hospitals and whether the volume will allow them to generate income comparable
to that 21




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which they would generate in an urban setting. If the growth rate in the
non-urban communities where our hospitals operate slows, then we could
experience difficulty attracting physicians to practice in our communities. There is generally a shortage of nurses and certain medical
technicians in the healthcare industry.
Our hospitals may be forced to hire expensive contract personnel if they are
unable to recruit and retain full-time employees. The shortage of nurses and
medical technicians may affect our hospitals ability to deliver healthcare
services efficiently. Our revenue is heavily concentrated in Kentucky and Tennessee, which makes us
particularly sensitive to regulatory and economic changes in those states. Our revenue is particularly sensitive to regulatory and economic changes
in Kentucky and Tennessee. As of March 31, 2004, we operated 29 hospitals with
eight located in the commonwealth of Kentucky and seven located in the state of
Tennessee. We generated 32.0% and 34.2% of our revenue from our Kentucky
hospitals (including 3.3% and 4.0% from state-sponsored Medicaid programs) and
17.4% and 18.5% from our Tennessee hospitals (including 2.8% and 2.5% from the
state-sponsored TennCare program) for the three months ended March 31, 2003 and
2004, respectively. Certain managed care organizations that participate in the
Medicaid programs of Tennessee and Kentucky have been placed in receivership or
encountered other financial difficulties. Other managed care organizations in
the states in which we derive significant revenue may encounter similar
difficulties in paying claims in the future. We may have difficulty acquiring hospitals on favorable terms and, because of
regulatory scrutiny, acquiring nonprofit entities. One element of our business strategy is expansion through the acquisition
of acute care hospitals in growing, non-urban markets. We face significant
competition to acquire other attractive, non-urban hospitals. We may not find
suitable acquisitions on favorable terms. We also may incur or assume
additional indebtedness as a result of the consummation of acquisitions. Our
failure to acquire non-urban hospitals consistent with our growth plans could
prevent us from increasing our revenues. The cost of acquiring hospitals continues to increase. In some cases, the
cost of an acquisition could result in a dilutive effect on our results of
operations depending on various factors, including the acquired hospitals
results of operations, allocation of tangible and intangible assets, effects of
subsequent legislation changes and limitations on rate increases. In addition,
our acquisition activity requires transitions from, and the integration of,
various information systems that are used by hospitals we acquire. In recent years, the legislatures and attorneys general of several states
have become more interested in sales of hospitals by nonprofit entities. This
heightened scrutiny may increase the cost and difficulty, or prevent our
completion, of transactions with nonprofit organizations in the future. We may encounter numerous business risks in acquiring additional hospitals, and
may have difficulty operating and integrating those hospitals. We may not be able to timely and effectively integrate the hospitals that
we acquire with our ongoing operations. We may experience delays in
implementing operating procedures and systems in newly acquired hospitals.
Integrating a new hospital could be expensive and time consuming and could
disrupt our ongoing business and distract our management and other key
personnel. In addition, we rely heavily on HCA for information systems
integration as part of our contractual arrangement for information technology
services. We also may acquire businesses with unknown or contingent liabilities,
including liabilities for failure to comply with healthcare laws and
regulations. We have policies to conform the practices of acquired facilities
to our standards and applicable law and generally will seek indemnification
from prospective sellers covering these matters. We may, however, incur
material liabilities for past activities of acquired businesses. 22




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Certificate of need laws and licensing regulations may prohibit or limit any
future expansion by us in some states. Some states require prior approval for the purchase, construction and
expansion of healthcare facilities, based on a states determination of need
for additional or expanded healthcare facilities or services. Five states in
which we currently own hospitals, Alabama, Florida, Kentucky, Tennessee and
West Virginia, require a certificate of need for capital expenditures exceeding
a prescribed amount, changes in bed capacity or services and certain other
matters. We may not be able to obtain certificates of need required for
expansion activities in the future. In addition, all of the states in which we
operate require hospitals and most healthcare providers to maintain one or more
licenses. If we fail to obtain any required certificate of need or licenses,
our ability to operate or expand operations in these states could be impaired. Our ability to complete our construction projects on a required timetable and
within the original cost estimates. In certain states, where prior approval is required for the construction
and expansion of healthcare facilities, such approval is predicated on a
timetable and within a certain cost threshold. In addition, all projects are
evaluated internally based on certain rates of return. If costs of raw
materials and labor increase dramatically, the originally imputed rates of
returns may not materialize. In addition, projects could be delayed pending
state approval of cost overruns. Our ability to increase our indebtedness and become substantially leveraged may
limit our ability to successfully run our business. At March 31, 2004, our consolidated long-term debt was approximately $250
million. We also may draw on a revolving credit commitment of up to $200
million under our revolving credit facility, of which $182.9 million was available
as of March 31, 2004. In addition, we have the ability to incur additional
debt, subject to limitations imposed by our credit agreement. Our leverage and
debt service requirements could have important consequences to our
stockholders, including the following:  
    
    make us more vulnerable to economic downturns and to adverse
changes in business conditions, such as further limitations on
reimbursement under Medicare and Medicaid programs;  
    
    limit our ability to obtain additional financing at favorable
interest rates in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes;  
    
    require us to dedicate a substantial portion of our cash flow from
operations to the payment of principal and interest on our
indebtedness, reducing the funds available for our operations and
capital improvements;  
    
    make us vulnerable to increases in interest rates because our bank
credit agreement is at a variable rate of interest; and  
    
    require us to pay the indebtedness immediately if we default on any
of the numerous financial and other restrictive covenants, including
restrictions on our payments of dividends, incurrence of indebtedness
and sale of assets. Federal and state investigations of HCA could subject our hospitals and
operations to increased governmental scrutiny. HCA has been the subject of various federal and state investigations, qui
tamactions, shareholder derivative and class action suits, patient/payor
actions and general liability claims. These investigations, actions and claims
relate to HCA and its subsidiaries, including subsidiaries that, before our
formation as an independent company, owned some of the facilities we now own.
For additional information about these matters, please refer to Part I, Item 3.
Legal Proceedingsin our 2003 Annual Report on Form 10-K. We could be held responsible for any claims that are not covered by the
agreements HCA reached with the federal government or for which HCA is not
required to, or fails to, indemnify us. If indemnified matters were asserted
successfully against us or any of our facilities, and HCA failed to meet its
indemnification obligations, then such an event could have a material adverse
effect on our business, financial condition, results of operations, liquidity
or prospects. 23




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We cannot predict with accuracy the extent to which we may or may not
continue to be affected by the initiation of additional investigations of HCA,
if any. If these matters result in a successful claim against us, it could
have a material adverse effect on our business, financial condition, results of
operations, liquidity or prospects in future periods. We depend significantly on key personnel, and the loss of one or more senior or
local management personnel could limit our ability to execute our business
strategy. We depend on the continued services and management experience of Kenneth
C. Donahey and our other executive officers. If Mr. Donahey or any of our other
executive officers resign their positions or otherwise are unable to serve, our
management expertise and ability to deliver healthcare services efficiently
could be weakened. In addition, if we fail to attract and retain managers at
our hospitals and related facilities, our operations will suffer. Other hospitals provide similar services, which may raise the level of
competition faced by our hospitals. Competition among hospitals and other healthcare providers for patients
has intensified in recent years. All but one of our hospitals operate in
geographic areas where we are currently the sole provider of hospital services
in these communities. While our hospitals face less direct competition in our
immediate service areas, we do compete with other hospitals, including larger
tertiary care centers. Although these competing hospitals may be in excess of
30 to 50 miles away from our facilities, patients in these markets may migrate
to, may be referred by local physicians to, or may be lured by incentives from
managed care plans to travel to these distant hospitals. Some of these
competing hospitals use equipment and services more specialized than those
available at our hospitals. In addition, some of the hospitals that compete
with us are owned by tax-supported governmental agencies or not-for-profit
entities supported by endowments and charitable contributions. These hospitals
can make capital expenditures without paying sales, property and income taxes.
We also face competition from other specialized care providers, including
outpatient surgery, orthopedic, oncology, physical therapy and diagnostic
centers, as well as competing services rendered in physician offices. To the
extent that other providers are successful in developing specialized outpatient
facilities, our market share for those specialized services will likely
decrease. Where necessary to prevent such competition, a few of our hospitals
have developed specialized outpatient facilities. If our access to HCAs information systems is restricted or we are not able to
integrate changes to our existing information systems or information systems of
acquired hospitals, our operations could suffer. Our business depends significantly on effective information systems to
process clinical and financial information. Information systems require an
ongoing commitment of significant resources to maintain and enhance existing
systems and develop new systems in order to keep pace with continuing changes
in information processing technology. We rely heavily on HCA for information
systems. Under a contract with an initial term that will expire on
May 11, 2006, HCA provides financial, clinical, patient accounting and
network information services to us. If our access to these systems is limited
in the future or if HCA develops systems more appropriate for the urban
healthcare market and not suited for our hospitals, our operations could
suffer. In addition, as new information systems are developed, we must integrate
them into our existing systems. Evolving industry and regulatory standards,
including the Health Insurance Portability and Accountability Act of 1996,
commonly known as HIPAA, may require changes to our information systems. We
may not be able to integrate new systems or changes required to our existing
systems or systems of acquired hospitals in the future effectively. Please
refer to Part I, Item 1. Business
Government Regulation in our
2003 Annual Report on Form 10-K for a discussion of HIPAA. A key element of our business strategy is growth through the acquisition
of additional acute care hospitals. Our acquisition activity requires
transitions from, and the integration of, various information systems that are
used by the hospitals we acquire. If we experience difficulties with the
integration of the information systems of acquired hospitals, we could suffer,
among other things, operational disruptions and increases in administrative
expenses. 24




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If we fail to comply with our corporate integrity agreement, we could be
required to pay significant monetary penalties. In December 2000, we entered into a corporate integrity agreement with the
OIG. Under this agreement, we have an affirmative obligation to report
violations of applicable laws and regulations. This obligation could result in
greater scrutiny of us by regulatory authorities. Complying with our corporate
integrity agreement requires additional efforts and costs. Our failure to
comply with the terms of the corporate integrity agreement could subject us to
significant monetary penalties. Our anti-takeover provisions may discourage acquisitions of control even though
our stockholders may consider these proposals desirable. Provisions in our certificate of incorporation and bylaws may have the
effect of discouraging an acquisition of control not approved by our board of
directors. These provisions include:  
    
    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. We have never paid and have no current plans to pay a dividend on our common
shares. We have never paid a cash dividend and we do not currently anticipate
paying any cash dividends. Our senior credit facility also restricts the
payment of cash dividends. If we incur any future indebtedness to refinance our
existing indebtedness or to fund our future growth, our ability to pay
dividends may be further restricted by the terms of this indebtedness. Our
board of directors will evaluate our future earnings, results of operations,
financial condition and capital requirements in determining whether to declare
or pay cash dividends. 25




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Our stock price has been and may continue to be volatile. The trading price of our common stock has been and may continue to be
subject to wide fluctuations. Our stock price may fluctuate in response to a
number of events and factors, including:  
    
    quarterly variations in operating results;  
    
    changes in financial estimates and recommendations by securities analysts;  
    
    changes in government regulations as it relates to reimbursement and
operational policies and procedures;  
    
    the operating and stock price performance of other companies that investors may deem comparable; and  
    
    news reports relating to trends in our markets. Broad market and industry fluctuations may adversely affect the price of
our common stock, regardless of our operating performance. Item 3. Quantitative and Qualitative Disclosures about Market Risk. 
 During the quarter ended March 31, 2004, there were no material changes in
the quantitative and qualitative disclosures about market risks presented in
our 2003 Annual Report on Form 10-K. 
 Item 4. Controls and Procedures. We carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us (including our consolidated subsidiaries) in
reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported on a timely basis.
There has been no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. 26




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PART II-OTHER
INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K. (a) List of Exhibits: EXHIBIT NUMBER
    
    DESCRIPTION3.1
    
    Certificate of Incorporation (a)3.2
    
    Bylaws (a)3.3
    
    First Amendment to the Bylaws (b)4.1
    
    Form of Specimen Stock Certificate (c)4.2
    
    Rights Agreement dated as of May 11, 1999 between LifePoint Hospitals, Inc. and
National City Bank as Rights Agent (a)4.3
    
    Indenture, dated as of May 22, 2002, between LifePoint Hospitals, Inc. and National
City Bank, as trustee, relating to the 4 1/2% Convertible Subordinated Notes due 2009
(d)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. (d)4.5
    
    Form of 4 1/2% Convertible Subordinated Note due 2009 of LifePoint Hospitals, Inc. (d)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 LifePoint Hospitals, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File Number
0-29818.(b)
    
    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.(c)
    
    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 0-29818.(d)
    
    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. 27




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(b) Reports on Form 8-K filed during the three months ended March 31, 2004: On January 8, 2004, we furnished a Current Report on Form 8-K pursuant to
Item 12 announcing our earnings projections for 2004. On February 17, 2004, we furnished a Current Report on Form 8-K pursuant
to Item 12 announcing our 2003 fourth quarter and year-end earnings results. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: April 28, 2004
    LifePoint Hospitals, Inc.By:
    /s/ Michael J. CulottaMichael J. CulottaChief Financial Officer(Principal Financial and Accounting Officer)
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