UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

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: 000-51251

 

LifePoint Hospitals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		20-1538254
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

103 Powell Court Brentwood, Tennessee		37027
(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. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 20, 2012, the number of outstanding shares of the registrant’s Common Stock was 48,883,532.

TABLE OF CONTENTS

LifePoint Hospitals, Inc.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			59
Item 4. Controls and Procedures			59
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			60
Item 1A. Risk Factors			60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			60
Item 6. Exhibits			62

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LIFEPOINT HOSPITALS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share amounts)

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Revenues before provision for doubtful accounts		$	980.1			$	873.4			$	1,978.2			$	1,762.0
Provision for doubtful accounts			152.8				126.3				299.9				256.4
Revenues			827.3				747.1				1,678.3				1,505.6
Salaries and benefits			369.9				339.0				739.9				673.4
Supplies			124.4				114.1				253.4				232.8
Other operating expenses			195.7				163.1				384.2				324.7
Other income			(1.5	)			(4.2	)			(2.7	)			(4.2	)
Depreciation and amortization			46.9				40.6				92.0				80.3
Interest expense, net			25.7				28.1				51.2				57.3
Impairment charge			—				—				3.1				—
			761.1				680.7				1,521.1				1,364.3
Income from continuing operations before income taxes			66.2				66.4				157.2				141.3
Provision for income taxes			24.3				25.3				58.4				53.7
Income from continuing operations			41.9				41.1				98.8				87.6
Income from discontinued operations, net of income taxes			0.1				—				0.2				0.3
Net income			42.0				41.1				99.0				87.9
Less: Net income attributable to noncontrolling interests			(1.7	)			(0.8	)			(2.6	)			(1.5	)
Net income attributable to LifePoint Hospitals, Inc.		$	40.3			$	40.3			$	96.4			$	86.4
Basic earnings per share attributable to LifePoint Hospitals, Inc. stockholders:
Continuing operations		$	0.85			$	0.79			$	2.04			$	1.70
Discontinued operations			—				—				0.01				0.01
Net income		$	0.85			$	0.79			$	2.05			$	1.71
Diluted earnings per share attributable to LifePoint Hospitals, Inc. stockholders:
Continuing operations		$	0.83			$	0.77			$	1.99			$	1.66
Discontinued operations			—				—				—				—
Net income		$	0.83			$	0.77			$	1.99			$	1.66
Weighted average shares and dilutive securities outstanding:
Basic			47.3				51.1				47.1				50.6
Diluted			48.4				52.3				48.4				51.9
Amounts attributable to LifePoint Hospitals, Inc. stockholders:
Income from continuing operations, net of income taxes		$	40.2			$	40.3			$	96.2			$	86.1
Income from discontinued operations, net of income taxes			0.1				—				0.2				0.3
Net income		$	40.3			$	40.3			$	96.4			$	86.4

 
 
See accompanying notes

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(In millions)

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Net income		$	42.0			$	41.1			$	99.0			$	87.9
Other comprehensive income, net of income taxes:
Unrealized gains on changes in fair value of interest rate swap, net of income tax provisions of $1.4 and $2.8 for the three and six months ended June 30, 2011, respectively			—				2.6				—				5.1
Other comprehensive income			—				2.6				—				5.1
Comprehensive income			42.0				43.7				99.0				93.0
Less: Net income attributable to noncontrolling interests			(1.7	)			(0.8	)			(2.6	)			(1.5	)
Comprehensive income attributable to LifePoint Hospitals, Inc.		$	40.3			$	42.9			$	96.4			$	91.5

 
 
See accompanying notes

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)

		June 30, 2012				December 31, 2011(a)
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	172.3			$	126.2
Accounts receivable, less allowances for doubtful accounts of $605.2 and $537.4 at June 30, 2012 and December 31, 2011, respectively			468.9				430.6
Inventories			88.6				87.2
Prepaid expenses			23.7				26.4
Income taxes receivable			—				1.6
Deferred tax assets			147.7				125.7
Other current assets			31.3				42.3
			932.5				840.0
Property and equipment:
Land			95.7				93.5
Buildings and improvements			1,701.1				1,631.6
Equipment			1,139.1				1,084.0
Construction in progress (estimated costs to complete and equip after June 30, 2012 is $71.3)			95.2				105.7
			3,031.1				2,914.8
Accumulated depreciation			(1,166.6	)			(1,084.4	)
			1,864.5				1,830.4
Deferred loan costs, net			18.8				21.7
Intangible assets, net			86.0				89.5
Other			20.6				19.8
Goodwill			1,569.2				1,568.7
Total assets		$	4,491.6			$	4,370.1
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	95.7			$	99.6
Accrued salaries			99.2				103.1
Income taxes payable			30.9				—
Other current liabilities			135.7				168.2
Current maturities of long-term debt			2.0				1.9
			363.5				372.8
Long-term debt			1,609.6				1,595.4
Deferred income tax liabilities			239.3				259.0
Reserves for self-insurance claims and other liabilities			154.8				139.1
Long-term income tax liability			18.5				18.0
Total liabilities			2,385.7				2,384.3
Redeemable noncontrolling interests			29.0				26.2
Equity:
LifePoint Hospitals, Inc. stockholders' 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; 63,932,881 and 63,233,088 shares issued at June 30, 2012 and December 31, 2011, respectively			0.6				0.6
Capital in excess of par value			1,375.7				1,354.8
Retained earnings			1,163.3				1,066.9
Common stock in treasury, at cost, 15,074,973 and 14,925,875 shares at June 30, 2012 and December 31, 2011, respectively			(483.0	)			(477.1	)
Total LifePoint Hospitals, Inc. stockholders' equity			2,056.6				1,945.2
Noncontrolling interests			20.3				14.4
Total equity			2,076.9				1,959.6
Total liabilities and equity		$	4,491.6			$	4,370.1

 
 
See accompanying notes

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Cash flows from operating activities:
Net income		$	42.0			$	41.1			$	99.0			$	87.9
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations			(0.1	)			—				(0.2	)			(0.3	)
Stock-based compensation			6.5				5.6				13.3				11.3
Depreciation and amortization			46.9				40.6				92.0				80.3
Amortization of physician minimum revenue guarantees			4.8				4.7				9.8				9.3
Amortization of convertible debt discounts			6.4				6.0				12.7				11.9
Amortization of deferred loan costs			1.4				1.5				2.9				3.0
Impairment charge			—				—				3.1				—
Deferred income tax benefit			(17.1	)			(16.7	)			(38.6	)			(19.4	)
Reserve for self-insurance claims, net of payments			(7.5	)			2.3				(2.8	)			7.0
Increase (decrease) in cash from operating assets and liabilities, net of effects from acquisitions and divestitures:
Accounts receivable			46.7				19.6				(35.7	)			5.1
Inventories and other current assets			6.3				(2.0	)			7.3				(3.8	)
Accounts payable and accrued expenses			(11.2	)			(5.8	)			(18.1	)			(11.2	)
Income taxes payable/receivable			(21.4	)			(4.4	)			32.6				26.6
Other			0.5				—				0.7				0.6
Net cash provided by operating activities – continuing operations			104.2				92.5				178.0				208.3
Net cash provided by (used in) operating activities – discontinued operations			0.1				—				(0.7	)			0.2
Net cash provided by operating activities			104.3				92.5				177.3				208.5
Cash flows from investing activities:
Purchases of property and equipment			(49.3	)			(48.6	)			(110.1	)			(104.5	)
Acquisitions, net of cash acquired			—				(24.8	)			(20.1	)			(26.5	)
Other			(0.1	)			—				(0.3	)			(0.9	)
Net cash used in investing activities			(49.4	)			(73.4	)			(130.5	)			(131.9	)
Cash flows from financing activities:
Repurchases of common stock			(0.4	)			(36.3	)			(5.9	)			(41.8	)
Payment of debt financing costs			—				(0.1	)			—				(0.1	)
Proceeds from exercise of stock options			1.6				17.0				5.5				34.5
(Refunds of) proceeds from employee stock purchase plans			(0.2	)			(0.1	)			0.5				0.6
(Distributions to) proceeds from noncontrolling interests			(0.7	)			0.4				(1.4	)			(0.6	)
Sales of redeemable noncontrolling interests			1.6				—				1.6				—
Capital lease payments and other			(0.6	)			(0.4	)			(1.0	)			(0.8	)
Net cash provided by (used in) financing activities			1.3				(19.5	)			(0.7	)			(8.2	)
Change in cash and cash equivalents			56.2				(0.4	)			46.1				68.4
Cash and cash equivalents at beginning of period			116.1				276.2				126.2				207.4
Cash and cash equivalents at end of period		$	172.3			$	275.8			$	172.3			$	275.8
Supplemental disclosure of cash flow information:
Interest payments		$	28.8			$	32.1			$	36.8			$	44.0
Capitalized interest		$	0.5			$	0.5			$	1.3			$	0.8
Income tax payments		$	63.0			$	46.3			$	64.6			$	46.6

 
 
See accompanying notes

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2012
Unaudited
(In millions)

		LifePoint Hospitals, Inc. Stockholders
		Common Stock								Capital in Excess of Par Value				Retained Earnings				Treasury Stock				Noncontrolling Interests				Total
		Shares				Amount
Balance at December 31, 2011(a)			48.3			$	0.6			$	1,354.8			$	1,066.9			$	(477.1	)		$	14.4			$	1,959.6
Net income			—				—				—				96.4				—				2.6				99.0
Exercise of stock options and tax benefits of stock-based awards			0.3				—				8.3				—				—				—				8.3
Stock activity in connection with employee stock purchase plan			—				—				0.5				—				—				—				0.5
Stock-based compensation			0.5				—				13.3				—				—				—				13.3
Repurchases of common stock, at cost			(0.2	)			—				—				—				(5.9	)			—				(5.9	)
Noncash change in noncontrolling interests as a result of acquisition and other			—				—				(1.2	)			—				—				4.7				3.5
Cash distributions to noncontrolling interests			—				—				—				—				—				(1.4	)			(1.4	)
Balance at June 30, 2012			48.9			$	0.6			$	1,375.7			$	1,163.3			$	(483.0	)		$	20.3			$	2,076.9

 
 
See accompanying notes

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 1. Organization and Basis of Presentation

Organization

LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, operates general acute care hospitals primarily in non-urban communities in the United States (“U.S.”). Unless the context otherwise indicates, LifePoint Hospitals, Inc. and its subsidiaries are referred to herein as the “Company.” At June 30, 2012, on a consolidated basis, the Company operated 55 hospital campuses in 18 states. Unless noted otherwise, discussions in these notes pertain to the Company’s continuing operations, which exclude the results of those facilities that have previously been disposed.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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 notes required by GAAP 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 and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Note 2. Revenue Recognition and Accounts Receivable

The Company recognizes revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”) and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s accompanying unaudited condensed consolidated financial statements are recorded at the net amount expected to be received.

On April 5, 2012, a settlement agreement (the “Rural Floor Settlement”) was signed between the U.S. Department of Health and Human Services (“HHS”), the Secretary of HHS, the Centers for Medicare and Medicaid Services (“CMS”) and a large number of healthcare service providers, including the Company’s hospitals. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS’s calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 from federal fiscal year 1998 through and including federal fiscal year 2011 for healthcare service providers that participated in certain court cases and group appeals. As a result of the Rural Floor Settlement, the Company recognized $1.7 million and $33.0 million of additional Medicare revenue during the three and six months ended June 30, 2012, respectively.

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 2. Revenue Recognition and Accounts Receivable  – (continued)

The Company’s revenues before provision for doubtful accounts by payor and approximate percentages of revenues were as follows for the three and six months ended June 30, 2012 and 2011 (in millions):

		Three Months Ended June 30,																Six Months Ended June 30,
		2012								2011								2012								2011
		Amount				% of Revenues				Amount				% of Revenues				Amount				% of Revenues				Amount				% of Revenues
Medicare		$	284.4				34.4	%		$	262.1				35.1	%		$	602.1				35.9	%		$	536.6				35.6	%
Medicaid			132.0				16.0				109.9				14.7				237.9				14.2				216.1				14.4
HMOs, PPOs and other private insurers			391.2				47.3				352.0				47.1				793.8				47.3				710.1				47.2
Self-pay			160.9				19.4				139.6				18.7				320.7				19.1				280.8				18.7
Other			11.6				1.4				9.8				1.3				23.7				1.4				18.4				1.1
Revenues before provision for doubtful accounts			980.1				118.5				873.4				116.9				1,978.2				117.9				1,762.0				117.0
Provision for doubtful accounts			(152.8	)			(18.5	)			(126.3	)			(16.9	)			(299.9	)			(17.9	)			(256.4	)			(17.0	)
Revenues		$	827.3				100.0	%		$	747.1				100.0	%		$	1,678.3				100.0	%		$	1,505.6				100.0	%

To properly account for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, historical cash collection experience, revenue trends by payor classification and revenue days in accounts receivable. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies.

The following is a summary of the Company’s activity in the allowance for doubtful accounts for the six months ended June 30, 2012 (in millions):

Balance at January 1, 2012		$	537.4
Additions recognized as a reduction to revenues			299.9
Accounts written off, net of recoveries			(232.1	)
Balance at June 30, 2012		$	605.2

The allowances for doubtful accounts as a percent of gross accounts receivable, net of contractual discounts were 56.3% and 55.5% as of June 30, 2012 and December 31, 2011, respectively. Additionally, as of June 30, 2012 and December 31, 2011, the allowances for doubtful accounts plus certain contractual allowances related to self-pay patients as a percentage of self-pay receivables were 87.6% and 86.7%, respectively.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 3. General and Administrative Costs

The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as “general and administrative” by the Company would include its hospital support center overhead costs, which were $43.5 million and $32.1 million for the three months ended June 30, 2012 and 2011, respectively, and $83.7 million and $63.7 million for the six months ended June 30, 2012 and 2011, respectively. Included in the Company’s hospital support center overhead costs are the transactional expenses related to the Company’s recent and pending acquisitions, including legal and consulting fees. See Note 5 for a further discussion of the Company’s recent and pending acquisition activity.

Note 4. Fair Value of Financial Instruments

In accordance with Accounting Standards Codification (“ASC”) 825-10, “Financial Instruments” and ASC 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), the fair value of the Company’s financial instruments are further described as follows.

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

The carrying amounts reported in the accompanying unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of these instruments.

Long-Term Debt

The carrying amounts and fair values of the Company’s term B loans (the “Term B Loans”) under its credit agreement with Citicorp North America, Inc., as administrative agent and a syndicate of lenders (the “Prior Credit Agreement”), 6.625% unsecured senior notes due October 1, 2020 (the “6.625% Senior Notes”), 3½% convertible senior subordinated notes due May 15, 2014 (the “3½% Notes”) and 3¼% convertible senior subordinated debentures due August 15, 2025 (the “3¼% Debentures”) as of June 30, 2012 and December 31, 2011 were as follows (in millions):

		Carrying Amount								Fair Value
		June 30, 2012				December 31, 2011				June 30, 2012				December 31, 2011
Term B Loans		$	443.7			$	443.7			$	442.6			$	432.6
6.625% Senior Notes		$	400.0			$	400.0			$	425.0			$	413.0
3½% Notes, excluding unamortized discount		$	575.0			$	575.0			$	612.4			$	592.3
3 ¼% Debentures, excluding unamortized discount		$	225.0			$	225.0			$	225.6			$	230.3

The fair values of the Term B Loans and the 6.625% Senior Notes were estimated based on the average bid and ask price as determined using published rates and categorized as Level 2 within the fair value hierarchy in accordance with ASC 820-10. The fair values of the 3½% Notes and the 3¼% Debentures were estimated based on the quoted market prices determined using the closing share price of the Company’s common stock and categorized as Level 1 within the fair value hierarchy in accordance with ASC 820-10. Effective July 24, 2012, the Company repaid the $443.7 million outstanding Term B Loans with the issuance of a new term facility, as more fully discussed in Note 12.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 5. Acquisitions

Effective April 1, 2012, the Company, through Duke LifePoint Healthcare, a joint venture between the Company and Duke University Health System in which the Company owns a controlling interest, acquired an 80% interest in Twin County Regional Hospital (“Twin County”), a 141 bed hospital located in Galax, Virginia for approximately $20.0 million, including 80% of the net working capital. The Company has committed to invest in Twin County an additional $20.0 million in capital expenditures and improvements over the next ten years as well as an additional $3.0 million for the continuation of existing or initiation of new physician recruiting activities over the next five years. The results of operations of Twin County are included in the Company’s results of operations beginning April 1, 2012.

Effective July 1, 2012, the Company acquired Woods Memorial Hospital (“Woods Memorial”), a 72 bed hospital and an 88 bed long-term care facility located in Etowah, Tennessee for approximately $17.7 million, including net working capital. The results of Woods Memorial will be included in the Company’s results of operations beginning on July 1, 2012.

The Company, through Duke LifePoint Healthcare, entered into a definitive agreement to purchase Marquette General Health System (“Marquette General”), a 307 bed hospital system located in Marquette, Michigan. The closing of the Marquette General transaction is subject to various closing conditions, including the review and approval by the Michigan Attorney General and the Michigan Department of Community Health and the expiration or early termination of all applicable periods pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. There can be no assurance when such conditions will be met, if at all. The results of Marquette General will only be included in the Company’s results of operations upon successful completion of this transaction.

Note 6. Goodwill and Intangible Assets

Goodwill

The Company accounts for its acquisitions in accordance with ASC 805-10, “Business Combinations” using the acquisition method of accounting. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to assets acquired and liabilities assumed. In accordance with ASC 350-10, “Intangibles — Goodwill and Other” goodwill and intangible assets with indefinite lives are reviewed by the Company at least annually for impairment. The Company’s business comprises a single operating reporting unit for impairment test purposes. For the purposes of these analyses, the Company’s estimates of fair value are based on a combination of the income approach, which estimates the fair value of the Company based on its future discounted cash flows, and the market approach, which estimates the fair value of the Company based on comparable market prices. The Company performed its most recent annual impairment test as of October 1, 2011 and did not incur an impairment charge.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 6. Goodwill and Intangible Assets  – (continued)

Intangible Assets

Summary of Intangible Assets

The following table provides information regarding the Company’s intangible assets, which are included in the accompanying unaudited condensed consolidated balance sheets at June 30, 2012 and December 31, 2011 (in millions):

		June 30, 2012				December 31, 2011
Amortized intangible assets:
Contract-based physician minimum revenue guarantees
Gross carrying amount		$	94.5			$	92.5
Accumulated amortization			(52.0	)			(48.7	)
Net total			42.5				43.8
Non-competition agreements
Gross carrying amount			32.8				32.8
Accumulated amortization			(17.5	)			(15.2	)
Net total			15.3				17.6
Other amortized intangible assets
Gross carrying amount			2.4				2.4
Accumulated amortization			(0.9	)			(0.3	)
Net total			1.5				2.1
Total amortized intangible assets
Gross carrying amount			129.7				127.7
Accumulated amortization			(70.4	)			(64.2	)
Net total			59.3				63.5
Indefinite-lived intangible assets:
Certificates of need and certificates of need exemptions			24.1				23.9
Licenses, provider numbers, accreditations and other			2.6				2.1
Net total			26.7				26.0
Total intangible assets:
Gross carrying amount			156.4				153.7
Accumulated amortization			(70.4	)			(64.2	)
Net total		$	86.0			$	89.5

Contract-Based Physician Minimum Revenue Guarantees

The Company has committed to provide certain financial assistance pursuant to recruiting agreements, or “physician minimum revenue guarantees,” 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 advance certain amounts of money to a physician to assist in establishing his or her practice.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 6. Goodwill and Intangible Assets  – (continued)

The Company accounts for its physician minimum revenue guarantees in accordance with the provisions of ASC 460-10, “Guarantees” (“ASC 460-10”). In accordance with ASC 460-10, the Company records a contract-based intangible asset and a related guarantee liability for new physician minimum revenue guarantees. The contract-based intangible asset is amortized and included as an expense under the caption “Other operating expenses”, in the accompanying unaudited condensed consolidated statements of operations, over the period of the physician contract, which typically ranges from four to five years. As of June 30, 2012 and December 31, 2011, the Company’s liability for contract-based physician minimum revenue guarantees was $14.9 million and $13.6 million, respectively. These amounts are included as a current liability under the caption “Other current liabilities” in the Company’s accompanying unaudited condensed consolidated balance sheets.

Non-Competition Agreements

The Company has entered into non-competition agreements with certain physicians and other individuals which are amortized on a straight-line basis over the term of the agreements.

Certificates of Need and Certificates of Need Exemptions

The construction or acquisition of new facilities, the expansion of existing facilities and the addition of new services and certain equipment at the Company’s facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need laws generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities or the addition of new services. The Company operates hospitals in certain states that have adopted certificate of need laws. The Company has determined that these intangible assets have an indefinite useful life.

Licenses, Provider Numbers, Accreditations and Other

To operate hospitals, the Company must obtain certain licenses, provider numbers and accreditations from federal, state and other accrediting agencies. The Company has determined that these intangible assets have an indefinite useful life.

Note 7. Interest Rate Swap and Comprehensive Income

Through May 30, 2011, the Company had an interest rate swap agreement in effect with Citibank, N.A. (“Citibank”) as counterparty. Effective May 30, 2011, the Company’s interest rate swap agreement matured. Prior to its maturity, the interest rate swap agreement required the Company to make quarterly fixed rate payments to Citibank calculated on a notional amount at an annual fixed rate of 5.585% while Citibank was obligated to make quarterly floating payments to the Company based on the three-month London Interbank Offer Rate (“LIBOR”) on the same referenced notional amount. The notional amount in effect during 2011 through May 30, 2011 was $300.0 million.

The Company entered into the interest rate swap agreement to mitigate the floating interest rate risk on a portion of its outstanding borrowings under the Prior Credit Agreement. In accordance with ASC 815-10 “Derivatives and Hedging”, the Company designated its interest rate swap as a cash flow hedge. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Through May 30, 2011, the Company assessed the effectiveness of its interest rate swap and determined the hedge to be effective. Changes in the fair value of the Company’s interest rate swap resulted in pretax comprehensive gains of $4.0 million and $7.9 million, or $2.6 million and $5.1 million net of taxes, for the three and six months ended June 30, 2011, respectively.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 7. Interest Rate Swap and Comprehensive Income  – (continued)

Since the Company’s interest rate swap was not traded on a market exchange, the fair value was determined using a valuation model that involved a discounted cash flow analysis on the expected cash flows. This cash flow analysis reflected the contractual terms of the interest rate swap agreement, including the period to maturity, and used observable market-based inputs, including the three-month LIBOR forward interest rate curve. The fair value of the Company’s interest rate swap agreement was determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts were based on the expectation of future interest rates based on the observable market three-month LIBOR forward interest rate curve and the notional amount being hedged. In addition, the Company incorporated credit valuation adjustments to appropriately reflect both its own and Citibank’s non-performance or credit risk in the fair value measurements. The interest rate swap agreement exposed the Company to credit risk in the event of non-performance by Citibank. The majority of the inputs used to value its interest rate swap agreement, including the three-month LIBOR forward interest rate curve and market perceptions of the Company’s credit risk used in the credit valuation adjustments, were observable inputs available to a market participant. As a result, the Company made the determination that the interest rate swap valuation was categorized as Level 2 within the fair value hierarchy, in accordance with ASC 820-10.

Note 8. Common Stock in Treasury and Repurchases of Common Stock

In accordance with repurchase plans adopted in 2010 and 2011, the Company’s Board of Directors authorized the repurchase of outstanding shares of its common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints and other customary factors. The 2010 repurchase plan provided for the repurchase of up to $150.0 million shares of the Company’s common stock, and the Company has repurchased all shares authorized for repurchase under this plan. The 2011 plan provides for the repurchase of up to $250.0 million shares of the Company’s common stock. The Company is not obligated to repurchase any specific number of shares under its 2011 repurchase plan. The Company has designated the shares repurchased in accordance with the 2010 and 2011 repurchase plans as treasury stock.

In connection with the 2010 repurchase plan, the Company repurchased approximately 1.0 million shares for an aggregate purchase price, including commissions, of approximately $36.3 million at an average purchase price of $39.11 per share for both the three and six month periods ended June 30, 2011. There were no repurchases made in accordance with the 2010 repurchase plan during the three or six months ended June 30, 2012.

In connection with the 2011 repurchase plan, the Company repurchased a nominal number of shares for an aggregate purchase price, including commissions, of $0.1 million at an average purchase price of $35.01 per share for the six months ended June 30, 2012. There were no repurchases made in accordance with the 2011 repurchase plan during the three months ended June 30, 2012. Through June 30, 2012, the Company had repurchased approximately 1.8 million shares for an aggregate purchase price, including commissions, of approximately $65.2 million in accordance with the 2011 repurchase plan. As of June 30, 2012, the Company had remaining authority to repurchase up to an additional $184.8 million in shares in accordance with the 2011 repurchase plan.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 8. Common Stock in Treasury and Repurchases of Common Stock  – (continued)

Additionally, the Company redeems shares from employees for minimum statutory tax withholding purposes upon vesting of certain stock awards granted pursuant to the Company’s Amended and Restated 1998 Long-Term Incentive Plan (“LTIP”) and Amended and Restated Management Stock Purchase Plan (“MSPP”). The Company redeemed a nominal number of shares of certain vested LTIP and MSPP shares during the three months ended June 30, 2012 and 2011 for an aggregate purchase price of $0.4 million and a nominal amount, respectively. During the six months ended June 30, 2012 and 2011, the Company redeemed approximately 0.2 million and 0.1 million shares of certain vested LTIP and MSPP shares for an aggregate purchase price of approximately $5.8 million and $5.5 million, respectively. The Company has designated these shares as treasury stock.

Note 9. Stock-Based Compensation

Overview

The Company issues stock-based awards, including stock options and other stock-based awards (nonvested stock, restricted stock, restricted stock units, performance shares and deferred stock units) to certain officers, employees and non-employee directors in accordance with the Company’s various stockholder-approved stock-based compensation plans. The Company accounts for its stock-based awards in accordance with the provisions of ASC 718-10, “Compensation — Stock Compensation” (“ASC 718-10”), and accordingly recognizes compensation expense over each of the stock-based award’s requisite service period based on the estimated grant date fair value.

Stock Options

The Company granted options to purchase 789,800 and 717,365 shares of the Company’s common stock to certain officers and employees in accordance with the LTIP during the six months ended June 30, 2012 and 2011, respectively. Options to purchase shares granted to the Company’s officers and employees in accordance with the LTIP were granted with an exercise price equal to the fair market value of the Company’s common stock on the day prior to the grant date. The options granted during the six months ended June 30, 2012 and 2011 become ratably exercisable beginning one year from the date of grant to three years after the date of grant and expire ten years from the date of grant.

The Company estimated the fair value of stock options granted using the Hull-White II (“HW-II”) lattice option valuation model and a single option award approach. The Company uses the HW-II because it considers characteristics of fair value option pricing, such as an option’s contractual term and the probability of exercise before the end of the contractual term. In addition, the complications surrounding the expected term of an option are material, as indicated in ASC 718-10. Given the Company’s relatively large pool of unexercised options, the Company believes a lattice model that specifically addresses this fact and models a full term of exercises is the most appropriate and reliable means of valuing its stock options. The Company is amortizing the fair value on a straight-line basis over the requisite service period of the awards, which is the vesting period of three years. The stock options vest 33.3% on each grant anniversary date over three years of continued employment.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 9. Stock-Based Compensation  – (continued)

The following table shows the weighted average assumptions the Company used to develop the fair value estimates under its HW-II option valuation model and the resulting estimates of weighted-average fair value per share of stock options granted during the six months ended June 30, 2012 and 2011:

		Six Months Ended June 30,
		2012				2011
Expected volatility			36.0	%			36.0	%
Risk free interest rate (range)			0.03% – 1.97	%			0.11% – 3.58	%
Expected dividends			—				—
Average expected term (years)			5.3				5.3
Fair value per share of stock options granted		$	12.18			$	11.77

The total intrinsic value of stock options exercised during the six months ended June 30, 2012 and 2011 was $2.1 million and $12.7 million, respectively. The Company received $1.6 million and $17.0 million in cash from stock option exercises for the three months ended June 30, 2012 and 2011, respectively, and $5.5 million and $34.5 million during the six months ended June 30, 2012 and 2011, respectively. The actual tax benefit realized for the tax deductions from stock option exercises totaled $1.4 million for the three months ended June 30, 2011 and $0.1 million and $1.6 million for the six months ended June 30, 2012 and 2011, respectively. The actual tax benefit realized for the tax deductions from stock option exercises was nominal for the three months ended June 30, 2012.

As of June 30, 2012, there was $15.8 million of total estimated unrecognized compensation cost related to stock option compensation arrangements. Total estimated unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1.4 years.

Other Stock-Based Awards

The Company granted 493,595 and 463,337 shares of nonvested stock awards to certain officers, employees and non-employee directors in accordance with the LTIP, MSPP and Outside Directors Stock and Incentive Compensation Plan during the six months ended June 30, 2012 and 2011, respectively. The fair value of other stock-based awards is determined based on the closing price of the Company’s common stock on the day prior to the grant date. The nonvested stock awards granted during the six months ended June 30, 2012 and 2011 have either cliff-vesting periods from the grant date of three years, cliff-vesting periods from the grant date of six months and one day or ratable vesting periods beginning one year from the date of grant to three years after the date of grant.

Of the nonvested stock awards granted during the six months ended June 30, 2012 and 2011, 320,000 and 297,000, respectively, were performance-based. In addition to requiring continuing service of an employee, the vesting of these nonvested stock awards is contingent upon the satisfaction of certain financial goals, specifically related to the achievement of targeted annual revenues or earnings goals within a three-year period. If these goals are achieved, the nonvested stock awards will cliff-vest three years after the grant date. The performance criteria for the 297,000 performance-based nonvested stock awards granted during 2011 have been certified as met by the Compensation Committee of the Company’s Board of Directors, however, these awards are still subject to continuing service requirements and the three year cliff-vesting provisions. For purposes of estimating compensation expense for the performance-based nonvested stock awards granted during the six months ended June 30, 2012, the Company has assumed that the performance goals will be achieved. If the performance goals are not met for the performance-based awards granted during the six months ended June 30, 2012, no compensation expense will be recognized, and any previously recognized compensation expense will be reversed.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 9. Stock-Based Compensation  – (continued)

Notwithstanding the specific grant vesting requirements, nonvested stock awards and performance-based awards granted under the LTIP become fully vested upon the death or disability of the participant. Additionally, in the event of termination without cause of a participant, the nonvested stock awards and performance-based awards otherwise subject to cliff-vesting become vested in a percentage equal to the number of full months of continuous employment following the date of grant through the date of termination divided by the total number of months in the vesting period, and in the case of performance-based awards, only in the event that the performance goals are attained.

The Company received $0.5 million and $0.6 million for the issuance of nonvested stock in accordance with the MSPP during the six months ended June 30, 2012 and 2011, respectively.

As of June 30, 2012, there was $24.7 million of total estimated unrecognized compensation cost related to other stock-based awards granted in accordance with the LTIP and MSPP. Total estimated unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1.9 years.

The following table summarizes the Company’s total stock-based compensation expense as well as the total recognized tax benefits related thereto for the three and six months ended June 30, 2012 and 2011 (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Other stock-based awards		$	4.0			$	3.5			$	8.0			$	6.7
Stock options			2.5				2.1				5.3				4.6
Total stock-based compensation expense		$	6.5			$	5.6			$	13.3			$	11.3
Tax benefit on stock-based compensation expense		$	2.6			$	2.3			$	5.3			$	4.7

The Company did not capitalize any stock-based compensation cost during the three or six months ended June 30, 2012 or 2011. As of June 30, 2012, there was $40.5 million of total estimated unrecognized compensation cost related to all of the Company’s stock-based compensation arrangements. Total estimated unrecognized compensation cost may be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted-average period of 1.7 years.

Note 10. Commitments and Contingencies

Legal Proceedings and General Liability Claims

Hospitals are subject to the regulation and oversight of various state and federal governmental agencies. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against hospitals that submit false claims for payments to, or improperly retain overpayments from, governmental payors. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material adverse effect on our financial position, results of operations and liquidity.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 10. Commitments and Contingencies  – (continued)

In addition, the hospitals are, 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 contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance.

In May 2009, the Company’s hospital in Andalusia, Alabama (Andalusia Regional Hospital) produced documents responsive to a request received from the U.S. Attorney’s Office for the Western District of New York regarding an investigation they are conducting with respect to the billing of kyphoplasty (spine related) procedures. Based on a review of the number of the kyphoplasty procedures performed at all of the Company’s other hospitals, as part of its effort to cooperate with the U.S. Attorney’s Office, by letter dated January 20, 2010 the Company’s management identified to the U.S. Attorney’s Office four additional facilities at which the number of inpatient kyphoplasty procedures approximated those performed at Andalusia Regional Hospital. The Company’s management has completed its review of the relevant medical records and is continuing to cooperate with the government’s investigation.

In December 2011, Jackson Purchase Medical Center, in Mayfield, Kentucky, received a request from an agent of the Office of the Inspector General (“OIG”), HHS, for information regarding the relationship between the hospital and a physician on its medical staff and that physician’s use of a hospital-employed advanced nurse practitioner, as well as lease arrangements between the hospital and physician. The U.S. Attorney’s Office for the Western District of Kentucky is also involved in this inquiry. The hospital is currently subject to a Corporate Integrity Agreement with the OIG, effective June 26, 2011. We have, and will continue to, cooperate with the government in this matter.

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’s relocating to one of its communities and agreeing to engage in private practice for the benefit of the respective community, the Company may advance certain amounts of money to a physician, normally over a period of one year, to assist in establishing the physician’s practice. The Company has committed to advance a maximum amount of approximately $40.3 million at June 30, 2012. The actual amount of such commitments to be subsequently advanced to physicians is estimated at $14.9 million and often depends upon the financial results of a physician’s private practice during the guarantee period. Generally, amounts advanced under the recruiting agreements may be forgiven pro rata over a period of 36 to 48 months contingent upon the physician continuing to practice in the respective community. Pursuant to the Company’s standard physician recruiting agreement, any breach or non-fulfillment by a physician under the physician recruiting agreement gives the Company the right to recover any payments made to the physician under the agreement.

Capital Expenditure Commitments

The Company is reconfiguring some of its hospitals to more effectively accommodate patient services and to provide for a greater variety of services, as well as implementing various information system initiatives in its efforts to comply with the Health Information Technology for Economic and Clinical Health Act. The Company has incurred approximately $95.2 million in costs related to uncompleted projects as of June 30, 2012, which is included under the caption “Construction in progress” in the Company’s accompanying unaudited condensed consolidated balance sheet. At June 30, 2012, these uncompleted projects had an estimated cost to complete and equip of approximately $71.3 million. Additionally, the Company is subject to annual capital expenditure commitments in connection with several of its facilities, including $20.0 million over the next ten years for the Company’s recently acquired Twin County.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 10. Commitments and Contingencies  – (continued)

Shared Centralized Resource Model Arrangements

During the three months ended June 30, 2012, the Company entered into agreements with a third party to provide certain nonclinical business functions to the Company, including supply chain management and revenue cycle functions under a shared centralized resource model for periods ranging from eight to ten years. In connection with the Company’s entry into these agreements, the Company extended its current technology support agreement with this same third party. These agreements are in addition to the Company’s existing agreement with this third party to provide payroll processing services.

The Company’s management believes this model of sharing centralized resources to support common business functions across multi-facility enterprises provides it efficiencies and is the most cost effective approach to managing these nonclinical business functions. The Company recently completed the implementation of the payroll processing services and expects to implement the supply chain management and revenue cycle functions over the next 24 to 30 months. In connection with the implementation process, the Company anticipates that it will incur severance and retention costs for its affected workforce.

Hospital Support Center Lease

The Company has entered into an agreement with an unrelated third party to lease a new hospital support center with a targeted occupancy date in the fourth quarter of 2013. Under the terms of the lease agreement, the Company will lease from the third party the newly constructed hospital support center for a period of just over 15 years following construction completion. The Company’s management has determined that it has substantially all of the risks of ownership of the new hospital support center during the construction period and in accordance with ASC 840-40, “Leases — Sale-Leaseback Transactions” (“ASC 840-40”) has recorded an asset under the caption “Construction in progress” and related financing obligation under the caption “Reserves for self-insurance claims and other liabilities” in the accompanying unaudited condensed consolidated balance sheet of $2.4 million as of June 30, 2012. This asset and related liability represents the cumulative costs incurred to date and funded by the unrelated third party to construct the new hospital support center. Once construction is complete, the Company will consider the applicable requirements of ASC 840-40 for sale-leaseback treatment, including the transfer back of all risks of ownership to the unrelated third party and whether the Company has any continuing involvement in the leased property. Currently, the Company anticipates that its lease agreement will qualify as a financing lease in accordance with ASC 840-40 and accordingly, the Company will depreciate the completed hospital support center and amortize the related financing obligation over the expected lease agreement term.

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LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 11. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2012 and 2011 (dollars and shares in millions, except per share amounts):

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Numerator for basic and diluted earnings per share attributable to LifePoint Hospitals, Inc.:
Income from continuing operations		$	41.9			$	41.1			$	98.8			$	87.6
Less: Net income attributable to noncontrolling interests			(1.7	)			(0.8	)			(2.6	)			(1.5	)
Income from continuing operations attributable to LifePoint Hospitals, Inc. stockholders			40.2				40.3				96.2				86.1
Income from discontinued operations, net of income taxes			0.1				—				0.2				0.3
Net income attributable to LifePoint Hospitals, Inc.		$	40.3			$	40.3			$	96.4			$	86.4
Denominator:
Weighted average shares outstanding – basic			47.3				51.1				47.1				50.6
Effect of dilutive securities: stock options and other stock-based awards			1.1				1.2				1.3				1.3
Weighted average shares outstanding – diluted			48.4				52.3				48.4				51.9
Basic earnings per share attributable to LifePoint Hospitals, Inc. stockholders:
Continuing operations		$	0.85			$	0.79			$	2.04			$	1.70
Discontinued operations			—				—				0.01				0.01
Net income		$	0.85			$	0.79			$	2.05			$	1.71
Diluted earnings per share attributable to LifePoint Hospitals, Inc. stockholders:
Continuing operations		$	0.83			$	0.77			$	1.99			$	1.66
Discontinued operations			—				—				—				—
Net income		$	0.83			$	0.77			$	1.99			$	1.66

The 3½% Notes and the 3¼% Debentures are included in the calculation of diluted earnings per share whether or not the contingent requirements have been met for conversion if the conversion price of $51.79 and $61.22, respectively, is less than the average market price of the Company’s common stock for the period. Upon conversion, the par value is settled in cash, and only the conversion premium is settled in shares of the Company’s common stock. The impact of the 3½% Notes and the 3¼% Debentures has been excluded because the effects would have been anti-dilutive for the three and six months ended June 30, 2012 and 2011.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 12. Subsequent Events

Effective July 1, 2012 the Company acquired Woods Memorial for approximately $17.7 million, including net working capital, as further discussed in Note 5. The results of Woods Memorial will be included in the Company’s results of operations beginning on July 1, 2012.

The Company, through Duke LifePoint Healthcare, entered into a definitive agreement to purchase Marquette General as further discussed in Note 5. The results of Marquette General will only be included in the Company’s results of operations upon successful completion of this transaction.

On July 24, 2012, the Company entered into a new senior secured credit agreement maturing on July 24, 2017 (the “Senior Credit Agreement”) with, among others, Citibank, as administrative agent, and the lenders party thereto providing for a $450.0 million senior secured term loan facility (the “Term Facility”) and a $350.0 million senior secured revolving credit facility, of which up to a maximum of $75.0 million may be utilized for letters of credit. The proceeds from the issuance of the Term Facility were used to repay the $443.7 million outstanding Term B Loans under the Prior Credit Agreement and to pay fees and expenses related to the entry into the Senior Credit Agreement. The Term Facility requires scheduled quarterly repayments in an amount equal to 2.5% per annum for each of the first, second and third years and 5.0% per annum for the fourth year and first three quarters of the fifth year, with the balance due at maturity. Interest on the outstanding borrowings under the Senior Credit Agreement is payable at the Company’s option at either an adjusted LIBOR or an adjusted base rate plus an applicable margin. The applicable margin under the Senior Credit Agreement ranges from 1.50% to 2.50% for LIBOR loans and from 0.50% to 1.50% for adjusted base rate loans based on the Company’s total leverage ratio, calculated in accordance with the Senior Credit Agreement. The Senior Credit Agreement is guaranteed, on a senior basis, by the subsidiaries of the Company that guaranteed the Prior Credit Agreement, subject to certain exceptions, and requires the Company to satisfy certain customary affirmative, negative and financial covenants, including a maximum total leverage ratio not to exceed 5.00:1.00 with a step-down to 4.25:1.00.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information

The 6.625% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by substantially all of the Company’s existing subsidiaries that guaranteed the Prior Credit Agreement. The following presents the condensed consolidating financial information for the parent issuer, guarantor subsidiaries, non-guarantor subsidiaries, certain eliminations and the Company for the three and six months ended June 30, 2012 and 2011 and as of June 30, 2012 and December 31, 2011:

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2012
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues before provision for doubtful accounts		$	—			$	850.3			$	129.8			$	—			$	980.1
Provision for doubtful accounts			—				133.6				19.2				—				152.8
Revenues			—				716.7				110.6				—				827.3
Salaries and benefits			6.5				319.4				44.0				—				369.9
Supplies			—				106.9				17.5				—				124.4
Other operating expenses			—				171.7				24.0				—				195.7
Other income			—				(0.5	)			(1.0	)			—				(1.5	)
Equity in earnings of affiliates			(53.2	)			—				—				53.2				—
Depreciation and amortization			—				39.6				7.3				—				46.9
Interest expense, net			6.5				17.3				1.9				—				25.7
Management (income) fees			—				(2.0	)			2.0				—				—
			(40.2	)			652.4				95.7				53.2				761.1
Income from continuing operations before taxes			40.2				64.3				14.9				(53.2	)			66.2
(Benefit) provision for income taxes			(0.1	)			24.4				—				—				24.3
Income from continuing operations			40.3				39.9				14.9				(53.2	)			41.9
Income from discontinued operations, net of taxes			—				0.1				—				—				0.1
Net income			40.3				40.0				14.9				(53.2	)			42.0
Less: Net loss (income) attributable to noncontrolling interests			—				0.5				(2.2	)			—				(1.7	)
Net income attributable to LifePoint Hospitals, Inc.		$	40.3			$	40.5			$	12.7			$	(53.2	)		$	40.3

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2011
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues before provision for doubtful accounts		$	—			$	796.1			$	77.3			$	—			$	873.4
Provision for doubtful accounts			—				115.7				10.6				—				126.3
Revenues			—				680.4				66.7				—				747.1
Salaries and benefits			5.6				309.1				24.3				—				339.0
Supplies			—				101.7				12.4				—				114.1
Other operating expenses			—				150.6				12.5				—				163.1
Other income			—				(2.9	)			(1.3	)			—				(4.2	)
Equity in earnings of affiliates			(54.4	)			—				—				54.4				—
Depreciation and amortization			—				36.9				3.7				—				40.6
Interest expense, net			10.2				17.4				0.5				—				28.1
Management (income) fees			—				(2.4	)			2.4				—				—
			(38.6	)			610.4				54.5				54.4				680.7
Income from continuing operations before taxes			38.6				70.0				12.2				(54.4	)			66.4
(Benefit) provision for income taxes			(1.7	)			27.0				—				—				25.3
Net income			40.3				43.0				12.2				(54.4	)			41.1
Less: Net income attributable to noncontrolling interests			—				(0.2	)			(0.6	)			—				(0.8	)
Net income attributable to LifePoint Hospitals, Inc.		$	40.3			$	42.8			$	11.6			$	(54.4	)		$	40.3

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2012
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues before provision for doubtful accounts		$	—			$	1,737.6			$	240.6			$	—			$	1,978.2
Provision for doubtful accounts			—				259.6				40.3				—				299.9
Revenues			—				1,478.0				200.3				—				1,678.3
Salaries and benefits			13.3				646.9				79.7				—				739.9
Supplies			—				218.2				35.2				—				253.4
Other operating expenses			—				343.1				41.1				—				384.2
Other income			—				(1.7	)			(1.0	)			—				(2.7	)
Equity in earnings of affiliates			(121.0	)			—				—				121.0				—
Depreciation and amortization			—				78.3				13.7				—				92.0
Interest expense, net			13.0				35.3				2.9				—				51.2
Impairment charge			—				3.1				—				—				3.1
Management (income) fees			—				(4.1	)			4.1				—				—
			(94.7	)			1,319.1				175.7				121.0				1,521.1
Income from continuing operations before taxes			94.7				158.9				24.6				(121.0	)			157.2
(Benefit) provision for income taxes			(1.7	)			60.1				—				—				58.4
Income from continuing operations			96.4				98.8				24.6				(121.0	)			98.8
Income from discontinued operations, net of taxes			—				0.2				—				—				0.2
Net income			96.4				99.0				24.6				(121.0	)			99.0
Less: Net loss (income) attributable to noncontrolling interests			—				0.2				(2.8	)			—				(2.6	)
Net income attributable to LifePoint Hospitals, Inc.		$	96.4			$	99.2			$	21.8			$	(121.0	)		$	96.4

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2011
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Revenues before provision for doubtful accounts		$	—			$	1,604.4			$	157.6			$	—			$	1,762.0
Provision for doubtful accounts			—				235.4				21.0				—				256.4
Revenues			—				1,369.0				136.6				—				1,505.6
Salaries and benefits			11.3				613.6				48.5				—				673.4
Supplies			—				206.9				25.9				—				232.8
Other operating expenses			—				301.0				23.7				—				324.7
Other income			—				(2.9	)			(1.3	)			—				(4.2	)
Equity in earnings of affiliates			(116.7	)			—				—				116.7				—
Depreciation and amortization			—				73.1				7.2				—				80.3
Interest expense, net			21.8				34.7				0.8				—				57.3
Management (income) fees			—				(4.8	)			4.8				—				—
			(83.6	)			1,221.6				109.6				116.7				1,364.3
Income from continuing operations before taxes			83.6				147.4				27.0				(116.7	)			141.3
(Benefit) provision for income taxes			(2.8	)			56.5				—				—				53.7
Income from continuing operations			86.4				90.9				27.0				(116.7	)			87.6
Income from discontinued operations, net of taxes			—				0.3				—				—				0.3
Net income			86.4				91.2				27.0				(116.7	)			87.9
Less: Net income attributable to noncontrolling interests			—				(0.4	)			(1.1	)			—				(1.5	)
Net income attributable to LifePoint Hospitals, Inc.		$	86.4			$	90.8			$	25.9			$	(116.7	)		$	86.4

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Comprehensive Income
For the Three Months Ended June 30, 2011
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Net income		$	40.3			$	43.0			$	12.2			$	(54.4	)		$	41.1
Other comprehensive income, net of income taxes:
Unrealized gains on changes in fair value of interest rate swap			2.6				—				—				—				2.6
Other comprehensive income			2.6				—				—				—				2.6
Comprehensive income			42.9				43.0				12.2				(54.4	)			43.7
Less: Net income attributable to noncontrolling interests			—				(0.2	)			(0.6	)			—				(0.8	)
Comprehensive income attributable to LifePoint Hospitals, Inc.		$	42.9			$	42.8			$	11.6			$	(54.4	)		$	42.9

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Statements of Comprehensive Income
For the Six Months Ended June 30, 2011
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
Net income		$	86.4			$	91.2			$	27.0			$	(116.7	)		$	87.9
Other comprehensive income, net of income taxes:
Unrealized gains on changes in fair value of interest rate swap			5.1				—				—				—				5.1
Other comprehensive income			5.1				—				—				—				5.1
Comprehensive income			91.5				91.2				27.0				(116.7	)			93.0
Less: Net income attributable to noncontrolling interests			—				(0.4	)			(1.1	)			—				(1.5	)
Comprehensive income attributable to LifePoint Hospitals, Inc.		$	91.5			$	90.8			$	25.9			$	(116.7	)		$	91.5

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Balance Sheets
June 30, 2012
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	149.8			$	22.5			$	—			$	172.3
Accounts receivable, net			—				401.1				67.8				—				468.9
Inventories			—				77.1				11.5				—				88.6
Prepaid expenses			0.1				21.4				2.2				—				23.7
Deferred tax assets			147.7				—				—				—				147.7
Other current assets			—				30.9				0.4				—				31.3
			147.8				680.3				104.4				—				932.5
Property and equipment:
Land			—				74.4				21.3				—				95.7
Buildings and improvements			—				1,494.1				207.0				—				1,701.1
Equipment			—				1,061.2				77.9				—				1,139.1
Construction in progress			—				89.9				5.3				—				95.2
			—				2,719.6				311.5				—				3,031.1
Accumulated depreciation			—				(1,099.8	)			(66.8	)			—				(1,166.6	)
			—				1,619.8				244.7				—				1,864.5
Deferred loan costs, net			18.8				—				—				—				18.8
Intangible assets, net			—				46.8				39.2				—				86.0
Investments in subsidiaries			1,587.7				—				—				(1,587.7	)			—
Other			1.2				17.4				2.0				—				20.6
Goodwill			—				1,429.8				139.4				—				1,569.2
Total assets		$	1,755.5			$	3,794.1			$	529.7			$	(1,587.7	)		$	4,491.6
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	—			$	80.2			$	15.5			$	—			$	95.7
Accrued salaries			—				89.0				10.2				—				99.2
Income taxes payable			30.9				—				—				—				30.9
Other current liabilities			12.8				109.9				13.0				—				135.7
Current maturities of long-term debt			—				1.4				0.6				—				2.0
			43.7				280.5				39.3				—				363.5
Long-term debt			1,600.9				6.2				2.5				—				1,609.6
Intercompany			(2,203.5	)			2,125.8				77.7				—				—
Deferred income tax liabilities			239.3				—				—				—				239.3
Reserves for self-insurance claims and other liabilities			—				130.6				24.2				—				154.8
Long-term income tax liability			18.5				—				—				—				18.5
Total liabilities			(301.1	)			2,543.1				143.7				—				2,385.7
Redeemable noncontrolling interests			—				—				29.0				—				29.0
Total LifePoint Hospitals, Inc. stockholders' equity			2,056.6				1,249.8				337.9				(1,587.7	)			2,056.6
Noncontrolling interests			—				1.2				19.1								20.3
Total equity			2,056.6				1,251.0				357.0				(1,587.7	)			2,076.9
Total liabilities and equity		$	1,755.5			$	3,794.1			$	529.7			$	(1,587.7	)		$	4,491.6

TABLE OF CONTENTS

LIFEPOINT HOSPITALS, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Unaudited

Note 13. Guarantor and Non-Guarantor Supplementary Information  – (continued)

LIFEPOINT HOSPITALS, INC.
Condensed Consolidating Balance Sheets
December 31, 2011
(In millions)

		Parent Issuer				Guarantors				Non- Guarantors				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	106.2			$	20.0			$	—			$	126.2
Accounts receivable, net			—				373.6				57.0				—				430.6
Inventories			—				75.4				11.8				—				87.2
Prepaid expenses			0.1				24.7				1.6				—				26.4
Income taxes receivable			1.6				—				—				—				1.6
Deferred tax assets			125.7				—				—				—				125.7
Other current assets			—				42.3				—				—				42.3
			127.4				622.2				90.4				—				840.0
Property and equipment:
Land			—				74.1				19.4				—				93.5
Buildings and improvements			—				1,427.5				204.1				—				1,631.6
Equipment			—				991.3				92.7				—				1,084.0
Construction in progress			—				102.6				3.1				—				105.7
			—				2,595.5				319.3				—				2,914.8
Accumulated depreciation			—				(1,001.2	)			(83.2	)			—				(1,084.4	)
			—				1,594.3				236.1				—				1,830.4
Deferred loan costs, net			21.7				—				—				—				21.7
Intangible assets, net			—				46.7				42.8				—				89.5
Investments in subsidiaries			1,467.9				—				—				(1,467.9	)			—
Other			1.0				16.7				2.1				—				19.8
Goodwill			—				1,413.1				155.6				—				1,568.7
Total assets		$	1,618.0			$	3,693.0			$	527.0			$	(1,467.9	)		$	4,370.1
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	—			$	88.5			$	11.1			$	—			$	99.6
Accrued salaries			—				94.3				8.8				—				103.1
Other current liabilities			14.0				141.1				13.1				—				168.2
Current maturities of long-term debt			—				1.5				0.4				—				1.9
			14.0				325.4				33.4				—				372.8
Long-term debt			1,588.2				6.0				1.2				—				1,595.4
Intercompany			(2,206.4	)			2,151.4				55.0				—				—
Deferred income tax liabilities			259.0				—				—				—				259.0
Reserves for self-insurance claims and other liabilities			—				113.2				25.9				—				139.1
Long-term income tax liability			18.0				—				—				—				18.0
Total liabilities			(327.2	)			2,596.0				115.5				—				2,384.3
Redeemable noncontrolling interests			—				—				26.2				—				26.2
Total LifePoint Hospitals, Inc. stockholders' equity			1,945.2				1,095.5				372.4				(1,467.9	)			1,945.2
Noncontrolling interests			—				1.5				12.9				—				14.4
Total equity			1,945.2				1,097.0				385.3				(1,467.9	)			1,959.6
Total liabilities and equity		$	1,618.0			$	3,693.0			$	527.0			$	(1,467.9	)		$	4,370.1