EXHIBIT 99.1

SELECTED FINANCIAL DATA

The following table contains selected financial data of our company or a
division of HCA Inc., prior to the May 11, 1999 spin-off from HCA, for, or as of
the end of, each of the five years ended December 31, 2003. The selected
financial data are derived from our audited financial statements. Financial data
for the period from January 1, 1999 through May 11, 1999 are derived from HCA.
The timing of acquisitions and divestitures completed during the years presented
affect the comparability of the selected financial data. The summary of
operations, financial position and other operating data excludes the operations
as well as assets and liabilities that will be sold related to Bartow Memorial
Hospital, which is held for sale and reflected as discontinued operations in our
consolidated financial statements. You should read this table in conjunction
with the consolidated financial statements and related notes included elsewhere
in this report and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
(Dollars in millions, except revenues per equivalent admission
and per share amounts)

SUMMARY OF OPERATIONS:
Revenues ...................................................... $ 496.5 $ 532.8 $ 591.3 $ 714.9 $ 875.6

Salaries and benefits ......................................... 208.9 214.3 232.5 280.0 352.3
Supplies ...................................................... 61.6 64.4 74.9 88.7 114.2
Other operating expenses ...................................... 111.4 112.3 115.0 129.6 155.4
Provision for doubtful accounts ............................... 35.2 37.4 39.7 49.8 74.1
Depreciation and amortization ................................. 30.7 31.4 32.0 35.0 43.1
Interest expense, net ......................................... 23.4 30.7 18.1 13.3 12.8
Management fees ............................................... 3.2 -- -- -- --
Debt retirement costs ......................................... -- -- 2.6 31.0 --
ESOP expense .................................................. 2.9 7.1 10.4 9.7 6.9
Impairment of long-lived assets ............................... 25.4 (1.4) (0.5) -- --
-------- -------- -------- -------- --------
502.7 496.2 524.7 637.1 758.8
Income (loss) from continuing operations before minority
interests and income taxes ............................... (6.2) 36.6 66.6 77.8 116.8
Minority interests in earnings of consolidated entities ....... 1.9 2.2 2.7 2.2 0.7
-------- -------- -------- -------- --------
Income (loss) from continuing operations before income taxes .. (8.1) 34.4 63.9 75.6 116.1
Provision (benefit) for income taxes .......................... (2.0) 15.7 30.3 32.7 45.9
-------- -------- -------- -------- --------

Income (loss) from continuing operations (a), (b) ............. $ (6.1) $ 18.7 $ 33.6 $ 42.9 $ 70.2
======== ======== ======== ======== ========

Income (loss) from continuing operations per share (a), (b):
Basic ..................................................... $ (0.20) $ 0.59 $ 0.94 $ 1.14 $ 1.89
Diluted ................................................... $ (0.20) $ 0.57 $ 0.91 $ 1.10 $ 1.80

Weighted average shares outstanding:
Basic ..................................................... 30.5 31.6 35.7 37.5 37.2
Diluted ................................................... 30.5 32.9 37.1 38.6 43.3

FINANCIAL POSITION (AS OF END OF YEAR):
Total assets .................................................. $ 421.6 $ 496.3 $ 554.3 $ 733.5 $ 799.0
Long-term debt, including amounts due within one year ......... 260.2 289.4 150.0 250.0 270.0
Working capital, excluding assets and liabilities held for sale 41.9 65.0 82.4 67.5 102.1

OTHER OPERATING DATA:
Capital expenditures .......................................... 33.5 28.7 35.0 57.5 68.3
Number of hospitals at end of year ............................ 22 19 22 27 28
Number of licensed beds at end of year (c) .................... 2,113 1,907 2,141 2,561 2,681
Weighted average licensed beds (d) ............................ 2,113 2,000 1,955 2,192 2,595
Admissions (e) ................................................ 61,574 63,168 67,452 74,488 88,695
Equivalent admissions (f) ..................................... 109,417 114,081 122,560 142,570 175,439
Revenues per equivalent admission ............................. $ 4,538 $ 4,670 $ 4,825 $ 5,015 $ 4,991
Average length of stay (days) (g) ............................. 4.2 4.1 4.1 4.1 4.0
Emergency room visits (h) ..................................... 261,427 274,012 288,793 329,922 408,321
Inpatient surgeries (j) ....................................... 15,423 16,236 17,584 20,480 24,528
Outpatient surgeries (i), (j) ................................. 42,815 45,072 51,697 59,950 71,488
Total surgeries (j) ........................................... 58,238 61,308 69,281 80,430 96,016

- ----------------------------

(a) Includes charges related to debt retirement costs of $2.6 million ($1.6
million after tax) and $31.0 million ($19.1 million after tax) for the
years ended December 31, 2001 and 2002, respectively.

(b) Includes charges related to impairment of long-lived assets of $25.4
million ($16.2 million after tax) for the year ended December 31, 1999,
and gain on impairment of long-lived assets of $1.4 million ($0.8 million
after tax), and $0.5 million ($0.3 million after tax) for the years ended
December 31, 2000 and 2001, respectively.

(c) Licensed beds are those beds for which a facility has been granted
approval to operate from the applicable state licensing agency.

(d) Represents the average number of licensed beds weighted based on periods
operated.

(e) 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.

(f) Management and investors use equivalent admissions as a general measure of
combined inpatient and outpatient volume. Equivalent admissions are
computed 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.

(g) Represents the average number of days admitted patients stay in our
hospitals.

(h) Represents the total number of hospital-based emergency room visits.

(i) Outpatient surgeries are those surgeries that do not require admission to
our hospitals.

(j) Historical inpatient and outpatient surgeries were restated to reflect
appropriate amounts during these periods. This change produced no impact
on our historical results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read this discussion together with our consolidated financial
statements and related notes included elsewhere in this report.

EXECUTIVE OVERVIEW

Fiscal 2003 was a challenging year for both the healthcare services
industry and our company. We believe that our results were solid after
considering all of the factors affecting our industry. The year was negatively
impacted by lower patient volumes experienced by most healthcare providers and
higher co-payments and deductibles for patients resulting in increased
collection pressures on providers. We believe that our financial results for
2003 reflect our disciplined operating strategy that addressed these industry
challenges. We are guardedly optimistic regarding our outlook for 2004 as a
result of the improved reimbursement environment and patient volumes more in
line with historical trends. During 2004, we will continue 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:

YEARS ENDED DECEMBER 31,
----------------------------------
2001 2002 2003
------ ------ ------

Number of hospitals in continuing operations at end of period.................... 22 27 28
====== ====== ======

Revenues from continuing operations (in millions)................................. $591.3 $714.9 $875.6
====== ====== ======

Income from continuing operations (in millions).................................. $ 33.6 $ 42.9 $ 70.2
====== ====== ======

Diluted earnings per share from continuing operations........................... $ 0.91 $ 1.10 $ 1.80
====== ====== ======

ACQUISITION OF PROVINCE HEALTHCARE COMPANY

We announced on August 16, 2004 that we entered into a definitive
agreement to acquire Province Healthcare Company for approximately $1.7 billion
in cash, stock and the assumption of debt. The transaction will create a leading
hospital company focused on providing healthcare services in non-urban
communities, with 51 hospitals, of which 48 are located in markets where the
combined company will be the sole hospital in the community. The transaction is
expected to close in the first quarter of 2005. Please refer to Note 12 of our
consolidated financial statements included elsewhere herein for a discussion of
this proposed transaction.

DISCONTINUED OPERATIONS

During the third quarter of 2004, we committed to divest our 56-bed Bartow
Memorial Hospital ("Bartow") located in Bartow, Florida. Subsequently, we
announced that we entered into an asset exchange agreement with Health
Management Associates, Inc. ("HMA") under which we agreed to acquire the 76-bed
Williamson Memorial Hospital, located in Williamson, West Virginia, and HMA
agreed to acquire Bartow simultaneously. This asset exchange is subject to
certain conditions, including completion of due diligence by both parties.
Please refer to Note 3 of our consolidated financial statements included
elsewhere herein for a discussion of our discontinued operations of Bartow.

Certain prior period amounts in this report have been reclassified to
conform to the current period's presentation of financial information. These
reclassifications, primarily for discontinued operations as described in Note 3
of our consolidated financial statements included elsewhere herein, have no
impact on total assets, liabilities, stockholders' equity, net income or cash
flows. Unless otherwise indicated, all relevant financial and statistical
information included herein relates to our continuing operations.

REVENUE SOURCES

The revenues that our hospitals generate are a result of providing
healthcare services to our patients. We are paid for these healthcare services
from a number of different sources, depending upon the patient's medical
insurance coverage. Primarily, we are paid by governmental Medicare and Medicaid
programs, by commercial insurance, including managed care organizations, and
directly by the patient. The amounts we are paid for providing healthcare
services to our patients vary depending upon the payor. Governmental payors
generally pay significantly less than the hospital's customary charges for the
services provided. Please refer to the "Sources of Revenue" section in Part I,
Item 1. Business in our 2003 Annual Report on Form 10-K for a detailed
discussion of our revenue sources.

Revenues from governmental payors, such as Medicare and Medicaid, are
controlled by complex rules and regulations that stipulate the amount a hospital
is paid for providing healthcare services. These rules and regulations require
an extensive amount of effort to ensure our compliance with the requirements to
participate in these governmental programs. In addition, these rules and
regulations are subject to frequent changes as a result of legislative and
administrative action on both the federal and state level. For these reasons,
revenues from governmental payors change frequently and require us to regularly
monitor the environment in which these governmental programs operate. For
example, the Medicare Prescription Drug, Improvement and Modernization Act of
2003 ("MMA") increased the payments received by non-urban healthcare providers
beginning in April 2004.

Revenues from HMOs, PPOs and other private insurers are subject to
contracts and other arrangements that require us to discount the amounts we
customarily charge for healthcare services. These discounted arrangements often
limit our ability to increase charges in response to increasing costs. We
actively negotiate with these payors to ensure we are appropriately pricing our
healthcare services. Insured patients are generally not responsible for any
difference between customary hospital charges and the amounts received from
commercial insurance payors. However, the patient is responsible for payments
related to amounts not covered by insurance, such as exclusions, deductibles and
co-payments.

Self-pay revenues are generated through the treatment of uninsured
patients. Our hospitals experienced an increase in self-pay revenues during
2003.

REVENUES/VOLUME TRENDS

The key metrics we use internally to evaluate our revenues are equivalent
admissions, which equate to volume, and revenue per equivalent admission, which
relates to pricing and acuity. We anticipate our patient volumes and related
revenues will continue to increase as a result of 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 125 physicians during 2003, which was significantly more than our
original goal of 85. Of these 125 physicians signed, 96 started in 2003
and 29 are scheduled to start in 2004. Of the 96 physicians that started
in 2003, 77 are admitting physicians. During 2004, we anticipate to
recruit an additional 63 admitting physicians to start in 2004.

- - Capital Expenditures. Increases in capital expenditures in our hospitals
should increase our local market share and help persuade patients to
obtain healthcare services within their communities. The following table
reflects our capital expenditures:

CAPITAL EXPENDITURES (IN MILLIONS)
---------------------------------------------------
ESTIMATED
2001 2002 2003 2004
------ ------ ------ -----

Capital projects $ 19.5 $ 38.8 $ 45.6 $63.0
Routine 15.5 18.7 22.7 27.0
------ ------ ------ -----
Total $ 35.0 $ 57.5 $ 68.3 $90.0
====== ====== ====== =====

- - Medicare Rate Increases. MMA provides a prescription drug benefit for
Medicare beneficiaries and also provides numerous provisions that provide
incremental funding to hospitals. The earliest provisions of MMA are
effective in April 2004. Please refer to the "Sources of Revenue" section
in Part I, Item 1. Business in our 2003 Annual Report on Form 10-K for a
discussion of MMA's provisions that affect our reimbursement.

- - Acquisitions. We seek to identify and acquire additional hospitals in
non-urban areas. We pursue a disciplined acquisition strategy that is
focused on attempting to acquire one to three additional hospitals each
year. We seek to acquire hospitals that are the sole or significant market
provider of healthcare services in their community. In evaluating a
hospital for acquisition, we focus on a variety of factors. One factor we
consider is the number of patients that are traveling outside of the
community for healthcare services. Another factor we consider is the
hospital's prior operating history and our ability to implement new
healthcare services. Upon acquiring a facility, we work to quickly
integrate the hospital into our operating practices. Please refer to Note
2 of our consolidated financial statements included in this report for
further discussion of acquisitions that we made in 2001, 2002 and 2003.

Our acquisition activity during the last three years is as follows:

LICENSED ACQUISITION CONSIDERATION
ACQUISITION STATE BEDS DATE (a)
----------- ----- ---- ---- ---
(in millions)

ACQUIRED DURING 2003:

Spring View Hospital.................. Kentucky 113 10/1/2003 $15.8

ACQUIRED DURING 2002:

Remaining 30% interest in Dodge
City Healthcare Group, L.P. ........ Kansas 110 10/1/2002 25.0

Russellville Hospital................. Alabama 100 10/3/2002 19.8

Logan Regional Medical Center
and Guyan Valley Hospital........... West Virginia 151 12/1/2002 89.4

Northwest Medical Center and
Lakeland Community Hospital......... Alabama 170 12/1/2002 29.5

ACQUIRED DURING 2001:

Bluegrass Community Hospital.......... Kentucky 25 1/2/2001 Lease

Athens Regional Medical Center........ Tennessee 118 10/1/2001 19.8

Ville Platte Medical Center........... Louisiana 116 12/1/2001 15.1

- -------------------------
(a) Includes cash paid and liabilities assumed, but excludes other direct
transaction costs, such as legal fees.

Although we anticipate that our patient volumes will increase, the
resulting revenues will likely be partially offset by the following factors:

- - 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 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:

REVENUES
-----------------------------------------
2001 2002 2003
---- ---- ----

Outpatient 48.0% 50.2% 50.4%
Inpatient 50.5 48.2 48.4
Other 1.5 1.6 1.2
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====

- - Efforts to Reduce Payments. Revenues from HMOs, PPOs and other private
insurance programs are subject to contracts and other arrangements that
require us to discount the amounts we customarily charge for healthcare
services. These discounted arrangements often limit our ability to
increase charges in response to increasing costs during the term of the
contracts.

- - States Implementing Medicaid Cost Containment Measures. A number of states
have incurred budget deficits within recent years. To close these budget
gaps, certain states have reduced spending and increased taxes. State cost
containment activity continues to focus on reducing provider payments and
limiting eligible enrollees under the state Medicaid programs.

OTHER TRENDS

- - Increases in Provision for Doubtful Accounts. We experienced an increase
in our provision for doubtful accounts during the second half of 2003. The
increase was the result of a combination of broad economic factors,
including an increased number of uninsured patients, employers shifting
costs to employees through higher co-payments and deductibles and higher
unemployment rates. The following table reflects our quarterly self-pay
revenue activity which exhibits these trends (in millions):

SELF-PAY REVENUES
-----------------------------------
2001 2002 2003
---- ---- ----

First Quarter $ 9.2 $ 13.7 $17.6
Second Quarter 10.9 15.5 16.6
Third Quarter 13.6 13.0 21.4
Fourth Quarter 11.7 15.4 20.1
----- ------ -----
Total $45.4 $ 57.6 $75.7
===== ====== =====

We anticipate that our provision for doubtful accounts will increase for
the next several quarters to approximately 9% - 10% of revenues from
approximately 7.4% - 8% of revenues for recent years. 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, then it could have a material adverse effect on our
results of operations and financial position.

- - Increased Purchase Prices for Acquisitions. As previously discussed, we
attempt to make acquisitions in a highly competitive environment. We have
seen higher prices being paid for hospital acquisitions in the past two
years. In some cases, the cost of an acquisition could result in a
dilutive effect on our results of operations for up to two years depending
on various factors, including the acquired hospital's results of
operations, allocations 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. We rely heavily on HCA for information systems integration as
part of our contractual arrangement for information technology services.

- - 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 issues related to nurses
and other clinical personnel will continue in the near term.

- - Increases in Supply Costs. During 2003, we experienced an increase in
supply costs as a percentage of revenues, especially in the areas of
pharmaceutical and orthopedic supplies. We participate in a group
purchasing organization in an attempt to achieve optimum supply costs from
our vendors. Because of the fixed reimbursement nature of most
governmental and commercial payor arrangements, we may not be able to
recover supply cost increases through increased revenues.

OUTLOOK

We expect to continue increasing our revenues and net income by continuing
to acquire additional hospitals and increasing the operating results of the
hospitals we currently own. We plan to adhere to our disciplined acquisition
strategy as we seek to acquire additional hospitals. We intend to continue to
invest in additional healthcare services in our facilities and implement our
operating strategies.

In order for us to increase revenues and profitability of our hospitals,
there are a number of on-going challenges that we must effectively manage, such
as:

- competition from other healthcare providers, including physicians in
our communities;

- recruiting and retaining quality physicians;

- increasing the volume of patients in our facilities;

- staffing issues related to the shortage of clinical personnel and
the use of contract labor;

- identifying and acquiring hospitals at appropriate prices;

- the integration of new acquisitions into our operating systems and
practices;

- pricing pressures from government and commercial payors; and

- increased bad debt risk as a result of the increased number of
uninsured patients and increased co-payments and deductibles due
from insured patients.

By successfully focusing on each of these challenges, we anticipate
increasing our revenues and profitability on both a short-term and long-term
basis. These challenges are intensified by our inability to control related
trends and the associated risks. Therefore, our actual results may differ from
our expectations. To maintain or improve operating margins in the future, we
must, among other things, increase patient volumes through physician recruiting
while controlling the costs of providing services.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with U.S. generally
accepted accounting principles 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.

The table that follows presents information about our critical accounting
estimates, as well as the effects of hypothetical changes in the material
assumptions used to develop each estimate:

BALANCE SHEET OR
INCOME STATEMENT CAPTION /
NATURE OF CRITICAL ESTIMATE ITEM ASSUMPTIONS / APPROACH USED SENSITIVITY ANALYSIS
- --------------------------------------- ---------------------------------------------- ---------------------------------------

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
PROVISION FOR DOUBTFUL ACCOUNTS

Accounts receivable primarily consist The largest component of bad debts in our If self-pay revenues during 2003 were
of amounts due from third-party payors patient accounts receivable relates to changed by 1%, our 2003 after-tax net
and patients. Our ability to collect accounts for which patients are responsible, income would change by approximately
outstanding receivables is critical to which we refer to as patient responsibility $0.5 million.
our results of operations and cash accounts. These accounts include both
flows. To provide for accounts amounts payable by uninsured patients This is only one example of reasonably
receivable that could become and co-payments and deductibles payable by possible sensitivity scenarios. The
uncollectible in the future, we insured patients. In general, our policy process of determining the allowance
establish an allowance for doubtful is to collect deductibles, co-payments requires us to estimate uncollectible
accounts to reduce the carrying value and self-pay accounts prior to the time of patient accounts that are highly
of such receivables to their estimated service for non-emergency care. If we do uncertain and requires a high degree of
net realizable value. The primary not collect these patient responsibility judgment. It is impacted by changes in
uncertainty lies with uninsured accounts prior to the delivery of care, the regional economic conditions, business
patient receivables and deductibles, accounts are handled through our billing office operations, payor mix and trends
co-payments or other amounts due from and collections processes. in federal or state governmental
individual patients. Our allowance healthcare coverage.
for doubtful accounts, included in our We verify each patient's insurance coverage
balance sheets as of December 31 was as early as possible before a scheduled A significant increase in our provision
as follows (in millions): admission or procedure, including with respect for doubtful accounts (as a percentage
to eligibility, benefits and authorization/ of revenues) would lower our earnings.
- - 2003 - $111.7; and pre-certification requirements, in order to This would adversely affect our results
- - 2002 - $109.1. notify patients of the amounts for which they of operations, financial condition,
will be responsible. We verify insurance liquidity and future access to capital.
Our provision for doubtful accounts, coverage within a reasonable amount of time for
included in our results of operations, all emergency room visits and urgent admissions
was as follows (in millions): in compliance with the Emergency Medical
Treatment and Active Labor Act.
- - 2003 - $74.1;
- - 2002 - $49.8; and In general, we go through the following steps
- - 2001 - $39.7. in collecting accounts receivable:

- cash collection of deductibles, co-payments
and self-pay accounts at the time service
is provided;

- billing and follow-up with third-party
payors;

- collection calls; and

- if collection efforts are unsuccessful,
write off the accounts.

Our policy is to write off accounts after all
collection efforts have failed, which is
typically no longer than one year after the
date of discharge of the patient. Patient
responsibility accounts represent the majority
of our write-offs. The majority of our hospitals
retain third-party collection agencies for
billing and collection of patient responsibility
accounts. The selection of collection agencies
and the timing of referral of an account to a
collection agency varies among hospitals.
Generally, we do not write off accounts prior
to utilizing the services of a collection
agency. Once collection efforts have proven
unsuccessful, an account is written off from
our patient accounting system against the
allowance for doubtful accounts.

We determine the adequacy of the allowance for
doubtful accounts utilizing a number of
analytical tools and benchmarks to determine
the adequacy of the consolidated allowance.
No single statistic or measurement determines
the adequacy of the allowance.

One analytical tool that we use is the
hindsight analysis, which is performed by us
on an annual basis. The hindsight analysis
reviews write-offs and recoveries that occur
over a one-year period that relate to accounts
receivable of the prior year. These
write-offs, net of recoveries, roughly
estimate what the allowance should have been
in the prior year. This allowance is then used
to calculate a day metric by applying the
allowance estimate to the accounts receivable
aging. This analysis is a key historical
analytical tool, especially when the
composition of accounts receivable is static.
However, the composition of our accounts
receivable is not static, due to payor shifts,
rate increases and acuity changes. In
addition, the results

of the hindsight analysis are over 12 months
old by the time the data gathering is complete
and the ultimate evaluation is performed.
Given the necessary time delay in performing a
hindsight analysis and the dynamic environment,
we take additional steps and review additional
data.

As it relates to our recently-acquired
hospitals, we perform hindsight analyses based
on their historical collection information,
when available. In addition, we monitor trends
in revenues and collections on a monthly basis
for 18 to 24 months subsequent to the
acquisition on a facility-by-facility basis.

As it relates to our core hospitals, which we
refer to as "same-hospital", we monitor the
revenue trends by payor classification on a
month-by-month basis along with the
composition of our accounts receivable agings.
This review is focused primarily on trends in
self-pay revenues, accounts receivable and
co-payment receivables.

In addition, we analyze other factors such as
revenue days in accounts receivable and
reviewing admissions and charges by
physicians, primarily focusing on recently
recruited physicians.
REVENUE RECOGNITION / ALLOWANCE FOR
CONTRACTUAL DISCOUNTS

We recognize revenues in the period in Revenues are recorded at estimated net amounts
which services are performed. Accounts due from patients, third-party payors and
receivable primarily consist of amounts others for health care services provided. We
due from third-party payors and patients. utilize multiple patient accounting systems.
Amounts we receive for treatment of Therefore, estimates for contractual
patients covered by governmental programs, allowances are calculated using computerized
such as Medicare and Medicaid, and other and manual processes depending on the type of
third-party payors such as HMOs, PPOs and payor involved and the patient accounting
other private insurers, Managed Care, are system used by each of our hospitals. In
generally less than our established certain hospitals, the contractual allowances
billing rates. Accordingly, our gross are calculated by a computerized system based
revenues and accounts receivable are on payment terms for each payor. In other
reduced to net realizable value through hospitals, the contractual allowances
an allowance for contractual discounts. are determined manually using historical
collections for each type of payor. For all
Approximately 88% of our revenues during hospitals, certain manual estimates are used
2003 relate to discounted charges. The in calculating contractual allowances based on
sources of these revenues were as follows historical collections from payors that are
(as a percentage of total revenues): not significant or have not entered into a
- - Medicare - 36%; contract with us. All contractual adjustments,
- - Medicaid - 11%; and regardless of type of payor or method of
- - Managed Care - 41%. calculation, are reviewed and compared to
actual experience.

GOVERNMENTAL PAYORS GOVERNMENTAL PAYORS

The majority of services performed on Medicare Because the laws and regulations
and Medicaid patients are reimbursed at governing the Medicare and Medicaid
predetermined reimbursement rates. The programs are complex and subject to
differences between the established billing change, the estimates recorded by us
rates (i.e., gross charges) and the could change by material amounts.
predetermined reimbursement rates are recorded Adjustments related to final
as contractual discounts and deducted from settlements increased our revenues by
gross revenues. Under a prospective the following amounts (in millions):
reimbursement system, there is no adjustment - 2003 - $6.0;
or settlement of the difference between the - 2002 - $13.0; and
actual cost to provide the service and the - 2001 - $1.8
predetermined reimbursement rates.

Discounts for retrospectively cost-based
revenues, which were more prevalent in periods
before 2000, are

estimated based on historical and current
factors and are adjusted in future periods
when settlements of filed cost reports are
received. Final settlements under these
programs are subject to adjustment based on
administrative review and audit by third party
intermediaries, which can take several years
to resolve completely.

MANAGED CARE MANAGED CARE

For most managed care plans, estimated If our overall estimated contractual
contractual allowances are adjusted to actual discount percentage on all of our
contractual allowances as cash is received and managed care revenues were changed by
claims are reconciled. We evaluate the 1%, our 2003 after-tax net income would
following criteria in developing the estimated change by approximately $3.9 million.
contractual allowance percentages each month:
historical contractual allowance trends based This is only one example of reasonably
on actual claims paid by managed care payors; possible sensitivity scenarios. The
impact of rate increases on contractual process of determining the allowance
allowances; review of contractual allowance requires us to estimate the amount
information reflecting current contract terms; expected to be received and requires a
consideration and analysis of changes in payor high degree of judgment. It is
mix reimbursement levels; and other issues impacted by changes in managed care
that may impact contractual allowances. contracts and other related factors.

A significant increase in our estimate
of contractual discounts would lower
our earnings. This would adversely
affect our results of operations,
financial condition, liquidity and
future access to capital.

PROFESSIONAL AND GENERAL LIABILITY CLAIMS

We are subject to potential medical Our reserves for professional and general Based upon multiple actuarial
malpractice lawsuits and other claims as liability claims are based upon independent valuations performed using recent loss
part of providing healthcare services. To actuarial calculations, which consider information, the change in the
mitigate a portion of this risk, we historical claims data, demographic estimation process during 2003
maintained insurance for individual considerations, severity factors and other decreased our reserves for professional
malpractice claims exceeding $1.0 million actuarial assumptions in the determination of and general liability claims and our
for 2001. For 2002, we increased our reserve estimates. Reserve estimates are cost for professional and general
self-insured retention level to $10.0 discounted to present value using a 5.0% liability claims by approximately $7.4
million on individual malpractice claims. discount rate. million on a pre-tax basis, or $0.10
For 2003, we lowered our per diluted share. Of the $7.4 million
reduction, $4.8

self-insured retention level to $5.0 We revise our reserve estimates twice each million relates to estimates for losses
million on individual malpractice claims year based upon the calculations performed by prior to 2003 and $2.6 million relates
and for 2004, we increased our self- our independent actuaries. Our estimated to losses for 2003.
insured retention level back to $10.0 reserve for professional and general liability
million. claims will be significantly affected if Additionally, actuarial calculations
Each year, we obtain quotes from various current and future claims differ from include a large number of variables
malpractice insurers with respect to the historical trends. While we monitor reported that may significantly impact the
cost of obtaining medical malpractice claims closely and consider potential outcomes estimate of ultimate losses that are
insurance coverage. We compare these as estimated by our independent actuaries when recorded during a reporting period.
quotes to our most recent actuarially determining our professional and general Professional judgment is used by each
determined estimates of losses at various liability reserves, the complexity of the actuary in determining their loss
self-insured retention levels. claims, the extended period of time to settle estimates by selecting factors that are
Accordingly, changes in insurance costs the claims and the wide range of potential considered appropriate by the actuary
affect the self-insurance retention level outcomes complicates the estimation process. for our specific circumstances.
we choose each year. As insurance costs In addition, certain states have passed Changes in assumptions used by our
have increased in recent years, we have varying forms of tort reform limiting the independent actuaries with respect to
accepted a higher level of risk in amount of medical malpractice losses. If such demographics, industry trends and
self-insured retention levels. laws are passed in the states where our judgmental selection of factors may
hospitals are located, our loss estimates impact our recorded reserve levels and
The reserve for professional and general could decrease. our results of operations.
liability claims, included in our balance
sheets as of December 31 was as follows We implemented enhanced risk management We derive our estimates for financial
(in millions): processes for monitoring professional and reporting purposes by using a
general liability claims and managing losses mathematical average of our actuarial
- 2003 - $27.5; and in high-risk areas during 2002 and 2003 to results. Changes in our estimates of
- 2002 - $25.1. attempt to reduce loss levels and professional and general liability
appropriately manage risk. We improved our claims are non-cash charges and
The reserve for professional and general estimation process for determining our accordingly, there would be no material
liability claims as of the balance sheet reserves for professional and general impact on our liquidity or capital
dates reflect the current estimate of all liability claims during 2003 by expanding from resources.
outstanding losses, including incurred but using one actuary to using multiple
not reported losses, based upon actuarial actuaries.
calculations. The loss estimates included
in the actuarial calculations may change We use the calculations of each actuary and
in the future based upon updated facts and average their results in determining our
circumstances. recorded reserve levels. This averaging
process results in a refined estimation
The total cost of professional and general approach that we believe produces a more
liability coverage, included in our reliable estimate of ultimate losses.
results of operations, was as follows (in
millions):

- 2003 - $8.3;
- 2002 - $10.8; and
- 2001 - $10.8.

Our cost for professional and general
liability coverage each year includes

the actuarially determined estimate of
losses for the current year, including
claims incurred but not reported; the
change in the estimate of losses for prior
years based upon actual claims development
experience as compared to prior actuarial
projections; the insurance premiums for
losses in excess of our self-insured
retention levels; the administrative costs
of the insurance program and interest
expense related to the discounted portion
of the liability.

ACCOUNTING FOR INCOME TAXES

Deferred tax assets generally represent The first step in determining the deferred tax Our deferred tax liabilities exceeded
items that will result in a tax deduction asset valuation allowance is identifying our deferred tax assets by $21.5
in future years for which we have already reporting jurisdictions where we have a million as of December 31, 2003,
recorded the tax benefit in our income history of tax and operating losses or are excluding the impact of valuation
statement. We assess the likelihood that projected to have losses in future periods as allowances. Historically, we have
deferred tax assets will be recovered from a result of changes in operational produced federal taxable income.
future taxable income. To the extent we performance. We then determine if a valuation Therefore, the likelihood of us not
believe that recovery is not probable, a allowance should be established against the realizing the federal tax benefit of
valuation allowance is established. To the deferred tax assets for that reporting our deferred tax assets is remote.
extent we establish a valuation allowance jurisdiction.
or increase this allowance, we must However, we do have subsidiaries with a
include an expense as part of the income The second step is to determine the amount of history of tax losses in certain state
tax provision in our results of the valuation allowance. We will generally jurisdictions. If our assertion
operations. Our deferred tax asset establish a valuation allowance equal to the regarding the future profitability of
balances in our balance sheets as of net deferred tax asset (deferred tax assets those subsidiaries were incorrect, then
December 31 were as follows (in millions): less deferred tax liabilities) related to the our deferred tax assets would be
jurisdiction identified in step one of the understated by the amount of the
- 2003 - $36.3; and analysis. In certain cases, we may not reduce valuation allowance of $4 million at
- 2002 - $34.5. the valuation allowance by the amount of the December 31, 2003.
deferred tax liabilities depending on the
Our valuation allowances for deferred tax nature and timing of future taxable income The IRS may propose adjustments for
assets in our balance sheets as of attributable to deferred tax liabilities. items we have failed to identify as tax
December 31 were as follows (in millions): contingencies. If the IRS were to
In assessing tax contingencies, we identify propose and sustain assessments equal
- 2003 - $4.0; and tax issues that we believe are probable to be to 10% of our taxable income for 2003,
- 2002 - $3.5. challenged upon examination by the taxing we would incur $3.6 million of
authorities. We compute the tax and related additional tax payments plus applicable
In addition, significant judgment is interest on each contingency. penalties and interest.
required in determining and assessing the
impact of certain tax-

related contingencies. We establish We then determine the probable amount of loss
accruals when, despite our belief that and reflect such amount as a component of the
our tax return positions are fully provision for income taxes in the reporting
supportable, it is probable that we have period.
incurred a loss related to tax
contingencies and the loss or range of During each reporting period, we assess the
loss can be reasonably estimated. facts and circumstances related to recorded
tax contingencies. If tax contingencies are
no longer deemed probable based upon new facts
We adjust the accruals related to tax and circumstances, the contingency is
contingencies as part of our provision for reflected as a reduction of the provision for
income taxes in our results of operations income taxes in the current period.
based upon changing facts and
circumstances, such as progress of a tax
audit, development of industry related
examination issues, as well as
legislative, regulatory or judicial
developments. A number of years may elapse
before a particular matter, for which we
have established an accrual, is audited
and resolved.

Our management has discussed the development and selection of these
critical accounting estimates with the audit committee of our Board of Directors
and the audit committee has reviewed the disclosure presented above relating to
our critical accounting estimates.

The above table of critical accounting estimates is not intended to be a
comprehensive list of all of our accounting policies that require estimates. We
believe that of our significant accounting policies, as discussed in Note 1 of
our consolidated financial statements, the estimates discussed above involve a
higher degree of judgment and complexity. We believe the current assumptions and
other considerations used to estimate amounts reflected in our consolidated
financial statements are appropriate. However, if actual experience differs from
the assumptions and other considerations used in estimating amounts reflected in
our consolidated financial statements, the resulting changes could have a
material adverse effect on our consolidated results of operations and our
financial condition.

RESULTS OF OPERATIONS

OPERATING RESULTS SUMMARY

The following tables present summaries of results of operations for our
continuing operations for the three months ended December 31, 2002 and 2003 and
for the years ended December 31, 2001, 2002 and 2003 (dollars in millions,
except for revenues per equivalent admission):

THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------
2002 2003
------------------------- --------------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------- -------- ------- --------

Revenues.................................................... $ 194.6 100.0% $ 229.2 100.0%

Salaries and benefits (a)................................... 75.7 38.9 90.1 39.3
Supplies (b)................................................ 23.8 12.3 30.9 13.5
Other operating expenses (c)................................ 33.9 17.4 39.3 17.1
Provision for doubtful accounts............................. 15.0 7.7 20.8 9.1
Depreciation and amortization............................... 9.3 4.8 11.6 5.1
Interest expense, net....................................... 3.4 1.7 2.9 1.3
Debt retirement costs....................................... 0.5 0.3 -- --
ESOP expense................................................ 2.3 1.2 2.0 0.8
------- ----- ------- -----
163.9 84.3 197.6 86.2
------- ----- ------- -----
Income from continuing operations before minority
interest and income taxes................................ 30.7 15.7 31.6 13.8
Minority interest in earnings of consolidated entity........ -- -- 0.2 0.1
------- ----- ------- -----
Income from continuing operations before income taxes....... 30.7 15.7 31.4 13.7
Provision for income taxes.................................. 12.4 6.3 11.7 5.1
------- ----- ------- -----
Income from continuing operations........................... $ 18.3 9.4% $ 19.7 8.6%
======= ===== ======= =====

THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------------------------
2002 2003
------------------------------------ ---------------------------------
% CHANGE % CHANGE
AMOUNT FROM PRIOR YEAR AMOUNT FROM PRIOR YEAR
------------ --------------- --------- ---------------

CONTINUING OPERATIONS (k)
Number of hospitals at end of period.................... 27 22.7 28 3.7
Admissions (d).......................................... 19,629 14.6 23,722 20.9
Equivalent admissions (e)............................... 37,707 18.5 46,377 23.0
Revenues per equivalent admission....................... $ 5,162 4.1 $ 4,942 (4.3)
Outpatient factor (e)................................... 1.92 3.3 1.96 2.1
Emergency room visits (f)............................... 86,591 17.2 110,842 28.0
Inpatient surgeries (j)................................. 5,312 16.2 6,281 18.2
Outpatient surgeries (g), (j)........................... 15,477 12.8 18,277 18.1
Total surgeries (j)..................................... 20,789 13.7 24,558 18.1
Outpatient revenues as a percentage of total revenues... 48.8% N/M 47.3% N/M
Medicare case mix index (i) ............................ 1.15 (0.9) 1.16 0.9

SAME-HOSPITAL (h):
Revenues................................................ $ 181.2 N/M $ 186.6 2.9
Number of hospitals at end of period.................... 22 N/M 22 --
Admissions (d).......................................... 17,861 N/M 18,595 4.1
Equivalent admissions (e)............................... 34,261 N/M 35,813 4.5
Revenues per equivalent admission....................... $ 5,289 N/M $ 5,208 (1.5)
Outpatient factor (e)................................... 1.92 N/M 1.93 0.5
Emergency room visits (f)............................... 77,968 N/M 86,690 11.2
Inpatient surgeries (j)................................. 4,885 N/M 4,985 2.0
Outpatient surgeries (g), (j)........................... 14,349 N/M 15,117 5.4
Total surgeries (j)..................................... 19,234 N/M 20,102 4.5
Outpatient revenues as a percentage of total revenues... 49.3% N/M 49.2% N/M
Medicare case mix index (i) ............................ 1.17 N/M 1.17 --

YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2001 2002 2003
---------------------- -------------------- ---------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- -------- -------- -------- -------- --------

Revenues.................................................. $ 591.3 100.0% $ 714.9 100.0% $ 875.6 100.0%

Salaries and benefits (a)................................. 232.5 39.3 280.0 39.2 352.3 40.2
Supplies (b).............................................. 74.9 12.7 88.7 12.4 114.2 13.0
Other operating expenses (c).............................. 115.0 19.4 129.6 18.1 155.4 17.8
Provision for doubtful accounts........................... 39.7 6.7 49.8 7.0 74.1 8.5
Depreciation and amortization............................. 32.0 5.4 35.0 4.8 43.1 4.8
Interest expense, net..................................... 18.1 3.1 13.3 1.9 12.8 1.5
Debt retirement costs..................................... 2.6 0.4 31.0 4.3 -- --
ESOP expense.............................................. 10.4 1.8 9.7 1.4 6.9 0.8
Gain on previously impaired assets........................ (0.5) (0.1) -- -- -- --
-------- ----- -------- ----- -------- -----
524.7 88.7 637.1 89.1 758.8 86.6
-------- ----- -------- ----- -------- -----
Income from continuing operations before minority
interests and income taxes............................. 66.6 11.3 77.8 10.9 116.8 13.4
Minority interests in earnings of consolidated entities... 2.7 0.5 2.2 0.3 0.7 0.1
-------- ----- -------- ----- -------- -----
Income from continuing operations before income taxes..... 63.9 10.8 75.6 10.6 116.1 13.3
Provision for income taxes................................ 30.3 5.1 32.7 4.6 45.9 5.3
-------- ----- -------- ----- -------- -----
Income from continuing operations......................... $ 33.6 5.7% $ 42.9 6.0% $ 70.2 8.0%
======== ===== ======== ===== ======== =====

YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2001 2002 2003
------------------------- ------------------------- -------------------------
% CHANGE % CHANGE % CHANGE
FROM FROM FROM
AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR AMOUNT PRIOR YEAR
-------- ---------- -------- ---------- -------- ----------

CONTINUING OPERATIONS (k):
Number of hospitals at end of period......... 22 10.0 27 22.7 28 3.7
Admissions (d)............................... 67,452 6.8 74,488 10.4 88,695 19.1
Equivalent admissions (e).................... 122,560 7.4 142,570 16.3 175,439 23.1
Revenues per equivalent admission............ $ 4,825 3.3 $ 5,015 3.9 $ 4,991 (0.5)
Outpatient factor (e)........................ 1.82 0.6 1.91 4.9 1.98 3.7
Emergency room visits (f).................... 288,793 5.4 329,922 14.2 408,321 23.8
Inpatient surgeries (j)...................... 17,584 8.3 20,480 16.5 24,528 19.8
Outpatient surgeries (g), (j)................ 51,697 14.7 59,950 16.0 71,488 19.2
Total surgeries (j).......................... 69,281 13.0 80,430 16.1 96,016 19.4
Outpatient revenues as a percentage of
total revenues........................... 48.0% N/M 50.2% N/M 50.4% N/M
Medicare case mix index (i) ................. 1.15 -- 1.15 -- 1.17 1.7

SAME-HOSPITAL (h):
Revenues..................................... N/M N/M $ 701.5 N/M $ 729.1 3.9
Number of hospitals at end of period......... N/M N/M 22 N/M 22 --
Admissions (d)............................... N/M N/M 72,720 N/M 72,306 (0.6)
Equivalent admissions (e).................... N/M N/M 139,062 N/M 140,408 1.0
Revenues per equivalent admission............ N/M N/M $ 5,044 N/M $ 5,192 2.9
Outpatient factor (e)........................ N/M N/M 1.91 N/M 1.94 1.6
Emergency room visits (f).................... N/M N/M 321,299 N/M 327,312 1.9
Inpatient surgeries (j)...................... N/M N/M 20,053 N/M 20,214 0.8
Outpatient surgeries (g), (j)................ N/M N/M 58,822 N/M 59,728 1.5
Total surgeries (j).......................... N/M N/M 78,875 N/M 79,942 1.4
Outpatient revenues as a percentage of
total revenues........................... N/M N/M 50.3% N/M 50.6% N/M
Medicare case mix index (i) ................. N/M N/M 1.16 N/M 1.18 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, 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 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 which we
acquired after January 1, 2002 and Bartow Memorial Hospital, which is
reflected as discontinued operations.

(i) Refers to the acuity or severity of illness of an average Medicare patient
at our hospitals.

(j) Historical inpatient and outpatient surgeries were restated to reflect
appropriate amounts during these periods. This change produced no impact
on our historical results of operations.

(k) Continuing operations information excludes the operations of Bartow
Memorial Hospital, which is reflected as a discontinued operation. All
historical amounts except for the Medicare case mix index have been
restated to exclude the operations of Bartow Memorial Hospital. Please
refer to Note 3 of our consolidated financial statements included
elsewhere herein for a discussion of this potential asset exchange.

FOR THE QUARTERS ENDED DECEMBER 31, 2003 AND 2002

REVENUES

Our revenues for the quarter ended December 31, 2003 increased by $34.6
million, or 17.7%, to $229.2 million compared to the quarter ended December 31,
2002. This increase is attributable to a number of factors, including:

- $10.9 million from our same-hospital revenues, excluding net
adjustments to estimated third-party payor settlements and
including a $0.8 million decrease in non-patient revenues;

- $22.6 million increase from our 2002 acquisitions;

- $6.4 million from our 2003 acquisition of Spring View
Hospital; and

- $5.3 million net decrease in our net adjustments to estimated
third-party payor settlements. Net adjustments to estimated
third-party payor settlements resulted in a decrease to
revenues of $0.2 million in the quarter ended December 31,
2003 compared to an increase to revenues of $5.1 million in
the quarter ended December 31, 2002. The $5.1 million of
adjustments in the quarter ended December

31, 2002 related primarily to cost reports that were delayed
by outpatient PPS and had an effect of increasing after-tax
diluted earnings per share by approximately $0.07.

Our same-hospital inpatient revenues, excluding net adjustments to
estimated third-party payor settlements, for the quarter ended December 31, 2003
increased by $5.3 million, or 6.2%, to $90.3 million compared to the quarter
ended December 31, 2002. A primary driver was an increase in flu-related
admissions late in the quarter.

Our same-hospital outpatient revenues, excluding net adjustments to
estimated third-party payor settlements, for the quarter ended December 31, 2003
increased by $7.1 million, or 8.2%, to $94.4 million compared to the quarter
ended December 31, 2002. This outpatient growth was largely driven by a 5.4%
increase in same-hospital outpatient surgeries and a 11.2% increase in
same-hospital emergency room visits.

After factoring all of the above, our equivalent admissions increased by
4.5% on a same-hospital basis for the quarter ended December 31, 2003 compared
to the same period in 2002. As it relates to pricing and acuity, our
same-hospital revenues per equivalent admission for the quarter ended December
31, 2003 were down 1.5%, or $81 per equivalent admission, over the same period
in 2002. However, our same-hospital revenues per equivalent admission for the
quarter ended December 31, 2003, excluding net adjustments to estimated
third-party payor settlements, increased by 1.7% over the same period in 2002.

The table below shows the sources of our revenues for the quarters ended
December 31, expressed as percentages of total revenues, including net
adjustments to estimated third-party payor settlements:

CONTINUING OPERATIONS SAME - HOSPITAL
------------------------- --------------------------
2002 2003 2002 2003
---- ---- ---- ----

Medicare 38.6% 36.6% 39.2% 35.7%
Medicaid 11.7 11.0 12.1 11.3
HMOs, PPOs and other 39.8 39.8 39.6 42.8
private insurers
Self Pay 8.0 8.7 7.3 8.3
Other 1.9 3.9 1.8 1.9
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====

EXPENSES

Salaries and benefits increased as a percentage of revenues to 39.3% for
the quarter ended December 31, 2003 from 38.9% for the quarter ended December
31, 2002, primarily as a result of our 2002 acquisitions, which had higher than
average salaries and benefits as a percentage of our revenues. Salaries and
benefits in the quarter ended December 31, 2003 were approximately 41.4% as a
percentage of revenues for our 2002 acquisitions. On a same-hospital basis,
salaries and benefits increased as a percentage of revenues to 38.5% in the
quarter ended December 31, 2003 compared to 37.7% in the quarter ended December
31, 2002. This was primarily due to a 4.4% increase in same-hospital salaries
and benefits per man-hour in the fourth quarter of 2003 compared to the same
period in 2002. However, our productivity improved in the quarter ended December
31, 2003 with a 3.7% decrease in our man-hours per equivalent admission compared
to the same period in 2002. In addition, our same-hospital contract labor
increased by 9.1% to $3.5 million in the quarter ended December 31, 2003,
compared to $3.2 million in the quarter ended December 31, 2002, as a result of
continuing clinical labor shortages in some of our communities.

Supply costs as a percentage of revenues increased to 13.5% in the quarter
ended December 31, 2003 from 12.3% in the quarter ended December 31, 2002. On a
same-hospital basis, supply costs increased as a percentage of revenues to 13.5%
in the quarter ended December 31, 2003 from 11.9% in the quarter ended December
31, 2002. On a same-hospital basis, our cost of supplies per equivalent
admission increased 11.5% in the quarter ended December 31, 2003 as a result of
rising supply costs compared to the same period in 2002, particularly in the
pharmaceutical, cardiac and spine and joint implant areas.

Other operating expenses decreased as a percentage of revenues to 17.1% in
the quarter ended December 31, 2003 from 17.4% in the quarter ended December 31,
2002. On a same-hospital basis, other operating expenses decreased as a
percentage of revenues to 16.6% in the quarter ended December 31, 2003 from
17.1% in the quarter ended

December 31, 2002, primarily as a result of lower professional and general
liability insurance expense. Our professional and general liability insurance
expense was $0.7 million during the quarter ended December 31, 2003 compared to
$2.6 million in the quarter ended December 31, 2002. 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 previously
in the "Critical Accounting Estimates." Our physician recruiting costs increased
from $1.6 million in the quarter ended December 31, 2002 to $3.5 million in the
quarter ended December 31, 2003 as a result of our increased number of recruited
physicians.

Provision for doubtful accounts increased as a percentage of revenues to
9.1% in the quarter ended December 31, 2003 from 7.7% in the quarter ended
December 31, 2002. The provision for doubtful accounts related primarily to
self-pay amounts due from patients. Our self-pay revenues for the quarter ended
December 31, 2003 increased by 28.9% to $20.1 million compared to the same
period in 2002. The factors influencing this increase are a combination of broad
economic factors, including the increased number of uninsured patients,
employers shifting costs to employees through higher co-payments and higher
unemployment rates. In addition, our 2002 acquisitions had a higher than average
provision for doubtful accounts as a percentage of revenues. Provision for
doubtful accounts as a percentage of revenues for our 2002 acquisitions was
16.4% for the quarter ended December 31, 2003. On a same-hospital basis, the
provision for doubtful accounts increased as a percentage of revenues to 7.7% in
the quarter ended December 31, 2003 from 6.9% in the quarter ended December 31,
2002.

Depreciation and amortization expense increased to $11.6 million in the
quarter ended December 31, 2003 from $9.3 million in the quarter ended December
31, 2002, primarily as a result of our 2002 and 2003 acquisitions and
depreciation associated with capital improvements at our facilities.
Depreciation expense associated with our 2002 and 2003 acquisitions was $1.8
million for the quarter ended December 31, 2003. Same-hospital depreciation and
amortization expense was $9.8 million in the quarter ended December 31, 2003
compared to $8.9 million in the quarter ended December 31, 2002.

The provision for income taxes decreased to $11.7 million in the quarter
ended December 31, 2003 from $12.4 million in the quarter ended December 31,
2002. The income tax provisions reflected an effective income tax rate from
continuing operations of 37.5% for the quarter ended December 31, 2003 compared
to 40.4% for the quarter ended December 31, 2002. The effective tax rate
decrease in 2003 was attributable to a decrease in the ESOP permanent difference
and a reduction in tax contingencies relating to adjustments to IRS examination
issues as a result of the IRS issuing its findings during the quarter ended
December 31, 2003. Please refer to Note 5 of our consolidated financial
statements in this report for more information related to the IRS findings.

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

REVENUES

Our revenues for 2003 increased by $160.7 million, or 22.5%, to $875.6
million compared to 2002. This increase is attributable to a number of factors,
including:

- $34.8 million from our same-hospital revenues, excluding net
adjustments to estimated third-party payor settlements and
including a $2.9 million decrease in non-patient revenues;

- $126.5 million increase from our 2002 acquisitions (our 2002
acquisitions had revenues of $140.1 million and $13.6 million
in 2003 and 2002, respectively);

- $6.4 million from our 2003 acquisition of Spring View
Hospital; and

- $7.0 million net decrease in our net adjustments to estimated
third-party payor settlements. Net adjustments to estimated
third-party payor settlements resulted in an increase to net
revenues of $6.0 million in 2003 compared to $13.0 million in
2002. Net adjustments of $5.0 million of the $13.0 million in
2002 related to the favorable settlement of a Kentucky
inpatient Medicaid rate appeal that covered the period January
1, 1996 through June 30, 2002. The remaining $8.0 million of
adjustments related primarily to cost reports that were
delayed by outpatient PPS. The net adjustments to estimated
third party-payor settlements had a favorable diluted earnings
per share effect of $0.08 for 2003 and $0.17 for 2002.

Our same-hospital inpatient revenues, excluding net adjustments to
estimated third-party payor settlements, in 2003 increased by $16.6 million, or
5.1%, to $344.9 million compared to 2002. Our same-hospital Medicare case mix
increased from 1.16 in 2002 to 1.18 in 2003. A primary driver in the case mix
increase was our open-heart program at Lake Cumberland Regional Hospital that
opened in the fourth quarter of 2002. In addition, we had a 0.8% increase in our
inpatient surgeries in 2003 compared to 2002, on a same-hospital basis.

Our same-hospital outpatient revenues, excluding net adjustments to
estimated third-party payor settlements, in 2003 increased by $21.8 million, or
6.3%, to $369.3 million compared to 2002. This outpatient growth was largely
driven by a 1.5% increase in same-hospital outpatient surgeries and a 1.9%
increase in same-hospital emergency room visits.

After factoring all of the above, our equivalent admissions increased by
1.0% on a same-hospital basis in 2003 compared to 2002. As it relates to pricing
and acuity, our same-hospital revenues per equivalent admission for 2003 were up
2.9%, or $148 per equivalent admission, over 2002. Revenues per equivalent
admission on our 2002 acquisitions were approximately $1,000 less than our
same-hospital revenues per equivalent admission during 2003 because our 2002
acquisitions are located in states with lower reimbursement levels.

The table below shows the sources of our revenues for the years ended
December 31, expressed as percentages of total revenues, including net
adjustments to estimated third-party payor settlements:

CONTINUING OPERATIONS SAME - HOSPITAL
------------------------- --------------------------
2002 2003 2002 2003
----- ----- ----- -----

Medicare 35.4% 35.9% 35.5% 36.2%
Medicaid 11.6 10.9 11.7 11.1
HMOs, PPOs and other 43.0 40.5 43.1 42.5
private insurers
Self Pay 8.1 8.6 7.9 8.1
Other 1.9 4.1 1.8 2.1
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====

EXPENSES

Salaries and benefits increased as a percentage of revenues to 40.2% in
2003 from 39.2% in 2002, primarily as a result of our 2002 acquisitions, which
had higher than average salaries and benefits as a percentage of our revenues.
Salaries and benefits in 2003 were approximately 45.3% as a percentage of
revenues for our 2002 acquisitions. On a same-hospital basis, salaries and
benefits increased as a percentage of revenues to 39.2% in 2003 compared to
38.9% in 2002. This was primarily due to a 4.8% increase in same-hospital
salaries and benefits per man-hour in 2003 compared to 2002. However, our
productivity improved with a 1.0% decrease in our man-hours per equivalent
admission. In addition, our same-hospital contract labor increased by 12.4% to
$12.1 million in 2003 compared to $10.7 million in 2002 as a result of
continuing clinical labor shortages in some of our communities.

Supply costs as a percentage of revenues increased to 13.0% in 2003 from
12.4% in 2002. On a same-hospital basis, supply costs increased as a percentage
of revenues to 12.9% in 2003 from 12.3% in 2002. On a same-hospital basis, our
cost of supplies per equivalent admission increased 7.4% as a result of rising
supply costs, particularly in the pharmaceutical and cardiac areas. In addition,
we opened our new open-heart unit at Lake Cumberland Regional Hospital during
the fourth quarter of 2002, which also contributed to the increase in our supply
costs per equivalent admission. We utilize the group-purchasing and supplies
management services of HealthTrust Purchasing Group, which makes certain
national supply and equipment contracts available to our facilities.

Other operating expenses decreased as a percentage of revenues to 17.8% in
2003 from 18.1% in 2002. On a same-hospital basis, other operating expenses
decreased as a percentage of revenues to 17.5% in 2003 from 18.0% in 2002
primarily as a result of lower professional and general liability insurance
expense. Our professional and general liability insurance expense was $8.3
million during 2003 compared to $10.8 million in 2002. 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 discussed previously in the
"Critical Accounting Estimates." Our physician recruiting costs increased from
$5.8 million in 2002 to $12.0 million in 2003 as a result of our increased
number of recruited physicians.

Provision for doubtful accounts increased as a percentage of revenues to
8.5% in 2003 from 7.0% in 2002. The provision for doubtful accounts related
primarily to self-pay amounts due from patients. Our self-pay revenues for 2003
increased by 31.4% to $75.7 million compared to $57.6 million in 2002. The
factors influencing this increase are a combination of broad economic factors,
including increased uninsured patients, employers shifting costs to employees
through higher co-payments and higher unemployment rates. In addition, our 2002
acquisitions had a higher than average provision for doubtful accounts as a
percentage of our revenues. Provision for doubtful accounts as a percentage of
revenues for our 2002 acquisitions was 14.8% for 2003. On a same-hospital basis,
the provision for doubtful accounts also increased as a percentage of revenues
to 7.2% in 2003 from 6.8% in 2002 as a result of the same factors described
above.

Depreciation and amortization expense increased to $43.1 million in 2003
from $35.0 million in 2002, primarily as a result of our 2002 and 2003
acquisitions and depreciation associated with capital improvements at our
facilities. Depreciation expense associated with our 2002 and 2003 acquisitions
was $6.6 million for 2003. Same-hospital depreciation and amortization expense
was $36.5 million in 2003 compared to $34.5 million in 2002.

We repurchased all of our $150.0 million 10 3/4% Senior Subordinated Notes
during 2002. In connection with these repurchases, we incurred debt retirement
costs of $31.0 million which consisted of $26.5 million in premiums, commissions
and fees paid for the repurchases and $4.5 million in non-cash net deferred loan
cost write-offs.

The provision for income taxes increased to $45.9 million in 2003 compared
to $32.7 million in 2002. The income tax provisions reflected an effective
income tax rate from continuing operations of 39.6% for 2003 compared to 43.3%
for 2002. The effective tax rate decrease was attributable to a decrease in the
ESOP permanent difference and a reduction in tax contingencies relating to
adjustments to IRS examination issues as a result of the IRS issuing its
findings during 2003. Please refer to Note 5 of our consolidated financial
statements in this report for more information related to the IRS findings.

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

REVENUES

For the comparison of 2002 to 2001, our same-hospital information includes
the twenty hospitals from continuing operations that we operated in January
2001.

Our revenues for 2002 increased by $123.6 million, or 20.9%, to $714.9
million compared to 2001. This increase is attributable to a number of factors,
including:

- $51.7 million from our same-hospital revenues, net of
adjustments to estimated third-party payor settlements. Our
same-hospital outpatient revenues for 2002 increased by $40.7
million, or 14.7%, to $318.1 million. This outpatient growth
was largely driven by a 7.7% increase in same-hospital
outpatient surgeries and a 1.9% increase in same-hospital
emergency room visits. Our same-hospital inpatient revenues
for 2002 increased by $17.5 million, or 5.9%, to $315.9
million, compared to 2001 primarily as a result of a 7.1%
growth in our same-hospital inpatient surgeries, as
same-hospital admissions were flat in 2002 compared to 2001;

- $47.1 million from our 2001 acquisitions;

- $13.6 million from our 2002 acquisitions; and

- $11.2 million from net adjustments to estimated third-party
payor settlements. Net adjustments to estimated third-party
payor settlements resulted in an increase to revenues of $13.0
million in 2002

compared to $1.8 million in 2001. Net adjustments of $5.0
million of the $13.0 million in 2002 related to the favorable
settlement of a Kentucky inpatient Medicaid rate appeal that
covered the period January 1, 1996 through June 30, 2002. The
remaining $8.0 million of adjustments related primarily to the
cost reports that were delayed by outpatient PPS. The net
adjustments to estimated third-party payor settlements had a
favorable diluted earnings per share effect of $0.17 for 2002.

The table below shows the sources of our revenues for the years ended
December 31, expressed as percentages of our total revenues, including net
adjustments to estimated third-party payor settlements:

CONTINUING OPERATIONS SAME - HOSPITAL
------------------------- --------------------------
2001 2002 2001 2002
----- ----- ----- -----

Medicare 35.7% 35.4% 35.7% 35.4%
Medicaid 10.9 11.6 10.9 11.8
HMOs, PPOs and other 42.3 43.0 43.0 42.9
private insurers
Self Pay 7.7 8.1 7.7 8.0
Other 3.4 1.9 2.7 1.9
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====

EXPENSES

Our salaries and benefits decreased as a percentage of revenues to 39.2%
for 2002 from 39.3% for 2001. We had a 2.6% decrease in man-hours per equivalent
admission in 2002 compared to 2001. However, we had a 6.2% increase in salaries
and benefits per man-hour. Our largest area of increase was employee benefits,
primarily self-insured health claims, which increased by $11.3 million over
2001. On a same-hospital basis, salaries and benefits decreased as a percentage
of revenues to 38.2% in 2002 from 39.2% in 2001. On a same-hospital basis, our
salaries and benefits per equivalent admission grew 3.7%. In addition, our
same-hospital contract labor increased by $2.1 million, or 29.4%, in 2002 over
2001 as a result of clinical labor shortages in some of our communities.

Supply costs decreased as a percentage of revenues to 12.4% in 2002 from
12.7% in 2001. This decrease is primarily the result of the savings utilizing
the group-purchasing and supplies management services of HealthTrust Purchasing
Group, which makes certain national supply and equipment contracts available to
our facilities.

Other operating expenses decreased as a percentage of revenues to 18.1% in
2002 from 19.4% in 2001. The decrease was primarily the result of a decrease in
physician recruiting expense as a percentage of revenues. However, the amount of
physician recruiting expense increased to $5.8 million in 2002 from $5.7 million
in 2001.

Provision for doubtful accounts increased as a percentage of revenues to
7.0% in 2002 from 6.7% in 2001. On a same-hospital basis, our provision for
doubtful accounts decreased as a percentage of revenues to 6.6% for 2002 from
6.8% for 2001 primarily as a result of an improvement in same-hospital
collections from all payor sources.

Depreciation and amortization expense increased to $35.0 million in 2002
from $32.0 million in 2001, primarily as a result of our 2001 and 2002
acquisitions and our increase in capital expenditures during 2002. This was
partially offset by the cessation of goodwill amortization required by Statement
of Financial Accounting Standards ("SFAS") No. 142, which was effective January
1, 2002. Goodwill amortization during 2001 was $1.6 million.

The provision for income taxes for 2002 increased to $32.7 million
compared to $30.3 million for 2001. The provisions reflect effective income tax
rates from continuing operations of 43.3% for 2002 compared to 47.4% for 2001.
The effective tax rate decreased primarily due to the decline in the permanent
differences between book and taxable income as a percentage of pre-tax income.

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 2003 and 2002 was derived
primarily from net cash provided by operating activities.

Cash flows from continuing operations for the years ended December 31 were
as follows (in millions):

SOURCE (USE) OF CASH FLOWS 2001 2002 2003
--------------------------- ---- ---- ----

Operating activities $ 112.5 $ 114.3 $ 105.0
Investing activities (67.5) (221.5) (84.2)
Financing activities (28.3) 75.7 (21.0)
--------- ---------- --------
Net change in cash and cash equivalents from
continuing operations $ 16.7 $ (31.5) $ (0.2)
========= ========== ========
Interest payments $ 20.8 $ 16.3 $ 12.4
========= ========== ========
Income taxes paid, net $ 18.4 $ 21.0 $ 41.4
========= ========== ========
Working capital, excluding assets and liabilities held
for sale, as of December 31 $ 82.4 $ 67.5 $ 102.1
========= ========== ========

2003

OPERATING ACTIVITIES

The decrease in cash flows from operating activities in 2003 compared to
2002 primarily reflects:

- Higher tax payments of approximately $20.4 million in 2003,
primarily as a result of the tax benefit associated with our
debt retirement costs during 2002, which reduced income tax
payments in 2002, and approximately $6.6 million of prepaid
tax payments related to our pending IRS examination
settlement;

- Higher revenues in December 2003 compared to December 2002 as
a result of higher admissions in December 2003. In addition,
some of our Medicare intermediaries experienced some technical
difficulties complying with HIPAA as we electronically
submitted our bills, thereby slowing our collections. These
factors led to a $16.4 million increase in our consolidated
accounts receivable balance as of December 31, 2003 compared
to December 31, 2002; and

- An increase in our working capital, excluding assets and
liabilities held for sale, by $34.6 million from December 31,
2002 to December 31, 2003. This increase was primarily the
result of the increases in accounts receivable and income
taxes receivable, as discussed above. The increase in accounts
receivable increased our net revenue days in accounts
receivable at December 31, 2003, exclusive of our 2002 and
2003 acquisitions, to 37.5 days compared to 35.4 days at
December 31, 2002.

INVESTING ACTIVITIES

Cash used in investing activities primarily consisted of capital
improvement costs of $68.3 million and the purchase of Spring View Hospital for
$15.8 million, including direct transaction costs and working capital. We used
our available cash to finance the cost of this acquisition. Our routine capital
expenditures increased from $18.7 million in 2002 to $22.7 million in 2003 as a
result of an increased base of fixed assets.

FINANCING ACTIVITIES

Cash used in financing activities consisted primarily of $45.7 million in
repurchases of common stock, partially offset by $20.0 million borrowed under
our revolving credit facility.

2002

OPERATING ACTIVITIES

There was a slight increase in cash flows from operating activities in
2002 compared to 2001. The primary factors that led to this slight increase in
spite of our improved results of operations are as follows:

- Our consolidated accounts receivable increased $28.3 million
during 2002. Our net revenue days in accounts receivable at
December 31, 2002, exclusive of the recent acquisitions, were
35.4 days compared to 31.7 days at December 31, 2001. The
difference in days is primarily due to the filing of our cost
reports during 2002.

- There was $8.0 million in non-cash net adjustments to
estimated third-party settlements during 2002 that were
classified as credit balances in accounts receivable at
December 31, 2001. This equates to 4.5 revenue days. The
estimated third-party payor settlements account balance of
$8.2 million includes $7.9 million payable to Kentucky
Medicaid. We paid a total of $6.7 million in cash in the
fourth quarter of 2002 on all settlements, $5.8 million of
which was paid to Kentucky Medicaid.

INVESTING ACTIVITIES

Cash used in investing activities consisted of capital improvement costs
of $57.5 million, the purchase of five facilities for approximately $137.1
million, including direct acquisition costs and working capital, and the
purchase of the outstanding 30% limited partnership interest in Dodge City
Healthcare Group, L.P., the entity that owns and operates 110-bed Western Plains
Regional Hospital and affiliated surgery center in Dodge City, Kansas, for $25.0
million. We used our available cash to finance the cost of these transactions.

FINANCING ACTIVITIES

Cash provided by financing activities primarily consisted of the $242.5
million net proceeds from our offering of 4-1/2% Convertible Subordinated Notes
due 2009. This was partially offset by our repurchase of $150.0 million of our
10-3/4% senior subordinated notes and related debt retirement costs of $26.5
million in premiums, commissions and fees.

CAPITAL RESOURCES

Our revolving credit facility provides for borrowings up to $200.0
million, expires in June 2006, 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 DECEMBER 31, 2003
----------- --------------------------

Maximum permitted consolidated leverage ratio < 3.50 to 1.00 1.57 to 1.00
Maximum permitted consolidated senior leverage ratio < 2.50 to 1.00 0.19 to 1.00
Minimum permitted consolidated interest coverage ratio > 3.50 to 1.00 12.62 to 1.00
Minimum permitted consolidated net worth > $269.9 million $394.3 million
Maximum capital expenditures - last twelve months < $136.1 million $ 70.2 million

The revolving credit facility also requires that we comply with 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, with which we were in compliance as of
December 31, 2003. As of December 31, 2003, we had outstanding indebtedness of
$20.0 million under our revolving credit facility and letters of credit in the
aggregate amount of $13.6 million outstanding, leaving $166.4 million available
under our revolving credit facility.

We repaid the $20.0 million of indebtedness outstanding 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. In 2003, Standard & Poor's upgraded its
credit rating on our senior secured debt obligations to BB+. Our Standard &
Poor's corporate rating is a BB as of January 31, 2004. 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 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. 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 December 31, 2003, we had projects under construction with an estimated
additional cost to complete and equip of approximately $88.2 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 Securities in 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

We have various contractual obligations, which are recorded as liabilities
in our consolidated financial statements. Other items, such as certain purchase
commitments and other executory contracts, are not recognized as liabilities in
our consolidated financial statements but are required to be disclosed. For
example, we are required to make certain minimum lease payments for the use of
property under certain of our operating lease agreements.

The following table summarizes our significant contractual obligations as
of December 31, 2003, including discontinued operations, and the future periods
in which such obligations are expected to be settled in cash (in millions):

Payments Due by Period
--------------------------------------------------------
Less than
CONTRACTUAL OBLIGATIONS Total 1 Year 1-3 Years 4-5 Years After 5 Years
- ----------------------- ----- ------ --------- --------- -------------

Long-term debt obligations (a) $331.0 $ 31.3 $ 22.5 $ 22.5 $254.7
Capital lease obligations (b) 0.5 0.3 0.2 - -
Operating lease obligations(c) 21.2 6.0 7.3 3.7 4.2
Purchase obligations (d) 107.0 55.7 31.4 1.5 18.4
Other long-term liabilities (b) - - - - -
------ ------ ------ ------ ------
Total $459.7 $ 93.3 $ 61.4 $ 27.7 $277.3
====== ====== ====== ====== ======

(a) Included in long-term debt obligations are principal and interest
owed on our Convertible Notes and on our revolving credit facility.
In addition, "Less than 1 Year" in the above table includes the
$20.0 million of outstanding indebtedness under our revolving credit
facility during the first quarter of 2004 even though we were not
contractually obligated to make this payment until 2006. These
obligations are explained further in Note 6 of our consolidated
financial statements in this report.

(b) We had a $28.6 million other long-term liability balance on our
consolidated balance sheet as of December 31, 2003. This balance
reflected a $27.5 million reserve for professional and general
liability claims, $0.2 million related to capital leases and $0.9
million related to other liabilities. We excluded the $27.5 million
reserve for professional and general liability claims and $0.9
million of other liabilities from this table due to the uncertainty
of the dollar amounts to be ultimately paid as well as the timing of
such amounts. Please refer to the "Critical Accounting Estimates -
Professional and General Liability Reserves" in the section above
for more information.

(c) We enter into operating leases in the normal course of business.
Substantially all of our lease agreements have fixed payment terms
based on the passage of time. Some lease agreements provide us with
the option to renew the lease. Our future operating lease
obligations would change if we exercised these renewal options and
if we entered into additional operating lease agreements. The above
table reflects our future minimum operating lease payments. Please
refer to Note 8 of our consolidated financial statements in this
report for more information regarding our operating leases.

(d) The following table summarizes our significant purchase obligations
as of December 31, 2003 and the future periods in which such
obligations are expected to be settled in cash (in millions):

Payments Due by Period
Less than
PURCHASE OBLIGATIONS Total 1 Year 1-3 Years 4-5 Years After 5 Years
- -------------------- ----- ------ --------- --------- -------------

HCA-IT services (e) $ 34.6 $ 12.3 $ 22.3 $ - $ -
Capital expenditure obligations (f), (g) 32.6 14.2 - - 18.4
Physician commitments (h) 11.1 9.4 1.7 - -
GEMS obligations (i) 13.8 11.0 2.8 - -
Other purchase obligations (j) 14.9 8.8 4.6 1.5 -
---------- ---------- --------- -------- ------
Total $ 107.0 $ 55.7 $ 31.4 $ 1.5 $ 18.4
========== ========== ========= ======== ======

(e) HCA-IT provides various information systems services, including, but
not limited to, financial, clinical, patient accounting and network
information services to us under a seven-year contract that expires
in May 2006. An amendment dated April 28, 2004 extended this
contract through December 31, 2009. This amendment was filed as an
exhibit to our Quarterly Report on Form 10-Q for the three months
ended March 31, 2004. The amounts in the above table are based on
estimated fees that will be charged to our 29 hospitals as of
December 31, 2003. These fees will increase if we acquire a hospital
and use HCA-IT for information system conversion services at the
acquired hospital.

(f) Capital expenditure obligations include $7.5 million in purchase
orders for medical equipment and $25.1 million in committed capital
improvements remaining under two asset purchase agreements. Please
refer to Note 8 of our consolidated financial statements in this
report for more information on our committed capital improvements.

(g) We had projects under construction with an estimated additional cost
to complete and equip of approximately $88.2 million as of December
31, 2003. Since we can terminate substantially all of the related
construction contracts at any time without paying a termination fee,
such cost is excluded from the above table except for the amounts
disclosed in footnote (f) above.

(h) In consideration for a physician relocating to one of our
communities and agreeing to engage in private practice for the
benefit of the respective community, we may loan certain amounts to
a physician, normally over a period of one year, to assist in
establishing his or her practice. We have committed to advance a
maximum amount of approximately $27.8 million as of December 31,
2003. The actual amount of such commitments to be advanced often
depends upon the financial results of a physician's private practice
during the loan period. The physician commitment amounts reflected
in the above table were estimated based on our historical amounts
actually paid to physicians.

(i) General Electric Medical Services ("GEMS") provides diagnostic
imaging equipment maintenance and bio-medical services to us
pursuant to a contract that expires in the first quarter of 2005.
The amounts in the above table reflect our obligation based on the
equipment we owned as of December 31, 2003.

(j) Reflects our minimum commitments to purchase goods or services under
non-cancelable contracts as of December 31, 2003.

OFF-BALANCE SHEET ARRANGEMENTS

We had standby letters of credit outstanding of approximately $13.6
million as of December 31, 2003. Of this amount, $13.4 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

We adopted SFAS No. 145 effective January 1, 2003, which required a
reclassification of debt retirement costs from an extraordinary loss to a
component of income before income taxes. The Financial Accounting Standards

Board ("FASB") issued SFAS No. 145 "Rescission of FASB Statements Nos. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS No. 145") in
April 2002. Under certain provisions of SFAS No. 145, gains and losses related
to the extinguishment of debt are no longer segregated on the income statement
as extraordinary items net of the effect of income taxes. Instead, these gains
and losses are included as a component of income before income taxes. The
provisions of SFAS No. 145 were effective for fiscal years beginning after May
15, 2002. Any gain or loss on early extinguishment of debt that was classified
as an extraordinary item in prior periods presented that did not meet the
criteria in APB Opinion No. 30 for classification as an extraordinary item was
reclassified upon adoption.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46") which requires the consolidation of
variable interest entities. FIN 46, as revised, is applicable to financial
statements of companies that have interests in "special purpose entities,"
during 2003. Effective as of the first quarter of 2004, FIN 46 is applicable to
financial statements of companies that have interests in all other types of
entities. However, disclosures are required currently if we expect to
consolidate any variable interest entities. We do not currently believe that any
material entities will be consolidated with us as a result of FIN 46.

In May 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments and hedging activities. SFAS No. 149 was effective for contracts
entered into or modified after June 30, 2003. We do not expect SFAS No. 149 to
have a material impact on our future results of operations or financial
position.

We adopted SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS No. 150") on July 1,
2003. SFAS No. 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity, such as redeemable
preferred stock and certain equity derivatives that frequently are used in
connection with share repurchase programs. On October 29, 2003, the FASB voted
to defer for an indefinite period the application of SFAS No. 150 to
classification of noncontrolling interests of limited-life subsidiaries. Neither
the adoption of SFAS No. 150 nor the deferral had a material impact on our
results of operations or financial position.

SEASONALITY

We typically experience higher patient volumes and revenues in the first
and fourth quarters of each year. We typically experience such seasonal volume
and revenue peaks because more people generally become ill during the winter
months, which in turn results in significant increases in the number of patients
we treat during those months.

INFLATION

The healthcare industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers and insurers pass along rising costs to us in the form of
higher prices. Our ability to pass on these increased costs is limited because
of increasing regulatory and competitive pressures. Accordingly, inflationary
pressures could have a material adverse effect on our results of operations.

INDEX TO FINANCIAL STATEMENTS

PAGE
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Report of Ernst & Young LLP, Independent Registered Public Accounting Firm......................... F-2
Consolidated Statements of Operations -- for the years ended December 31, 2001, 2002 and 2003...... F-3
Consolidated Balance Sheets -- December 31, 2002 and 2003.......................................... F-4
Consolidated Statements of Cash Flows -- for the years ended December 31, 2001, 2002 and 2003...... F-5
Consolidated Statements of Stockholders' Equity -- for the years ended December 31, 2001, 2002
and 2003...................................................................................... F-6
Notes to Consolidated Financial Statements......................................................... F-7

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
LifePoint Hospitals, Inc.

We have audited the accompanying consolidated balance sheets of LifePoint
Hospitals, Inc. (the "Company") as of December 31, 2002 and 2003, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the management of the Company.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LifePoint
Hospitals, Inc. at December 31, 2002 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 1 to the consolidated financial statements, in 2002, the
Company changed its method of accounting for certain intangible assets.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB No. 13, and Technical
Corrections," effective January 1, 2003 resulting in a reclassification of debt
retirement costs from an extraordinary loss to a component of income before
income taxes.

/s/ Ernst & Young LLP

Nashville, Tennessee
February 13, 2004, except for Notes 1, 3 and 12, as to which the date is October
26, 2004

F-2

LIFEPOINT HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

2001 2002 2003
-------- -------- --------

Revenues .................................................. $ 591.3 $ 714.9 $ 875.6

Salaries and benefits ..................................... 232.5 280.0 352.3
Supplies .................................................. 74.9 88.7 114.2
Other operating expenses .................................. 115.0 129.6 155.4
Provision for doubtful accounts ........................... 39.7 49.8 74.1
Depreciation and amortization ............................. 32.0 35.0 43.1
Interest expense, net ..................................... 18.1 13.3 12.8
Debt retirement costs ..................................... 2.6 31.0 --
ESOP expense .............................................. 10.4 9.7 6.9
Gain on previously impaired assets ........................ (0.5) -- --
-------- -------- --------
524.7 637.1 758.8
-------- -------- --------
Income from continuing operations before minority interests
and income taxes ........................................ 66.6 77.8 116.8
Minority interests in earnings of consolidated entities ... 2.7 2.2 0.7
-------- -------- --------
Income from continuing operations before income taxes ..... 63.9 75.6 116.1
Provision for income taxes ................................ 30.3 32.7 45.9
-------- -------- --------
Income from continuing operations ..................... 33.6 42.9 70.2
Loss from discontinued operations, net of income taxes (0.3) (1.4) (1.7)
-------- -------- --------
Net income ................................................ $ 33.3 $ 41.5 $ 68.5
======== ======== ========

Basic earnings (loss) per share:
Continuing operations ................................. $ 0.94 $ 1.14 $ 1.89
Discontinued operations ............................... (0.01) (0.03) (0.05)
-------- -------- --------
Net income ....................................... $ 0.93 $ 1.11 $ 1.84
======== ======== ========

Diluted earnings (loss) per share:
Continuing operations ................................. $ 0.91 $ 1.10 $ 1.80
Discontinued operations ............................... (0.01) (0.03) (0.04)
-------- -------- --------
Net income ....................................... $ 0.90 $ 1.07 $ 1.76
======== ======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-3

LIFEPOINT HOSPITALS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2003
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

2002 2003
-------- --------

ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 23.0 $ 20.6
Accounts receivable, less allowances for doubtful accounts of $109.1 and $111.7
at December 31, 2002 and 2003, respectively ................................... 85.0 101.4
Inventories ..................................................................... 19.8 21.7
Assets held for sale ............................................................ 35.5 34.7
Income taxes receivable ......................................................... -- 7.4
Deferred income taxes and other current assets .................................. 14.8 19.5
-------- --------
178.1 205.3
Property and equipment:
Land ............................................................................ 17.4 18.5
Buildings and improvements ...................................................... 319.7 347.2
Equipment ....................................................................... 285.8 315.7
Construction in progress (estimated cost to complete and equip after
December 31, 2003 -- $88.2) ................................................... 15.7 28.2
-------- --------
638.6 709.6
Accumulated depreciation ........................................................ (229.0) (265.7)
-------- --------
409.6 443.9

Deferred loan costs, net .......................................................... 8.6 7.0
Intangible assets, net ............................................................ 4.3 4.2
Other ............................................................................. 0.3 --
Goodwill .......................................................................... 132.6 138.6
-------- --------
$ 733.5 $ 799.0
======== ========
LIABILITIES AND EQUITY

Current liabilities:
Accounts payable ................................................................ $ 28.5 $ 30.9
Accrued salaries ................................................................ 24.1 25.4
Liabilities held for sale ....................................................... 0.3 0.3
Other current liabilities ....................................................... 14.3 9.7
Estimated third-party payor settlements ......................................... 8.2 2.5
-------- --------
75.4 68.8

Long-term debt .................................................................... 250.0 270.0
Deferred income taxes ............................................................. 24.9 35.9
Professional and general liability claims and other liabilities ................... 25.6 28.6

Minority interest in equity of consolidated entity ................................ -- 1.4
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares
issued ....................................................................... -- --
Common stock, $.01 par value; 90,000,000 shares authorized; 39,550,540
shares and 39,084,396 shares issued at December 31, 2002 and 2003,
respectively .................................................................. 0.4 0.4
Capital in excess of par value .................................................. 297.2 301.7
Unearned ESOP compensation ...................................................... (19.3) (16.1)
Retained earnings ............................................................... 79.3 137.2
Less common stock in treasury, at cost, 1,198,800 shares at December 31, 2003 ... -- (28.9)
-------- --------
357.6 394.3
-------- --------
$ 733.5 $ 799.0
======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-4

LIFEPOINT HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(DOLLARS IN MILLIONS)

2001 2002 2003
------- ------- -------

Cash flows from continuing operating activities:
Net income ............................................................. $ 33.3 $ 41.5 $ 68.5
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Loss from discontinued operations, net of income taxes ............ 0.3 1.4 1.7
Depreciation and amortization ..................................... 32.0 35.0 43.1
Debt retirement costs ............................................. 2.6 31.0 --
ESOP expense ...................................................... 10.4 9.7 6.9
Minority interests in earnings of consolidated entities ........... 2.7 2.2 0.7
Deferred income taxes ............................................. 6.9 3.0 8.9
Reserve for professional and general liability claims, net ........ 7.0 9.2 2.4
Tax benefit from employee stock plans ............................. 8.1 1.7 2.3
Increase (decrease) in cash from operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable ........................................... (0.7) (15.4) (15.5)
Inventories and other current assets .......................... (0.4) (3.1) (4.8)
Accounts payable and accrued expenses ......................... 2.6 1.1 2.2
Income taxes payable .......................................... (3.5) 6.9 (7.5)
Estimated third-party payor settlements ....................... 10.0 (10.2) (5.7)
Other ................................................................ 1.2 0.3 1.8
------- ------- -------
Net cash provided by continuing operating activities ............ 112.5 114.3 105.0
------- ------- -------

Cash flows from continuing investing activities:
Purchase of property and equipment ..................................... (35.0) (57.5) (68.3)
Acquisitions, net of cash acquired ..................................... (36.5) (137.1) (16.5)
Purchase of minority interest in joint venture ......................... -- (25.0) --
Other .................................................................. 4.0 (1.9) 0.6
------- ------- -------
Net cash used in continuing investing activities ................ (67.5) (221.5) (84.2)
------- ------- -------

Cash flows from continuing financing activities:
Repurchase of common stock ............................................. -- -- (45.7)
Proceeds from issuance of convertible notes, net ....................... -- 242.5 --
Repurchase of senior subordinated notes ................................ -- (176.5) --
Proceeds from stock offering, net ...................................... 100.4 -- --
Repayment under revolving credit facility .............................. (139.3) -- --
Borrowing under revolving credit facility .............................. -- -- 20.0
Proceeds from exercise of stock options ................................ 12.2 3.0 3.7
Proceeds from employee loan repayments ................................. 1.5 5.7 --
Other .................................................................. (3.1) 1.0 1.0
------- ------- -------
Net cash (used in) provided by continuing financing activities .. (28.3) 75.7 (21.0)
------- ------- -------

Net cash provided by (used in) continuing operations ..................... 16.7 (31.5) (0.2)
Net cash provided by (used in) discontinued operations ................... 0.8 (2.7) (2.2)
------- ------- -------
Change in cash and cash equivalents ...................................... 17.5 (34.2) (2.4)
Cash and cash equivalents at beginning of year ........................... 39.7 57.2 23.0
------- ------- -------
Cash and cash equivalents at end of year ................................. $ 57.2 $ 23.0 $ 20.6
======= ======= =======

Supplemental disclosure of cash flow information:
Interest payments ...................................................... $ 20.8 $ 16.3 $ 12.4
------- ------- -------
Capitalized interest ................................................... $ 0.7 $ 0.8 $ 0.8
======= ======= =======
Income taxes paid, net ................................................. $ 18.4 $ 21.0 $ 41.4
------- ------- -------

The accompanying notes are an integral part of the consolidated financial
statements.

F-5

LIFEPOINT HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(AMOUNTS IN MILLIONS)

NOTES
CAPITAL RECEIVABLE
COMMON STOCK IN EXCESS UNEARNED FOR SHARES
------------------ OF ESOP SOLD TO RETAINED TREASURY
SHARES AMOUNT PAR VALUE COMPENSATION EMPLOYEES EARNINGS STOCK TOTAL
------ ------ --------- ------------ ---------- -------- -------- ------

Balance at December 31, 2000 ....... 34.7 $ 0.3 $156.5 $(25.7) $ (7.2) $ 4.5 $ -- $128.4
Net income ........................ -- -- -- -- -- 33.3 -- 33.3
ESOP compensation earned .......... -- -- 7.2 3.2 -- -- -- 10.4
Exercise of stock options,
including tax benefits and
other ........................... 0.9 -- 20.5 -- -- -- -- 20.5
Stock issued in connection with
employee stock purchase
plans ........................... -- -- 0.5 -- -- -- -- 0.5
Proceeds from employee loan
repayments ...................... -- -- -- -- 1.5 -- -- 1.5
Issuance of common stock from
Offering ........................ 3.7 0.1 100.3 -- -- -- -- 100.4
------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 2001 ....... 39.3 0.4 285.0 (22.5) (5.7) 37.8 -- 295.0
Net income ........................ -- -- -- -- -- 41.5 -- 41.5
ESOP compensation earned .......... -- -- 6.5 3.2 -- -- -- 9.7
Exercise of stock options,
including tax benefits and
other ........................... 0.3 -- 4.7 -- -- -- -- 4.7
Stock issued in connection with
employee stock purchase plans ... -- -- 1.0 -- -- -- -- 1.0
Proceeds from employee loan
repayments ...................... -- -- -- -- 5.7 -- -- 5.7
------ ------ ------ ------ ------ ------ ------ ------

Balance at December 31, 2002 ....... 39.6 0.4 297.2 (19.3) -- 79.3 -- 357.6
Net income ........................ -- -- -- -- -- 68.5 -- 68.5
ESOP compensation earned .......... -- -- 3.7 3.2 -- -- -- 6.9
Exercise of stock options,
including tax benefits and
other ........................... 0.3 -- 6.0 -- -- -- -- 6.0
Stock activity in connection with
employee stock purchase plans ... 0.1 -- 1.3 -- -- (0.3) -- 1.0
Repurchases and retirement
of common stock ................ (0.9) -- (6.5) -- -- (10.3) -- (16.8)
Purchases of treasury stock
at cost ........................ (1.2) -- -- -- -- -- (28.9) (28.9)
------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31, 2003 ....... 37.9 $ 0.4 $301.7 $(16.1) $ -- $137.2 $(28.9) $394.3
====== ====== ====== ====== ====== ====== ====== ======

The accompanying notes are an integral part of the consolidated financial
statements.

F-6

LIFEPOINT HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

LifePoint Hospitals, Inc. is a holding company. Its subsidiaries own,
lease and operate their respective facilities and other assets. The term
"LifePoint" or the "Company" as used herein refers to LifePoint Hospitals, Inc.
and its subsidiaries, unless otherwise stated or indicated by context. As of
December 31, 2003, the Company operated 29 general, acute care hospitals with an
aggregate of 2,737 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. During the third quarter
of 2004, the Company committed to divest its 56-bed Bartow Memorial Hospital
("Bartow") located in Bartow, Florida. The operations of Bartow have been
reflected as discontinued operations, as further discussed in Note 3. The
Company's remaining 28 hospitals are reported as continuing operations.

The majority of the Company's expenses are "cost of revenue" items. Costs
that could be classified as "general and administrative" by the Company would
include the LifePoint corporate office costs, which were $19.0 million, $20.8
million and $23.6 million for the years ended December 31, 2001, 2002, and 2003,
respectively.

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 its stockholders in a spin-off transaction.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries and entities controlled by the Company through
the Company's direct or indirect ownership of a majority interest and exclusive
rights granted to the Company as the sole general partner of such entities. All
significant intercompany accounts and transactions within the Company have been
eliminated in consolidation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the 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.

As of December 31, 2003, the Company had outstanding debt of $270.0
million, comprised of the $250.0 million of the Company's 4-1/2% Convertible
Subordinated Notes due June 1, 2009 (the "Convertible Notes") and $20.0 million
of indebtedness under the Company's revolving credit facility. As of December
31, 2003, the fair value of the Company's Convertible Notes was $251.9 million,
based on the quoted market price at December 31, 2003. At December 31, 2003, the
fair value of the indebtedness under the Company's revolving credit facility
approximated the carrying value.

REVENUE RECOGNITION AND ALLOWANCE FOR CONTRACTUAL DISCOUNTS

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. 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, preferred provider
organizations and other private insurers are generally less than the Company's
established billing rates. Accordingly, the revenues and accounts receivable
reported in the Company's consolidated financial statements are recorded at the
amount expected to be received.

F-7

The Company derives a significant portion of its revenues from Medicare,
Medicaid and other payors that receive discounts from our standard charges. The
Company must estimate the total amount of these discounts to prepare its
consolidated financial statements. The Medicare and Medicaid regulations and
various managed care contracts under which these discounts must be calculated
are complex and are subject to interpretation and adjustment. The Company
estimates the allowance for contractual discounts on a payor-specific basis
given its interpretation of the applicable regulations or contract terms. These
interpretations sometimes result in payments that differ from the Company's
estimates. Additionally, updated regulations and contract renegotiations occur
frequently necessitating regular review and assessment of the estimation process
by management. Changes in estimates related to the allowance for contractual
discounts affect revenues reported in the Company's consolidated statements of
operations.

Settlements under reimbursement agreements with third-party payors are
estimated and recorded in the period the related services are rendered and are
adjusted in future periods as final settlements are determined. There is at
least a reasonable possibility that recorded estimates will change by a material
amount in the near term. The net adjustments to estimated third-party payor
settlements resulted in increases to revenues from continuing operations of $1.8
million, $13.0 million and $6.0 million for the years ended December 31, 2001,
2002 and 2003, respectively. Management believes that adequate provisions have
been made for adjustments that may result from final determination of amounts
earned under these programs.

During the years ended December 31, 2001, 2002 and 2003, approximately
46.6%, 47.0% and 46.8%, respectively, of the Company's revenues from continuing
operations related to patients participating in the Medicare and Medicaid
programs. Management recognizes that revenues and receivables from government
agencies are significant to the Company's operations, but it does not believe
that there are significant credit risks associated with these government
agencies. Management does not believe that there are any other significant
concentrations of revenues from any particular payor that would subject the
Company to any significant credit risks in the collection of its accounts
receivable.

Laws and regulations governing Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing that
would have a material effect on the Company's financial statements. Compliance
with such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.

The Company's revenue is particularly sensitive to regulatory and economic
changes in Kentucky and Tennessee. As of December 31, 2003, the Company operated
29 hospitals with eight located in the commonwealth of Kentucky and seven
located in the state of Tennessee. The Company generated 41.1%, 39.5% and 34.5%
of its revenues from continuing operations from its Kentucky hospitals
(including 4.5%, 4.1% and 3.7% from state-sponsored Medicaid programs) and
23.4%, 24.6% and 20.5% from its Tennessee hospitals (including 3.4%, 3.2% and
2.8% from the state-sponsored TennCare program) for the years ended December 31,
2001, 2002 and 2003, respectively.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and marketable
securities with original maturities of three months or less. The Company places
its cash in financial institutions that are federally insured.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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. 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. The primary
uncertainty of such allowances lies with uninsured patient receivables and
deductibles, co-payments or other amounts due from individual patients.

F-8

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.

A summary of activity in the Company's allowance for doubtful accounts is
as follows (in millions):

BALANCES ADDITIONS ACCOUNTS
AT CHARGED TO WRITTEN OFF, BALANCES
BEGINNING COSTS AND NET OF AT END
OF YEAR EXPENSES (a) RECOVERIES ACQUISITIONS OF YEAR
--------- ------------ ------------ ------------ --------

Allowance for doubtful accounts:
Year ended December 31, 2001................ $ 52.3 $ 45.8 $ (43.7) $ 4.6 $ 59.0
Year ended December 31, 2002................ 59.0 55.2 (48.6) 43.5 109.1
Year ended December 31, 2003................ 109.1 81.5 (78.9) -- 111.7

- ----------

(a) Additions charged to costs and expenses include amounts related to the
Company's continuing operations and the operations of Bartow, which is
reflected as discontinued operations in the Company's accompanying
consolidated financial statements.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or
market.

LONG-LIVED ASSETS

(a) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Routine maintenance and repairs are charged to expense as incurred. Expenditures
that increase capacities or extend useful lives are capitalized. Depreciation is
computed by applying the straight-line method over the estimated useful lives of
buildings and improvements (10 to 40 years) and equipment (3 to 10 years).
Interest on funds used to pay for the construction of major capital additions is
included in the cost of each capital addition. Depreciation expense from
continuing operations was $31.9 million, $34.7 million and $42.4 million for the
years ended December 31, 2001, 2002 and 2003, respectively.

The Company evaluates its long-lived assets for possible impairment
whenever circumstances indicate that the carrying amount of the asset, or
related group of assets, may not be recoverable from estimated future cash
flows, in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). Fair value estimates are derived from independent appraisals,
established market values of comparable assets, or internal calculations of
estimated future net cash flows. The Company's estimates of future cash flows
are based on assumptions and projections it believes to be reasonable and
supportable. The Company's assumptions take into account revenue and expense
growth rates, patient volumes, changes in payor mix, and changes in legislation
and other payor payment patterns. These assumptions vary by type of facility.

(b) GOODWILL AND INTANGIBLE ASSETS

Under SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), goodwill and intangible assets with indefinite lives are no longer
amortized but are reviewed at least annually for impairment. The amortization
provisions of SFAS No. 142 applied to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company adopted SFAS No. 142, effective January 1,
2002. Pursuant to SFAS No. 142, the Company completed its transition impairment
tests of

F-9

goodwill during the second quarter of 2002 and did not incur an impairment
charge. The Company also performed its annual impairment tests as of October 1,
2002 and 2003 and did not incur an impairment charge.

The Company's intangible assets relate to non-competition agreements and
certificates of need. Non-competition agreements are amortized over the terms of
the agreements. The certificates of need were determined to have indefinite
lives by an independent appraiser and, accordingly, are not amortized. See Note
4 for a summary of goodwill and intangible assets and the effects of adopting
SFAS No. 142.

DISCONTINUED OPERATIONS

In accordance with the provisions of SFAS No. 144, the Company has
presented the operating results, financial position and cash flows of Bartow as
discontinued operations in the accompanying consolidated financial statements as
of December 31, 2002 and 2003 and for each of the three years in the period
ended December 31, 2003. The results of operations of Bartow have been reflected
as discontinued operations, net of taxes, in the accompanying consolidated
statements of operations and certain assets and liabilities of Bartow that are
anticipated to be sold are reflected as assets held for sale and liabilities
held for sale in the accompanying consolidated balance sheets, as further
described in Note 3.

INCOME TAXES

The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Company
assesses the likelihood that deferred tax assets will be recovered from future
taxable income. To the extent the Company believes that recovery is not likely,
a valuation allowance is established. To the extent the Company establishes a
valuation allowance or increases this allowance, the Company must include an
expense within the provision for income taxes in the consolidated statements of
income.

PROFESSIONAL AND GENERAL LIABILITY CLAIMS

Given the nature of the Company's operating environment, the Company is
subject to potential medical malpractice lawsuits and other claims. To mitigate
a portion of this risk, the Company maintained insurance for individual
malpractice claims exceeding $1.0 million for 2001. For 2002, the Company
increased its self-insured retention level to $10.0 million on individual
malpractice claims. For 2003, the Company lowered its self-insured retention
level to $5.0 million on individual malpractice claims and for 2004, the Company
increased its self-insured retention level back up to $10.0 million. The
Company's reserves for professional and general liability claims are based upon
independent actuarial calculations, which consider historical claims data,
demographic considerations, severity factors, industry trends and other
actuarial assumptions in the determination of reserve estimates. This estimate
is discounted to its present value using a 5.0% rate.

The Company implemented enhanced risk management processes in monitoring
claims and managing losses in high-risk areas during 2002 and 2003 to attempt to
reduce loss levels and appropriately manage risk. During 2003, the Company
improved its estimation process for determining its reserves for professional
and general liability claims by expanding from using one actuary to using
multiple actuaries. The Company uses the calculations of each actuary by
averaging each actuary's results into the determination of its recorded reserve
levels. This averaging process results in a refined estimation approach that the
Company believes produces a more reliable estimate of ultimate losses. Based
upon using multiple actuarial valuations performed using recent loss
information, the change in the estimation process during 2003 decreased the
Company's reserves for professional and general liability claims and the
Company's cost for professional and general liability claims by approximately
$7.4 million on a pre-tax basis, or $0.10 per diluted share. Of the $7.4 million
reduction, $4.8 million relates to estimates for losses prior to 2003 and $2.6
million relates to losses for 2003.

F-10

Actuarial calculations include a large number of variables that may
significantly impact the estimate of ultimate losses that are recorded during a
reporting period. Professional judgment is used by each actuary in determining
the loss estimates by selecting factors that are considered appropriate by the
actuary for the Company's specific circumstances. Changes in assumptions used by
the Company's actuaries with respect to demographics, industry trends and
judgmental selection of factors may impact the Company's recorded reserve
levels.

The reserve for professional and general liability claims as of the
balance sheet date reflects the current estimate of all outstanding losses,
including incurred but not reported losses, based upon actuarial calculations.
The loss estimates included in the actuarial calculations may change in the
future based upon updated facts and circumstances. The reserve for professional
and general liability claims was $25.1 million and $27.5 million at December 31,
2002 and 2003, respectively.

The Company's cost for professional and general liability claims each year
includes: the actuarially determined estimate of losses for the current year,
including claims incurred but not reported; the change in the estimate of losses
for prior years based upon actual claims development experience as compared to
prior actuarial projections; the insurance premiums for losses in excess of our
self-insured retention level; the administrative costs of the insurance program;
and interest expense related to the discounted portion of the liability. The
total cost of professional and general liability claims of continuing operations
for the years ended December 31, 2001, 2002 and 2003 was approximately $10.8
million, $10.8 million and $8.3 million, respectively.

PHYSICIAN RECRUITING COSTS

Physician recruiting costs are expensed when incurred and are included in
other operating expenses in the accompanying consolidated statements of income.
Physician recruiting expenses of continuing operations were $5.7 million, $5.8
million and $12.0 million for the years ended December 31, 2001, 2002 and 2003,
respectively. See Note 8 for a discussion on the Company's commitments to
advance amounts to recruited physicians.

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income", requires that changes in
certain amounts that are recorded directly to stockholders' equity be shown in
the financial statements as a component of comprehensive income. For the years
ended December 31, 2001, 2002 and 2003, the Company had no items of
comprehensive income recorded directly to stockholders' equity. Therefore,
comprehensive income is equivalent to net income.

SEGMENT REPORTING

The Company's business of providing healthcare services to patients
comprises a single reportable operating segment under SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information".

STOCK BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an Amendment of FASB Statement No. 123" ("SFAS No. 148"). SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair-value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 has no material impact on the Company.
The Company has included the required disclosures below and in Note 7.

The Company issues stock options and other stock-based awards to key
employees and directors as more fully described in Note 7. SFAS No. 123,
Accounting for Stock-Based Compensation, encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for employee
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees",

F-11

and related FASB Interpretations, under which no compensation cost related to
stock plans has been recognized in net income for the years ended December 31,
2001, 2002 and 2003.

The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based compensation for the years ended December 31, 2001, 2002
and 2003 (dollars in millions, except per share amounts):

2001 2002(a) 2003
------ ------ ------

Net income, as reported ........................... $ 33.3 $ 41.5 $ 68.5
Less stock-based compensation expense
determined under fair value based
method for all awards, net of
related tax effects ............................ (4.5) (8.2) (9.0)
------ ------ ------
Pro forma net income ........................... 28.8 33.3 59.5
Interest on Convertible Notes, net of taxes .... -- -- 7.8
------ ------ ------
Diluted pro forma net income ................... $ 28.8 $ 33.3 $ 67.3
------ ------ ------

Denominator for basic earnings per share - weighted
average shares ................................. 35.7 37.5 37.2
Effect of dilutive securities:
Employee stock options .................... 1.3 1.0 0.7
Convertible Notes ......................... -- -- 5.3
Other ..................................... 0.1 0.1 0.1
------ ------ ------
Denominator for diluted earnings per share -
adjusted weighted average shares .................. 37.1 38.6 43.3
====== ====== ======
Earnings per share:
Basic - as reported ............................ $ 0.93 $ 1.11 $ 1.84
====== ====== ======
Basic - pro forma .............................. $ 0.81 $ 0.89 $ 1.60
====== ====== ======

Diluted - as reported .......................... $ 0.90 $ 1.07 $ 1.76
====== ====== ======
Diluted - pro forma ............................ $ 0.78 $ 0.86 $ 1.56
====== ====== ======

- ----------
(a) The impact of 3.3 million potential weighted average shares of common
stock, if converted, and interest expense related to the Convertible Notes
was not included in the computation of diluted earnings per share and pro
forma diluted earnings per share because the effect would have been
anti-dilutive.

The per share weighted-average fair value of stock options granted during
2001, 2002 and 2003 was $15.25, $13.99 and $8.02, respectively, on the date of
grant using a Black-Scholes option pricing model, assuming no expected dividends
and the following weighted average assumptions:

2001 2002 2003
------ ------ ------

Risk free interest rate............................. 4.51% 3.51% 1.90%
Expected life, in years............................. 4.0 3.0 3.0
Expected volatility................................. 45.0% 53.0% 53.0%

EARNINGS PER SHARE

Earnings per share ("EPS") is based on the weighted average number of
common shares outstanding and dilutive stock options, convertible notes and
restricted shares, adjusted for the shares issued to the LifePoint Employee
Stock Ownership Plan (the "ESOP"). As the ESOP shares are committed to be
released, the shares become outstanding for EPS calculations. In addition, the
numerator, net income, is adjusted for interest expense related to the
Convertible Notes.

F-12

USE OF ESTIMATES

The preparation of the accompanying consolidated financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications, primarily for the Company's
discontinued operations as described in Note 3, have no impact on total assets,
liabilities, stockholders' equity, net income or cash flows.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement
Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). The Company adopted SFAS No. 145 effective
January 1, 2003, which required a reclassification of debt retirement costs from
an extraordinary loss to a component of income before income taxes. Under
certain provisions of SFAS No. 145, gains and losses related to the early
extinguishment of debt are no longer segregated on the income statement as
extraordinary items net of the effect of income taxes. Instead, these gains and
losses are included as a component of income before income taxes. The provisions
of SFAS No. 145 were effective for fiscal years beginning after May 15, 2002.
Any gain or loss on early extinguishment of debt that was classified as an
extraordinary item in prior periods presented that did not meet the criteria in
APB Opinion No. 30 for classification as an extraordinary item was reclassified
upon adoption.

In December 2003, the 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.

In May 2003, the FASB issued SFAS No 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments and hedging activities. SFAS No. 149 was effective for contracts
entered into or modified after June 30, 2003. SFAS No. 149 did not have a
material impact on the Company's results of operations or financial position.

The Company adopted SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"), on July 1, 2003. SFAS No. 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody obligations
of the issuer and have characteristics of both liabilities and equity, such as
redeemable preferred stock and certain equity derivatives that frequently are
used in connection with share repurchase programs. The Company's adoption of
SFAS No. 150 did not have a material impact on its results of operation or
financial position. 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 2. ACQUISITIONS

ACQUISITION - 2003

Effective October 1, 2003, the Company acquired Spring View Hospital, a 75-bed
acute care hospital located in Lebanon, Kentucky. The acquisition also included
38-bed Spring View Nursing Home and Spring View Pediatrics. The consideration
for this acquisition was $15.8 million, which consisted of $15.5 million in cash
paid at the closing and a $0.3 million net working capital payable. The net
working capital payable was accrued as of December 31, 2003 on the accompanying
consolidated balance sheet in other current liabilities. The Company used its
available

F-13

cash to pay for this acquisition. Goodwill totaled $5.8 million as of December
31, 2003, all of which is expected to be deductible for tax purposes. In
addition, intangible assets of $0.6 million relate to a certificate of need
issued by the Commonwealth of Kentucky. See Note 4 for a discussion of this
intangible asset. The allocation of the purchase price is subject to settling
amounts related to purchased working capital.

ACQUISITIONS - 2002

Effective December 1, 2002, the Company acquired Northwest Medical Center,
a 71-bed acute care hospital located in Winfield, Alabama, and Burdick-West
Medical Center (now known as Lakeland Community Hospital), a 99-bed acute care
hospital located in Haleyville, Alabama. The consideration for both hospitals
totaled $29.5 million, including $6.5 million for net working capital. The
consideration consisted of $28.7 million in cash and $0.8 million in assumed
liabilities. The Company used its available cash to fund this acquisition.
Goodwill totaled approximately $4.2 million, all of which is expected to be
deductible for tax purposes.

Effective December 1, 2002, the Company acquired Logan General Hospital
(now known as Logan Regional Medical Center), a 132-bed acute care hospital and
Guyan Valley Hospital, a 19-bed critical access hospital, both located in Logan,
West Virginia. The consideration for both hospitals totaled $89.4 million, which
consisted of $87.5 million in cash and $1.9 million related to the net working
capital payable. The Company accrued $1.9 million as of December 31, 2003 for
the net working capital settlement payable to the seller on the accompanying
consolidated balance sheet in accounts payable. The Company anticipates a final
net working capital settlement during 2004. The Company used its available cash
to fund this acquisition. Goodwill totaled approximately $56.2 million, all of
which is expected to be deductible for tax purposes.

Effective October 3, 2002, the Company acquired Russellville Hospital, a
100-bed acute care hospital located in Russellville, Alabama. The consideration
for this hospital was $19.8 million in cash. The Company used its available cash
to fund this acquisition. Goodwill totaled approximately $7.0 million, all of
which is expected to be deductible for tax purposes.

The Company's motivation to acquire Northwest Medical Center, Lakeland
Community Hospital and Russellville Hospital was to expand the Company's
presence in Alabama. It was also expected that a combined strategy for
recruitment of various physician specialties could be achieved. In addition,
some managerial positions have been combined for purposes of enhanced
operational efficiencies. The Company acquired Logan Regional Medical Center and
Guyan Valley Hospital to enter the West Virginia market. The Company's strategy
is to expand healthcare services in Logan and southern West Virginia.

In October 2002, the Company purchased the outstanding 30% limited partner
interest in Dodge City Healthcare Group, L.P., the entity that owns and operates
110-bed Western Plains Regional Hospital in Dodge City, Kansas, for $25.0
million in cash. The Company used its available cash to fund this acquisition.
Under the terms of the purchase agreement, the Company's former limited partners
have agreed not to compete with the hospital for five years. The non-competition
agreements have been valued by an independent third party at $4.0 million and
are being amortized over the life of the agreements. Goodwill totaled
approximately $16.3 million, all of which is expected to be deductible for tax
purposes.

Intangible assets in the aggregate for acquisitions in 2002 totaled $0.5
million and relate to certificates of need issued by the states where we
acquired hospitals. See Note 4 for a discussion of these intangible assets.

ACQUISITIONS - 2001

Effective December 1, 2001, the Company acquired Ville Platte Medical
Center, a 116-bed acute care hospital located in Ville Platte, Louisiana. The
consideration for this hospital was $15.1 million. The consideration consisted
of $11.1 million in cash and $4.0 million in assumed liabilities. The Company
used its available cash to fund this acquisition. Goodwill totaled approximately
$4.1 million and of that amount, $2.3 million is expected to be deductible for
tax purposes.

Effective October 1, 2001, the Company acquired Athens Regional Medical
Center in Athens, Tennessee. The consideration for this hospital was $19.8
million in cash, including $2.8 million for net working capital. The

F-14

Company used its available cash to fund this acquisition. Goodwill totaled
approximately $0.5 million and $0.2 million is expected to be deductible for tax
purposes.

Effective April 1, 2001, the Company purchased a diagnostic imaging center
in Palatka, Florida. The consideration for this facility was $5.7 million in
cash. The Company used its available cash to fund this acquisition. Goodwill
totaled $1.8 million and of that amount, $1.7 million is expected to be
deductible for tax purposes.

Effective January 2, 2001, the Company entered into a lease to operate
Bluegrass Community Hospital, a 25-bed critical access hospital located in
Versailles, Kentucky, which the parties mutually agreed to extend until December
31, 2004.

ALLOCATIONS OF PURCHASE PRICE

The above acquisitions were accounted for using the purchase method of
accounting. The purchase prices of these transactions were allocated to the
assets acquired and liabilities assumed based upon their respective fair values
and are subject to change during the twelve month period subsequent to the
acquisition date. The operating results of the above facilities have been
included in the accompanying consolidated statements of income from the date of
each respective facility's acquisition. The following table summarizes the
allocations of the aggregate purchase price of the acquisitions, including
assumed liabilities and direct transaction costs, excluding the purchase of the
remaining 30% interest in Dodge City Healthcare Group, L.P., for the years ended
December 31, 2001, 2002 and 2003 (in millions):

2001 2002 2003
------ ------ ------

Fair value of assets acquired, excluding cash:
Accounts receivable, net...................................... $ 5.5 $ 11.9 $ --
Other current assets.......................................... 1.5 2.3 0.5
Property and equipment........................................ 28.4 68.4 10.0
Intangible assets............................................. -- 0.5 0.6
Goodwill...................................................... 6.4 67.4 5.8
------ ------ ------
$ 41.8 $150.5 $ 16.9
====== ====== ======

PRO FORMA RESULTS OF OPERATIONS

The following unaudited pro forma results of operations give effect to the
operations of the hospitals acquired during the years ended December 31, 2001
and 2002 as if the respective transactions had occurred as of the first day of
the year immediately preceding the year of the acquisitions (in millions, except
per share data):

2001 2002
--------- ---------

Revenues................................................... $ 768.6 $ 835.7
========= =========
Net income................................................. $ 33.3 $ 40.9
========= =========

Basic earnings per share................................... $ 0.93 $ 1.09
========= =========
Diluted earnings per share................................. $ 0.90 $ 1.06
========= =========

The pro forma results of operations do not purport to represent what the
Company's results of operations would have been had such transactions occurred
at the beginning of the periods presented or to project the Company's results of
operations in any future period. The pro forma results of operations for the
2003 acquisition of Spring View Hospital was not included in the above table
because it was not material.

NOTE 3. DISCONTINUED OPERATIONS

During the third quarter of 2004, the Company committed to divest its
56-bed Bartow Memorial Hospital located in Bartow, Florida. Subsequently, the
Company announced on October 7, 2004, that it had entered into an asset
exchange agreement with Health Management Associates, Inc. ("HMA") under which
LifePoint agreed to acquire the 76-bed Williamson Memorial Hospital, located in
Williamson, West Virginia, and HMA agreed to acquire Bartow simultaneously. The
transaction is expected to close in the fourth quarter of 2004 or in the first
quarter of 2005. The asset exchange is subject to certain conditions, including
completion of due diligence by both parties. The

F-15

assets, liabilities and operations of Bartow that are subject to the asset
exchange have been reflected as discontinued operations in the Company's
financial statements.

The Company has reflected Bartow as discontinued operations, consistent
with the provisions of SFAS No. 144. The results of operations, net of taxes,
and the carrying value of the assets and liabilities of Bartow that are expected
to be sold have been reflected in the accompanying consolidated financial
statements as discontinued operations/assets held for sale/liabilities held for
sale in accordance with SFAS No. 144. All prior periods have been reclassified
to conform to this presentation for all periods presented. These required
reclassifications to the prior period financial statements did not impact total
assets, liabilities, stockholders' equity, net income or cash flows.

The revenues and loss before income taxes of Bartow reported in
discontinued operations for the years ended December 31, 2001, 2002 and 2003 are
as follows (in millions):

YEARS ENDED DECEMBER 31,
2001 2002 2003
------ ------ ------

Revenues................................. $ 28.1 $ 28.7 $ 31.5
Loss before income taxes................. (0.5) (2.0) (2.5)

The following assets and liabilities of Bartow to be sold are reported as
assets and liabilities held for sale in the accompanying consolidated balance
sheets (in millions):

DECEMBER 31, 2002 DECEMBER 31, 2003
----------------- -----------------

Inventories............................... $ 0.7 $ 0.7
Property and equipment, net............... 31.0 30.2
Goodwill.................................. 3.8 3.8
-------- --------
Assets held for sale...................... $ 35.5 $ 34.7
-------- --------
Accrued salaries.......................... $ 0.3 $ 0.3
-------- --------
Liabilities held for sale................. $ 0.3 $ 0.3
-------- --------

NOTE 4. GOODWILL AND INTANGIBLE ASSETS

As of January 1, 2002, the Company adopted SFAS No. 142. The table below
shows the Company's net income for the year ended December 31, 2001, adjusted
for the cessation of goodwill amortization required by SFAS No. 142 as if it had
occurred as of January 1, 2001 (dollars in millions except per share amounts):

2001
-------

Net income, as reported.................................... $ 33.3
Goodwill amortization, net of applicable income tax benefits 1.3
-------
Adjusted net income........................................ $ 34.6
=======
Basic earnings per share, as reported...................... $ 0.93
Goodwill amortization, net of applicable income tax benefits 0.03
-------
Adjusted basic earnings per share.......................... $ 0.96
=======
Diluted earnings per share, as reported.................... $ 0.90
Goodwill amortization, net of applicable income tax benefits 0.03
-------
Adjusted diluted earnings per share........................ $ 0.93
=======

Amortization expense related to goodwill for the year ended December 31,
2001 was $1.6 million.

Pursuant to SFAS No. 142, the Company completed its transition impairment
tests of goodwill during the second quarter of 2002 and did not incur an
impairment charge. The Company also performed its annual impairment tests as of
October 1, 2002 and 2003 and did not incur an impairment charge.

F-16

The following table presents the changes in the carrying amount of
goodwill for the years ended December 31, 2002 and 2003 (in millions):

Balance at December 31, 2001................................ $ 43.3
Finalization of purchase price allocations for certain
acquisitions completed in 2001........................... 22.1
Purchase price allocations for certain acquisitions
completed in 2002........................................ 67.2
------
Balance at December 31, 2002................................ 132.6
Consideration adjustments and finalization of purchase price
allocations for acquisitions completed in 2002........... 0.2
Purchase price allocation for acquisition completed
in 2003.................................................. 5.8
------
Balance at December 31, 2003................................ $138.6
======

The following table provides information regarding the Company's
intangible assets, which are included in the accompanying consolidated balance
sheets at December 31 (in millions):

GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------------- ---------------------
CLASS OF INTANGIBLE ASSET 2002 2003 2002 2003
------ ------ ------ ------

Non-competition agreements..................... $ 4.2 $ 4.2 $ 0.4 $ 1.1
Certificates of need........................... 0.5 1.1 -- --
------ ------ ------ ------
Total $ 4.7 $ 5.3 $ 0.4 $ 1.1
====== ====== ====== ======

In connection with the Company's purchase price allocations for
acquisitions completed in 2002 and 2003, an aggregate of $0.5 million and $0.6
million, respectively, was allocated to intangible assets. These intangible
assets represent the certificates of need issued by state governments to the
hospitals acquired by the Company. An independent appraiser valued each
certificate of need. In addition, these intangible assets were determined to
have indefinite lives and accordingly, are not amortized.

Approximately $4.0 million of the gross carrying amount of the
non-competition agreements is related to the Company's purchase of the
outstanding 30% limited partnership interest in Dodge City Healthcare Group,
L.P., as discussed in Note 2. Amortization expense related to the
non-competition agreements for the years ended December 31, 2001, 2002 and 2003
was $0.1 million, $0.3 million and $0.7 million, respectively. The Company
estimates amortization expense for these intangible assets to approximate $0.8
million for each of the years ending December 31, 2004, 2005 and 2006, and $0.7
million for the year ending December 31, 2007. The non-competition agreements
are amortized on a straight-line basis over the five-year length of the
agreements.

NOTE 5. INCOME TAXES

The provision for income taxes from continuing operations for the years
ended December 31, 2001, 2002 and 2003 consists of the following (in millions):

2001 2002 2003
------- ------- ------

Current:
Federal................................................ $ 22.0 $ 27.3 $ 34.2
State.................................................. 1.4 2.4 2.8
------- ------- -------
23.4 29.7 37.0
Deferred:
Federal................................................ 5.6 1.0 9.7
State.................................................. (0.1) 1.2 (1.3)
------- ------- -------
5.5 2.2 8.4
Increase in valuation allowance.......................... 1.4 0.8 0.5
------- ------- -------
Total.......................................... $ 30.3 $ 32.7 $ 45.9
======= ======= =======

The increases in the valuation allowance are primarily the result of state
net operating loss carryforwards that management believes may not be fully
utilized because of the uncertainty regarding the Company's ability to generate
taxable income in certain states. Various subsidiaries have state net operating
loss carryforwards in the

F-17

aggregate of approximately $85.9 million (primarily in the states of Florida,
Tennessee and West Virginia) with expiration dates through the year 2023.

The Company generated a federal net operating loss of approximately $8.4
million for the year ended December 31, 2000, which was fully utilized in 2001.

A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate on income before income taxes for the years ended
December 31, 2001, 2002 and 2003 follows:

2001 2002 2003
------- ------- ------

Federal statutory rate................................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.................. 3.7 3.3 2.4
ESOP expense........................................................... 4.8 3.2 1.2
Non-deductible intangible assets....................................... 0.5 -- --
Valuation allowance.................................................... 0.3 1.1 0.5
Other items, net....................................................... 3.1 0.7 0.5
---- ---- ----
Effective income tax rate.............................................. 47.4% 43.3% 39.6%
==== ==== ====

Deferred income taxes result from temporary differences in the recognition
of assets, liabilities, revenues and expenses for financial accounting and tax
purposes. Sources of these differences and the related tax effects are as
follows (in millions):

2002 2003
-------- -------

Deferred tax liabilities:
Depreciation and amortization............................................ $ (41.2) $ (46.2)
Prepaid expenses......................................................... (2.7) (3.7)
Other.................................................................... (3.7) (7.9)
--------- --------
Total deferred tax liabilities................................... (47.6) (57.8)
Deferred tax assets:
Provision for doubtful accounts.......................................... 14.0 13.3
Employee compensation.................................................... 3.3 3.6
Professional liability................................................... 12.5 14.1
Other.................................................................... 4.7 5.3
--------- --------
Total deferred tax assets........................................ 34.5 36.3
Valuation allowance.............................................. (3.5) (4.0)
--------- --------
Net deferred tax assets.......................................... 31.0 32.3
--------- --------
Net deferred tax liabilities..................................... $ (16.6) $ (25.5)
========= ========

The balance sheet classification of deferred income tax assets
(liabilities) at December 31 is as follows (in millions):

2002 2003
-------- -------

Current.................................................................... $ 8.3 $ 10.4
Long-term.................................................................. (24.9) (35.9)
-------- -------
Total............................................................ $ (16.6) $ (25.5)
======== =======

The Company had a net income tax payable of $0.1 million as of December
31, 2002, which is included in other current liabilities in the accompanying
consolidated balance sheet. At December 31, 2003, the Company's income taxes
receivable balance was $7.4 million. The tax benefits associated with the
exercise of stock options were $8.1 million, $1.7 million and $2.3 million for
the years ended December 31, 2001, 2002 and 2003, respectively. These tax
benefits reduced current taxes payable and increased capital in excess of par
value.

During 2003, the Internal Revenue Service ("IRS") notified the Company
regarding its findings related to the examination of the Company's tax returns
for the years ended December 31, 1999, 2000 and 2001. The Company reached a
partial settlement with the IRS on all issues except for the Company's method of
determining its bad debt deduction for which the IRS has proposed an additional
assessment of $7.4 million. All of the adjustments proposed

F-18

by the IRS are temporary differences. The IRS has delayed final settlement of
this assessment until resolution of certain pending court proceedings related to
the use of this bad debt deduction method by another hospital company. The
Company applied its 2002 federal income tax refund in the amount of $6.6 million
as a deposit against any potential settlement to forestall the tolling of
interest on such settlement beyond the March 15, 2003 deposit date. Management
believes that adequate provisions have been reflected in the consolidated
financial statements to satisfy final resolution of the remaining disputed issue
based upon current facts and circumstances.

HCA and the Company entered into a tax sharing and indemnification
agreement as part of the 1999 spin-off transaction. Under the agreement, HCA
maintains full control and absolute discretion with regard to any combined or
consolidated tax filings for periods prior to the 1999 spin-off transaction. In
addition, the agreement provides that HCA will generally be responsible for all
taxes that are allocable to periods prior to the 1999 spin-off transaction and
HCA and the Company will each be responsible for its own tax liabilities for
periods after the 1999 spin-off transaction.

The tax sharing and indemnification agreement does not have an impact on
the realization of deferred tax assets or the payment of deferred tax
liabilities of the Company, except to the extent that the temporary differences
give rise to such deferred tax assets and liabilities after the 1999 spin-off
transaction and are adjusted as a result of final tax settlements after the 1999
spin-off transaction. In the event of such adjustments, the tax sharing and
indemnification agreement provides for certain payments between HCA and the
Company, as appropriate.

NOTE 6. LONG-TERM DEBT

Long-term debt consists of the following at December 31 (in millions):

2002 2003
--------- ---------

Bank Credit Agreement......................................... $ -- $ 20.0
Convertible Notes............................................. 250.0 250.0
--------- ---------
250.0 270.0
Less current maturities....................................... -- --
--------- ---------
$ 250.0 $ 270.0
========= =========

Maturities of the Company's long-term debt at December 31, 2003 were as
follows (in millions):

2004, 2005......................................................... $ --
2006............................................................... 20.0
2007, 2008......................................................... --
Thereafter......................................................... 250.0
-------
$ 270.0
=======

BANK CREDIT AGREEMENT

In June 2001, the Company completed a $200 million, five-year amended and
restated credit agreement (the "2001 Agreement") with a syndicate of lenders,
which increased the available credit under the revolving credit agreement from
$65 million to $200 million and expires in June 2006. As of December 31, 2003,
the Company had indebtedness of $20.0 million under the 2001 Agreement and $13.6
million in letters of credit outstanding, leaving $166.4 million available under
the 2001 Agreement. Of the $13.6 million in letters of credit outstanding as of
December 31, 2003, $13.4 million was related to the self-insured retention
levels of the Company's professional and general liability insurance program as
security for the payment of claims and $0.2 million was related to certain
utility companies. The Company repaid its $20.0 million of indebtedness under
the 2001 Agreement in February 2004 with its available cash.

The applicable interest rate under the 2001 Agreement is based on a rate,
at the Company's 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 the Company's consolidated total debt to consolidated EBITDA ratio,
as defined in the 2001 Agreement, for the most recent four quarters. The Company
also pays a commitment fee ranging from 0.3% to 0.5% of the average daily unused
balance. The applicable commitment fee rate is based on the Company's
consolidated total debt to consolidated EBITDA ratio, as defined, for the most
recent four quarters. The interest rate under the 2001 Agreement was 4.0% at
December 31, 2003.

F-19

Obligations under the 2001 Agreement are guaranteed by substantially all
of the Company's current and future subsidiaries and are secured by
substantially all of the assets of the Company and its subsidiaries and the
stock of the Company's subsidiaries. The 2001 Agreement requires that the
Company comply with various financial ratios and tests and contains covenants,
including, but not limited to, restrictions on new indebtedness, the ability to
merge or consolidate, asset sales, capital expenditures and dividends, for which
the Company is in compliance as of December 31, 2003.

CONVERTIBLE NOTES

Effective May 22, 2002, the Company sold $250 million of Convertible
Subordinated Notes due June 1, 2009 (the "Convertible Notes"). The net proceeds
were approximately $242.5 million and were used for acquisitions, capital
improvements at the Company's existing facilities, repurchases of the Company's
10-3/4% Senior Subordinated Notes discussed below, 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 the Company's common stock at a conversion price of $47.36 per
share. The conversion price is subject to adjustment in certain circumstances.
The Company 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 the Company 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 the Company's existing
and future senior indebtedness and senior subordinated indebtedness. The
Convertible Notes rank junior to the Company's liabilities. The indenture 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.

SENIOR SUBORDINATED NOTES

During 2002, the Company repurchased its $150.0 million 10-3/4% Senior
Subordinated Notes and paid $26.5 million in premiums, commissions and fees on
these repurchases. In connection with these repurchases, the Company recorded
debt retirement costs in the year ended December 31, 2002 of $31.0 million.

DEFERRED LOAN COSTS

The Company incurred loan costs of approximately $1.9 million and $7.5
million during 2001 and 2002, respectively. The Company capitalized such costs
and is amortizing these costs to interest expense over the terms of the related
debt (five years for the 2001 Agreement and seven years for the Convertible
Notes). The interest expense related to deferred loan cost amortization was
approximately $1.2 million, $1.4 million and $1.6 million during 2001, 2002, and
2003, respectively. During 2002, as a result of the repurchase of the 10-3/4%
Senior Subordinated Notes, the Company expensed the remaining deferred loan
costs of $4.5 million attributable to the 10-3/4% Senior Subordinated Notes as
part of the debt retirement costs in the consolidated income statements. Upon
consummation of the 2001 Agreement, the Company wrote off $2.6 million of net
deferred loan costs related to its original credit agreement, which resulted in
a $2.6 million charge to debt retirement costs in 2001.

F-20

NOTE 7. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company's certificate of incorporation provides up to 10,000,000
shares of preferred stock may be issued, of which 90,000 shares have been
designated as Series A Junior Participating Preferred Stock, par value $.01 per
share. The board of directors has the authority to issue preferred stock in one
or more series and to fix for each series the voting powers (full, limited or
none), and the designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions on the
stock and the number of shares constituting any series and the designations of
this series, without any further vote or action by the stockholders. Because the
terms of the preferred stock may be fixed by the board of directors without
stockholder action, the preferred stock could be issued quickly with terms
calculated to defeat a proposed takeover or to make the removal of the Company's
management more difficult.

PREFERRED STOCK PURCHASE RIGHTS

Pursuant to the Company's stockholders' rights plan, each outstanding
share of common stock is accompanied by one preferred stock purchase right. Each
right entitles the registered holder to purchase one one-thousandth of a share
of Series A preferred stock at a price of $35 per one one-thousandth of a share,
subject to adjustment.

Each share of Series A preferred stock will be entitled, when, as and if
declared, to a preferential quarterly dividend payment in an amount equal to the
greater of $10 or 1,000 times the aggregate of all dividends declared per share
of common stock. In the event of liquidation, dissolution or winding up, the
holders of Series A preferred stock will be entitled to a minimum preferential
liquidation payment equal to $1,000 per share, plus an amount equal to accrued
and unpaid dividends and distributions on the stock, whether or not declared, to
the date of such payment, but will be entitled to an aggregate payment of 1,000
times the payment made per share of common stock. The rights are not exercisable
until the rights distribution date as defined in the stockholders' rights plan.
The rights will expire on May 7, 2009, unless the expiration date is extended or
unless the rights are earlier redeemed or exchanged.

The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not determined by the board of directors to be in the best interests of
all stockholders. The rights should not interfere with any merger or other
business combination approved by the board of directors.

COMMON STOCK

Holders of the Company's common stock are entitled to one vote for each
share held of record on all matters on which stockholders may vote. There are no
preemptive, conversion, redemption or sinking fund provisions applicable to our
common stock. In the event of liquidation, dissolution or winding up, holders of
common stock are entitled to share ratably in the assets available for
distribution, subject to any prior rights of any holders of preferred stock then
outstanding.

SHARE REPURCHASE PROGRAM

In April 2003, the Company's Board of Directors authorized the repurchase
of up to $100 million of outstanding shares of the Company's common stock either
in the open market or through privately negotiated transactions, subject to
market conditions, regulatory constraints and other factors, to enable it to
take advantage of opportunistic market conditions. This stock repurchase program
was publicly announced on April 28, 2003. The Company is not obligated to
repurchase any specific number of shares under the program. The expiration date
under the program is October 28, 2004. As of December 31, 2003, the Company
repurchased 2,062,400 shares for an aggregate of approximately $45.7 million.
Certain of these shares are designated by the Company as treasury stock. The
Company retired 863,600 of its 2,062,400 treasury shares during 2003 at a cost
of $16.8 million, leaving 1,198,800 shares in treasury at a cost of $28.9
million as of December 31, 2003.

The Company may continue to execute share repurchases from time to time in
order to take advantage of attractive share price levels, as determined by its
management. The timing and terms of the transactions depend on

F-21

market conditions, its liquidity and other considerations. The following table
summarizes the Company's share repurchase activity by month:

Approximate
Total Number Dollar Value
of Shares of Shares that
Purchased as May Yet Be
Part of a Purchased
Total Number Average Publicly Under the
of Shares Price Paid Announced Program
Period Purchased per Share Program (In millions)
- -------------- ------------ ---------- ------------ --------------

May 2003 863,600 $ 19.43 863,600 $ 83.2
June 2003 10,200 19.70 10,200 83.0
September 2003 450,000 24.31 450,000 72.1
October 2003 738,600 23.92 738,600 54.3
---------- ---------- ---------- --------------
Total 2,062,400 $ 22.10 2,062,400 $ 54.3
========== ========== ========== ==============

2001 SECONDARY OFFERING

In March 2001, the Company completed its public offering of 3,680,000
shares of common stock at an offering price of $29.00 per share. The net
proceeds from the offering of approximately $100.4 million were used to reduce
debt.

ESOP COMPENSATION

In connection with the 1999 spin-off transaction, the Company established
the ESOP, a defined contribution retirement plan, which covers substantially all
employees. The ESOP purchased from the Company approximately 8.3% of the
Company's common stock at fair market value (approximately 2.8 million shares at
$11.50 per share). The purchase was primarily financed by the ESOP issuing a
promissory note to the Company, which will be repaid annually in equal
installments over a 10-year period beginning December 31, 1999. The Company
makes contributions to the ESOP which the ESOP uses to repay the loan. The
Company's stock acquired by the ESOP is held in a suspense account and will be
allocated to participants at book value from the suspense account as the loan is
repaid over a 10-year period.

The loan to the ESOP is recorded as unearned ESOP compensation in the
accompanying consolidated balance sheets. Reductions are made to unearned ESOP
compensation as shares are committed to be released to participants at cost.
Shares are deemed to be committed to be released ratably during each period as
the employees perform services. Shares are allocated ratably to employee
accounts over a period of 10 years (1999 through 2008). ESOP expense is
recognized using the average market price of shares committed to be released to
participants during the accounting period with any difference between the
average market price and the cost being charged or credited to capital in excess
of par value. As the shares are committed to be released, the shares become
outstanding for earnings per share calculations. The non-cash ESOP expense was
$10.4 million, $9.7 million and $6.9 million for the years ended December 31,
2001, 2002 and 2003, respectively. The ESOP expense tax deduction is fixed at
$3.2 million per year. The fair value of unreleased shares was $41.2 million at
December 31, 2003.

The ESOP shares as of December 31, 2003 were as follows:

Allocated shares...................................... 1,264,008
Shares committed to be released....................... 134,352
Unreleased shares..................................... 1,398,359
---------
Total ESOP shares........................... 2,796,719
=========

F-22

EXECUTIVE STOCK PURCHASE PLAN

The Company adopted the Executive Stock Purchase Plan in 1999, in which
1,000,000 shares of the Company's common stock were reserved and issued in 1999.
The Executive Stock Purchase Plan granted a right to specified executives of the
Company to purchase shares of common stock from the Company. The Company loaned
each participant in the plan 100% of the purchase price of the Company's common
stock at the fair value based on the date of purchase (approximately $10.2
million), on a full recourse basis at interest rates ranging from 5.2% to 5.3%.
The loans are reflected as notes receivable for shares sold to employees in the
accompanying consolidated statements of stockholders' equity. During the years
ended December 31, 2001 and 2002, the Company's executives repaid $1.5 million
and $5.7 million of such loans, respectively, which were fully repaid as of
December 31, 2002.

MANAGEMENT STOCK PURCHASE PLAN

The Company has a Management Stock Purchase Plan which provides to certain
designated employees an opportunity to purchase restricted shares of the
Company's common stock at a discount through payroll deductions over six month
intervals. Shares of the Company's common stock reserved for this plan were
250,000 at December 31, 2003. Approximately 21,000, 19,000 and 32,000 restricted
shares were issued to employees during the years ended December 31, 2001, 2002
and 2003, respectively, under this plan. Such shares are subject to a three-year
cliff-vesting period.

EMPLOYEE STOCK PURCHASE PLAN

Effective January 1, 2002, the Company began an Employee Stock Purchase
Plan which provides an opportunity for substantially all employees to purchase
shares of the Company's common stock at a purchase price equal to 85% of the
lower of the closing price on the first day or last day of a six month interval.
The Company's stockholders approved an amendment to the Employee Stock Purchase
Plan to increase the number of shares of common stock available for issuance
from 100,000 to 300,000 in May 2003. Approximately 40,000 and 71,000 shares of
common stock were issued to employees through this plan during the years ended
December 31, 2002 and 2003, respectively.

STOCK OPTIONS

1998 LONG-TERM INCENTIVE PLAN

The Company's 1998 Long-Term Incentive Plan, as amended, authorizes
9,625,000 shares of the Company's common stock for issuance as of December 31,
2003. In May 2002, the Company's stockholders approved an amendment to the 1998
Long-Term Incentive Plan to increase the number of shares of common stock
available for issuance from 7,125,000 to 9,625,000. The 1998 Long-Term Incentive
Plan authorizes the grant of stock options, stock appreciation rights and other
stock based awards to officers and employees of the Company. Options to purchase
1,133,300, 914,900 and 1,036,800 shares were granted to the Company's employees
during the years ended December 31, 2001, 2002 and 2003, respectively, under
this plan with an exercise price equal to the fair market value on the date of
grant. These options become exercisable beginning one year from the date of
grant to five years after the date of grant. All options granted under this plan
expire 10 years from the date of grant.

OUTSIDE DIRECTORS STOCK AND INCENTIVE PLAN

The Company also adopted an Outside Directors Stock and Incentive Plan for
which 175,000 shares of the Company's common stock have been reserved for
issuance. Approximately 12,500, 26,000 and 30,000 options were granted under
such plan to non-employee directors during the years ended December 31, 2001,
2002 and 2003, respectively. These options become exercisable beginning in part
from the date of grant to three years after the date of grant and expire 10
years after grant.

F-23

SUMMARY

Presented below is a summary of stock option activity for 2001, 2002 and
2003:

WEIGHTED
STOCK OPTION PRICE AVERAGE
OPTIONS PER SHARE EXERCISE PRICE
------------ ------------ --------------

Balances, December 31, 2000 ............ 3,339,700 $ 0.07-39.69 $ 11.73
Granted .............................. 1,145,800 31.39-46.19 37.58
Exercised ............................ (873,800) 0.18-37.13 13.96
Cancelled ............................ (172,600) 0.18-39.69 20.62
---------- ------------ ---------
Balances, December 31, 2001 ............ 3,439,100 0.07-46.19 19.33
Granted .............................. 940,900 31.05-38.17 36.11
Exercised ............................ (265,000) 0.18-37.13 11.18
Cancelled ............................ (98,600) 0.18-37.13 19.04
---------- ------------ ---------
Balances, December 31, 2002 ............ 4,016,400 0.07-46.19 23.81
Granted .............................. 1,066,800 20.32-27.97 21.60
Exercised ............................ (333,000) 0.18-18.38 11.20
Cancelled ............................ (356,800) 8.29-46.19 27.75
---------- ------------ ---------
Balances, December 31, 2003 ............ 4,393,400 $ 0.07-46.19 $ 23.91
========== ============ =========

At December 31, 2003, there were approximately 2,656,700 options available
for grant.

The following table summarizes information regarding the options
outstanding at December 31, 2003:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- -------- ----------- --------

$ 0.07 to $11.87............ 46,600 1 $ 8.53 46,600 $ 8.53
12.22 to 12.90............ 40,500 2 12.47 40,500 12.47
14.16 to 17.47............ 52,600 3 16.35 52,600 16.35
17.44 to 18.38............ 16,700 4 18.37 16,700 18.37
15.64............ 800 5 15.64 800 15.64
7.63 to 10.81............ 1,395,500 6 10.53 1,212,500 10.59
17.25 to 39.69............ 124,700 7 22.32 99,800 22.85
31.39 to 46.19............ 916,700 8 37.77 624,500 37.72
31.05 to 38.17............ 827,300 9 36.07 291,200 36.17
20.32 to 27.97............ 972,000 10 21.60 10,000 20.51
--------- -- ------- --------- ------
4,393,400 2,395,200
========= =========

NOTE 8. COMMITMENTS AND CONTINGENCIES

AMERICANS WITH DISABILITIES ACT CLAIM

On January 12, 2001, Access Now, Inc., a disability rights organization,
filed a class action lawsuit against each of the Company's hospitals alleging
non-compliance with the accessibility guidelines under the Americans with
Disabilities Act (the "ADA"). The lawsuit, filed in the United States District
Court for the Eastern District of Tennessee, seeks injunctive relief requiring
facility modification, where necessary, to meet the Americans with Disabilities
Act 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 December 31, 2003, the Company has conducted
inspections at 17 of its hospitals.

F-24

HCA INVESTIGATIONS, LITIGATION AND INDEMNIFICATION RIGHTS

HCA has been the subject of various federal and state investigations, qui
tam actions, 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 tam actions in
which the Department of Justice has not intervened. Additionally, HCA has
announced that it made payments to 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.

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 has committed to advance a maximum amount of approximately
$27.8 million at December 31, 2003. The actual amount of such commitments to be
subsequently advanced to physicians 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 prorata 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 has incurred approximately $28.2 million in uncompleted
projects as of December 31, 2003, which is included in construction in progress
in its accompanying consolidated balance sheet.

F-25

At December 31, 2003, the Company had projects under construction with an
estimated additional cost to complete and equip of approximately $88.2 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 has incurred approximately $3.2 million of
the required capital improvements as of December 31, 2003.

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 $1.6
million of the required capital improvements as of December 31, 2003.

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 health care 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.

LEASES

The Company leases real estate properties, buildings, vehicles and
equipment under cancelable and non-cancelable leases. Rental expense related to
continuing operations for the years ended December 31, 2001, 2002 and 2003 was
$6.7 million, $7.4 million and $8.4 million, respectively.

Future minimum operating lease payments, including discontinued
operations, are as follows at December 31, 2003 (in millions):

2004....................................... $ 6.0
2005....................................... 4.2
2006....................................... 3.1
2007....................................... 2.5
2008....................................... 1.2
Thereafter................................. 4.2
-----
Total minimum payments........... $21.2
=====

F-26

NOTE 9. EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted
earnings (loss) per share (dollars and shares in millions, except per share
amounts):

2001 2002(a) 2003
------ ------- ------

Numerator:
Numerator for basic earnings per share - income from
continuing operations .......................................... $ 33.6 $ 42.9 $ 70.2
Interest on convertible notes, net of taxes ........................ -- -- 7.8
------ ------ ------
Numerator for diluted earnings per share - income from
continuing operations .......................................... 33.6 42.9 78.0
Loss from discontinued operations, net of income taxes ............. (0.3) (1.4) (1.7)
------ ------ ------
$ 33.3 $ 41.5 $ 76.3
====== ====== ======

Denominator:
Denominator for basic earnings (loss) per share -
weighted average shares outstanding ............................. 35.7 37.5 37.2
Effect of dilutive securities:
Employee stock benefit plans .................................... 1.4 1.1 0.8
Convertible notes ............................................... -- -- 5.3
------ ------ ------
Denominator for diluted earnings (loss) per share - adjusted
weighted average shares ......................................... 37.1 38.6 43.3
====== ====== ======
Basic earnings (loss) per share:
Continuing operations ........................................... $ 0.94 $ 1.14 $ 1.89
Discontinued operations ......................................... (0.01) (0.03) (0.05)
------ ------ ------
Net income ................................................. $ 0.93 $ 1.11 $ 1.84
====== ====== ======
Diluted earnings (loss) per share:
Continuing operations ........................................... $ 0.91 $ 1.10 $ 1.80
Discontinued operations ......................................... (0.01) (0.03) (0.04)
------ ------ ------
Net income ................................................. $ 0.90 $ 1.07 $ 1.76
====== ====== ======

- ------------------------

(a) The impact of 3.3 million potential weighted average shares of common
stock, if converted, and interest expense related to the Convertible Notes
was not included in the computation of diluted earnings per share because
the effect would have been anti-dilutive.

F-27

NOTE 10. UNAUDITED QUARTERLY FINANCIAL INFORMATION

The quarterly interim financial information shown below has been prepared
by the Company's management and is unaudited. It should be read in conjunction
with the audited consolidated financial statements appearing herein (dollars in
millions, except per share amounts).

2002
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------

Revenues (a) ................................ $ 174.4 $ 170.7 $ 175.2 $ 194.6

Income from continuing operations ........... $ 13.8 $ (2.5) $ 13.3 $ 18.3
Loss from discontinued operations ........... (0.1) -- (0.6) (0.7)
------- ------- ------- -------
Net income (loss) ........................... $ 13.7 $ (2.5) $ 12.7 $ 17.6
======= ======= ======= =======

Basic earnings (loss) per share:
Continuing operations .................... $ 0.37 $ (0.07) $ 0.35 $ 0.48
Discontinued operations .................. -- -- (0.01) (0.01)
------- ------- ------- -------
Net income (loss) ........................ $ 0.37 $ (0.07) $ 0.34 $ 0.47
======= ======= ======= =======

Diluted earnings (loss) per share:
Continuing operations .................... $ 0.36 $ (0.07) $ 0.34 $ 0.45
Discontinued operations .................. -- -- (0.01) (0.01)
------- ------- ------- -------
Net income (loss) ........................ $ 0.36 $ (0.07) $ 0.33 $ 0.44
======= ======= ======= =======

2003
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------

Revenues (b) ................................ $ 212.9 $ 214.1 $ 219.4 $ 229.2

Income from continuing operations ........... $ 18.1 $ 16.0 $ 16.4 $ 19.7
Loss from discontinued operations ........... (0.4) (0.7) (0.2) (0.4)
------- ------- ------- -------
Net income .................................. $ 17.7 $ 15.3 $ 16.2 $ 19.3
======= ======= ======= =======

Basic earnings (loss) per share:
Continuing operations .................... $ 0.48 $ 0.43 $ 0.44 $ 0.54
Discontinued operations .................. (0.01) (0.02) (0.01) (0.01)
------- ------- ------- -------
Net income ............................... $ 0.47 $ 0.41 $ 0.43 $ 0.53
======= ======= ======= =======

Diluted earnings (loss) per share:
Continuing operations .................... $ 0.46 $ 0.41 $ 0.42 $ 0.51
Discontinued operations .................. (0.01) (0.01) -- (0.01)
------- ------- ------- -------
Net income ............................... $ 0.45 $ 0.40 $ 0.42 $ 0.50
======= ======= ======= =======

- ------------------------

(a) The net adjustments to estimated third-party payor settlements increased
revenues by $2.1 million, $5.8 million and $5.1 million during the second,
third and fourth quarters, respectively.

(b) The net adjustments to estimated third-party payor settlements increased
(decreased) revenues by $2.9 million, $1.4 million, $1.9 million and
$(0.2) million during the first, second, third and fourth quarters,
respectively.

F-28

NOTE 11. RELATED PARTY TRANSACTIONS

As part of an officer's relocation package, the Company purchased a house
for approximately $0.6 million in the second quarter of 2002 and subsequently
sold it in the fourth quarter of 2002.

The Company loaned certain Company executives 100% of the purchase price
of the Company's common stock at the fair market value based on the date of
purchase during 1999. The loans are reflected as notes receivable for shares
sold to employees in the Company's consolidated statements of stockholders'
equity. During the years ended December 31, 2001 and 2002, Company executives
repaid $1.5 million and $5.7 million of such loans, respectively, which were
fully repaid as of December 31, 2002.

NOTE 12. SUBSEQUENT EVENTS

ACQUISITION OF PROVINCE HEALTHCARE COMPANY

LifePoint announced on August 16, 2004 that it entered into a definitive
agreement to acquire Province Healthcare Company ("Province") for approximately
$1.7 billion in cash, stock and the assumption of debt. The transaction will
create a leading hospital company focused on providing healthcare services in
non-urban communities, with 51 hospitals, of which 48 are located in markets
where the combined company will be the sole hospital provider in the community.
The transaction is expected to close in the first quarter of 2005.

Pursuant to the definitive agreement, if the proposed transaction is
consummated, the businesses of LifePoint and Province will be combined under a
newly formed company, which will be renamed "LifePoint Hospitals, Inc." ("New
LifePoint"). Each Province stockholder will receive a per share consideration
comprised of $11.375 in cash and a number of shares of New LifePoint common
stock equal to an exchange ratio of between 0.3447 and 0.2917, which will
represent a value of $11.375, if the volume weighted average of the daily sale
prices for shares of LifePoint common stock for the 20 consecutive trading day
period ending at the close of business on the third trading day prior to
closing, (the "LifePoint average share price"), is between $33.00 and $39.00. If
the LifePoint average share price is $33.00 or less, the exchange ratio will be
0.3477, and if the LifePoint average share price is $39.00 or more, the exchange
ratio will be 0.2917.

Due to the variable nature of the exchange ratio to determine the per
share consideration, the measurement date to determine the fair value of New
LifePoint common stock to be issued will be determined in accordance with
Emerging Issues Task Force Issue Number 99-12, "Determination of the Measurement
Date for the Market Price of Acquirer Securities Issued in a Purchase Business
Combination", ("EITF No. 99-12"). As stated in paragraph 7 in EITF No. 99-12,
the measurement date is the earliest date, from the date the terms of the
acquisition are agreed to and announced to the date of final application of the
formula pursuant to the acquisition agreement, on which subsequent applications
of the formula do not result in a change in the number of shares or the amount
of other consideration.

The agreement provides for alternative structures. While it is anticipated
that shares received by Province stockholders will be received in a tax-free
exchange, the parties have agreed to a taxable alternative structure at the same
price if necessary to complete the acquisition.

Each of the Boards of Directors of LifePoint and Province have unanimously
approved the proposed transaction. Completion of the transaction is subject to
approval by each company's stockholders, receipt of necessary financing and
certain other conditions. LifePoint has received a commitment from Citigroup
Global Markets, Inc. ("Citigroup") to finance the cash consideration for the
acquisition, to refinance Province's existing debt and to provide for the
ongoing working capital and general corporate needs of New LifePoint. The
commitment provides for up to $1.325 billion in term loans and up to $400
million in revolving loans on customary terms and conditions.

ACQUISITION OF RIVER PARISHES HOSPITAL

Effective July 1, 2004, the Company acquired the 106-bed River Parishes
Hospital in LaPlace, Louisiana from Universal Health Services, Inc. for
approximately $24.8 million in cash, including certain working capital and
direct acquisition costs. The Company borrowed from its 2001 Agreement and paid
the purchase price for this acquisition on June 30, 2004. Revenues for this
facility were approximately $36.0 million during 2003, exclusive of physician

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revenues. The hospital is located approximately 30 miles west of New Orleans,
Louisiana and is the only hospital located in St. John the Baptist Parish.

FINANCING ACTIVITIES

During the second quarter of 2004, the Company repurchased $29.0 million
of its $250.0 million Convertible Notes and paid a $0.9 million premium on these
repurchases. In connection with these repurchases, the Company expensed $0.6
million of deferred loan costs attributable to the $29.0 million Convertible
Note repurchases. The deferred loan cost charge and the $0.9 million premium
paid together resulted in a $1.5 million charge in debt retirement costs for the
nine months ended September 30, 2004. The $1.5 million of debt retirement costs
had a negative $0.02 per diluted share impact for the nine months ended
September 30, 2004.

The Company borrowed $30.0 million under its 2001 Agreement in June 2004
to fund the acquisition of River Parishes Hospital, as previously described, and
for general corporate purposes. In the third quarter of 2004, the Company used
available cash to repay the $30.0 million of indebtedness outstanding at June
30, 2004 under the 2001 Agreement.

NONVESTED STOCK AWARDS

During the first quarter of 2004, the Company granted 175,000 shares of
nonvested stock awards to certain key executives under the Company's 1998
Long-Term Incentive Plan. The nonvested stock awards vest three years from the
grant date and contain no vesting requirements other than continued employment
of the executive. The fair market value at the date of grant of these nonvested
stock awards was $33.17 per share and was recorded as unearned compensation as a
component of stockholders' equity. During the second quarter of 2004, the
Company granted 21,000 shares of nonvested stock awards to its outside directors
under the Company's Outside Directors Stock and Incentive Plan. These nonvested
stock awards also vest three years from the grant date and contain no vesting
requirements other than continued service of the director. The fair market value
at the date of grant of these nonvested stock awards was $37.86 and was recorded
as unearned compensation as a component of stockholders' equity. Unearned
compensation is being amortized on a straight-line basis in the statements of
operations over the three-year vesting period of the awards.

PROFESSIONAL AND GENERAL LIABILITY RESERVES

The Company is subject to medical malpractice lawsuits and other claims as
part of providing healthcare services. To mitigate a portion of this risk, the
Company maintains insurance for individual malpractice claims exceeding $10.0
million. The Company's reserves for professional and general liability claims
are based upon independent actuarial calculations, which consider historical
claims data, demographic considerations, severity factors and other actuarial
assumptions in determining reserve estimates. Reserve estimates are discounted
to present value using a 5.0% discount rate and are revised twice each year by
the Company's independent actuaries. The estimated reserve for professional and
general liability claims will be significantly affected if current and future
claims differ from historical trends. While management monitors reported claims
closely and considers potential outcomes as estimated by its actuaries when
determining its professional and general liability reserves, the complexity of
the claims, the extended period of time to settle the claims and the wide range
of potential outcomes complicates the estimation process.

The Company implemented enhanced processes in monitoring claims and
managing losses in high risk areas during 2002 and 2003 to attempt to reduce
loss levels and appropriately manage risk. During the second quarter of 2004,
the Company received revised reserve estimates for professional and general
liability claims from its actuaries based upon more current loss experience
information. In addition, the Company ceased receiving reserve estimates from
one of the three actuaries that had historically been used to calculate loss
reserve estimates. This change in the Company's estimation process reduced its
reserve levels and related professional and general liability insurance expense
in the nine months ended September 30, 2004 by $2.8 million, on a pretax basis,
or $0.04 per diluted share. The Company continues to derive its estimates for
financial reporting purposes by using a mathematical average of the actuarial
valuations from its other two actuaries. The results of the updated actuarial
valuations from these two actuaries reduced the Company's reserve estimates for
years prior to 2004 by $1.0 million on a pretax basis, or $0.01 per diluted
share, which reduced its professional and general liability expense in the
second quarter of 2004.

MEDICARE REIMBURSEMENT

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

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