UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

          

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Form 10-Q

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Commission file number: 000-51251

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LifePoint Health , Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware	20-1538254
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
330 Seven Springs Way Brentwood, Tennessee	37027
(Address Of Principal Executive Offices)	(Zip Code)

 

 

(615) 920-7000

(Registrant’s Telephone Number, Including Area Code)

 

LifePoint Hospitals , Inc.

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐

 

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

 

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

 

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

 

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

 

As of July   24 , 201 5 , the number of outstanding shares of the registrant’s Common Stock was   44 , 408 , 519 .

 

 

 

 

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LifePoint Health, Inc.

 

TABLE OF CONTENTS

 

 

 

 

 

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PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

LIFEPOINT HEALTH, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In millions, except per share amounts)

 

al

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues before provision for doubtful accounts	$	1,469.8		$	1,246.2		$	2,921.4		$	2,429.0
Provision for doubtful accounts		199.4			199.2			387.3			374.8
Revenues		1,270.4			1,047.0			2,534.1			2,054.2
Salaries and benefits		606.8			488.5			1,218.0			963.3
Supplies		194.1			162.5			390.9			319.5
Other operating expenses		308.7			258.3			602.3			501.8
Other income		(14.2)			(21.0)			(25.9)			(34.9)
Depreciation and amortization		68.9			60.9			136.9			122.0
Interest expense, net		28.1			31.3			56.5			65.2
Impairment charges		-			-			11.6			-
		1,192.4			980.5			2,390.3			1,936.9
Income before income taxes		78.0			66.5			143.8			117.3
Provision for income taxes		28.2			24.7			52.0			37.8
Net income		49.8			41.8			91.8			79.5
Less:  Net income attributable to noncontrolling interests and
redeemable noncontrolling interests		(3.4)			(2.7)			(6.5)			(3.3)
Net income attributable to LifePoint Health, Inc.	$	46.4		$	39.1		$	85.3		$	76.2
Earnings per share attributable to LifePoint Health, Inc. stockholders:
Basic	$	1.05		$	0.88		$	1.93		$	1.69
Diluted	$	1.00		$	0.84		$	1.84		$	1.61
Weighted average shares and dilutive securities outstanding:
Basic		44.2			44.5			44.2			45.2
Diluted		46.4			46.5			46.2			47.3

 

 

 

 

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LIFEPOINT HEALTH, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)

 

 

	June 30,			December 31,
	2015			2014 (a)
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	422.8		$	191.5
Accounts receivable, less allowances for doubtful accounts of $724.3 and $709.5 at
June 30, 2015 and December 31, 2014, respectively		724.5			752.6
Inventories		118.0			115.2
Prepaid expenses		50.5			45.4
Income taxes receivable		14.1			33.0
Deferred tax assets		68.2			72.8
Other current assets		39.8			85.7
		1,437.9			1,296.2
Property and equipment:
Land		132.7			134.8
Buildings and improvements		2,184.5			2,155.9
Equipment		1,629.0			1,633.8
Construction in progress (estimated costs to complete and equip after June 30, 2015 is $157.1 )		96.3			72.9
		4,042.5			3,997.4
Accumulated depreciation		(1,714.2)			(1,619.9)
		2,328.3			2,377.5
Deferred loan costs, net		28.9			31.7
Intangible assets, net		69.4			69.1
Other assets		54.2			46.4
Goodwill		1,634.4			1,636.1
Total assets	$	5,553.1		$	5,457.0
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	154.8		$	158.5
Accrued salaries		186.9			202.4
Other current liabilities		227.8			203.2
Current maturities of long-term debt		24.9			19.2
		594.4			583.3
Long-term debt		2,186.2			2,199.3
Deferred income tax liabilities		186.8			187.5
Long-term portion of reserves for self-insurance claims		144.0			133.2
Other long-term liabilities		85.1			84.7
Total liabilities		3,196.5			3,188.0
Redeemable noncontrolling interests		89.4			87.1
Equity:
LifePoint Health, Inc. stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued		-			-
Common stock, $0.01 par value; 90,000,000 shares authorized; 66,572,998 and
66,245,310 shares issued at June 30, 2015 and December 31, 2014, respectively		0.7			0.7
Capital in excess of par value		1,529.3			1,496.2
Accumulated other comprehensive loss		(4.4)			(4.4)
Retained earnings		1,558.4			1,473.1
Common stock in treasury, at cost, 22,165,729 and 21,672,250 shares at June 30, 2015
and December 31, 2014, respectively		(844.8)			(811.0)
Total LifePoint Health, Inc. stockholders' equity		2,239.2			2,154.6
Noncontrolling interests		28.0			27.3
Total equity		2,267.2			2,181.9
Total liabilities and equity	$	5,553.1		$	5,457.0

 

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LIFEPOINT HEALTH, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In Millions)

 

 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Cash flows from operating activities:
Net income	$	49.8		$	41.8		$	91.8		$	79.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation		7.4			6.4			15.0			13.1
Depreciation and amortization		68.9			60.9			136.9			122.0
Amortization of physician minimum revenue guarantees		3.1			3.8			6.3			7.7
Amortization of debt discounts, premium and deferred loan costs		1.3			4.3			2.5			11.6
Impairment charges		-			-			11.6			-
Deferred income taxes (benefit)		(1.5)			36.5			10.8			(5.1)
Reserve for self-insurance claims, net of payments		4.7			(1.4)			8.8			4.7
Increase (decrease) in cash from operating assets and liabilities,
net of effects from acquisitions and divestitures:
Accounts receivable		21.0			22.2			27.2			(28.3)
Inventories, prepaid expenses and other current assets		39.0			(2.7)			53.1			20.4
Accounts payable, accrued salaries and other current liabilities		(18.3)			(31.3)			(14.3)			(31.6)
Income taxes payable/receivable		11.0			(71.8)			19.0			(19.3)
Other		2.0			(0.7)			(0.7)			1.9
Net cash provided by operating activities		188.4			68.0			368.0			176.6
Cash flows from investing activities:
Purchases of property and equipment		(53.1)			(31.2)			(94.2)			(53.7)
Acquisitions, net of cash acquired		(12.5)			(27.2)			(25.8)			(87.8)
Proceeds from sale of hospital		18.8			-			18.8			-
Other		1.6			0.1			1.8			(0.4)
Net cash used in investing activities		(45.2)			(58.3)			(99.4)			(141.9)
Cash flows from financing activities:
Proceeds from borrowings		-			412.0			-			412.0
Payments of borrowings		(2.8)			(579.8)			(5.6)			(579.8)
Repurchases of common stock		-			(36.1)			(33.8)			(171.9)
Proceeds from exercise of stock options		3.8			11.1			10.8			18.3
Other		(3.3)			(7.2)			(8.7)			(9.2)
Net cash used in financing activities		(2.3)			(200.0)			(37.3)			(330.6)
Change in cash and cash equivalents		140.9			(190.3)			231.3			(295.9)
Cash and cash equivalents at beginning of period		281.9			532.3			191.5			637.9
Cash and cash equivalents at end of period	$	422.8		$	342.0		$	422.8		$	342.0
Supplemental disclosure of cash flow information:
Interest payments	$	47.1		$	56.9		$	51.6		$	60.6
Capitalized interest	$	0.4		$	0.1		$	0.8		$	0.3
Income tax payments, net	$	18.6		$	60.0		$	22.2		$	62.3

 

 

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LIFEPOINT HEALTH, INC.

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Six Months Ended June 30 , 2015

Unaudited

(In Millions)

 

 

	LifePoint Health, Inc. Stockholders
									Accumulated
						Capital in			Other
	Common Stock					Excess of			Comprehensive			Retained			Treasury			Noncontrolling
	Shares		Amount			Par Value			Loss			Earnings			Stock			Interests			Total
Balance at December 31, 2014 (a)	44.6		$	0.7		$	1,496.2		$	(4.4)		$	1,473.1		$	(811.0)		$	27.3		$	2,181.9
Net income	-			-			-			-			85.3			-			2.3			87.6
Exercise of stock options and tax
benefits of stock-based awards	0.3			-			17.7			-			-			-			-			17.7
Stock-based compensation	-			-			15.0			-			-			-			-			15.0
Repurchases of common stock,
at cost	(0.5)			-			-			-			-			(33.8)			-			(33.8)
Noncash change in noncontrolling
interests as a result of acquisition
and other	-			-			0.4			-			-			-			(0.3)			0.1
Cash distributions to noncontrolling
interests	-			-			-			-			-			-			(1.3)			(1.3)
Balance at June 30, 2015	44.4		$	0.7		$	1,529.3		$	(4.4)		$	1,558.4		$	(844.8)		$	28.0		$	2,267.2

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Note 1. Organization,   Basis of Presentation and Accounting Standards Not Yet Adopted

Organization

LifePoint Health, Inc. ,   formerly known as LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, owns and operates community hospitals , regional health systems, physician practices, outpatient centers, and post-acute facilities in 20 states   throughout the United States (“U.S.”). Unless the context otherwise indicates, LifePoint Health, Inc. and its subsidiaries are refer red to herein as the “Company.”

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30 , 201 5 are not necessarily indicative of the results that may be expected for the year ending December 31, 201 5 . For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 201 4 .

Additionally, the accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all subsidiaries and entities controlled by the Company through its direct or indirect ownership of a majority interest and exclusive rights granted to the Company as the sole general partner or controlling member of such entities, including Duke LifePoint Healthcare, a joint venture between LifePoint and a wholly-controlled affiliate of Duke University Health System, Inc.  Furthermore, the Company consolidates any entities for which it receives the majority of the entity’s expected returns or is at risk for the majority of the entity’s expected losses based upon its investment or financial interest in the entity.  All significant intercompany accounts and transactions within the Company have been eliminated in consolidation.

Accounting Standards Not Yet Adopted

ASU 2015-3, “Simplifying the Presentation of Debt Issuance Costs” 

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-3, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-3”).  ASU 2015-3 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than separately as an asset.    ASU 2015-3 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within those years, and is to be applied retrospectively. Early adoption is permitted.  The Company does not expect the adoption of ASU 2015-3 will have an impact on its results of operations or cash flows .

 

ASU 2015-2, “Consolidation”

 

In February 2015, the FASB issued ASU 2015- 2 “Consolidation” (“ASU 2015-2”).  ASU 2015-2 includes amendments that are intended to improve targeted areas of consolidation for legal entities including reducing the number of consolidation models from four to two and simplifying the FASB Accounting Standards Codification (“ASC”) .  The provisions of ASU 2015-2 are effective for annual reporting periods beginning after December 15, 2015.  The amendments may be applied retrospectively in previously issued financial statements for one or more years with a cumulative effect adjustment to retained earnings as of the beginning of the first year restated. Early adoption is permitted.  The Company is currently evaluating the impact that the adoption of ASU 2015-2 will have on its financial position, results of operation, cash flows and financial disclosures. 

 

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ASU 2014-9, “Revenue from Contracts with Customers”

 

In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9”).  ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:

 

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

Among other provisions and in addition to expanded disclosure about the nature, amount, timing and uncertainty of revenue, as well as certain additional quantitative and qualitative disclosures, ASU 2014-9 changes the healthcare industry specific presentation guidance under ASU 2011-7, “Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities.”  The provisions of ASU 2014-9 are effective for annual reporting periods beginning after December 15, 201 7 , including interim periods within those years.     Early adoption is not permitted. The Company is currently evaluating the impact that the adoption of ASU 2014-9 will have on its revenue recognition policies and procedures, financial position, results of operations, cash flows, financial disclosures and control framework.

 

Note 2. Revenue Recognition and Accounts Receivable

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

The Company’s revenues before provision for doubtful accounts by payor and approximate percentages of revenues were as follows for the three and six months ended June 30 , 2015 and 201 4 (in millions):

 

	Three Months Ended June 30,												Six Months Ended June 30,
	2015						2014						2015						2014
				% of						% of						% of						% of
	Amount			Revenues			Amount			Revenues			Amount			Revenues			Amount			Revenues
Medicare	$	370.0		29.1	%		$	325.0		31.0	%		$	747.9		29.5	%		$	641.8		31.2	%
Medicaid		207.4		16.3				149.8		14.3				404.8		16.0				290.0		14.1
HMOs, PPOs and other private
insurers		683.0		53.8				577.6		55.1				1,364.1		53.8				1,114.2		54.3
Self-pay		178.4		14.0				172.3		16.5				342.7		13.5				339.5		16.5
Other		31.0		2.5				21.5		2.1				61.9		2.5				43.5		2.1
Revenues before provision for
doubtful accounts		1,469.8		115.7				1,246.2		119.0				2,921.4		115.3				2,429.0		118.2
Provision for doubtful accounts		(199.4)		(15.7)				(199.2)		(19.0)				(387.3)		(15.3)				(374.8)		(18.2)
Revenues	$	1,270.4		100.0	%		$	1,047.0		100.0	%		$	2,534.1		100.0	%		$	2,054.2		100.0	%

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

The following is a summary of the Company’s activity in the allowance for doubtful accounts for the six months ended June 30 , 2015 (in millions):

 

Balance at January 1, 2015	$	709.5
Additions recognized as a reduction to revenues		387.3
Accounts written off, net of recoveries		(372.5)
Balance at June 30, 2015	$	724.3

 

The allo wances for doubtful accounts as a percent of gross accounts receivable, net of contractual discounts were 5 0.0 % and 48.5 % as of June 30 , 2015 and December 31, 201 4 , respectively. Additionally, as of June 30 , 2015 and December 31, 201 4 , the allowances for doubtful accounts plus certain contractual allowances and discounts related to self-pay patients as a percentage of self-pay receivables were   87 . 6 % and 88.4 %, respectively.

 

Note 3. General and Administrative Costs

 

The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as “general and administrative” by the Company would include its health support center overhead costs, which were $ 61 . 7 million and $ 53.9 million for the three months ended June 30 , 2015 and 201 4 , respectively , and $115 . 6 million and $106.1 million for the six months ended June 30, 2015 and 2014, respectively .   Included in the Company’s health support center overhead costs are depreciation and amortization expense related primarily to the Company’s information systems platforms of $ 7 . 9 million and $ 7 . 3 million for the three months ended June 30 , 2015 and 2014, respectively , and $16.0 million and $14 . 6 million for the six months ended June 30, 2015 and 2014, respectively .  

 

Note 4. Fair Value of Financial Instruments

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

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

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

 

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Long-Term Debt

The carrying amounts and fair values of the Company’s senior secured term loan facility (the “Term Facility”) and senior secured incremental term loans (the “Incremental Term Loans”) under its senior secured credit agreement with , among others,   Citibank , N.A. as administrative agent , and the lenders party thereto (the “ Senior   Credit Agreement”), 6.625%  unsecured senior notes due October 1, 2020 (the “6.625% Senior Notes”), and 5.5% unsecured senior notes due December 1, 2021 (the “5.5% Senior Notes”) as of June 30 , 2015 and December 31, 201 4 were as follows (in millions):

	Carrying Amount						Fair Value
	June 30,			December 31,			June 30,			December 31,
	2015			2014			2015			2014
Senior Credit Agreement:
Term Facility	$	416.3		$	421.9		$	415.2		$	420.3
Incremental Term Loans, excluding unamortized debt discount	$	222.6		$	222.6		$	222.0		$	222.0
6.625% Senior Notes	$	400.0		$	400.0		$	417.0		$	422.0
5.5% Senior Notes, excluding unamortized debt premium	$	1,100.0		$	1,100.0		$	1,138.5		$	1,130.3

 

The fair values of the Company’s long-term debt instruments were estimated based on the average bid and ask price as determined using published rates and categorized as Level 2 within the fair value hierarchy in accordance with ASC 820-10 . 

 

Common Stock Warrant

 

As partial consideration in connection with the Company’s acquisition of Conemaugh Health System (“Conemaugh”) , the Company issued a warrant to the seller.  The warrant, classified as a liability, is marked-to-market using an option pricing model which considers the warrant’s contractual term, a combination of both historical volatility and implied volatility from traded options of the Company’s common stock, risk-free interest rates and dividend assumptions.  Since all significant inputs are market-based and observable, the warrant is categorized as Level 2 within the fair value hierarchy in accordance with ASC 820-10.  A s of   June 30 , 2015 and December 31, 2014 , the fair value of the warrant was approximately $ 11.6 million and $9.2 million, respectively. These amounts are included in the accompanying unaudited condensed consolidated balance sheets under the caption “Other long-term liabilities”.

 

Note 5. Acquisition s

 

Nason Hospital  

Effective February 1, 201 5 ,   the Company acquired Nason Hospital (“Nason”) , a 45 bed acute care hospital located in Roaring Spring ,   Pennsylvania for approximately $3 .5 million, including net working capital. The Company   has committed to invest in Nason an additional $8 . 5 million in capital expenditures and improvements over the next ten years.  The results of operations of Nason are included in the Company’s results of operations beginning on February 1, 201 5 . The fair values assigned to certa in assets acquired and liabilities assumed in relation to the Company’s acquisition of Nason have been prepared on a preliminary basis with information currently available and are subject to change. Specifically, the Company is further assessing the valuation of certain tangible and intangible assets acquired and obligations assumed pending the final appraisals. The Company expects to finalize its analysis during 2015 .   

Other

The Company   completed certain anci llary service-line acquisitions and finalized net working capital settlements related to its 2014 acquisitions for a total of $ 22 . 3 million during the six months ended June 30 , 2015.

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Note 6. Divestiture s and Impairment Charges

 

Effective May 1, 201 5 , the Company sold   Putnam Community Medical Center (“Putnam”) located in Palatka, Florida for $18.8 million, including net working capital .     Included in the accompanying unaudited condensed consolidated statements of operations is   a   net loss before income taxes attributable to Putnam of $ 2 . 7 million for the six months ended June 30, 2015 and net income before income taxes attributable to Putnam of $ 2 . 3 million for the six months ended June 30 , 2014 .

 

In connection with the Company’s sale of Putnam , the Company recognized an   impairment charge of $ 8 . 6 million, $ 5 . 6 million net of income taxes, or $ 0. 12 loss per diluted share, during the six months ended June 30 , 2015 . The impairment charge include s the wr ite-down of property, equipment, allocated goodwill and certain other assets to their estimated fair values.

 

Additionally, during the six months ended June 30 , 2015, the Company recognized additional impairment charges totaling $ 3 .0 million, $ 1.9 million net of income taxes, or $ 0 . 0 4 loss per diluted share, related to the finalization of the divestitures of Lakeland Community Hospital, Northwest Medical Center and Russellville Hospital which were sold effective January 1, 2015.

 

 

Note 7 . Goodwill and Intangible Assets  

Goodwill

The Company accounts for its acquisitions in accordance with ASC 805-10, “Business Combinations” using the acquisition method of accounting. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to assets acquired and liabilities assumed. In accordance with ASC 350-10, “Intangibles — Goodwill and Other” goodwill and intangible assets with indefinite lives are reviewed by the Company at least annually for impairment. The Company’s business comprises a single reporting unit for impairment test purposes. For the purposes of these analyses, the Company’s estimates of fair value are based on a combination of the income approach, which estimates the fair value of the Company based on its future discounted cash flows, and the market approach, which estimates the fair value of the Company based on comparable market prices. The Company performed its most recent annual impa irment test as of October 1, 201 4 and did not incur an impairment charge.

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Intangible Assets

Summary of Intangible Assets

 

The following table provides information regarding the Company’s intangible assets, which are included in the accompanying unaudited condensed consolidated balance sheets at June 30 , 2015 and December 31, 201 4 (in millions):

 

	June 30,			December 31,
	2015			2014
Amortized intangible assets:
Contract-based physician minimum revenue guarantees
Gross carrying amount	$	54.2		$	62.3
Accumulated amortization		(32.3)			(35.5)
Net total		21.9			26.8
Non-competition agreements and other
Gross carrying amount		25.1			23.6
Accumulated amortization		(17.2)			(15.9)
Net total		7.9			7.7
Total amortized intangible assets
Gross carrying amount		79.3			85.9
Accumulated amortization		(49.5)			(51.4)
Net total		29.8			34.5
Indefinite-lived intangible assets:
Certificates of need and certificates of need exemptions		29.8			29.5
Licenses, provider numbers, accreditations and other		9.8			5.1
Net total		39.6			34.6
Total intangible assets:
Gross carrying amount		118.9			120.5
Accumulated amortization		(49.5)			(51.4)
Net total	$	69.4		$	69.1

 

Contract-Based Physician Minimum Revenue Guarantees

The Company has committed to provide certain financial assistance pursuant to recruiting agreements, or “physician minimum revenue guarantees,” with various physicians practicing in the communities it serves. In consideration for a physician relocating to one of its communities and agreeing to engage in private practice for the benefit of the respective community, the Company may advance certain amounts of money to a physician to assist in establishing his or her practice.

The Company accounts for its physician minimum revenue guarantees in accordance with the provisions of ASC 460-10, “Guarantees” (“ASC 460-10”). In accordance with ASC 460-10, the Company records a contract-based intangible asset and a related guarantee liability for new physician minimum revenue guarantees. The contract-based intangible asset is amortized over the period of the physician contract, which typically ranges from four to five years and is included as an expense under the caption “Other operating expenses” in the accompanying unaudited condensed consolidated statements of operations. T he Company’s liability for contract-based physician minimum revenue guarantees was $ 8 . 4 million and $9.3 million   as of   June 30 , 2015 and December 31, 2014 , respectively .   These amounts are included in the accompanying unaudited condensed consolidated balance sheets under the caption “Other current liabilities”.

 

Non-Competition Agreements

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

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Certificates of Need and Certificates of Need Exemptions

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

Licenses, Provider Numbers, Accreditations and Other

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

 

Note 8 . Common Stock in Treasury

The Company’s Board of Directors has authorized the repurchase of outstanding shares of its common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints and other customary factors in accordance with a repurchase plan adopted in 2011, as subsequently amended and extended in February 2013 (the “ 2011 Repurchase Plan”) , a repurchase plan adopted in 2014 (the “2014 Repurchase Plan”) and a repurchase plan adopted on June 3, 2015 (the “2015 Repurchase Plan”) .  The 2011 Repurchase Plan provide d for the repurchase of up to $350.0 million in shares of the Company’s commo n stock, and the Company has repurchased all shares authorized for repurchase under this plan. The 2014 Repurchase Plan provides for the repurchase of up to $150.0 million in shares of the Company’s common stock through October 1, 2015. The 2015 Repurchase Plan provides for the repurchase of up to $150.0 million in shares of the Company’s common stock through December 3 , 2016.   T he Company is not obligated to repurchase any specific number of shares under any of its repurchase plans .  The Company has designated the shares repurchased in accordance with its repurchase plans as treasury stock.

In connection with the 2011 Repurchase Plan, t he Company repurchased approximately 3.0 million shares for an aggregate purchase price, including commissions, of $ 164.7 million at an average purchase price of $ 54.33   per sh are   during the six months ended June 30 , 2014 .     In connection with the 2014 Repurchase Plan, the Company repurchased approximately 0. 4 million shares for an aggregate purchase price, including commissions, of $ 25 .0 million at an average purchase price of $ 67.86   per sh are   during the six months ended June 30 , 2015 .     As of   June 30 , 2015 ,   the Company had remaining authority to repurchase $ 75 .0 million and $150.0 million in shares in accordance with the 2014 Repurchase Plan and 2015 Repurchase Plan, respectively .

Additionally, the Company redeems shares from employees for minimum statutory tax withholding purposes upon vesting of certain stock awards granted pursuant to the Company’s various stockholder approved stock-based compensation plans. The Company redeemed 0.1 million shares vested under these plans during each of the six months ended June 30 , 2015 and 2014 for an aggregate purchase price of approximately $ 8.8 million and $7 . 2 million ,   respectively. The Company has designated these shares as treasury stock.  

 

Note 9 . Stock-Based Compensation  

 

Overview

 

The Company issues stock-based awards, including stock options and other stock-based awards (nonvested stock, restricted stock, restricted stock units and performance shares) to certain officers, employees and non-employee directors in accordance with the Company’s stockholder-approved 2013 Long-Term Incentive Plan (the “2013 LTIP”) . The Company accounts for its stock-based awards in accordance with the provisions of ASC 718-10, “Compensation – Stock Compensation” (“ASC 718-10”), and accordingly recognizes compensation expense over each of the stock-based award’s requisite service period based on the estimated grant date fair value.

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Notwithstanding the specific grant vesting requirements, award agreements under the 2013 LTIP may provide for accelerated vesting in certain circumstances.  Generally, award agreements provide for full vesting upon the death or disability of the participant.  Some award agreements also provide for partial or full vesting upon involuntary termination of employment, provided that if the award is performance-based then the accelerated vesting would occur only if the performance goals are attained.

Stock Options

T he Company granted options to purchase 823,750   and 712 , 95 0   shares of the Company’s common stock to certain officers and employees in accordance with the 2013 LTIP during the six months ended June 30 , 2015 and 2014 , respectively .  Options to purchase shares granted to the Company’s officers and employees in accordance with the 2013 LTIP were granted with an exercise price equal to the fair market value of the Company’s common stock on the day of grant, determined based on the closing price on the trading date immediately prior to the grant date. The options granted during the six months ended June 30 , 2015 and 201 4 become ratably exercisable beginning one year from the date of grant to three years after the date of grant and expire ten years from the date of grant.

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

T he following table shows the weighted average assumptions the Company used to develop the fair value estimates under its HW-II option valuation model and the resulting estimates of weighted-average fair value per share of stock options granted during the six months ended June 30 , 201 5 and 201 4 :

 

	Six Months Ended June 30,
	2015				2014
Expected volatility		29.0	%			29.0	%
Risk-free interest rate, minimum		0.01	%			0.05	%
Risk-free interest rate, maximum		2.20	%			2.71	%
Expected dividends		-				-
Average expected term (years)		5.3				5.4
Fair value per share of stock options granted	$	18.66			$	13.95

 

The total intrinsic value of stock options exercised during the six months ended June 30 , 201 5 and 201 4 was $ 8 . 1 million and $ 9.5 million, respectively. The Company received $ 3 . 8 million and $ 11.1 million in cash from stock option exercises for the three months ended June 30 , 2015 and 201 4 , respectively , and $10 . 8 million and $18.3 million in cash from stock option exercises for the six months ended June 30, 2015 and 2014, respectively .   The actual tax benefit realized for the tax deductions from stock option exercises was $1 . 9 million and $1.2 million f or the six months ended June 30 , 2015 and 2014 , respectively .

As of June 30 , 2015 , there was $ 18.6   million of total estimated unrecognized compensation cost related to stock option compensation arrangements. Total estimated unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1.5 years.

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Other Stock-Based Awards

The Company granted a total of   289,919   and 366,271   restricted stock units and performance-based restricted stock units   to certain officers ,   employees and non-employee directors   in accordance with the 2013 LTIP during the six months ended June 30 , 2015 and 201 4 , respectively. The fair value of the restricted stock units was determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date.  The fair value of the performance-based restricted stock units was estimated using the Monte-Carlo simulation valuation model as more fully described below.  The restricted stock units and performance-based restricted stock units granted during the six months ended June 30 , 2015 and 201 4   generally have either cliff-vesting periods from the grant date of three years , cliff-vesting periods from the grant date of six months and one day or ratable vesting periods beginning one year from the date of grant to three years   after the date of grant. 

Of the restr icted stock units granted during the six months ended June 30 ,   2015 and 201 4 ,   145,000 and   236 ,000 , respectively, were performance-based awards .     In addition to requiring continuing service of the employee, the percentage of these restricted stock units that are earned at the end of the performance period is determined based on the Company’s three-year annualized total shareholder return relative to a peer group, S tandard and P oor’s  G lobal I ndustry C lassification S tandard’s Sub-industry:  Health Care Facilities with over $500.0 million in revenues or its equivalent. For the performance-based restricted stock units granted during the six months ended June 30 , 2015, the number of shares payable at the end of the three-year performance period ranges from 0% to 200% of the targeted units.  For the performance-based restricted stock units granted during the six months ended June 30 , 2014, t he number of shares payable at the end of the three-year performance period ranges from 0% to 100% of the targeted units , with any portion of the award that exceeds 100% up to 200% of the targeted units settled in cash equal to the fair market value on the date certification of the level of performance is achieved.  For valuation purposes, these awards were bifurcated into their two independent sub-award components for the portion that would be settled in the Company’s common stock and for the portion that would be settled in cash.  The Company recognizes compensation expense for the portion of the performance-based restricted stock units that will ultimately be settled in the Company’s common stock for the targeted units if the requisite service period is rendered, even if the market condition is never satisfied.  Additionally, the Company classifies as a liability and recognizes compensation expense for the portion of the award that will ultimately be settled in cash for the targeted units at its Monte-Carlo simulation value which has been marked-to-market.

As of June 30 , 2015 ,   there was $ 35 . 9   million of total estimated unrecognized compensation cost related to other stock-based awards. Total estimated unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1.7 years.

The following table summarizes the Company’s total stock-based compensation expense as well as the total recognized tax benefits relate d thereto for the three and six months ended June 30 , 2015 and 201 4 (in millions):

 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Equity awards:
Other stock-based awards	$	4.8		$	4.2		$	9.5		$	8.5
Stock options		2.6			2.2			5.5			4.6
		7.4			6.4			15.0			13.1
Liability awards:
Other stock-based awards		3.0			0.5			3.7			0.7
Total stock-based compensation expense	$	10.4		$	6.9		$	18.7		$	13.8
Tax benefit on stock-based compensation expense	$	4.1		$	2.7		$	7.4		$	5.5

 

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The Company did not capitalize any stock-based compensati on cost during the three or six months ended June 30 , 2015 or 2014. As of June 30 , 2015 , there was $ 54 . 5 million of total estimated unrecognized compensation cost related to all of the Company’s stock-based compensation arrangements. Total estimated unrecognized compensation cost may be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted-average period of 1. 7 years.

 

Note 1 0 . Commitments and Contingencies  

Legal Proceedings and General Liability Claims

Hospitals are, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance.

 

In addition, hospitals are subject to the regulation and oversight of various state and federal governmental agencies. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against hospitals that submit false claims for payments to, or improperly retain overpayments from, governmental payors. Some states have adopted similar state whistleblower and false claims provisions. These qui tam or “whistleblower” actions initiated under the civil False Claims Act may be pending but placed under seal by the court to comply with the False Claims Act’s requirements for filing such suits. As a result, they could be proceeding without the Company’s knowledge. Although the healthcare industry has seen numerous ongoing investigations related to compliance and billing practices, hospitals, in particular, continue to be a primary enforcement target for the Office of Inspector General (“OIG”), the Department of Justice (“DOJ”) and other governmental fraud and abuse programs. Certain of the Company’s individual facilities have received, and from time to time, other facilities may receive, inquiries or subpoenas from fiscal intermediaries, federal and state agencies. Any proceedings against the Company may involve potentially substantial amounts as well as the possibility of civil, criminal, or administrative fines, penalties, or other sanctions, which could be material. Settlements of suits involving Medicare and Medicaid issues routinely require both monetary payments as well as corporate integrity agreements. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material adverse effect on the Company’s financial position, results of operations and liquidity.

 

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 imposed an affirmative obligation on healthcare providers to report and refund any overpayments received. “Overpayments” in this context include any amount received from a government program by a provider to which it is not entitled, regardless of the cause. Such overpayments are deemed to be fraudulent and become violations of the False Claims Act if not reported and refunded within the later of 60 days of identification or the date any corresponding cost report is due (if applicable) . Hospitals can meet the obligation to report and refund in three ways: (1) refunding overpayments directly to the program; (2) self-disclosing the overpayment to the OIG via its voluntary self-disclosure protocol (with respect to False Claims Act and other violations not related to the Stark law); and (3) self-disclosing to the Centers for Medicare and Medicaid Services (“ CMS ”) via the self-referral disclosure protocol (with respect to overpayments caused by potential violations of the Stark law only) for which CMS has the authority to reduce the amounts otherwise owed.

 

In connection with the Company’s acquisitions of Marquette General Hospital (“Marquette General”) and Conemaugh, the two sellers self-disclosed various potentially non-compliant physician arrangements under the CMS voluntary self-disclosure protocol.  These self-disclosures are pending with CMS.  With respect to Marquette General, t o the extent that the seller’s satisfaction of its retained liabilities, including those under its CMS voluntary self-disclosure, causes its net proceeds from the acquisition to be less than $15.0 million, the Company has agreed to pay additional purchase consideration to the seller.  With respect to Conemaugh, to the extent that the potential settlement exceeds the seller’s indemnification threshold in accordance with the asset purchase agreement, the Company will likely be responsible for funding any deficit.  The Company’s management believes it has made reasonable estimates of its potential exposure for these two matters and at June 30 , 201 5 has recorded a reserve for Marquette General of $18.0 million.

 

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On September 16, 2013, the Company and two of its hospitals, Vaughan Regional Medical Center, located in Selma, Alabama, and Raleigh General Hospital, located in Raleigh, West Virginia, made a voluntary self-disclosure to the Civil Division of the DOJ. The voluntary self-disclosure related to concerns regarding the clinical appropriateness of certain interventional cardiology procedures conducted by one physician in each of these hospitals ’ cardiac catheterization laboratories.  On Septem ber 24, 2013, the U.S. Attorney’ s Office in the Southern District of West Virginia served a subpoena on Raleigh General Hospital. Raleigh General Hospital produced responsive documents to the subpoena, including patient files. The government investigations are ongoing and the Company continues to cooperate with the government in addressing these matters. Following reviews by independent interventional cardiologists, the Company notified patients of these two physicians who may have received an unnecessary procedure of such fact.

The Company and/or Vaughan Regional Medical Center and several of the Company’s subsidiaries, as well as Dr. Seydi V. Aksut and certain parties unaffiliated with the Co mpany, are named defendants in 2 8 individual lawsuits filed since December 2014, and two putative class action lawsuits, all filed in the Circuit Court of Dallas County, Alabama.  These lawsuits allege that patients at Vaughan Regional Medical Center received improper interventional cardiology procedures.  One of the putative class action lawsuits, filed on November 21, 2014, seeks certification of a class consisting of all Alabama citizens who underwent an invasive cardiology procedure at any LifePoint owned Alabama hospital and who received notice regarding the medical necessity of that procedure.  The other putative class action lawsuit, filed on February 6, 2015, seeks certification of a class of individuals that underwent an interventional cardiology procedure that was not medically necessary and performed by Dr. Aksut.  This action asserts, among other claims, claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), which, if successful, would result in the awarding of treble damages for any injury resulting from the RICO violation and attorneys’ fees.     In March 2015, the Company removed this action to the U.S. District Court in Mobile, Alabama and filed a motion to dismiss and for summary judgment, as well as a stay of discovery pending resolution of these motions. On April 17, 2015 the court entered an order granting the requested stay of discovery.

Through July 31 , 2015, the Company, and two of its subsidiaries, including Raleigh General Hospital, as well as Dr. Kenneth Glaser, have been named in 17 individual lawsuits filed in the circuit court of Raleigh County, West Virginia.  These lawsuits allege that patients at Raleigh General Hospital received unnecessary interventional cardiol ogy procedures.  Through July 31 , 2015, 23 additional patients have notified Raleigh General Hospital that they intend to file lawsuits against the hospital. 

The lawsuits identified above variously seek compensatory and punitive damages, costs, attorneys’ fees and other available damages.  Additional claims, including claims involving patients to whom the Company did not send notice, have been threatened and may be asserted agai nst the Company or the hospital.   Any present or future claims that are ultimately successful could result in the Company and/or the hospitals being found liable and the government investigations may also result in damages, fines and penalties. Such liability, damages and penalties could be material. The Company cannot, however, reasonably estimate the potential liability, if any, in connection with any of these matters, and no liability has been recorded as of June 30 , 201 5 .

The Company does not control and cannot predict with certainty the progress or final outcome of discussions with government agencies, investigations and legal proceedings against the Company.  Therefore, the final amounts paid to resolve the foregoing matters could be material and could materially differ from amounts currently recorded, if any.  Any such changes in the Company’s estimates or any adverse judgments will impact the Company’s future results of operations and cash flows.

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Physician Commitments

The Company has committed to provide certain financial assistance pursuant to recruiting agreements with various physicians practicing in the communities it serves.  In consideration for a physician’s relocating to one of its communities and agreeing to engage in private practice for the benefit of the respective community, the Company may advance certain amounts of money to a physician, normally over a period of one year, to assist in establishing the physician’s practice.  The Company has committed to advance a maximum amount of approximately $ 19 . 3 million at June 30 , 2015 .  The actual amount of such commitments to be subsequently advanced to physicians is estimated at $ 8 . 4 million and often depends upon the financial results of a physician’s private practice during the guarantee period.   Generally, amounts advanced under the recruiting agreements may be forgiven pro rata over a period of 36 to 48 months contingent upon the physician continuing to practice in the respective community.  Pursuant to the Company’s standard physician recruiting agreement, any breach or non-fulfillment by a physician under the physician recruiting agreement gives the Company the right to recover any payments made to the physician under the agreement.  Additionally, the Company is subject to annual commitments for certain physician recruiting activities, including the continuation of existing or initiation of new activities with several of its facilities.  

Capital Expenditure Commitments

The Company is reconfiguring some of its facilities to more effectively accommodate patient services and to provide for a greater variety of services, as well as implementing various information system initiatives in its efforts to comply with the Health Information Technology for Economic and Clinical Health Act . The Company has incurred approximately $ 96 . 3 million in costs related to uncompleted projects as of June 30 , 201 5 , which is included under the caption “Construction in progress” in the accompanying unaudited condensed consolidated balance sheet. At June 30 , 201 5 , these uncompleted projects had an estimated cost to compl ete and equip of approximately $ 157 . 1 million.  Additionally, the Company is subject to annual capital expenditure commitments in connection with several of its facilities.  As part of the Company’s current acquisition strategy, management expects capital expenditure commitments to be a significant component of future purchase transactions .   At June 30 , 2015 , the Company estimated its total remaining capital expenditure commitments, including commitments for routine projects, to be approximately $ 1,595 . 4 million.

Acquisitions

 

The Company has historically acquired businesses with prior operating histories. Acquired businesses may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, medical and general professional liabilities, workers compensation liabilities, previous tax liabilities and unacceptable business practices. 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.    

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Note 11 . Earnings Per Share  

 

The following table sets forth the computation of basic and diluted earnings per share for the three   and six months ended June 30 , 201 5 and 201 4 (dollars and shares in millions, except per share amounts):

 

 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Numerator for basic and diluted earnings per share attributable to
LifePoint Health, Inc.:
Net income	$	49.8		$	41.8		$	91.8		$	79.5
Less: Net income attributable to noncontrolling interests
and redeemable noncontrolling interests		(3.4)			(2.7)			(6.5)			(3.3)
Net income attributable to LifePoint Health, Inc.	$	46.4		$	39.1		$	85.3		$	76.2
Denominator:
Weighted average shares outstanding - basic		44.2			44.5			44.2			45.2
Effect of dilutive securities:
Stock options and other stock-based awards		2.2			1.7			2.0			1.6
Convertible debt instruments		-			0.3			-			0.5
Weighted average shares outstanding - diluted		46.4			46.5			46.2			47.3
Earnings per share attributable to LifePoint Health, Inc. stockholders:
Basic	$	1.05		$	0.88		$	1.93		$	1.69
Diluted	$	1.00		$	0.84		$	1.84		$	1.61

The Company’s previously outstanding convertible debt instruments have been included in the calculation of diluted earnings per share for the three and six months ended June 30 , 2014 whether or not the contingent requirements were met for conversion when their conversion price wa s less than the average market price of the Company’s common stock for the period the convertible debt instruments were outstanding .   Additionally, certain outstanding stock-based awards have been included in the calculation of diluted earnings per sha re to the extent they were dilutive for the three   and six months ended June 30 , 201 5 and 201 4 .

 

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Note 12. Guarantor and Non-Guarantor Supplementary Information

 

The 6.625% Senior Notes and the 5.5% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by substantially all of the Company’s existing subsidiaries that guarantee the Company’s Senior Credit Agreement. The guarantors are 100% owned by the Company. Additionally, the guarantees are full and unconditional and are subject to customary release provisions as set forth in the agreements for the 6.625% Senior Notes and the 5.5% Senior Notes.

 

The condensed consolidating financial information for the parent issuer, 100% owned guarantor subsidiaries, non-guarantor subsidiaries, certain eliminations and the Company is presented below for the three and six months ended June 30, 2015 and 2014 and as of June 30, 2015 and December 31, 2014.

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2015

(In millions)

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues before provision for
doubtful accounts	$	-		$	856.3		$	613.5		$	-		$	1,469.8
Provision for doubtful accounts		-			131.6			67.8			-			199.4
Revenues		-			724.7			545.7			-			1,270.4
Salaries and benefits		10.4			332.1			264.3			-			606.8
Supplies		-			104.6			89.5			-			194.1
Other operating expenses		1.1			190.0			117.6			-			308.7
Other income		-			(8.0)			(6.2)			-			(14.2)
Equity in earnings of affiliates		(71.6)			-			-			71.6			-
Depreciation and amortization		-			44.5			24.4			-			68.9
Interest expense, net		8.3			16.5			3.3			-			28.1
Management (income) fees		-			(17.0)			17.0			-			-
		(51.8)			662.7			509.9			71.6			1,192.4
Income before income taxes		51.8			62.0			35.8			(71.6)			78.0
Provision for income taxes		5.4			22.8			-			-			28.2
Net income		46.4			39.2			35.8			(71.6)			49.8
Less:  Net income attributable to
noncontrolling interests and
redeemable noncontrolling interests		-			(1.7)			(1.7)			-			(3.4)
Net income attributable to LifePoint
Health, Inc.	$	46.4		$	37.5		$	34.1		$	(71.6)		$	46.4

 

 

 

 

 

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LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2014

(In millions)

 

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues before provision for
doubtful accounts	$	-		$	861.8		$	384.4		$	-		$	1,246.2
Provision for doubtful accounts		-			140.4			58.8			-			199.2
Revenues		-			721.4			325.6			-			1,047.0
Salaries and benefits		6.9			323.5			158.1			-			488.5
Supplies		-			104.4			58.1			-			162.5
Other operating expenses		-			187.2			71.1			-			258.3
Other income		-			(15.2)			(5.8)			-			(21.0)
Equity in earnings of affiliates		(57.6)			-			-			57.6			-
Depreciation and amortization		-			46.1			14.8			-			60.9
Interest expense, net		11.8			17.7			1.8			-			31.3
Management (income) fees		-			(4.9)			4.9			-			-
		(38.9)			658.8			303.0			57.6			980.5
Income before income taxes		38.9			62.6			22.6			(57.6)			66.5
(Benefit) provision for income taxes		(0.2)			24.9			-			-			24.7
Net income		39.1			37.7			22.6			(57.6)			41.8
Less:  Net income attributable to
noncontrolling interests and
redeemable noncontrolling interests		-			(0.2)			(2.5)			-			(2.7)
Net income attributable to LifePoint
Health, Inc.	$	39.1		$	37.5		$	20.1		$	(57.6)		$	39.1

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2015

(In millions)

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues before provision for
doubtful accounts	$	-		$	1,691.3		$	1,230.1		$	-		$	2,921.4
Provision for doubtful accounts		-			246.8			140.5			-			387.3
Revenues		-			1,444.5			1,089.6			-			2,534.1
Salaries and benefits		18.7			663.4			535.9			-			1,218.0
Supplies		-			209.4			181.5			-			390.9
Other operating expenses		(0.2)			368.8			233.7			-			602.3
Other income		-			(17.8)			(8.1)			-			(25.9)
Equity in earnings of affiliates		(131.1)			-			-			131.1			-
Depreciation and amortization		-			89.9			47.0			-			136.9
Interest expense, net		16.9			32.9			6.7			-			56.5
Impairment charges		-			11.6			-			-			11.6
Management (income) fees		-			(25.5)			25.5			-			-
		(95.7)			1,332.7			1,022.2			131.1			2,390.3
Income before income taxes		95.7			111.8			67.4			(131.1)			143.8
Provision for income taxes		10.4			41.6			-			-			52.0
Net income		85.3			70.2			67.4			(131.1)			91.8
Less:  Net income attributable to
noncontrolling interests and
redeemable noncontrolling interests		-			(1.9)			(4.6)			-			(6.5)
Net income attributable to LifePoint
Health, Inc.	$	85.3		$	68.3		$	62.8		$	(131.1)		$	85.3

---

 

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2014

(In millions)

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues before provision for
doubtful accounts	$	-		$	1,699.8		$	729.2		$	-		$	2,429.0
Provision for doubtful accounts		-			268.7			106.1			-			374.8
Revenues		-			1,431.1			623.1			-			2,054.2
Salaries and benefits		13.8			648.0			301.5			-			963.3
Supplies		-			207.1			112.4			-			319.5
Other operating expenses		-			367.9			133.9			-			501.8
Other income		-			(28.8)			(6.1)			-			(34.9)
Equity in earnings of affiliates		(113.9)			-			-			113.9			-
Depreciation and amortization		-			91.4			30.6			-			122.0
Interest expense, net		26.1			34.7			4.4			-			65.2
Management (income) fees		-			(10.0)			10.0			-			-
		(74.0)			1,310.3			586.7			113.9			1,936.9
Income before income taxes		74.0			120.8			36.4			(113.9)			117.3
(Benefit) provision for income taxes		(2.2)			40.0			-			-			37.8
Net income		76.2			80.8			36.4			(113.9)			79.5
Less:  Net income attributable to
noncontrolling interests and
redeemable noncontrolling interests		-			(0.4)			(2.9)			-			(3.3)
Net income attributable to LifePoint
Health, Inc.	$	76.2		$	80.4		$	33.5		$	(113.9)		$	76.2

 

 

 

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Balance Sheets
June 30, 2015

(In millions)  

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	316.7		$	106.1		$	-		$	422.8
Accounts receivable, net		-			447.6			276.9			-			724.5
Inventories		-			71.3			46.7			-			118.0
Prepaid expenses		-			32.8			17.7			-			50.5
Income taxes receivable		14.1			-			-			-			14.1
Deferred tax assets		68.2			-			-			-			68.2
Other current assets		-			22.4			17.4			-			39.8
		82.3			890.8			464.8			-			1,437.9
Property and equipment:
Land		-			70.7			62.0			-			132.7
Buildings and improvements		-			1,531.7			652.8			-			2,184.5
Equipment		-			1,280.1			348.9			-			1,629.0
Construction in progress		-			65.6			30.7			-			96.3
		-			2,948.1			1,094.4			-			4,042.5
Accumulated depreciation		-			(1,448.6)			(265.6)			-			(1,714.2)
		-			1,499.5			828.8			-			2,328.3
Deferred loan costs, net		28.9			-			-			-			28.9
Intangible assets, net		-			29.7			39.7			-			69.4
Investments in subsidiaries		2,157.1			-			-			(2,157.1)			-
Due from subsidiaries		2,329.3			-			-			(2,329.3)			-
Other assets		8.0			21.7			24.5			-			54.2
Goodwill		-			1,435.3			199.1			-			1,634.4
Total assets	$	4,605.6		$	3,877.0		$	1,556.9		$	(4,486.4)		$	5,553.1
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	-		$	85.2		$	69.6		$	-		$	154.8
Accrued salaries		-			110.0			76.9			-			186.9
Other current liabilities		18.1			130.5			79.2			-			227.8
Current maturities of long-term debt		22.5			1.0			1.4			-			24.9
		40.6			326.7			227.1			-			594.4
Long-term debt		2,125.7			48.4			12.1			-			2,186.2
Due to Parent		-			1,729.2			600.1			(2,329.3)			-
Deferred income tax liabilities		186.8			-			-			-			186.8
Long-term portion of reserves for self-insurance claims		-			107.2			36.8			-			144.0
Other long-term liabilities		13.3			25.5			46.3			-			85.1
Total liabilities		2,366.4			2,237.0			922.4			(2,329.3)			3,196.5
Redeemable noncontrolling interests		-			-			89.4			-			89.4
Total LifePoint Health, Inc. stockholders' equity		2,239.2			1,638.4			518.7			(2,157.1)			2,239.2
Noncontrolling interests		-			1.6			26.4			-			28.0
Total equity		2,239.2			1,640.0			545.1			(2,157.1)			2,267.2
Total liabilities and equity	$	4,605.6		$	3,877.0		$	1,556.9		$	(4,486.4)		$	5,553.1

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Balance Sheets
December 31, 2014

(In millions)

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	62.0		$	129.5		$	-		$	191.5
Accounts receivable, net		-			451.4			301.2			-			752.6
Inventories		-			71.3			43.9			-			115.2
Prepaid expenses		0.1			29.1			16.2			-			45.4
Income taxes receivable		33.0			-			-			-			33.0
Deferred tax assets		72.8			-			-			-			72.8
Other current assets		-			53.5			32.2			-			85.7
		105.9			667.3			523.0			-			1,296.2
Property and equipment:
Land		-			70.0			64.8			-			134.8
Buildings and improvements		-			1,542.2			613.7			-			2,155.9
Equipment		-			1,289.9			343.9			-			1,633.8
Construction in progress		-			49.6			23.3			-			72.9
		-			2,951.7			1,045.7			-			3,997.4
Accumulated depreciation		-			(1,398.3)			(221.6)			-			(1,619.9)
		-			1,553.4			824.1			-			2,377.5
Deferred loan costs, net		31.7			-			-			-			31.7
Intangible assets, net		-			34.6			34.5			-			69.1
Investments in subsidiaries		2,025.6			-			-			(2,025.6)			-
Due from subsidiaries		2,352.1			-			-			(2,352.1)			-
Other assets		6.6			19.4			20.4			-			46.4
Goodwill		-			1,440.5			195.6			-			1,636.1
Total assets	$	4,521.9		$	3,715.2		$	1,597.6		$	(4,377.7)		$	5,457.0
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	-		$	90.4		$	68.1		$	-		$	158.5
Accrued salaries		-			130.9			71.5			-			202.4
Other current liabilities		14.5			112.7			76.0			-			203.2
Current maturities of long-term debt		16.9			0.9			1.4			-			19.2
		31.4			334.9			217.0			-			583.3
Long-term debt		2,137.5			49.1			12.7			-			2,199.3
Due to Parent		-			1,634.6			717.5			(2,352.1)			-
Deferred income tax liabilities		187.5			-			-			-			187.5
Long-term portion of reserves for self-insurance claims		-			103.1			30.1			-			133.2
Other long-term liabilities		10.9			24.7			49.1			-			84.7
Total liabilities		2,367.3			2,146.4			1,026.4			(2,352.1)			3,188.0
Redeemable noncontrolling interests		-			-			87.1			-			87.1
Total LifePoint Health, Inc. stockholders' equity		2,154.6			1,567.0			458.6			(2,025.6)			2,154.6
Noncontrolling interests		-			1.8			25.5			-			27.3
Total equity		2,154.6			1,568.8			484.1			(2,025.6)			2,181.9
Total liabilities and equity	$	4,521.9		$	3,715.2		$	1,597.6		$	(4,377.7)		$	5,457.0

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended June 30, 2015

(In millions)

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	46.4		$	39.2		$	35.8		$	(71.6)		$	49.8
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Equity in earnings of affiliates		(71.6)			-			-			71.6			-
Stock-based compensation		7.4			-			-			-			7.4
Depreciation and amortization		-			44.5			24.4			-			68.9
Amortization of physician minimum revenue guarantees		-			2.7			0.4			-			3.1
Amortization of debt discounts, premium and deferred loan costs		1.3			-			-			-			1.3
Deferred income tax benefit		(1.5)			-			-			-			(1.5)
Reserve for self-insurance claims, net of payments		-			2.1			2.6			-			4.7
Increase (decrease) in cash from operating assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		-			4.0			17.0			-			21.0
Inventories, prepaid expenses and other current assets		-			25.2			13.8			-			39.0
Accounts payable, accrued salaries and other current liabilities		(16.2)			(8.2)			6.1			-			(18.3)
Income taxes payable/receivable		11.0			-			-			-			11.0
Other		0.5			1.2			0.3			-			2.0
Net cash (used in) provided by operating activities		(22.7)			110.7			100.4			-			188.4
Cash flows from investing activities:
Purchases of property and equipment		-			(17.3)			(35.8)			-			(53.1)
Acquisitions, net of cash acquired		-			(1.2)			(11.3)			-			(12.5)
Proceeds from sale of hospital		-			18.8			-			-			18.8
Other		1.8			(1.3)			1.1			-			1.6
Net cash provided by (used in) investing activities		1.8			(1.0)			(46.0)			-			(45.2)
Cash flows from financing activities:
Payments of borrowings		(2.8)			-			-			-			(2.8)
Proceeds from exercise of stock options		3.8			-			-			-			3.8
Change in intercompany balances with affiliates, net		20.0			42.8			(62.8)			-			-
Other		(0.1)			-			(3.2)			-			(3.3)
Net cash provided by (used in) financing activities		20.9			42.8			(66.0)			-			(2.3)
Change in cash and cash equivalents		-			152.5			(11.6)			-			140.9
Cash and cash equivalents at beginning of period		-			164.2			117.7			-			281.9
Cash and cash equivalents at end of period	$	-		$	316.7		$	106.1		$	-		$	422.8

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended June 30, 2014

(In millions)

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	39.1		$	37.7		$	22.6		$	(57.6)		$	41.8
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Equity in earnings of affiliates		(57.6)			-			-			57.6			-
Stock-based compensation		6.4			-			-			-			6.4
Depreciation and amortization		-			46.1			14.8			-			60.9
Amortization of physician minimum revenue guarantees		-			3.3			0.5			-			3.8
Amortization of debt discounts, premium and deferred loan costs		4.3			-			-			-			4.3
Deferred income taxes		36.5			-			-			-			36.5
Reserve for self-insurance claims, net of payments		-			(1.4)			-			-			(1.4)
Increase (decrease) in cash from operating assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		-			2.9			19.3			-			22.2
Inventories, prepaid expenses and other current assets		(0.3)			(5.2)			2.8			-			(2.7)
Accounts payable, accrued salaries and other current liabilities		(21.0)			(16.6)			6.3			-			(31.3)
Income taxes payable/receivable		(71.8)			-			-			-			(71.8)
Other		-			0.2			(0.9)			-			(0.7)
Net cash (used in) provided by operating activities		(64.4)			67.0			65.4			-			68.0
Cash flows from investing activities:
Purchases of property and equipment		-			(21.6)			(9.6)			-			(31.2)
Acquisitions, net of cash acquired		-			-			(27.2)			-			(27.2)
Other		(0.4)			1.0			(0.5)			-			0.1
Net cash used in investing activities		(0.4)			(20.6)			(37.3)			-			(58.3)
Cash flows from financing activities:
Proceeds from borrowings		412.0			-			-			-			412.0
Payments of borrowings		(579.8)			-			-			-			(579.8)
Repurchases of common stock		(36.1)			-			-			-			(36.1)
Proceeds from exercise of stock options		11.1			-			-			-			11.1
Change in intercompany balances with affiliates, net		263.2			(253.2)			(10.0)			-			-
Other		(5.6)			(0.1)			(1.5)			-			(7.2)
Net cash provided by (used in) financing activities		64.8			(253.3)			(11.5)			-			(200.0)
Change in cash and cash equivalents		-			(206.9)			16.6			-			(190.3)
Cash and cash equivalents at beginning of period		-			441.8			90.5			-			532.3
Cash and cash equivalents at end of period	$	-		$	234.9		$	107.1		$	-		$	342.0

 

 

 

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2015

(In millions)

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	85.3		$	70.2		$	67.4		$	(131.1)		$	91.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of affiliates		(131.1)			-			-			131.1			-
Stock-based compensation		15.0			-			-			-			15.0
Depreciation and amortization		-			89.9			47.0			-			136.9
Amortization of physician minimum revenue guarantees		-			5.4			0.9			-			6.3
Amortization of debt discounts, premium and deferred loan costs		2.5			-			-			-			2.5
Impairment charges		-			11.6			-			-			11.6
Deferred income taxes		10.8			-			-			-			10.8
Reserve for self-insurance claims, net of payments		-			2.1			6.7			-			8.8
Increase (decrease) in cash from operating assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		-			3.3			23.9			-			27.2
Inventories, prepaid expenses and other current assets		0.1			44.9			8.1			-			53.1
Accounts payable, accrued salaries and other current liabilities		3.3			(35.7)			18.1			-			(14.3)
Income taxes payable/receivable		19.0			-			-			-			19.0
Other		(0.2)			(1.4)			0.9			-			(0.7)
Net cash provided by operating activities		4.7			190.3			173.0			-			368.0
Cash flows from investing activities:
Purchases of property and equipment		-			(45.7)			(48.5)			-			(94.2)
Acquisitions, net of cash acquired		-			(5.2)			(20.6)			-			(25.8)
Proceeds from sale of hospital		-			18.8			-			-			18.8
Other		1.2			1.5			(0.9)			-			1.8
Net cash provided by ( used in ) investing activities		1.2			(30.6)			(70.0)			-			(99.4)
Cash flows from financing activities:
Payments of borrowings		(5.6)			-			-			-			(5.6)
Repurchases of common stock		(33.8)			-			-			-			(33.8)
Proceeds from exercise of stock options		10.8			-			-			-			10.8
Change in intercompany balances with affiliates, net		22.8			94.6			(117.4)			-			-
Other		(0.1)			0.4			(9.0)			-			(8.7)
Net cash (used in) provided by financing activities		(5.9)			95.0			(126.4)			-			(37.3)
Change in cash and cash equivalents		-			254.7			(23.4)			-			231.3
Cash and cash equivalents at beginning of period		-			62.0			129.5			-			191.5
Cash and cash equivalents at end of period	$	-		$	316.7		$	106.1		$	-		$	422.8

 

---

 

LIFEPOINT HEALTH, INC.
Condensed Consolidating Statements of Cash Flows
For the Six Months Ended June 30, 2014

(In millions)

 

 

 

	Parent						Non-
	Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	76.2		$	80.8		$	36.4		$	(113.9)		$	79.5
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Equity in earnings of affiliates		(113.9)			-			-			113.9			-
Stock-based compensation		13.1			-			-			-			13.1
Depreciation and amortization		-			91.4			30.6			-			122.0
Amortization of physician minimum revenue guarantees		-			6.9			0.8			-			7.7
Amortization of debt discounts, premium and deferred loan costs		11.6			-			-			-			11.6
Deferred income tax benefit		(5.1)			-			-			-			(5.1)
Reserve for self-insurance claims, net of payments		-			1.9			2.8			-			4.7
Increase (decrease) in cash from operating assets and
liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		-			(29.3)			1.0			-			(28.3)
Inventories, prepaid expenses and other current assets		(0.2)			18.6			2.0			-			20.4
Accounts payable, accrued salaries and other current liabilities		0.7			(45.1)			12.8			-			(31.6)
Income taxes payable/receivable		(19.3)			-			-			-			(19.3)
Other		(0.1)			1.5			0.5			-			1.9
Net cash (used in) provided by operating activities		(37.0)			126.7			86.9			-			176.6
Cash flows from investing activities:
Purchases of property and equipment		-			(37.3)			(16.4)			-			(53.7)
Acquisitions, net of cash acquired		-			(2.7)			(85.1)			-			(87.8)
Other		(1.2)			0.4			0.4			-			(0.4)
Net cash used in investing activities		(1.2)			(39.6)			(101.1)			-			(141.9)
Cash flows from financing activities:
Proceeds from borrowings		412.0			-			-			-			412.0
Payments of borrowings		(579.8)			-			-			-			(579.8)
Repurchases of common stock		(171.9)			-			-			-			(171.9)
Proceeds from exercise of stock options		18.3			-			-			-			18.3
Change in intercompany balances with affiliates, net		365.6			(410.4)			44.8			-			-
Other		(6.0)			(0.1)			(3.1)			-			(9.2)
Net cash provided by (used in) financing activities		38.2			(410.5)			41.7			-			(330.6)
Change in cash and cash equivalents		-			(323.4)			27.5			-			(295.9)
Cash and cash equivalents at beginning of period		-			558.3			79.6			-			637.9
Cash and cash equivalents at end of period	$	-		$	234.9		$	107.1		$	-		$	342.0