##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the quarterly period ended September 30, 2004
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from____________________to_______________.
 Commission File Number 333-110117
 Ardent Health Services LLC
  Delaware
    
    62-1862223(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 One Burton Hills Blvd., Suite 250Nashville, TN
    
    37215(Address of Principal Executive Offices)
    
    (Zip Code)
 (615) 296-3000  None  None
 o þ
 o þ




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TABLE OF CONTENTS
 PageNo.PART I. FINANCIAL INFORMATION
    
    1Item 1. Financial Statements (Unaudited):
    
    1Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended
September 30, 2004 and 2003
    
    1Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2004 and
2003
    
    3Notes to Condensed Consolidated Financial Statements
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    24Item 4. Controls and Procedures
    
    42PART II OTHER INFORMATION
    
    46Item 1. Legal Proceedings
    
    46Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    46Item 6. Exhibits
    
    46Signature
    
    47Exhibit Index
    
    48EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 ARDENT HEALTH SERVICES LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 ( Dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    
    (Restated)Revenues:Net patient service revenue
    
    $
    260,286
    
    
    $
    147,178
    
    
    $
    602,416
    
    
    $
    447,152Premium revenue
    
    
    179,847
    
    
    
    151,223
    
    
    
    492,187
    
    
    
    439,551Other revenue
    
    
    20,613
    
    
    
    27,865
    
    
    
    58,694
    
    
    
    66,821Total net revenues
    
    
    460,746
    
    
    
    326,266
    
    
    
    1,153,297
    
    
    
    953,524Expenses:Salaries and benefits
    
    
    182,883
    
    
    
    134,841
    
    
    
    470,484
    
    
    
    385,592Professional fees
    
    
    46,483
    
    
    
    33,690
    
    
    
    112,495
    
    
    
    95,759Claims and capitation
    
    
    82,722
    
    
    
    62,359
    
    
    
    223,995
    
    
    
    197,491Supplies
    
    
    54,258
    
    
    
    36,316
    
    
    
    138,070
    
    
    
    110,902Provision for doubtful accounts
    
    
    36,911
    
    
    
    9,804
    
    
    
    71,026
    
    
    
    33,010Other
    
    
    41,283
    
    
    
    30,490
    
    
    
    103,074
    
    
    
    87,082Interest, net
    
    
    8,932
    
    
    
    7,759
    
    
    
    22,472
    
    
    
    16,218Change in fair value of interest rate swap agreements
    
    
    102
    
    
    
    (1,106
    )
    
    
    1,491
    
    
    
    (1,106
    )Depreciation and amortization
    
    
    15,587
    
    
    
    8,597
    
    
    
    38,260
    
    
    
    23,237Gains on divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (618
    )Total expenses
    
    
    469,161
    
    
    
    322,750
    
    
    
    1,181,367
    
    
    
    947,567Income (loss) from continuing operations before income taxes
    
    
    (8,415
    )
    
    
    3,516
    
    
    
    (28,070
    )
    
    
    5,957Income tax expense
    
    
    388
    
    
    
    1,390
    
    
    
    29,389
    
    
    
    2,361Income (loss) from continuing operations, net
    
    
    (8,803
    )
    
    
    2,126
    
    
    
    (57,459
    )
    
    
    3,596Discontinued operations:Loss from discontinued operations
    
    
    (1,250
    )
    
    
    (408
    )
    
    
    (1,694
    )
    
    
    (1,242
    )Gains on divestitures of discontinued operations
    
    
    74
    
    
    
    25
    
    
    
    3,696
    
    
    
    974Income (loss) from discontinued operations before income taxes
    
    
    (1,176
    )
    
    
    (383
    )
    
    
    2,002
    
    
    
    (268
    )Income tax expense (benefit)
    
    
    (424
    )
    
    
    (146
    )
    
    
    298
    
    
    
    (101
    )Income (loss) from discontinued operations, net
    
    
    (752
    )
    
    
    (237
    )
    
    
    1,704
    
    
    
    (167
    )Net income (loss)
    
    
    (9,555
    )
    
    
    1,889
    
    
    
    (55,755
    )
    
    
    3,429Accrued preferred dividends
    
    
    2,293
    
    
    
    1,928
    
    
    
    6,670
    
    
    
    5,892Net loss attributable to common members
    
    $
    (11,848
    )
    
    $
    (39
    )
    
    $
    (62,425
    )
    
    $
    (2,463
    )
  1




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ARDENT HEALTH SERVICES LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 ( Dollars in thousands, except per unit amounts)
 September 30,
    
    
    December 31,2004
    
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    103,062
    
    
    $
    86,304Accounts receivable, less allowance for doubtful accounts of $118,338 at
September 30, 2004 and $42,438 at December 31, 2003
    
    
    162,330
    
    
    
    109,539Premiums receivable
    
    
    13,567
    
    
    
    14,733Inventories
    
    
    30,467
    
    
    
    16,759Deferred income taxes
    
    
    4,803
    
    
    
    23,040Prepaid expenses and other current assets
    
    
    39,912
    
    
    
    41,657Assets held for sale
    
    
    
    
    
    
    3,336Income taxes receivable
    
    
    12,292
    
    
    
    6,012Total current assets
    
    
    366,433
    
    
    
    301,380Property and equipment, net
    
    
    588,492
    
    
    
    365,321Goodwill
    
    
    175,013
    
    
    
    75,379Other intangible assets
    
    
    50,334
    
    
    
    48,914Deferred income taxes
    
    
    
    
    
    
    10,457Other assets
    
    
    23,621
    
    
    
    20,021Total assets
    
    $
    1,203,893
    
    
    $
    821,472LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    527,272
    
    
    $
    227,082Accounts payable
    
    
    86,258
    
    
    
    52,413Medical claims payable
    
    
    64,209
    
    
    
    46,500Accrued salaries and benefits
    
    
    80,627
    
    
    
    47,013Accrued interest
    
    
    5,515
    
    
    
    10,133Unearned premiums
    
    
    5,105
    
    
    
    9,772Liabilities held for sale
    
    
    
    
    
    
    244Other accrued expenses and liabilities
    
    
    28,665
    
    
    
    41,539Total current liabilities
    
    
    797,651
    
    
    
    434,696Long-term debt, less current installments
    
    
    32,922
    
    
    
    34,361Deferred income taxes
    
    
    620
    
    
    
    Self-insured liabilities
    
    
    37,147
    
    
    
    21,920Other long-term liabilities
    
    
    9,496
    
    
    
    6,573Total liabilities
    
    
    877,836
    
    
    
    497,550Redeemable
preferred units and accrued dividends (mandatorily redeemable
preferred units in 2003), $3.43 unit price, $3.43
per unit redemption value; authorized, issued, and outstanding: 28,141,807 units
    
    
    118,601
    
    
    
    111,931Members equity:Authorized: 80,532,766 units at September 30, 2004 and 69,961,407 units at
December 31, 2003; issued and outstanding: 68,107,299 units at
September 30, 2004 and 56,998,444 units at December 31, 2003
    
    
    282,221
    
    
    
    224,331Accumulated deficit
    
    
    (74,765
    )
    
    
    (12,340
    )Total members equity
    
    
    207,456
    
    
    
    211,991Total liabilities and members equity
    
    $
    1,203,893
    
    
    $
    821,472
  2




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ARDENT HEALTH SERVICES LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Dollars in thousands)
 Nine Months EndedSeptember 30,2004
    
    
    2003(Restated)Cash flows from operating activities:Income (loss) from continuing operations, net
    
    $
    (57,459
    )
    
    $
    3,596Adjustments to reconcile income (loss) from continuing operations,
net, to net cash provided by operating activities, net of
acquisitions and divestitures:Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (1,106
    )Depreciation and amortization
    
    
    38,260
    
    
    
    23,237Gains on divestitures
    
    
    
    
    
    
    (618
    )Amortization of deferred financing costs
    
    
    1,407
    
    
    
    5,748Amortization of discount on subordinated debt
    
    
    308
    
    
    
    469Deferred income taxes
    
    
    29,016
    
    
    
    (2,566
    )Changes in operating assets and liabilities:Accounts and premiums receivable, net
    
    
    10,189
    
    
    
    (8,591
    )Prepaid expenses and other current assets
    
    
    2,694
    
    
    
    9,353Income taxes receivable
    
    
    (6,280
    )
    
    
    1,750Medical claims payable
    
    
    17,709
    
    
    
    6,338Accounts payable and accrued expenses
    
    
    18,985
    
    
    
    7,394Accrued interest
    
    
    (4,618
    )
    
    
    3,259Unearned premiums
    
    
    (10,294
    )
    
    
    (3,254
    )Self-insured liabilities
    
    
    17,222
    
    
    
    6,156Net cash provided by operating activities
    
    
    58,630
    
    
    
    51,165Net cash
provided by (used in) discontinued operations
    
    
    (71
    )
    
    
    50Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    (356,510
    )
    
    
    (196,309
    )Purchases of property and equipment
    
    
    (32,477
    )
    
    
    (54,371
    )Proceeds from divestitures
    
    
    6,018
    
    
    
    6,515Other
    
    
    2,175
    
    
    
    2,770Net cash used in investing activities
    
    
    (380,794
    )
    
    
    (241,395
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    
    
    
    
    (38,703
    )Proceeds from long-term debt
    
    
    300,000
    
    
    
    373,500Proceeds from insurance financing arrangements
    
    
    20,022
    
    
    
    17,617Payments on long-term debt
    
    
    (1,573
    )
    
    
    (142,851
    )Payments on principal of insurance financing arrangements
    
    
    (29,794
    )
    
    
    (25,810
    )Debt financing costs paid
    
    
    (8,047
    )
    
    
    (16,660
    )Proceeds from issuance of common and preferred units, less redemptions
    
    
    58,385
    
    
    
    11,508Common unit issuance costs
    
    
    
    
    
    
    (1,982
    )Net cash provided by financing activities
    
    
    338,993
    
    
    
    176,619Net increase (decrease) in cash and cash equivalents
    
    
    16,758
    
    
    
    (13,561
    )Cash and cash equivalents, beginning of period
    
    
    86,304
    
    
    
    113,859Cash and cash equivalents, end of period
    
    $
    103,062
    
    
    $
    100,298
  3




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ARDENT HEALTH SERVICES LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 September 30, 2004
 1. Basis of Presentation and Organization
     Accounting for the Impairment and Disposal of Long-Lived Assets
  Divestiture of Behavioral Hospitals
  4




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2. Restatement of Financial Statements
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2003
    
    
    2003Net income as previously reported
    
    $
    2,046
    
    
    $
    3,904Restatement adjustments by category:Severance costs
    
    
    (259
    )
    
    
    (804
    )Income tax adjustments
    
    
    102
    
    
    
    329Total adjustments
    
    
    (157
    )
    
    
    (475
    )Restated net income
    
    $
    1,889
    
    
    $
    3,429
  Severance Costs
  Income Tax Adjustments
  Other Adjustments
   5




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##### Table of Contents



3. Recently Issued Accounting Standards
 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
 Consolidation
of Variable Interest Entities Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51
 Share-Based Payments
 4. Acquisitions, Divestitures and Joint Venture
 Acquisitions
 Business Combinations,
   6




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Divestitures
 Discontinued Operations
    Other Divestitures
 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of
 Pro Forma Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    
    (Restated)Total net revenues
    
    $
    516,259
    
    
    $
    491,897
    
    
    $
    1,541,887
    
    
    $
    1,450,416Net income (loss)
    
    
    (12,844
    )
    
    
    1,112
    
    
    
    (85,744
    )
    
    
    2,677
 7




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5. Long-Term Debt and Financing Arrangements
  September 30,
    
    
    December 31,2004
    
    
    2003Term loans (interest at LIBOR plus 2.25% at September 30, 2004)
    
    $
    300,000
    
    
    $
    Senior subordinated notes (interest at 10.0%)
    
    
    225,000
    
    
    
    225,000Subordinated debt (interest at 10.2%), net of unamortized discount of
$3.7 million and $4.0 million at September 30, 2004 and December 31,
2003, respectively
    
    
    32,304
    
    
    
    31,996Notes payable
    
    
    1,734
    
    
    
    3,157Other
    
    
    1,156
    
    
    
    1,290Total long-term debt
    
    
    560,194
    
    
    
    261,443Less current installments, including long-term installments subject
to acceleration
    
    
    (527,272
    )
    
    
    (227,082
    )Long-term debt, less current installments
    
    $
    32,922
    
    
    $
    34,361
 Classification of Term Loans and Senior Subordinated Notes
   Credit Facilities
   8




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$225.0 Million Senior Subordinated Notes
  1 4
 $36.0 Million Subordinated Notes
  9




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Interest Rate Swap Agreements
  Accounting for Derivative Instruments and Hedging Activities,
 6. Income Taxes
   7. Stock-Based Compensation
 Accounting for Stock-Based Compensation , Accounting for Stock Issued to Employees
 10




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    (Restated)Net income (loss), as reported
    
    $
    (9,555
    )
    
    $
    1,889
    
    
    $
    (55,755
    )
    
    $
    3,429Less total unit-based employee compensation expense determined
under fair-value based method for all awards, net of tax
    
    
    695
    
    
    
    273
    
    
    
    2,967
    
    
    
    713Pro forma net income (loss)
    
    $
    (10,250
    )
    
    $
    1,616
    
    
    $
    (58,722
    )
    
    $
    2,716
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Risk-free investment interest rate
    
    
    4.0
    %
    
    
    4.1
    %
    
    
    4.1
    %
    
    
    3.7
    %Expected life in years
    
    
    7.0
    
    
    
    10.0
    
    
    
    7.2
    
    
    
    10.0Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 8. Members Equity
   9. Commitments and Contingencies
 Net Revenue
  11




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Litigation and Regulatory Matters
    Acquisitions
  10. Subsequent Events
     12




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##### Table of Contents



11. Segment Information
  Disclosures about Segments of an Enterprise and Related Information.
  13




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For the Three Months Ended September 30, 2004ConsolidatedAcute
    
    
    Lovelace
    
    
    
    
    
    
    Acute
    
    
    BehavioralCare
    
    
    Health
    
    
    
    
    
    
    Care
    
    
    CareServices
    
    
    Plan
    
    
    Eliminations
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalTotal net revenues
    
    $
    275,976
    
    
    $
    181,917
    
    
    $
    (75,875
    )
    
    $
    382,018
    
    
    $
    79,824
    
    
    $
    
    
    
    $
    (1,096
    )
    
    $
    460,746Adjusted EBITDA
    
    
    9,125
    
    
    
    4,621
    
    
    
    
    
    
    
    13,746
    
    
    
    15,845
    
    
    
    (13,385
    )
    
    
    
    
    
    
    16,206Segment assets
    
    
    844,424
    
    
    
    140,533
    
    
    
    (58,724
    )
    
    
    926,233
    
    
    
    142,442
    
    
    
    135,218
    
    
    
    
    
    
    
    1,203,893Goodwill
    
    
    134,260
    
    
    
    29,544
    
    
    
    
    
    
    
    163,804
    
    
    
    9,083
    
    
    
    2,126
    
    
    
    
    
    
    
    175,013Other intangible assets
    
    
    
    
    
    
    50,334
    
    
    
    
    
    
    
    50,334
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,334Capital expenditures
    
    
    4,016
    
    
    
    176
    
    
    
    
    
    
    
    4,192
    
    
    
    2,131
    
    
    
    5,866
    
    
    
    
    
    
    
    12,189
 For the Three Months Ended September 30, 2003(Restated)ConsolidatedAcute
    
    
    BehavioralCare
    
    
    CareServices
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalTotal net revenues
    
    $
    261,493
    
    
    $
    66,239
    
    
    $
    
    
    
    $
    (1,466
    )
    
    $
    326,266Adjusted EBITDA
    
    
    21,182
    
    
    
    11,218
    
    
    
    (13,634
    )
    
    
    
    
    
    
    18,766Segment assets
    
    
    522,092
    
    
    
    146,819
    
    
    
    113,392
    
    
    
    
    
    
    
    782,303Goodwill
    
    
    65,174
    
    
    
    9,233
    
    
    
    
    
    
    
    
    
    
    
    74,407Other intangible assets
    
    
    48,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,038Capital expenditures
    
    
    18,276
    
    
    
    1,934
    
    
    
    6,730
    
    
    
    
    
    
    
    26,940
 For the Nine Months Ended September 30, 2004ConsolidatedAcute
    
    
    Lovelace
    
    
    
    
    
    
    Acute
    
    
    BehavioralCare
    
    
    Health
    
    
    
    
    
    
    Care
    
    
    CareServices
    
    
    Plan
    
    
    Eliminations
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalTotal net revenues
    
    $
    631,369
    
    
    $
    500,589
    
    
    $
    (203,007
    )
    
    $
    928,951
    
    
    $
    227,793
    
    
    $
    
    
    
    $
    (3,447
    )
    
    $
    1,153,297Adjusted EBITDA
    
    
    9,946
    
    
    
    18,629
    
    
    
    
    
    
    
    28,575
    
    
    
    39,412
    
    
    
    (33,834
    )
    
    
    
    
    
    
    34,153Capital expenditures
    
    
    11,257
    
    
    
    3,314
    
    
    
    
    
    
    
    14,571
    
    
    
    7,027
    
    
    
    10,879
    
    
    
    
    
    
    
    32,477
 For the Nine Months Ended September 30, 2003(Restated)ConsolidatedAcute
    
    
    BehavioralCare
    
    
    CareServices
    
    
    Services
    
    
    Other
    
    
    Eliminations
    
    
    TotalTotal net revenues
    
    $
    754,821
    
    
    $
    201,723
    
    
    $
    
    
    
    $
    (3,020
    )
    
    $
    953,524Adjusted EBITDA
    
    
    38,795
    
    
    
    37,364
    
    
    
    (31,853
    )
    
    
    
    
    
    
    44,306Capital expenditures
    
    
    40,143
    
    
    
    4,841
    
    
    
    9,387
    
    
    
    
    
    
    
    54,371
 14




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    (Restated)Adjusted EBITDA
    
    $
    16,206
    
    
    $
    18,766
    
    
    $
    34,153
    
    
    $
    44,306Less:Interest, net
    
    
    8,932
    
    
    
    7,759
    
    
    
    22,472
    
    
    
    16,218Change in fair value of interest rate swap agreements
    
    
    102
    
    
    
    (1,106
    )
    
    
    1,491
    
    
    
    (1,106
    )Depreciation and amortization
    
    
    15,587
    
    
    
    8,597
    
    
    
    38,260
    
    
    
    23,237Income tax expense
    
    
    388
    
    
    
    1,390
    
    
    
    29,389
    
    
    
    2,361Income (loss) from continuing operations, net
    
    
    (8,803
    )
    
    
    2,126
    
    
    
    (57,459
    )
    
    
    3,596Changes in working capital items and other
    
    
    55,708
    
    
    
    25,300
    
    
    
    116,089
    
    
    
    47,569Net cash provided by operating activities
    
    $
    46,905
    
    
    $
    27,426
    
    
    $
    58,630
    
    
    $
    51,165
 12. Financial Information for the Company and Its Subsidiaries
   15




---



##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2004
(Unaudited)  (Dollars in thousands)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    186,972
    
    
    $
    73,314
    
    
    $
    
    
    
    $
    260,286Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179,847
    
    
    
    
    
    
    
    179,847Other revenue
    
    
    
    
    
    
    
    
    
    
    22,852
    
    
    
    9,589
    
    
    
    (11,828
    )
    
    
    20,613Equity income
    
    
    (9,555
    )
    
    
    (1,462
    )
    
    
    5,009
    
    
    
    
    
    
    
    6,008
    
    
    
    Total net revenues
    
    
    (9,555
    )
    
    
    (1,462
    )
    
    
    214,833
    
    
    
    262,750
    
    
    
    (5,820
    )
    
    
    460,746Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    107,749
    
    
    
    75,160
    
    
    
    (26
    )
    
    
    182,883Professional fees
    
    
    
    
    
    
    
    
    
    
    27,627
    
    
    
    28,608
    
    
    
    (9,752
    )
    
    
    46,483Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,062
    
    
    
    (1,340
    )
    
    
    82,722Supplies
    
    
    
    
    
    
    
    
    
    
    26,297
    
    
    
    27,961
    
    
    
    
    
    
    
    54,258Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    29,470
    
    
    
    7,441
    
    
    
    
    
    
    
    36,911Other
    
    
    
    
    
    
    
    
    
    
    15,232
    
    
    
    26,761
    
    
    
    (710
    )
    
    
    41,283Interest, net
    
    
    
    
    
    
    7,991
    
    
    
    30
    
    
    
    911
    
    
    
    
    
    
    
    8,932Change in fair market value of interest rate swaps
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    9,101
    
    
    
    6,486
    
    
    
    
    
    
    
    15,587Total expenses
    
    
    
    
    
    
    8,093
    
    
    
    215,506
    
    
    
    257,390
    
    
    
    (11,828
    )
    
    
    469,161Income (loss) from continuing operations before income taxes
    
    
    (9,555
    )
    
    
    (9,555
    )
    
    
    (673
    )
    
    
    5,360
    
    
    
    6,008
    
    
    
    (8,415
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    388Income (loss) from continuing operations, net
    
    
    (9,555
    )
    
    
    (9,555
    )
    
    
    (1,061
    )
    
    
    5,360
    
    
    
    6,008
    
    
    
    (8,803
    )Loss from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (401
    )
    
    
    (351
    )
    
    
    
    
    
    
    (752
    )Net income (loss)
    
    
    (9,555
    )
    
    
    (9,555
    )
    
    
    (1,462
    )
    
    
    5,009
    
    
    
    6,008
    
    
    
    (9,555
    )Accrued preferred dividends
    
    
    2,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,293Net income (loss) attributable to common members
    
    $
    (11,848
    )
    
    $
    (9,555
    )
    
    $
    (1,462
    )
    
    $
    5,009
    
    
    $
    6,008
    
    
    $
    (11,848
    )
 16




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2004
(Unaudited)  (Dollars in thousands)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    372,025
    
    
    $
    230,391
    
    
    $
    
    
    
    $
    602,416Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    492,187
    
    
    
    
    
    
    
    492,187Other revenue
    
    
    
    
    
    
    
    
    
    
    60,763
    
    
    
    32,296
    
    
    
    (34,365
    )
    
    
    58,694Equity income
    
    
    (55,755
    )
    
    
    (35,694
    )
    
    
    (12,973
    )
    
    
    
    
    
    
    104,422
    
    
    
    Total net revenues
    
    
    (55,755
    )
    
    
    (35,694
    )
    
    
    419,815
    
    
    
    754,874
    
    
    
    70,057
    
    
    
    1,153,297Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    237,716
    
    
    
    232,844
    
    
    
    (76
    )
    
    
    470,484Professional fees
    
    
    
    
    
    
    
    
    
    
    56,639
    
    
    
    85,148
    
    
    
    (29,292
    )
    
    
    112,495Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227,029
    
    
    
    (3,034
    )
    
    
    223,995Supplies
    
    
    
    
    
    
    
    
    
    
    50,659
    
    
    
    87,411
    
    
    
    
    
    
    
    138,070Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    41,085
    
    
    
    29,941
    
    
    
    
    
    
    
    71,026Other
    
    
    
    
    
    
    
    
    
    
    23,404
    
    
    
    81,633
    
    
    
    (1,963
    )
    
    
    103,074Interest, net
    
    
    
    
    
    
    18,570
    
    
    
    244
    
    
    
    3,658
    
    
    
    
    
    
    
    22,472Change in fair market value of interest rate swaps
    
    
    
    
    
    
    1,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,491Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    19,338
    
    
    
    18,922
    
    
    
    
    
    
    
    38,260Total expenses
    
    
    
    
    
    
    20,061
    
    
    
    429,085
    
    
    
    766,586
    
    
    
    (34,365
    )
    
    
    1,181,367Income (loss) from continuing operations before income taxes
    
    
    (55,755
    )
    
    
    (55,755
    )
    
    
    (9,270
    )
    
    
    (11,712
    )
    
    
    104,422
    
    
    
    (28,070
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    29,389
    
    
    
    
    
    
    
    
    
    
    
    29,389Income (loss) from continuing operations, net
    
    
    (55,755
    )
    
    
    (55,755
    )
    
    
    (38,659
    )
    
    
    (11,712
    )
    
    
    104,422
    
    
    
    (57,459
    )Income (loss) from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    2,965
    
    
    
    (1,261
    )
    
    
    
    
    
    
    1,704Net income (loss)
    
    
    (55,755
    )
    
    
    (55,755
    )
    
    
    (35,694
    )
    
    
    (12,973
    )
    
    
    104,422
    
    
    
    (55,755
    )Accrued preferred dividends
    
    
    6,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,670Net income (loss) attributable to common members
    
    $
    (62,425
    )
    
    $
    (55,755
    )
    
    $
    (35,694
    )
    
    $
    (12,973
    )
    
    $
    104,422
    
    
    $
    (62,425
    )
 17




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2003
(Unaudited)  (Dollars in thousands)
(Restated)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    83,086
    
    
    $
    71,474
    
    
    $
    (7,382
    )
    
    $
    147,178Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151,223
    
    
    
    
    
    
    
    151,223Other revenue
    
    
    
    
    
    
    
    
    
    
    13,863
    
    
    
    14,430
    
    
    
    (428
    )
    
    
    27,865Equity income
    
    
    1,889
    
    
    
    8,445
    
    
    
    9,711
    
    
    
    
    
    
    
    (20,045
    )
    
    
    Total net revenues
    
    
    1,889
    
    
    
    8,445
    
    
    
    106,660
    
    
    
    237,127
    
    
    
    (27,855
    )
    
    
    326,266Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    58,315
    
    
    
    76,526
    
    
    
    
    
    
    
    134,841Professional fees
    
    
    
    
    
    
    
    
    
    
    13,810
    
    
    
    27,633
    
    
    
    (7,753
    )
    
    
    33,690Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,359
    
    
    
    
    
    
    
    62,359Supplies
    
    
    
    
    
    
    
    
    
    
    10,780
    
    
    
    25,536
    
    
    
    
    
    
    
    36,316Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    3,261
    
    
    
    6,543
    
    
    
    
    
    
    
    9,804Other
    
    
    
    
    
    
    
    
    
    
    7,255
    
    
    
    23,292
    
    
    
    (57
    )
    
    
    30,490Interest, net
    
    
    
    
    
    
    7,662
    
    
    
    66
    
    
    
    31
    
    
    
    
    
    
    
    7,759Change in fair market value of interest rate swaps
    
    
    
    
    
    
    (1,106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,106
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    3,588
    
    
    
    5,009
    
    
    
    
    
    
    
    8,597Total expenses
    
    
    
    
    
    
    6,556
    
    
    
    97,075
    
    
    
    226,929
    
    
    
    (7,810
    )
    
    
    322,750Income (loss) from continuing operations before income taxes
    
    
    1,889
    
    
    
    1,889
    
    
    
    9,585
    
    
    
    10,198
    
    
    
    (20,045
    )
    
    
    3,516Income tax expense
    
    
    
    
    
    
    
    
    
    
    1,390
    
    
    
    
    
    
    
    
    
    
    
    1,390Income (loss) from continuing operations, net
    
    
    1,889
    
    
    
    1,889
    
    
    
    8,195
    
    
    
    10,198
    
    
    
    (20,045
    )
    
    
    2,126Income (loss) from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    (487
    )
    
    
    
    
    
    
    (237
    )Net income (loss)
    
    
    1,889
    
    
    
    1,889
    
    
    
    8,445
    
    
    
    9,711
    
    
    
    (20,045
    )
    
    
    1,889Accrued preferred dividends
    
    
    1,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,928Net income (loss) attributable to common members
    
    $
    (39
    )
    
    $
    1,889
    
    
    $
    8,445
    
    
    $
    9,711
    
    
    $
    (20,045
    )
    
    $
    (39
    )
 18




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2003
(Unaudited)  (Dollars in thousands)
(Restated)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    252,178
    
    
    $
    205,742
    
    
    $
    (10,768
    )
    
    $
    447,152Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439,551
    
    
    
    
    
    
    
    439,551Other revenue
    
    
    
    
    
    
    
    
    
    
    35,454
    
    
    
    32,830
    
    
    
    (1,463
    )
    
    
    66,821Equity income
    
    
    3,429
    
    
    
    18,625
    
    
    
    934
    
    
    
    
    
    
    
    (22,988
    )
    
    
    Total net revenues
    
    
    3,429
    
    
    
    18,625
    
    
    
    288,566
    
    
    
    678,123
    
    
    
    (35,219
    )
    
    
    953,524Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    165,346
    
    
    
    220,246
    
    
    
    
    
    
    
    385,592Professional fees
    
    
    
    
    
    
    
    
    
    
    38,583
    
    
    
    69,246
    
    
    
    (12,070
    )
    
    
    95,759Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,491
    
    
    
    
    
    
    
    197,491Supplies
    
    
    
    
    
    
    
    
    
    
    30,793
    
    
    
    80,109
    
    
    
    
    
    
    
    110,902Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    12,090
    
    
    
    20,920
    
    
    
    
    
    
    
    33,010Other
    
    
    
    
    
    
    
    
    
    
    14,401
    
    
    
    72,843
    
    
    
    (162
    )
    
    
    87,082Interest, net
    
    
    
    
    
    
    16,302
    
    
    
    218
    
    
    
    (302
    )
    
    
    
    
    
    
    16,218Change in fair market value of interest rate swaps
    
    
    
    
    
    
    (1,106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,106
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    8,290
    
    
    
    14,947
    
    
    
    
    
    
    
    23,237Gains on divestitures
    
    
    
    
    
    
    
    
    
    
    (618
    )
    
    
    
    
    
    
    
    
    
    
    (618
    )Total expenses
    
    
    
    
    
    
    15,196
    
    
    
    269,103
    
    
    
    675,500
    
    
    
    (12,232
    )
    
    
    947,567Income (loss) from continuing operations before income taxes
    
    
    3,429
    
    
    
    3,429
    
    
    
    19,463
    
    
    
    2,623
    
    
    
    (22,987
    )
    
    
    5,957Income tax expense
    
    
    
    
    
    
    
    
    
    
    2,361
    
    
    
    
    
    
    
    
    
    
    
    2,361Income (loss) from continuing operations, net
    
    
    3,429
    
    
    
    3,429
    
    
    
    17,102
    
    
    
    2,623
    
    
    
    (22,987
    )
    
    
    3,596Income (loss) from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    1,522
    
    
    
    (1,689
    )
    
    
    
    
    
    
    (167
    )Net income (loss)
    
    
    3,429
    
    
    
    3,429
    
    
    
    18,624
    
    
    
    934
    
    
    
    (22,987
    )
    
    
    3,429Accrued preferred dividends
    
    
    5,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,892Net income (loss) attributable to common members
    
    $
    (2,463
    )
    
    $
    3,429
    
    
    $
    18,624
    
    
    $
    934
    
    
    $
    (22,987
    )
    
    $
    (2,463
    )
 19




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2004
(Unaudited)  (Dollars in thousands)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ArdentASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    44,988
    
    
    $
    58,074
    
    
    $
    
    
    
    $
    103,062Accounts
receivable, net
    
    
    
    
    
    
    
    
    
    
    121,176
    
    
    
    41,918
    
    
    
    (764
    )
    
    
    162,330Premiums receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,567
    
    
    
    
    
    
    
    13,567Inventories
    
    
    
    
    
    
    
    
    
    
    20,452
    
    
    
    10,015
    
    
    
    
    
    
    
    30,467Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    4,575
    
    
    
    
    
    
    
    4,803Prepaid expenses and other current assets
    
    
    
    
    
    
    92
    
    
    
    22,922
    
    
    
    17,088
    
    
    
    (190
    )
    
    
    39,912Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    12,292
    
    
    
    
    
    
    
    
    
    
    
    12,292Total current assets
    
    
    
    
    
    
    92
    
    
    
    222,058
    
    
    
    145,237
    
    
    
    (954
    )
    
    
    366,433Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    381,033
    
    
    
    207,459
    
    
    
    
    
    
    
    588,492Goodwill
    
    
    
    
    
    
    
    
    
    
    101,971
    
    
    
    73,042
    
    
    
    
    
    
    
    175,013Other intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,334
    
    
    
    
    
    
    
    50,334Investment in subsidiary
    
    
    326,057
    
    
    
    870,151
    
    
    
    282,122
    
    
    
    
    
    
    
    (1,477,522
    )
    
    
    808Other assets
    
    
    
    
    
    
    18,633
    
    
    
    611
    
    
    
    3,569
    
    
    
    
    
    
    
    22,813Total assets
    
    $
    326,057
    
    
    $
    888,876
    
    
    $
    987,795
    
    
    $
    479,641
    
    
    $
    (1,478,476
    )
    
    $
    1,203,893LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    
    
    
    $
    525,000
    
    
    $
    2,115
    
    
    $
    157
    
    
    $
    
    
    
    $
    527,272Accounts payable
    
    
    
    
    
    
    
    
    
    
    55,868
    
    
    
    30,390
    
    
    
    
    
    
    
    86,258Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,973
    
    
    
    (764
    )
    
    
    64,209Accrued salaries and benefits
    
    
    
    
    
    
    
    
    
    
    50,764
    
    
    
    29,863
    
    
    
    
    
    
    
    80,627Accrued interest
    
    
    
    
    
    
    5,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,515Unearned premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,295
    
    
    
    (190
    )
    
    
    5,105Other accrued expenses and liabilities
    
    
    
    
    
    
    
    
    
    
    12,635
    
    
    
    16,030
    
    
    
    
    
    
    
    28,665Total current liabilities
    
    
    
    
    
    
    530,515
    
    
    
    121,382
    
    
    
    146,708
    
    
    
    (954
    )
    
    
    797,651Long-term debt, less current installments
    
    
    
    
    
    
    32,304
    
    
    
    265
    
    
    
    353
    
    
    
    
    
    
    
    32,922Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    620
    
    
    
    
    
    
    
    
    
    
    
    620Self-insured liabilities
    
    
    
    
    
    
    
    
    
    
    31,189
    
    
    
    5,958
    
    
    
    
    
    
    
    37,147Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    9,496
    
    
    
    
    
    
    
    
    
    
    
    9,496Note payable to Parent
    
    
    
    
    
    
    
    
    
    
    (43,306
    )
    
    
    43,306
    
    
    
    
    
    
    
    Due to (from) Parent
    
    
    
    
    
    
    
    
    
    
    (2,002
    )
    
    
    2,002
    
    
    
    
    
    
    
    Total liabilities
    
    
    
    
    
    
    562,819
    
    
    
    117,644
    
    
    
    198,327
    
    
    
    (954
    )
    
    
    877,836Redeemable preferred units and
accrued dividends
    
    
    118,601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,601Members and stockholders equity:Capital stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    (150
    )
    
    
    Common units
    
    
    282,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,223Additional paid in capital
    
    
    
    
    
    
    378,851
    
    
    
    885,037
    
    
    
    304,043
    
    
    
    (1,567,931
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (74,767
    )
    
    
    (52,794
    )
    
    
    (14,886
    )
    
    
    (22,879
    )
    
    
    90,559
    
    
    
    (74,767
    )Total members and stockholders equity
    
    
    207,456
    
    
    
    326,057
    
    
    
    870,151
    
    
    
    281,314
    
    
    
    (1,477,522
    )
    
    
    207,456Total liabilities and members equity
    
    $
    326,057
    
    
    $
    888,876
    
    
    $
    987,795
    
    
    $
    479,641
    
    
    $
    (1,478,476
    )
    
    $
    1,203,893
 20




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2003
(Unaudited)  (Dollars in thousands)
 Subsidiary
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ArdentASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    49,919
    
    
    $
    36,385
    
    
    $
    
    
    
    $
    86,304Accounts
receivable, net
    
    
    
    
    
    
    
    
    
    
    57,943
    
    
    
    51,596
    
    
    
    
    
    
    
    109,539Premiums receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,733
    
    
    
    
    
    
    
    14,733Inventories
    
    
    
    
    
    
    
    
    
    
    6,524
    
    
    
    10,235
    
    
    
    
    
    
    
    16,759Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    18,465
    
    
    
    4,575
    
    
    
    
    
    
    
    23,040Prepaid expenses and other current assets
    
    
    
    
    
    
    
    
    
    
    26,736
    
    
    
    14,921
    
    
    
    
    
    
    
    41,657Assets held for sale
    
    
    
    
    
    
    
    
    
    
    3,336
    
    
    
    
    
    
    
    
    
    
    
    3,336Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    6,012
    
    
    
    
    
    
    
    
    
    
    
    6,012Total current assets
    
    
    
    
    
    
    
    
    
    
    168,935
    
    
    
    132,445
    
    
    
    
    
    
    
    301,380Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    154,095
    
    
    
    211,226
    
    
    
    
    
    
    
    365,321Goodwill
    
    
    
    
    
    
    
    
    
    
    12,923
    
    
    
    62,456
    
    
    
    
    
    
    
    75,379Other intangible assets
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    48,289
    
    
    
    
    
    
    
    48,914Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    10,457
    
    
    
    
    
    
    
    
    
    
    
    10,457Investment in subsidiary
    
    
    323,922
    
    
    
    519,010
    
    
    
    253,722
    
    
    
    6,175
    
    
    
    (1,082,808
    )
    
    
    20,021Total assets
    
    $
    323,922
    
    
    $
    519,010
    
    
    $
    600,757
    
    
    $
    460,591
    
    
    $
    (1,082,808
    )
    
    $
    821,472LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    
    
    
    
    
    225,000
    
    
    
    1,931
    
    
    
    151
    
    
    
    
    
    
    
    227,082Accounts payable
    
    
    
    
    
    
    
    
    
    
    26,175
    
    
    
    26,238
    
    
    
    
    
    
    
    52,413Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,500
    
    
    
    
    
    
    
    46,500Accrued salaries and benefits
    
    
    
    
    
    
    
    
    
    
    25,750
    
    
    
    21,263
    
    
    
    
    
    
    
    47,013Accrued interest
    
    
    
    
    
    
    10,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,133Unearned premiums
    
    
    
    
    
    
    
    
    
    
    (5,326
    )
    
    
    15,098
    
    
    
    
    
    
    
    9,772Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    244Other accrued expenses and liabilities
    
    
    
    
    
    
    
    
    
    
    25,454
    
    
    
    16,085
    
    
    
    
    
    
    
    41,539Total current liabilities
    
    
    
    
    
    
    235,133
    
    
    
    74,228
    
    
    
    125,335
    
    
    
    
    
    
    
    434,696Long-term debt, less current installments
    
    
    
    
    
    
    31,996
    
    
    
    1,908
    
    
    
    457
    
    
    
    
    
    
    
    34,361Self-insured liabilities
    
    
    
    
    
    
    
    
    
    
    20,437
    
    
    
    1,483
    
    
    
    
    
    
    
    21,920Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    6,573
    
    
    
    
    
    
    
    
    
    
    
    6,573Note payable to Parent
    
    
    
    
    
    
    (71,412
    )
    
    
    
    
    
    
    71,412
    
    
    
    
    
    
    
    Due to (from) Parent
    
    
    
    
    
    
    
    
    
    
    (9,406
    )
    
    
    9,406
    
    
    
    
    
    
    
    Total liabilities
    
    
    
    
    
    
    195,717
    
    
    
    93,740
    
    
    
    208,093
    
    
    
    
    
    
    
    497,550Mandatorily redeemable preferred units and
accrued dividends
    
    
    111,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,931Members and stockholders equity:Capital stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    (150
    )
    
    
    Common units
    
    
    224,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224,331Additional paid in capital
    
    
    
    
    
    
    320,332
    
    
    
    486,207
    
    
    
    262,254
    
    
    
    (1,068,793
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (12,340
    )
    
    
    2,961
    
    
    
    20,810
    
    
    
    (9,906
    )
    
    
    (13,865
    )
    
    
    (12,340
    )Total members and stockholders equity
    
    
    211,991
    
    
    
    323,293
    
    
    
    507,017
    
    
    
    252,498
    
    
    
    (1,082,808
    )
    
    
    211,991Total liabilities and members equity
    
    $
    323,922
    
    
    $
    519,010
    
    
    $
    600,757
    
    
    $
    460,591
    
    
    $
    (1,082,808
    )
    
    $
    821,472
 21




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004
(Unaudited)  (Dollars in thousands)
 Subsidiary
    
    
    Non-
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    
    
    
    $
    (21,473
    )
    
    $
    39,886
    
    
    $
    40,217
    
    
    $
    58,630Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    
    
    
    
    653
    
    
    
    (724
    )
    
    
    (71
    )Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    
    
    
    
    
    
    
    
    (340,124
    )
    
    
    (16,386
    )
    
    
    (356,510
    )Purchases of property and equipment
    
    
    
    
    
    
    
    
    
    
    (21,053
    )
    
    
    (11,424
    )
    
    
    (32,477
    )Proceeds from divestitures
    
    
    
    
    
    
    
    
    
    
    5,904
    
    
    
    114
    
    
    
    6,018Other
    
    
    (58,385
    )
    
    
    (340,480
    )
    
    
    398,435
    
    
    
    2,605
    
    
    
    2,175Net cash provided by (used in) investing activities
    
    
    (58,385
    )
    
    
    (340,480
    )
    
    
    43,162
    
    
    
    (25,091
    )
    
    
    (380,794
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Proceeds from insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    20,022
    
    
    
    
    
    
    
    20,022Payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (1,475
    )
    
    
    (98
    )
    
    
    (1,573
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    (29,794
    )
    
    
    
    
    
    
    (29,794
    )Deferred financing costs paid
    
    
    
    
    
    
    (8,047
    )
    
    
    
    
    
    
    
    
    
    
    (8,047
    )Intercompany advances, net
    
    
    
    
    
    
    
    
    
    
    7,404
    
    
    
    (7,404
    )
    
    
    Contributions from (distributions to) Parent
    
    
    
    
    
    
    
    
    
    
    (41,789
    )
    
    
    41,789
    
    
    
    Note payable to Issuer
    
    
    
    
    
    
    70,000
    
    
    
    (43,000
    )
    
    
    (27,000
    )
    
    
    Proceeds from issuance of common units
    
    
    58,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,385Net cash provided by (used in) financing activities
    
    
    58,385
    
    
    
    361,953
    
    
    
    (88,632
    )
    
    
    7,287
    
    
    
    338,993Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (4,931
    )
    
    
    21,689
    
    
    
    16,758Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    49,919
    
    
    
    36,385
    
    
    
    86,304Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    44,988
    
    
    $
    58,074
    
    
    $
    103,062
 22




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##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2003
(Dollars in thousands)
(Restated)
 Subsidiary
    
    
    Non-
    
    
    CondensedParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    
    
    
    $
    (6,826
    )
    
    $
    33,892
    
    
    $
    24,099
    
    
    $
    51,165Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    
    
    
    
    898
    
    
    
    (848
    )
    
    
    50Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196,309
    )
    
    
    (196,309
    )Purchases of property and equipment
    
    
    
    
    
    
    
    
    
    
    (25,150
    )
    
    
    (29,221
    )
    
    
    (54,371
    )Transfer of assets
    
    
    
    
    
    
    
    
    
    
    6,625
    
    
    
    (6,625
    )
    
    
    Proceeds from divestitures
    
    
    
    
    
    
    
    
    
    
    6,515
    
    
    
    
    
    
    
    6,515Other
    
    
    (9,526
    )
    
    
    (167,514
    )
    
    
    179,900
    
    
    
    (90
    )
    
    
    2,770Net cash provided by (used in) investing activities
    
    
    (9,526
    )
    
    
    (167,514
    )
    
    
    167,890
    
    
    
    (232,245
    )
    
    
    (241,395
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    
    
    
    
    
    
    
    
    (38,703
    )
    
    
    
    
    
    
    (38,703
    )Proceeds from long-term debt
    
    
    
    
    
    
    373,500
    
    
    
    
    
    
    
    
    
    
    
    373,500Proceeds from insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    17,617
    
    
    
    
    
    
    
    17,617Payments on long-term debt
    
    
    
    
    
    
    (112,500
    )
    
    
    (30,721
    )
    
    
    370
    
    
    
    (142,851
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    (25,810
    )
    
    
    
    
    
    
    (25,810
    )Deferred financing costs paid
    
    
    
    
    
    
    (16,660
    )
    
    
    
    
    
    
    
    
    
    
    (16,660
    )Intercompany advances, net
    
    
    
    
    
    
    
    
    
    
    (31,600
    )
    
    
    31,600
    
    
    
    Contributions from (distributions to) Parent
    
    
    
    
    
    
    
    
    
    
    (129,173
    )
    
    
    129,173
    
    
    
    Note payable to Issuer
    
    
    
    
    
    
    (70,000
    )
    
    
    
    
    
    
    70,000
    
    
    
    Proceeds from issuance of common and preferred units
    
    
    11,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,508Common unit issuance costs
    
    
    (1,982
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,982
    )Net cash provided by (used in) financing activities
    
    
    9,526
    
    
    
    174,340
    
    
    
    (238,390
    )
    
    
    231,143
    
    
    
    176,619Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (35,710
    )
    
    
    22,149
    
    
    
    (13,561
    )Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    102,853
    
    
    
    11,006
    
    
    
    113,859Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    
    
    
    $
    67,143
    
    
    $
    33,155
    
    
    $
    100,298
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Forward Looking Statements
   Restatement of Financial Statements
   24




---



##### Table of Contents



Executive Overview
 2004 Operations Summary
  
    
    increased admissions and patient days over prior year periods in both our acute care and
behavioral segments;
    
    increased net patient service revenue per adjusted admission and patient day over prior
year periods in both the consolidated acute care and behavioral segments;
    
    completion of the Hillcrest and Cimarron acquisitions;
    
    increased health plan segment revenue, successful retention of plan members and
effective management of the cost of medical care; and
    
    certification by the Centers for Medicare and Medicaid Services (CMS) in May 2004 of
our Brooke Glen behavioral hospital, which allowed for increased access to patient
admissions.
  
    
    disruption in the execution of some of our business initiatives because of resources
committed to the restatement of our consolidated financial statements and remediation of
identified material weaknesses and other control deficiencies;
    
    continued challenges in the collection of self-pay accounts, which continues to negatively impact our bad debt expense;
    
    integration of the 2004 Hillcrest and Cimarron acquisitions, including integration of disparate information systems;
    
    continued labor pricing and recruitment pressures brought on by the nationwide nursing shortage; and
    
    continued challenges in managing our general and professional liability and workers
compensation risks in a cost-effective manner.
 Revenues
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2004
    
    
    2003
    
    
    2004
    
    
    2003Net patient service revenue
    
    $
    260,286
    
    
    
    56.5
    %
    
    $
    147,178
    
    
    
    45.1
    %
    
    $
    602,416
    
    
    
    52.2
    %
    
    $
    447,152
    
    
    
    46.9
    %Premium revenue
    
    
    179,847
    
    
    
    39.0
    
    
    
    151,223
    
    
    
    46.4
    
    
    
    492,187
    
    
    
    42.7
    
    
    
    439,551
    
    
    
    46.1Other revenue
    
    
    20,613
    
    
    
    4.5
    
    
    
    27,865
    
    
    
    8.5
    
    
    
    58,694
    
    
    
    5.1
    
    
    
    66,821
    
    
    
    7.0Total net revenues
    
    $
    460,746
    
    
    
    100.0
    %
    
    $
    326,266
    
    
    
    100.0
    %
    
    $
    1,153,297
    
    
    
    100.0
    %
    
    $
    953,524
    
    
    
    100.0
    %
 25




---



##### Table of Contents



Net Patient Service Revenue
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Acute
    
    Behavioral
    
    Acute
    
    Behavioral
    
    Acute
    
    Behavioral
    
    Acute
    
    BehavioralMedicare
    
    
    20.1
    %
    
    
    10.9
    %
    
    
    43.5
    %
    
    
    11.2
    %
    
    
    31.3
    %
    
    
    9.8
    %
    
    
    43.6
    %
    
    
    9.6
    %Medicaid
    
    
    3.3
    
    
    
    38.0
    
    
    
    5.2
    
    
    
    32.9
    
    
    
    4.5
    
    
    
    37.2
    
    
    
    5.8
    
    
    
    34.0Managed care
    
    
    25.2
    
    
    
    26.8
    
    
    
    40.4
    
    
    
    29.1
    
    
    
    35.5
    
    
    
    28.4
    
    
    
    39.5
    
    
    
    29.8Other payors
    
    
    51.4
    
    
    
    24.3
    
    
    
    10.9
    
    
    
    26.8
    
    
    
    28.7
    
    
    
    24.6
    
    
    
    11.1
    
    
    
    26.6100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Disclosures about Segments of an Enterprise and Related Information.
   Premium Revenue
   26




---



##### Table of Contents



Other Revenue
  Accounts Receivable Collection Risks and Resulting Increased Provision for Bad Debts
    Acquisitions, Divestitures and Joint Venture
 2003 Acquisitions
   27




---



##### Table of Contents



2004 Acquisitions
   2003 Divestitures
  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of
 2004 Divestitures
   2005 Joint Venture/Divestitures
   28




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##### Table of Contents



Critical Accounting Policies
  Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003
    
    
    September 30, 2004
    
    
    September 30, 2003CONSOLIDATED
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)Revenues:Net patient service revenue
    
    $
    260,286
    
    
    
    56.5
    %
    
    $
    147,178
    
    
    
    45.1
    %
    
    $
    602,416
    
    
    
    52.2
    %
    
    $
    447,152
    
    
    
    46.9
    %Premium revenue
    
    
    179,847
    
    
    
    39.0
    
    
    
    151,223
    
    
    
    46.4
    
    
    
    492,187
    
    
    
    42.7
    
    
    
    439,551
    
    
    
    46.1Other revenue
    
    
    20,613
    
    
    
    4.5
    
    
    
    27,865
    
    
    
    8.5
    
    
    
    58,694
    
    
    
    5.1
    
    
    
    66,821
    
    
    
    7.0Total net revenues
    
    
    460,746
    
    
    
    100.0
    
    
    
    326,266
    
    
    
    100.0
    
    
    
    1,153,297
    
    
    
    100.0
    
    
    
    953,524
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    182,883
    
    
    
    39.7
    
    
    
    134,841
    
    
    
    41.3
    
    
    
    470,484
    
    
    
    40.8
    
    
    
    385,592
    
    
    
    40.5Professional fees
    
    
    46,483
    
    
    
    10.1
    
    
    
    33,690
    
    
    
    10.3
    
    
    
    112,495
    
    
    
    9.8
    
    
    
    95,759
    
    
    
    10.0Claims and capitation
    
    
    82,722
    
    
    
    17.9
    
    
    
    62,359
    
    
    
    19.1
    
    
    
    223,995
    
    
    
    19.4
    
    
    
    197,491
    
    
    
    20.7Supplies
    
    
    54,258
    
    
    
    11.8
    
    
    
    36,316
    
    
    
    11.1
    
    
    
    138,070
    
    
    
    12.0
    
    
    
    110,902
    
    
    
    11.6Provision for doubtful accounts
    
    
    36,911
    
    
    
    8.0
    
    
    
    9,804
    
    
    
    3.0
    
    
    
    71,026
    
    
    
    6.2
    
    
    
    33,010
    
    
    
    3.5Other
    
    
    41,283
    
    
    
    9.0
    
    
    
    30,490
    
    
    
    9.4
    
    
    
    103,074
    
    
    
    8.9
    
    
    
    87,082
    
    
    
    9.1Interest, net
    
    
    8,932
    
    
    
    1.9
    
    
    
    7,759
    
    
    
    2.4
    
    
    
    22,472
    
    
    
    1.9
    
    
    
    16,218
    
    
    
    1.7Change in fair value of interest rate swap agreements
    
    
    102
    
    
    
    0.0
    
    
    
    (1,106
    )
    
    
    (0.3
    )
    
    
    1,491
    
    
    
    0.1
    
    
    
    (1,106
    )
    
    
    (0.1
    )Depreciation and amortization
    
    
    15,587
    
    
    
    3.4
    
    
    
    8,597
    
    
    
    2.6
    
    
    
    38,260
    
    
    
    3.3
    
    
    
    23,237
    
    
    
    2.5Gains on divestitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (618
    )
    
    
    (0.1
    )Income (loss) from continuing operations before income taxes
    
    
    (8,415
    )
    
    
    (1.8
    )
    
    
    3,516
    
    
    
    1.1
    
    
    
    (28,070
    )
    
    
    (2.4
    )
    
    
    5,957
    
    
    
    0.6Income tax expense
    
    
    388
    
    
    
    0.1
    
    
    
    1,390
    
    
    
    0.4
    
    
    
    29,389
    
    
    
    2.6
    
    
    
    2,361
    
    
    
    0.2Income (loss) from continuing operations, net
    
    
    (8,803
    )
    
    
    (1.9
    )
    
    
    2,126
    
    
    
    0.7
    
    
    
    (57,459
    )
    
    
    (5.0
    )
    
    
    3,596
    
    
    
    0.4Income (loss) from discontinued operations, net
    
    
    (752
    )
    
    
    (0.2
    )
    
    
    (237
    )
    
    
    (0.1
    )
    
    
    1,704
    
    
    
    0.2
    
    
    
    (167
    )
    
    
    (0.0
    )Net income (loss)
    
    
    (9,555
    )
    
    
    (2.1
    )
    
    
    1,889
    
    
    
    0.6
    
    
    
    (55,755
    )
    
    
    (4.8
    )
    
    
    3,429
    
    
    
    0.4Accrued preferred dividends
    
    
    2,293
    
    
    
    0.5
    
    
    
    1,928
    
    
    
    0.6
    
    
    
    6,670
    
    
    
    0.6
    
    
    
    5,892
    
    
    
    0.7Net loss attributable to common members
    
    $
    (11,848
    )
    
    
    (2.6
    )%
    
    $
    (39
    )
    
    
    (0.0
    )%
    
    $
    (62,425
    )
    
    
    (5.4
    )%
    
    $
    (2,463
    )
    
    
    (0.3)
    %
 29




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedSeptember 30, 2004
    
    
    September 30, 2003Acute
    
    
    
    
    
    
    
    
    
    
    Consolidated
    
    
    
    
    
    
    ConsolidatedCONSOLIDATED ACUTE
    
    Care
    
    
    Health
    
    
    
    
    
    
    Acute Care
    
    
    
    
    
    
    Acute CareCARE SERVICES SEGMENT
    
    Services
    
    
    Plan
    
    
    Eliminations
    
    
    Services
    
    
    %
    
    
    Services
    
    
    %(Restated)Revenues:Net patient service revenue
    
    $
    251,630
    
    
    $
    
    
    
    $
    (66,594
    )
    
    $
    185,036
    
    
    
    48.4
    %
    
    $
    84,862
    
    
    
    32.5
    %Premium revenue
    
    
    
    
    
    
    179,847
    
    
    
    
    
    
    
    179,847
    
    
    
    47.1
    
    
    
    151,223
    
    
    
    57.8Other revenue
    
    
    24,346
    
    
    
    2,070
    
    
    
    (9,281
    )
    
    
    17,135
    
    
    
    4.5
    
    
    
    25,408
    
    
    
    9.7Total net revenues
    
    
    275,976
    
    
    
    181,917
    
    
    
    (75,875
    )
    
    
    382,018
    
    
    
    100.0
    
    
    
    261,493
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    127,085
    
    
    
    4,993
    
    
    
    (316
    )
    
    
    131,762
    
    
    
    34.5
    
    
    
    89,922
    
    
    
    34.4Professional fees
    
    
    27,648
    
    
    
    8,853
    
    
    
    
    
    
    
    36,501
    
    
    
    9.6
    
    
    
    24,048
    
    
    
    9.2Claims and capitation
    
    
    
    
    
    
    158,282
    
    
    
    (75,559
    )
    
    
    82,723
    
    
    
    21.7
    
    
    
    62,359
    
    
    
    23.8Supplies
    
    
    50,015
    
    
    
    85
    
    
    
    
    
    
    
    50,100
    
    
    
    13.1
    
    
    
    32,681
    
    
    
    12.5Provision for doubtful accounts
    
    
    35,067
    
    
    
    
    
    
    
    
    
    
    
    35,067
    
    
    
    9.1
    
    
    
    9,457
    
    
    
    3.6Other
    
    
    27,036
    
    
    
    5,083
    
    
    
    
    
    
    
    32,119
    
    
    
    8.4
    
    
    
    21,844
    
    
    
    8.4Adjusted EBITDA (1)
    
    $
    9,125
    
    
    $
    4,621
    
    
    $
    
    
    
    $
    13,746
    
    
    
    3.6
    %
    
    $
    21,182
    
    
    
    8.1
    %
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2004
    
    
    September 30, 2003Acute
    
    
    
    
    
    
    
    
    
    
    Consolidated
    
    
    
    
    
    
    ConsolidatedCONSOLIDATED ACUTE
    
    Care
    
    
    Health
    
    
    
    
    
    
    Acute Care
    
    
    
    
    
    
    Acute CareCARE SERVICES SEGMENT
    
    Services
    
    
    Plan
    
    
    Eliminations
    
    
    Services
    
    
    %
    
    
    Services
    
    
    %(Restated)Revenues:Net patient service revenue
    
    $
    565,571
    
    
    $
    
    
    
    $
    (176,230
    )
    
    $
    389,341
    
    
    
    41.9
    %
    
    $
    257,953
    
    
    
    34.2
    %Premium revenue
    
    
    
    
    
    
    492,187
    
    
    
    
    
    
    
    492,187
    
    
    
    53.0
    
    
    
    439,551
    
    
    
    58.2Other revenue
    
    
    65,798
    
    
    
    8,402
    
    
    
    (26,777
    )
    
    
    47,423
    
    
    
    5.1
    
    
    
    57,317
    
    
    
    7.6Total net revenues
    
    
    631,369
    
    
    
    500,589
    
    
    
    (203,007
    )
    
    
    928,951
    
    
    
    100.0
    
    
    
    754,821
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    305,455
    
    
    
    14,847
    
    
    
    (859
    )
    
    
    319,443
    
    
    
    34.4
    
    
    
    257,099
    
    
    
    34.1Professional fees
    
    
    60,183
    
    
    
    28,781
    
    
    
    
    
    
    
    88,964
    
    
    
    9.6
    
    
    
    67,782
    
    
    
    9.0Claims and capitation
    
    
    
    
    
    
    426,143
    
    
    
    (202,148
    )
    
    
    223,995
    
    
    
    24.1
    
    
    
    197,491
    
    
    
    26.2Supplies
    
    
    125,832
    
    
    
    226
    
    
    
    
    
    
    
    126,058
    
    
    
    13.6
    
    
    
    99,909
    
    
    
    13.2Provision for doubtful accounts
    
    
    65,889
    
    
    
    
    
    
    
    
    
    
    
    65,889
    
    
    
    7.1
    
    
    
    29,487
    
    
    
    3.9Other
    
    
    64,064
    
    
    
    11,963
    
    
    
    
    
    
    
    76,027
    
    
    
    8.1
    
    
    
    64,258
    
    
    
    8.5Adjusted EBITDA (1)
    
    $
    9,946
    
    
    $
    18,629
    
    
    $
    
    
    
    $
    28,575
    
    
    
    3.1
    %
    
    $
    38,795
    
    
    
    5.1
    %
 30




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedBEHAVIORAL CARE
    
    September 30, 2004
    
    
    September 30, 2003
    
    
    September 30, 2004
    
    
    September 30, 2003SERVICES SEGMENT
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %(Restated)
    
    
    
    
    
    
    
    
    
    
    (Restated)Revenues:Net patient service revenue
    
    $
    75,250
    
    
    
    94.3
    %
    
    $
    62,317
    
    
    
    94.1
    %
    
    $
    213,075
    
    
    
    93.5
    %
    
    $
    189,199
    
    
    
    93.8
    %Other revenue
    
    
    4,574
    
    
    
    5.7
    
    
    
    3,922
    
    
    
    5.9
    
    
    
    14,718
    
    
    
    6.5
    
    
    
    12,524
    
    
    
    6.2Total net revenues
    
    
    79,824
    
    
    
    100.0
    
    
    
    66,239
    
    
    
    100.0
    
    
    
    227,793
    
    
    
    100.0
    
    
    
    201,723
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    42,829
    
    
    
    53.7
    
    
    
    36,916
    
    
    
    55.7
    
    
    
    127,152
    
    
    
    55.8
    
    
    
    110,893
    
    
    
    55.0Professional fees
    
    
    8,510
    
    
    
    10.7
    
    
    
    7,304
    
    
    
    11.0
    
    
    
    24,877
    
    
    
    10.9
    
    
    
    21,766
    
    
    
    10.8Supplies
    
    
    4,083
    
    
    
    5.1
    
    
    
    3,525
    
    
    
    5.3
    
    
    
    11,769
    
    
    
    5.2
    
    
    
    10,717
    
    
    
    5.3Provision for doubtful accounts
    
    
    1,844
    
    
    
    2.3
    
    
    
    1,547
    
    
    
    2.4
    
    
    
    5,137
    
    
    
    2.3
    
    
    
    4,723
    
    
    
    2.3Other
    
    
    6,713
    
    
    
    8.4
    
    
    
    5,729
    
    
    
    8.7
    
    
    
    19,446
    
    
    
    8.5
    
    
    
    16,260
    
    
    
    8.1Adjusted EBITDA (1)
    
    
    15,845
    
    
    
    19.8
    %
    
    
    11,218
    
    
    
    16.9
    %
    
    
    39,412
    
    
    
    17.3
    %
    
    
    37,364
    
    
    
    18.5
    %
  31




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##### Table of Contents



Selected Operating Statistics
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Acute Care Operating Data:Actual (1):Number of hospitals (end of period)
    
    
    15
    
    
    
    7
    
    
    
    15
    
    
    
    7Number of licensed beds (end of period)(2)
    
    
    2,542
    
    
    
    1,268
    
    
    
    2,542
    
    
    
    1,268Total delivery system admissions(3) (4)
    
    
    14,642
    
    
    
    8,002
    
    
    
    31,646
    
    
    
    24,172% Change
    
    
    83.0
    %
    
    
    N/M
    
    
    
    30.9
    %
    
    
    N/MTotal delivery system adjusted admissions (AA) (4)(5)
    
    
    28,887
    
    
    
    18,806
    
    
    
    68,519
    
    
    
    55,139% Change
    
    
    53.6
    %
    
    
    N/M
    
    
    
    24.3
    %
    
    
    N/MAverage length of stay (days)(6)
    
    
    5.3
    
    
    
    5.4
    
    
    
    5.3
    
    
    
    5.5Net patient service revenue/AA(7)
    
    $
    8,711
    
    
    
    N/M
    
    
    $
    8,254
    
    
    
    N/MSame Facilities (1):Number of hospitals (end of period)
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of licensed beds (end of period)(2)
    
    
    1,268
    
    
    
    1,268
    
    
    
    1,268
    
    
    
    1,268Total delivery system admissions(3) (4)
    
    
    8,094
    
    
    
    8,002
    
    
    
    25,098
    
    
    
    24,172% Change
    
    
    1.1
    %
    
    
    N/M
    
    
    
    3.8
    %
    
    
    N/MTotal delivery system adjusted admissions (AA) (4)(5)
    
    
    19,660
    
    
    
    19,723
    
    
    
    59,493
    
    
    
    58,074% Change
    
    
    (0.3
    )%
    
    
    N/M
    
    
    
    2.4
    %
    
    
    N/MAverage length of stay (days)(6)
    
    
    5.0
    
    
    
    5.4
    
    
    
    5.2
    
    
    
    5.5Net patient service revenue/AA(7)
    
    $
    11,715
    
    
    
    N/M
    
    
    $
    10,967
    
    
    
    N/MBehavioral Operating Data:Actual (1):Number of hospitals (end of period)
    
    
    20
    
    
    
    19
    
    
    
    20
    
    
    
    19Number of licensed beds (end of period) (2)
    
    
    1,981
    
    
    
    1,964
    
    
    
    1,981
    
    
    
    1,964Admissions (3)
    
    
    9,211
    
    
    
    8,242
    
    
    
    27,905
    
    
    
    24,862% Change
    
    
    11.8
    %
    
    
    N/M
    
    
    
    12.2
    %
    
    
    N/MAdjusted Admissions (5)
    
    
    9,676
    
    
    
    8,709
    
    
    
    29,386
    
    
    
    26,261% Change
    
    
    11.1
    %
    
    
    N/M
    
    
    
    11.9
    %
    
    
    N/MPatient days(8)
    
    
    129,213
    
    
    
    118,312
    
    
    
    381,895
    
    
    
    359,815% Change
    
    
    9.2
    %
    
    
    N/M
    
    
    
    6.1
    %
    
    
    N/MAdjusted patient days (APD) (5)
    
    
    135,736
    
    
    
    125,013
    
    
    
    402,164
    
    
    
    380,056% Change
    
    
    8.6
    %
    
    
    N/M
    
    
    
    5.8
    %
    
    
    N/MNet patient service revenue/APD
    
    $
    554
    
    
    $
    498
    
    
    $
    530
    
    
    $
    498% Change
    
    
    11.2
    %
    
    
    N/M
    
    
    
    6.4
    %
    
    
    N/MAverage length of stay (days)(6)
    
    
    14.0
    
    
    
    14.4
    
    
    
    13.7
    
    
    
    14.5Same
Facilities (1):Number of hospitals (end of period)
    
    
    19
    
    
    
    19
    
    
    
    19
    
    
    
    19Number of licensed beds (end of period) (2)
    
    
    1,835
    
    
    
    1,861
    
    
    
    1,835
    
    
    
    1,861Admissions (3)
    
    
    8,753
    
    
    
    8,242
    
    
    
    27,067
    
    
    
    24,862% Change
    
    
    6.2
    %
    
    
    N/M
    
    
    
    8.9
    %
    
    
    N/MAdjusted Admissions (5)
    
    
    9,215
    
    
    
    8,709
    
    
    
    28,545
    
    
    
    26,261% Change
    
    
    5.8
    %
    
    
    N/M
    
    
    
    8.7
    %
    
    
    N/MPatient days(8)
    
    
    124,126
    
    
    
    118,312
    
    
    
    372,221
    
    
    
    359,815% Change
    
    
    4.9
    %
    
    
    N/M
    
    
    
    3.4
    %
    
    
    N/MAdjusted patient days (5)
    
    
    130,682
    
    
    
    125,013
    
    
    
    392,547
    
    
    
    380,056% Change
    
    
    4.5
    %
    
    
    N/M
    
    
    
    3.3
    %
    
    
    N/MNet patient service revenue/APD
    
    $
    534
    
    
    $
    498
    
    
    $
    523
    
    
    $
    497% Change
    
    
    7.2
    %
    
    
    N/M
    
    
    
    5.2
    %
    
    
    N/MAverage length of stay (days)(6)
    
    
    14.2
    
    
    
    14.4
    
    
    
    13.8
    
    
    
    14.5Health Plan Operating Data:Health Plan members (end of period)
    
    
    195,077
    
    
    
    167,901
    
    
    
    195,077
    
    
    
    167,901
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##### Table of Contents



(1)
    
    The segment operating data excludes statistics for discontinued operations. Same facility
statistics exclude the operations of facilities that were either acquired or divested
subsequent to January 1, 2003.(2)
    
    Licensed beds are those beds for which a facility has been granted approval to operate from
the applicable state licensing agency.(3)
    
    Represents the total number of patients admitted (for a period in excess of 23 hours) to our
hospitals and is used by management and certain investors as a general measure of inpatient
volume.(4)
    
    Total delivery system includes all operating data at our owned hospitals prior to elimination
of services rendered to our Health Plan members.(5)
    
    Adjusted admissions and adjusted patient days are used by management and certain investors as
a general measure of combined inpatient and outpatient volume. Adjusted admissions/patient
days are computed by multiplying admissions/patient days (inpatient volume) by the sum of
gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by
gross inpatient revenue. The adjusted admissions/patient days computation equates outpatient
revenue to the volume measure (admissions/patient days) used to measure inpatient volume
resulting in a general measure of combined inpatient and outpatient volume.(6)
    
    Represents the average number of days admitted patients stay in our hospitals.(7)
    
    Net patient service revenue and related admissions and adjusted admissions operating data
within the consolidated acute care services segment prior to January 1, 2004 excludes revenue
and related operating data for services provided to the Lovelace Health Plan members. Due to
system limitations, it is impracticable to restate net patient service revenues and related
operating data for the three months and nine months ended September 30, 2003 for purposes of
comparability. Excluding Health Plan members, admissions and adjusted admissions were 12,138
and 21,580, respectively, for the three months ended September 30, 2004 and 24,734 and 47,839,
respectively, for the nine months ended September 30, 2004.(8)
    
    Represents the total number of days that patients stayed in our hospitals over the period. Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 (Restated)
 Total Net Revenues.
   Salaries and Benefits
  33




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##### Table of Contents



Professional Fees.
  Claims and Capitation.
 Supplies.
 Provision for Doubtful Accounts.
  Other Operating Expenses.
 34




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##### Table of Contents



Interest and Change in Fair Value of Interest Rate Swap Agreements.
 Accounting for Derivative
Instruments and Hedging Activities
 Depreciation and Amortization.
 Income Tax Expense.
 Income (Loss) from Continuing Operations, Net.
 Income (Loss) from Discontinued Operations, Net
 Accrued Preferred Dividends.
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##### Table of Contents



Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 (Restated)
 Total Net Revenues.
   Salaries and Benefits
  Professional Fees.
   36




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##### Table of Contents



Claims and Capitation.
 Supplies.
 Provision for Doubtful Accounts.
  Other Operating Expenses.
  Interest and Change in Fair Value of Interest Rate Swap Agreements.
 Accounting for Derivative
 37




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##### Table of Contents



Instruments and Hedging Activities
 Depreciation and Amortization.
 Gains on Divestitures.
 Income Tax Expense.
 Income (Loss) from Continuing Operations, Net
 Income (Loss) from Discontinued Operations, Net.
 Accrued Preferred Dividends.
 Liquidity and Capital Resources
 Liquidity
  38




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##### Table of Contents



Sources and Uses of Cash
  Nine MonthsEnded September 30,2004
    
    
    2003(Restated)Statement of cash flows information:Cash flows provided by operating activities
    
    $
    58,630
    
    
    $
    51,165Cash flows used in investing activities
    
    
    (380,794
    )
    
    
    (241,395
    )Cash flows provided by financing activities
    
    
    338,993
    
    
    
    176,619
      Restrictions on Cash Flows
  Cash Requirements
  39




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##### Table of Contents



Letters of Credit
  Capital Expenditures (including Capital Commitments)
    Capital Resources
 Long-term Debt
 Classification of Term Loans and Senior Subordinated Notes
   Financing Activities
   40




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Capital
   41




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Interest Rate Swap Agreements
  Availability of Capital Resources
   Recently Issued Accounting Standards
  Seasonality
  Inflation
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  
    
    the discovery of prior period accounting errors through an independent review of certain
accounting matters conducted by the Audit and Compliance Committee of our Board of Managers
with the assistance of independent counsel and an independent accounting firm, which
resulted in the restatement of our financial statements for the seven months ended July 31,
2001, the
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##### Table of Contents



five months ended December 31, 2001, the years ended December 31, 2002 and 2003 and the first
and second quarters of fiscal 2004;
    
    the material weaknesses in our internal control over financial reporting, which
contributed to the above noted restatements, that we and our independent auditor, Ernst &
Young LLP, have identified (as more fully described below); and
    
    the status of the corrective actions we have developed and begun to implement to remedy
those material weaknesses (as more fully described below).
  Material Weaknesses Identified
  
    
    the lack of standard accounting policies and procedures that are appropriately
documented, communicated and consistently applied, which contributed to our inability to
effectively assess risk and monitor compliance;
    
    inadequate facility, division and entity-level month end close processes, including: (1)
untimely reconciliation of account balances and resolution of resulting discrepancies, (2)
lack of documentation supporting accounting estimates and allowances, and (3) an
inappropriate level of review of significant financial statement accounts, in particular
those requiring a higher degree of judgment and estimation;
    
    inadequate communication between financial reporting personnel in our Albuquerque market
regarding the elimination of transactions between our health care provider network and our
health plan;
    
    our continued need to add more qualified financial reporting personnel in the
Albuquerque market; and
    
    inadequate information systems integration and data reconciliation within our revenue
cycle processes in our central business office and accounting departments in our
Albuquerque market, which contributed to untimely reconciliation of balance sheet accounts
and resolution of resulting discrepancies.
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##### Table of Contents



Corrective Actions
   
    
    implementing improved standard accounting policies and procedures that are appropriately
documented, communicated and consistently applied throughout the Company;
    
    revising the month end close process to include enhanced and more timely monitoring of
(i) the reconciliation of account balances and resolution of resulting discrepancies (ii)
the reconciliation of accounts and elimination of transactions between our health care
provider network in Albuquerque and our health plan and (iii) compliance with standard
accounting policies and procedures, and especially those requiring a higher degree of
judgment and estimation;
    
    simplifying the processing and accounting for transactions between our health care
provider network in Albuquerque and our health plan to facilitate the reconciliation and
elimination of related transactions;
    
    utilizing existing information system functionality to improve processes in the revenue
cycle in our Albuquerque market, including the processes for estimating contractual
discounts and allowances, and ultimately converting to a standard patient accounting system
Company-wide;
    
    consolidating accounting functions within the Albuquerque market and adding more
qualified financial reporting personnel;
    
    continuing to evaluate and implement improvements in the design and operating
effectiveness of internal controls and procedures (specifically within our revenue cycle
process) with the assistance of an PricewaterhouseCoopers; and
    
    enhancing our Code of Conduct, including reemphasizing the availability of our ethics
and compliance hotline for reporting questions about the appropriateness of our business
and accounting practices.
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Changes in Our Internal Control Over Financial Reporting
  45




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##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description2.1
    
    Assets Purchase Agreement, dated as of July 20, 2004, between
Heritage Home Healthcare and Lovelace Sandia Health System,
Inc. (Incorporated by reference to Exhibit 2.2 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, File No. 333-110117)10.1
    
    Second Amendment to Credit Agreement dated as of July 12, 2004
among Ardent Health Services, Inc. as Borrower, Ardent Health
Services LLC and certain of its subsidiaries as Guarantors,
Bank One, NA, as Administrative Agent, Swing Line Lender and
L/C Issuer and the other Lenders party thereto. (Incorporated
by reference to Exhibit 10.2 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004, File
No. 333-110117)10.2
    
    Second Amended and Restated Intercompany Promissory Note dated
July 12, 2004 issued by Lovelace Sandia Health System, Inc. in
favor of Ardent Medical Services, Inc. (Incorporated by
reference to Exhibit 10.3 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004, File No.
333-110117)10.3
    
    Employment Agreement, dated as of July 1, 2004, between AHS
Management Company, Inc. and David T. Vandewater
(Incorporated by reference to Exhibit 10.4 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, File No. 333-110117)31.1
    
    Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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##### Table of Contents



SIGNATURE
  By:
    
    /s/ R. Dirk AllisonR. Dirk AllisonExecutive Vice President and Chief Financial Officer(Principal Financial Officer, Chief Accounting Officer and
Authorized Signatory)Date:
    
    October 12, 2005
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    Assets Purchase Agreement, dated as of July 20, 2004, between
Heritage Home Healthcare and Lovelace Sandia Health System,
Inc. (Incorporated by reference to Exhibit 2.2 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, File No. 333-110117)10.1
    
    Second Amendment to Credit Agreement dated as of July 12, 2004
among Ardent Health Services, Inc. as Borrower, Ardent Health
Services LLC and certain of its subsidiaries as Guarantors,
Bank One, NA, as Administrative Agent, Swing Line Lender and
L/C Issuer and the other Lenders party thereto. (Incorporated
by reference to Exhibit 10.2 to the Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004, File
No. 333-110117)10.2
    
    Second Amended and Restated Intercompany Promissory Note dated
July 12, 2004 issued by Lovelace Sandia Health System, Inc. in
favor of Ardent Medical Services, Inc. (Incorporated by
reference to Exhibit 10.3 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004, File No.
333-110117)10.3
    
    Employment Agreement, dated as of July 1, 2004, between AHS
Management Company, Inc. and David T. Vandewater
(Incorporated by reference to Exhibit 10.4 to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, File No. 333-110117)31.1
    
    Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 48