##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission
File Number: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
    
    20-1150104(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)DOVER CENTRE117 SEABOARD LANE, BUILDING EFRANKLIN, TENNESSEE
    
    37067(Address of Principal Executive Offices)
    
    (Zip Code)
 (615) 844-2747
   þ o
 þ
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TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    1Item 2. Properties
    
    
    32Item 3. Legal Proceedings
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    33Item 6. Selected Financial Data
    
    
    33Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    36Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    59Item 8. Financial Statements and Supplementary Data
    
    
    60Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    100Item 9A. Controls and Procedures
    
    
    100Item 9B. Other Information
    
    
    100PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    100Item 11. Executive Compensation
    
    
    104Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    108Item 13. Certain Relationships and Related Transactions
    
    
    110Item 14. Principal Accountant Fees and Services
    
    
    112Item 15. Exhibits and Financial Statement Schedules
    
    
    112EX-10.19  AMENDMENT NO.10 TO CONTRACTEX-21  SUBSIDIARIES OF IASIS HEALTHCARE CORPORATIONEX-31.1  SECTION 302 CERTIFICATION OF THE CEOEX-31.2  SECTION 302 CERTIFICATION OF THE CFOEX-32  SECTION 906 CERTIFICATION OF THE CEO AND CFO
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IASIS HEALTHCARE LLC
 
 Item 1. Business.
 Company Overview
  
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio; and
    
    Las Vegas, Nevada.
     Merger and Related Financing Transactions
   Business Strategy
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 Provide High-Quality Services
  Focus on Operational Excellence
 
    
    using our advanced information systems platform across all of our hospitals to
provide us with accurate, real-time and cost-effective financial and clinical
information;
    
    expanding our profitable product lines and improving our business mix;
    
    focusing on efficient staffing, outsourcing programs and supply utilization;
    
    capitalizing on purchasing efficiencies and reducing operating costs through
monitoring compliance with our national group purchasing contract; and
    
    improving our processes for patient registration, including patient qualification
for financial assistance and point-of-service collections, billing, collections,
managed care contract compliance and all other aspects of our revenue cycle.
  Strategically Invest in Our Markets to Expand Services and Increase Revenue
 
    
    upgrading and expanding specialty services and surgical capacity, including
cardiology, orthopedics, womens services and sub-acute care;
    
    expanding emergency room capacity;
    
    updating our technology in surgery, such as robotic surgery, diagnostic imaging and
other medical equipment;
    
    increasing capacity and utilization of services at certain of our hospitals; and
    
    enhancing the convenience and quality of our outpatient services and expanding
outpatient specialty services.
    Recruit and Retain Quality Physicians
 
    
    dedicating corporate personnel and resources to physician recruitment;
    
    equipping our hospitals with technologically advanced equipment;
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
    
    enhancing physician convenience and access, including the development of medical
office space on or near our medical campuses;
    
    sponsoring training programs to educate physicians on advanced medical procedures;
and
    
    allowing physicians to remotely access clinical data through our information systems
to facilitate convenient and timely patient care.
  Continue to Develop Favorable Managed Care Relationships
  Selectively Pursue Acquisitions and Strategic Alliances
  Our Markets
  Salt Lake City, Utah
  Phoenix, Arizona
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Tampa-St. Petersburg, Florida
  Texas
   Las Vegas, Nevada
  Our Properties
  4




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LicensedHospitals
    
    City
    
    BedsUtahDavis Hospital & Medical Center (1)
    
    Layton
    
    
    136Jordan Valley Hospital (2)
    
    West Jordan
    
    
    92Pioneer Valley Hospital (3)
    
    West Valley City
    
    
    139Salt Lake Regional Medical Center
    
    Salt Lake City
    
    
    168ArizonaMesa General Hospital Medical Center (4)
    
    Mesa
    
    
    126St. Lukes Medical Center (5)
    
    Phoenix
    
    
    320Tempe St. Lukes Hospital
    
    Tempe
    
    
    109FloridaMemorial Hospital of Tampa
    
    Tampa
    
    
    174Palms of Pasadena Hospital
    
    St. Petersburg
    
    
    307Town & Country Hospital
    
    Tampa
    
    
    201NevadaNorth Vista Hospital
    
    Las Vegas
    
    
    198TexasOdessa Regional Hospital (6)
    
    Odessa
    
    
    146Southwest General Hospital
    
    San Antonio
    
    
    289The Medical Center of Southeast Texas (7)
    
    Port Arthur
    
    
    224Total
    
    
    
    
    2,629Surgery CentersUtahDavis Surgical Center (8)
    
    Layton
    
    
    ArizonaBiltmore Surgery Center (9)
    
    Phoenix
    
    
    Arizona Diagnostic and Surgery Center
    
    Mesa
    
    
    
 
 (1)
    
    Owned by a limited partnership in which we own a 97.5% interest.(2)
    
    Owned by a limited partnership in which we own a 97.4% interest.(3)
    
    Leased under an agreement that expires on January 31, 2019. We have options to extend
the term of the lease through January 31, 2039.(4)
    
    Leased under an agreement that expires on July 31, 2008.(5)
    
    Includes St. Lukes Behavioral Hospital, which has 85 licensed beds.(6)
    
    Owned by a limited partnership in which we own an 88.8% interest.(7)
    
    Owned by a limited partnership in which we own an 87.5% interest.(8)
    
    Owned by a joint venture in which we own a 25.5% interest.(9)
    
    Owned by a joint venture in which we own a 62.4% interest.     Major Expansion & Renovation Projects
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ProjectedHospital
    
    Cost(in millions)PhoenixMountain
Vista Medical Center  new facility
    
    $
    161.2UtahSalt Lake
Regional Medical Center  expansion and renovation
    
    $
    14.2TexasSouthwest
General Hospital  expansion
    
    $
    23.5FloridaMemorial Hospital of Tampa  emergency department expansion
    
    $
    4.8
  Mountain
Vista Medical Center  new facility
  Salt
Lake Regional Medical Center  expansion and renovation
  Southwest General Hospital  expansion
  Memorial Hospital of Tampa  emergency department expansion
  6




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Hospital Operations
   
    
    the geographic location of our hospitals and their convenience for patients and physicians;
    
    our participation in managed care programs;
    
    capital investment at our facilities;
    
    the quality of our medical staff;
    
    competition from other healthcare providers;
    
    the size of and growth in local population; and
    
    local economic conditions.
   
    
    level of physician support;
    
    availability of nurses and other healthcare professionals;
    
    quality, skills and compassion of our employees;
    
    breadth of our services;
    
    physical capacity and level of technology at our facilities; and
    
    emphasis on quality of care.
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Sources of Revenue
  
    
    the federal government, primarily under the Medicare program;
    
    state Medicaid programs, including managed Medicaid plans;
    
    managed care payors, including health maintenance organizations, preferred provider
organizations and managed Medicare plans; and
    
    individual patients and private insurers.
  Percentage of Net Patient RevenueYears Ended September 30,Payor Source
    
    2005
    
    2004
    
    2003Medicare
    
    
    26.6
    %
    
    
    26.3
    %
    
    
    27.6
    %Medicaid
    
    
    13.1
    
    
    
    14.1
    
    
    
    12.4Managed care
    
    
    44.5
    
    
    
    43.5
    
    
    
    45.2Self-pay and other
    
    
    15.8
    
    
    
    16.1
    
    
    
    14.8Total(1)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    For the years ended September 30, 2005, 2004 and 2003, net patient revenue comprised
76.8%,
78.4% and 84.2%, respectively, of our total net revenue.  Competition
  
    
    our managed care contracting relationships;
    
    the number, availability, quality and specialties of physicians, nurses and other
healthcare professionals;
    
    the scope, breadth and quality of services;
    
    the reputation of our facilities and physicians;
    
    the physical condition of our facilities and medical equipment;
    
    the location of our facilities and availability of physician office space;
    
    certificate of need restrictions, where applicable;
    
    the availability of parking or proximity to public transportation;
    
    growth in outpatient service providers;
    
    charges for services; and
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
    
    the geographic coverage of our hospitals in the regions in which we operate.
    Employees And Medical Staff
   Compliance Program
  9




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Reimbursement
 Medicare
    10




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11




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Medicaid
  Annual Cost Reports
   12




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Managed Care
   Commercial Insurance
   Government Regulation and Other Factors
 Licensure, Certification and Accreditation
  Utilization Review
  13




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Federal and State Fraud and Abuse Provisions
      
    
    payment of any incentive by the hospital when a physician refers a patient to the
hospital;
    
    use of free or significantly discounted office space or equipment for physicians in
facilities usually located close to the hospital;
    
    provision of free or significantly discounted billing, nursing, or other staff services;
    
    free training for a physicians office staff, including management and laboratory techniques;
    
    guaranties that provide that, if the physicians income fails to reach a
predetermined level, the hospital will pay any portion of the remainder;
    
    low-interest or interest-free loans, or loans which may be forgiven if a physician
refers patients to the hospital;
    
    payment of the costs of a physicians travel and expenses for conferences or a
physicians continuing education courses;
    
    coverage on the hospitals group health insurance plans at an inappropriately low
cost to the physician;
    
    payment of services which require few, if any, substantive duties by the physician,
or payment for services in excess of the fair market value of the services rendered; or
    
    gainsharing, the practice of giving physicians a share of any reduction in a
hospitals costs for patient care attributable in part to the physicians efforts.
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The Federal False Claims Act and Similar State Laws
  16




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Corporate Practice of Medicine/Fee Splitting
  The Health Insurance Portability and Accountability Act of 1996
    17




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The Emergency Medical Treatment and Active Labor Act
  Healthcare Reform
   Conversion Legislation
  Healthcare Industry Investigations
  18




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Certificates of Need
  Health Choice
  19




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
    
    waivers by health maintenance organizations of Medicare and Medicaid beneficiaries
obligation to pay cost-sharing amounts or to provide other incentives in order to
attract Medicare and Medicaid enrollees;
    
    certain discounts offered to prepaid health plans by contracting providers;
    
    certain price reductions offered to eligible managed care organizations; and
    
    certain price reductions offered by contractors with substantial financial risk to
managed care organizations.
  Environmental Matters
  
    
    the proper handling and disposal of medical waste, hazardous waste and low level
radioactive medical waste;
    
    the proper use, storage and handling of mercury and other hazardous materials;
    
    underground and above-ground storage tanks;
    
    management of hydraulic fluid or oil associated with elevators, chiller units or other equipment;
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
    
    management of asbestos-containing materials or lead-based paint present or likely to
be present at some locations; and
    
    air emission permits and standards for boilers or other equipment.
  Professional and General Liability Insurance
   Our Information Systems
   
    
    patient accounting, including billing and collection of net revenue;
    
    financial, accounting, reporting and payroll;
    
    coding and compliance;
    
    laboratory, radiology and pharmacy systems;
    
    materials and asset management; and
    
    negotiating, pricing and administering our managed care contracts.
  
    
    optimize staffing levels according to patient volumes, acuity and seasonal needs at each facility;
    
    perform product line analyses;
    
    track quality of care indicators on a current basis;
    
    effectively monitor registration, billing, collections, managed care contract
compliance and all other aspects of our revenue cycle; and
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
    
    control supply costs by complying with our group purchasing organization contract.
   Risk Factors
 Servicing Our Indebtedness Will Require A Significant Amount of Cash. Our Ability To Generate
Sufficient Cash Depends On Numerous Factors Beyond Our Control, And We May Be Unable To Generate
Sufficient Cash Flow To Service Our Debt Obligations, Including Making Payments On Our 8 3/4%
Notes.
   
    
    our debt holders could declare all outstanding principal and interest to be due and
payable;
    
    our secured debt lenders could terminate their commitments and commence foreclosure
proceedings against our assets; and
    
    we could be forced into bankruptcy or liquidation.
 Our Substantial Level Of Indebtedness Could Adversely Affect Our Financial Condition And
Prevent Us From Fulfilling Our Obligations Under the 8 3/4 % Notes.
   
    
    it may be more difficult for us to satisfy our obligations, including debt service
requirements under our outstanding debt;
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
    
    our ability to obtain additional financing for working capital, capital
expenditures, debt service requirements, or other general corporate purposes may be
impaired;
    
    we must use a substantial portion of our cash flow to pay principal, premium, if
any, and interest on our 8 3/4% notes and other indebtedness which will reduce the
funds available to us for other purposes;
    
    we are more vulnerable to economic downturns and adverse industry conditions;
    
    our ability to capitalize on business opportunities and to react to competitive
pressures as compared to our competitors may be compromised due to our high level of
indebtedness; and
    
    our ability to borrow additional funds or to refinance indebtedness may be limited.
  If We Are Unable To Retain And Negotiate Favorable Contracts With Managed Care Plans, Our Net
Revenue May Be Reduced.
  Changes In Legislation May Significantly Reduce Government Healthcare Spending And Our
Revenue.
  23




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Our Hospitals Face Competition For Patients From Other Hospitals And Healthcare Providers That
Could Impact Patient Volume.
  If We Continue To Experience Growth In Self-Pay Volume And Revenue, Our Financial Condition Or
Results Of Operations Could Be Adversely Affected.
  If We Are Unable To Attract And Retain Quality Medical Staffs, Our Financial Condition Or
Results Of Operations Could Be Adversely Affected.
  
    
    the number and quality of the physicians on the medical staffs of our hospitals;
    
    the admitting practices of those physicians; and
    
    our maintenance of good relations with those physicians.
  Our Hospitals Face Competition For Staffing, Which May Increase Our Labor Costs And Reduce
Profitability.
  24




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If We Fail To Continually Enhance Our Hospitals With The Most Recent Technological Advances In
Diagnostic And Surgical Equipment, Our Ability To Maintain And Expand Our Markets Will Be Adversely
Affected.
  If We Fail To Comply With Extensive Laws And Government Regulations, We Could Suffer
Penalties, Be Required To Alter Arrangements With Investors In Our Hospitals Or Be Required To Make
Significant Changes To Our Operations.
  
    
    billing for services;
    
    relationships with physicians and other referral sources;
    
    adequacy of medical care;
    
    quality of medical equipment and services;
    
    qualifications of medical and support personnel;
    
    confidentiality, maintenance and security issues associated with health-related
information and medical records;
    
    the screening, stabilization and transfer of patients who have emergency medical conditions;
    
    licensure and certification;
    
    operating policies and procedures; and
    
    addition of facilities and services.
   
    
    criminal penalties;
    
    civil penalties, including the loss of our licenses to operate one or more of our facilities; and
    
    exclusion of one or more of our facilities from participation in the Medicare,
Medicaid and other federal and state healthcare programs.
  IAS
Has Recently Received A Subpoena From The OIG Regarding Physician
Arrangements That, If Ultimately Were Determined Unfavorable To Us,
Could Have A Material Adverse Effect On Our Business, Financial
Condition And Results of Operations.
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Providers In The Healthcare Industry Have Been The Subject Of Federal And State
Investigations, And We May Become Subject To Additional Investigations In The Future That Could
Result In Significant Liabilities Or Penalties To Us.
   
    
    cost reporting and billing practices, including for Medicare outliers;
    
    financial arrangements with referral sources;
    
    physician recruitment activities;
    
    physician joint ventures; and
    
    hospital charges and collection practices for self-pay patients.
  Compliance With Section 404 Of The Sarbanes-Oxley Act May Negatively Impact Our Results Of
Operations And Failure To Comply May Subject The Company To Regulatory Scrutiny And A Loss Of
Investors Confidence In Our Internal Control Over Financial Reporting.
  A Failure Of Our Information Systems Would Adversely Affect Our Ability To Properly Manage Our
Operations.
  
    
    patient accounting, including billing and collection of net revenue;
    
    financial, accounting, reporting and payroll;
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
    
    coding and compliance;
    
    laboratory, radiology and pharmacy systems;
    
    negotiating, pricing and administering managed care contracts; and
    
    monitoring quality of care.
  If Any One Of The Regions In Which We Operate Experiences An Economic Downturn Or Other
Material Change, Our Overall Business Results May Suffer.
  Health Choice
    
    
    23.2
    %Salt Lake City, Utah
    
    
    21.1Phoenix, Arizona (excluding Health Choice)
    
    
    17.9Three cities in Texas, including San Antonio
    
    
    18.3Tampa-St. Petersburg, Florida
    
    
    13.5Las Vegas, Nevada
    
    
    6.0
   We May Be Subject To Liabilities Because Of Claims Brought Against Our Facilities.
      27




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Our Hospitals Face Increasing Insurance Costs That May Reduce Our Cash Flows And Net Earnings .
  Our Revenue And Volume Trends At Our Hospitals Have Been And May Be Negatively Impacted By
Certain Factors, Including Severe Weather Conditions And The Impact Of Natural Disasters.
  Recent Hurricane Activity In the Regions In Which We Operate May Result In Increased Property
Insurance Premiums And Deductibles .
   If We Are Unable To Control Healthcare Costs At Health Choice, Our Profitability May Be
Adversely Affected.
  28




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
    
    our ability to contract with cost-effective healthcare providers;
    
    the increased cost of individual healthcare services;
    
    the type and number of individual healthcare services delivered; and
    
    the occurrence of catastrophes, epidemics or other unforeseen occurrences.
  If Health Choices Contract With The Arizona Health Care Cost Containment System Were
Discontinued, Our Net Revenue And Profitability Would Be Adversely Affected.
  Health Choices Contract With CMS to become a Medicare Advantage Prescription Drug Special
Needs Plan May Result in Reduced Profitability.
   Significant Competition From Other Healthcare Companies And State Efforts To Regulate The Sale
Of Not-For-Profit Hospitals May Affect Our Ability To Acquire Hospitals.
  29




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Difficulties With The Integration Of Acquisitions May Disrupt Our Ongoing Operations.
  Difficulties With Construction Of Our New Hospital May Require Unanticipated Capital
Expenditures.
  
    
    our ability to control construction costs;
    
    the failure of general contractors or subcontractors to perform under their contracts;
    
    adverse weather conditions;
    
    shortages of labor or materials;
    
    our ability to obtain necessary licensing and other required governmental authorizations; and
    
    other unforeseen problems and delays.
 The Construction Of Additional Hospitals Would Involve Significant Capital Expenditures
Which Could Have An Adverse Impact On Our Liquidity.
  
    
    our ability to control construction costs;
    
    the failure of general contractors or subcontractors to perform under their contracts;
    
    adverse weather conditions;
    
    shortages of labor or materials;
    
    our ability to obtain necessary licensing and other required governmental authorizations; and
    
    other unforeseen problems and delays.
  The Costs For Construction Materials And Labor Continue To Rise. Such Increased Costs Could
Have An Adverse Impact On The Return On Investment Relating To Our New Hospital And Other Expansion
Projects.
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State Efforts To Regulate The Construction Or Expansion Of Hospitals Could Impair Our Ability
To Operate And Expand Our Operations.
  
    
    the purchase, construction or expansion of healthcare facilities;
    
    capital expenditures exceeding a prescribed amount; or
    
    changes in services or bed capacity.
  We Are Dependent On Key Personnel And The Loss Of One Or More Of Our Senior Management Team Or
Local Management Personnel Could Have A Material Adverse Effect On Our Business.
  Our Hospitals Are Subject To Potential Responsibilities And Costs Under Environmental Laws
That Could Lead To Material Expenditures Or Liability.
   If The Fair Value Of Our Reporting Units Declines, A Material Non-Cash Charge To Earnings From
Impairment Of Our Goodwill Could Result.
  31




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Item 2. Properties.
   
 Item 3. Legal Proceedings.
   
 Item 4. Submission of Matters to a Vote of Security Holders.
  32




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
   
 Item 6. Selected Financial Data.
   Combined
    
    IASISIASIS LLC
    
    Basis
    
    LLC
    
    
    IASJune 23,
    
    
    October 12004
    
    
    2003
    
    Year EndedYear Ended
    
    Year Ended
    
    through
    
    
    through
    
    September 30,September 30,
    
    September 30,
    
    September 30,
    
    
    June 22,2005
    
    2004
    
    2004 (1)
    
    
    2004 (1)
    
    2003
    
    2002
    
    2001 (1)(dollars in thousands)
    
    
    (dollars in thousands)Statement of Operations Data:Net Revenue
    
    $
    1,523,727
    
    
    $
    1,386,634
    
    
    $
    389,474
    
    
    
    $
    997,160
    
    
    $
    1,088,156
    
    
    $
    949,888
    
    
    $
    889,541Costs and expenses:Salaries and benefits
    
    
    442,173
    
    
    
    424,419
    
    
    
    115,538
    
    
    
    
    308,881
    
    
    
    375,509
    
    
    
    324,713
    
    
    
    317,439Supplies and other operating
expenses
    
    
    396,573
    
    
    
    379,239
    
    
    
    103,926
    
    
    
    
    275,313
    
    
    
    316,681
    
    
    
    274,302
    
    
    
    267,904Medical claims
    
    
    302,204
    
    
    
    242,389
    
    
    
    74,051
    
    
    
    
    168,338
    
    
    
    128,595
    
    
    
    116,607
    
    
    
    91,498Rents and leases
    
    
    32,750
    
    
    
    31,998
    
    
    
    8,840
    
    
    
    
    23,158
    
    
    
    33,545
    
    
    
    31,998
    
    
    
    35,915Provision for bad debts
    
    
    133,870
    
    
    
    126,952
    
    
    
    39,486
    
    
    
    
    87,466
    
    
    
    86,231
    
    
    
    72,238
    
    
    
    73,417Interest, net
    
    
    66,002
    
    
    
    59,394
    
    
    
    17,459
    
    
    
    
    41,935
    
    
    
    57,552
    
    
    
    59,664
    
    
    
    67,937Depreciation and amortization
    
    
    71,037
    
    
    
    68,084
    
    
    
    19,856
    
    
    
    
    48,228
    
    
    
    52,609
    
    
    
    41,764
    
    
    
    49,572Management fees
    
    
    3,791
    
    
    
    746
    
    
    
    746
    
    
    
    
  
    
    
    
  
    
    
    
  
    
    
    
  Hurricane-related expenses (2)
    
    
    4,762
    
    
    
    
    
    
    
    
    
    
    
    
  
    
    
    
  
    
    
    
  
    
    
    
  Loss on early extinguishment
of debt
    
    
    
    
    
    
    52,084
    
    
    
    232
    
    
    
    
    51,852
    
    
    
    3,900
    
    
    
    
    
    
    
    Merger expenses (3)
    
    
    
    
    
    
    19,750
    
    
    
    
    
    
    
    
    19,750
    
    
    
    
    
    
    
    
    
    
    
    Write-off of debt issue costs
    
    
    
    
    
    
    8,850
    
    
    
    
    
    
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    Impairment of assets held for
sale (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741
    
    
    
    
    
    
    
    Provision for asset
revaluation, closure and
other costs (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,612Total costs and expenses
    
    
    1,453,162
    
    
    
    1,413,905
    
    
    
    380,134
    
    
    
    
    1,033,771
    
    
    
    1,066,363
    
    
    
    921,286
    
    
    
    920,294
 33




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##### Table of Contents



Combined
    
    IASISIASIS LLC
    
    Basis
    
    LLC
    
    
    IASJune 23,
    
    
    October 12004
    
    
    2003
    
    Year EndedYear Ended
    
    Year Ended
    
    through
    
    
    through
    
    September 30,September 30,
    
    September 30,
    
    September 30,
    
    
    June 22,2005
    
    2004
    
    2004 (1)
    
    
    2004 (1)
    
    2003
    
    2002
    
    2001 (1)(dollars in thousands)
    
    
    (dollars in thousands)Earning (loss) from continuing
operations before gain (loss)
on sale of assets, minority
interests, income taxes and
cumulative effect of a change
in accounting principle
    
    
    70,565
    
    
    
    (27,271
    )
    
    
    9,340
    
    
    
    
    (36,611
    )
    
    
    21,793
    
    
    
    28,602
    
    
    
    (30,753
    )Gain (loss) on sale of assets,
net (4)
    
    
    (231
    )
    
    
    3,624
    
    
    
    (107
    )
    
    
    
    3,731
    
    
    
    588
    
    
    
    (7
    )
    
    
    314Minority interests
    
    
    (2,891
    )
    
    
    (4,305
    )
    
    
    (1,207
    )
    
    
    
    (3,098
    )
    
    
    (1,828
    )
    
    
    (1,042
    )
    
    
    (441
    )Earnings (loss) from
continuing operations
before income taxes and
cumulative effect of a change
in accounting principle
    
    
    67,443
    
    
    
    (27,952
    )
    
    
    8,026
    
    
    
    
    (35,978
    )
    
    
    20,553
    
    
    
    27,553
    
    
    
    (30,880
    )Income tax expense
    
    
    26,851
    
    
    
    4,473
    
    
    
    3,321
    
    
    
    
    1,152
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss) from
continuing operations
before cumulative effect of a
change in accounting
principle
    
    
    40,592
    
    
    
    (32,425
    )
    
    
    4,705
    
    
    
    
    (37,130
    )
    
    
    20,553
    
    
    
    27,553
    
    
    
    (30,880
    )Earnings (loss) from
discontinued operations
and cumulative effect
of a change in
accounting principle (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,525
    )
    
    
    1,000Net earnings (loss)
    
    $
    40,592
    
    
    $
    (32,425
    )
    
    $
    4,705
    
    
    
    $
    (37,130
    )
    
    $
    20,553
    
    
    $
    (10,972
    )
    
    $
    (29,880
    )Balance Sheet Data (at end of
period):Cash and cash equivalents
    
    $
    89,097
    
    
    $
    98,805
    
    
    $
    98,805
    
    
    
    $
    
    
    
    $
    101,070
    
    
    $
    
    
    
    $
    6,056Total assets
    
    
    1,852,724
    
    
    
    1,724,161
    
    
    
    1,724,161
    
    
    
    
    
    
    
    
    1,029,999
    
    
    
    898,483
    
    
    
    866,309Long-term debt and capital
lease obligations (including
current portion)
    
    
    904,808
    
    
    
    912,754
    
    
    
    912,754
    
    
    
    
    
    
    
    
    664,434
    
    
    
    582,943
    
    
    
    550,177Stockholders equity
(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    176,099
    
    
    
    155,544
    
    
    
    166,294Members equity
    
    
    616,947
    
    
    
    573,705
    
    
    
    573,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The selected financial data includes complete financial data for all of the periods noted
with the exception of Rocky Mountain Medical Center and North Vista Hospital. We opened Rocky
Mountain Medical Center on April 10, 2000 and subsequently closed it on June 2, 2001. The
results of Rocky Mountain Medical Center are included in the year ended September 30, 2001.
The results of North Vista Hospital are included from February 1, 2004, the date of
acquisition.(2)
    
    Results for the year ended September 30, 2005 include an estimated adverse financial impact
of approximately $4.8 million before income taxes as a result of property damage to the
Companys facility in Port Arthur, Texas associated with Hurricane Rita.(3)
    
    Merger expenses include legal and advisory expenses and special bonus compensation of IAS
incurred in connection with its acquisition by the investor group led by TPG.(4)
    
    In 2001, we recorded asset revaluation, closure and other costs of $16.6 million related to
the closure of Rocky Mountain Medical Center in June 2001, employee severance costs and the
write-off of deferred initial public offering costs. During 2003, we recorded an impairment
charge of $11.7 million on the Rocky Mountain Medical Center net assets held for sale to
reflect the estimated net proceeds from sale to potential purchasers who would convert the
propertys use to retail. During the quarter ended March 31, 2004, we sold the Rocky Mountain
Medical Center property and recorded a gain on the sale of this property of approximately $3.6
million. 34




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##### Table of Contents



(5)
    
    Consists of the cumulative effect of a change in accounting principle of a $39.5 million
non-cash transitional impairment charge related to the adoption of Statement of Financial
Accounting Standard No. 142, Goodwill and Other Intangible Assets, during the fiscal
year ended September 30, 2002, and reversal of excess loss accrual on discontinued operations of $1.0
million for each of the fiscal years ended September 30, 2001 and 2002, respectively.(6)
    
    On October 26, 2000, all shares of our mandatory redeemable Series A and Series B preferred
stock were exchanged for shares of our common stock on the basis of ten common shares for each
preferred share. The exchange was recorded in the first quarter of 2001 and increased
stockholders equity by approximately $189.3 million. Selected Operating Data
  Year Ended September 30,2005
    
    2004
    
    2003Acute Care (1):Number of acute care hospitals at end of period (2)
    
    
    14
    
    
    
    15
    
    
    
    14Beds in service at end of period
    
    
    2,219
    
    
    
    2,267
    
    
    
    2,028Average length of stay (days) (3)
    
    
    4.43
    
    
    
    4.37
    
    
    
    4.44Occupancy rates (average beds in service)
    
    
    48.3
    %
    
    
    49.8
    %
    
    
    50.0
    %Admissions (4)
    
    
    88,836
    
    
    
    90,236
    
    
    
    83,229Adjusted admissions (5)
    
    
    145,346
    
    
    
    145,035
    
    
    
    138,494Patient days (6)
    
    
    393,523
    
    
    
    395,067
    
    
    
    369,620Adjusted patient days (5)
    
    
    620,717
    
    
    
    612,941
    
    
    
    589,267Net patient revenue per adjusted admission
    
    $
    7,946
    
    
    $
    7,461
    
    
    $
    6,631Acute Care (Same-Facility)(7):Number of acute care hospitals at end of period (2)
    
    
    13
    
    
    
    14
    
    
    
    14Beds in service at end of period
    
    
    2,033
    
    
    
    2,081
    
    
    
    2,028Average length of stay (days)(3)
    
    
    4.37
    
    
    
    4.36
    
    
    
    4.44Occupancy rates (average beds in service)
    
    
    47.7
    %
    
    
    49.3
    %
    
    
    50.0
    %Admissions (4)
    
    
    81,473
    
    
    
    85,030
    
    
    
    83,229Adjusted admissions (5)
    
    
    135,761
    
    
    
    138,406
    
    
    
    138,494Patient days (6)
    
    
    356,309
    
    
    
    370,683
    
    
    
    369,620Adjusted patient days (5)
    
    
    572,269
    
    
    
    582,176
    
    
    
    589,267Net patient revenue per adjusted admission
    
    $
    7,837
    
    
    $
    7,337
    
    
    $
    6,631Health Choice:Covered lives
    
    
    113,589
    
    
    
    105,372
    
    
    
    70,546Medical loss ratio (8)
    
    
    88.0
    %
    
    
    87.2
    %
    
    
    88.1
    %
 
 (1)
    
    Includes North Vista Hospital for the period from February 1, 2004 to September
30, 2004.(2)
    
    Excludes St. Lukes Behavioral Hospital.(3)
    
    Represents the average number of days that a patient stayed in our hospitals.(4)
    
    Represents the total number of patients admitted to our hospitals for stays in
excess of 23 hours. Management and investors use this number as a general measure of
inpatient volume.(5)
    
    Adjusted admissions and adjusted patient days are general measures of combined
inpatient and outpatient volume. We compute adjusted admissions/patient days by
multiplying admissions/patient days by gross patient revenue and then dividing that
number by gross inpatient revenue.(6)
    
    Represents the number of days our beds were occupied by inpatients over the
period.(7)
    
    Excludes North Vista Hospital for the period from February 1, 2004 to September
30, 2004.(8)
    
    Represents medical claims expense as a percentage of premium revenue, including
claims paid to our hospitals. 35




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  
    
    Forward Looking Statements;
    
    Executive Overview;
    
    Critical Accounting Policies and Estimates;
    
    Results of Operations Summary;
    
    Liquidity and Capital Resources;
    
    Off-Balance Sheet Arrangements; and
    
    Recent Accounting Pronouncements.
  Forward Looking Statements
  Executive Overview
  36




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##### Table of Contents




    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in the State of Texas, including San Antonio; and
    
    Las Vegas, Nevada.
    The Merger
 Business Combinations
  
    
    an investment made by entities controlled by TPG, such entities referred to as
TPG, totaling $434.0 million in cash;
    
    an investment made by an entity controlled by JLL Partners Fund IV, such entity
referred to as JLL, totaling $110.0 million in cash;
    
    a contribution of shares of IAS common stock by entities controlled by Trimaran
Fund Management, L.L.C., such entities referred to as Trimaran, of $40.0 million;
    
    the execution of an amended and restated credit agreement governing new senior
secured credit facilities providing for a $425.0 million term loan, drawn at
closing, and a $250.0 million revolving credit facility for working capital and
general corporate purposes, which was not drawn at closing; and
    
    the issuance and sale of $475.0 million in aggregate principal amount of 8 3/4%
senior subordinated notes due 2014.
  
    
    pay all amounts due to the security holders of IAS under the terms of the merger agreement;
    
    repay all outstanding indebtedness under IASs existing senior secured credit facilities;
 37




---



##### Table of Contents




    
    repurchase IASs 13% senior subordinated notes due 2009, or the 13% notes, and 8
1/2% senior subordinated notes due 2009, or the 8 1/2% notes, and pay the related
tender premiums and consent fees, pursuant to a tender offer and consent
solicitation by IAS;
    
    retire, in October 2004, $3.5 million of IASs 13% notes that were not tendered
pursuant to the tender offer and consent solicitation; and
    
    pay the fees and expenses related to the merger and the related financing
transactions.
 Impact of Hurricane Rita
  Revenue and Volume Trends
   Year Ended September 30,2005
    
    
    2004
    
    
    2003Medicare
    
    
    26.6
    %
    
    
    26.3
    %
    
    
    27.6
    %Medicaid
    
    
    13.1
    
    
    
    14.1
    
    
    
    12.4Managed care
    
    
    44.5
    
    
    
    43.5
    
    
    
    45.2Self-pay and other
    
    
    15.8
    
    
    
    16.1
    
    
    
    14.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   38




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##### Table of Contents




    
    a provision allocating $250.0 million per year for federal years 2005-2008 to
pay for healthcare costs of undocumented aliens;
    
    provisions generally providing hospitals with more reimbursement for outpatient
drugs;
    
    a provision increasing our reimbursement by reducing the labor share percentage
from 71% to 62% for hospitals with wage indices less than 1.0; and
    
    a provision eliminating the requirement that hospitals must obtain secondary
payment information from all Medicare beneficiaries receiving reference laboratory
services.
  39




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##### Table of Contents



Significant Industry Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   September 30,
    
    September 30,2005
    
    2004Insured receivables
    
    
    60.2
    %
    
    
    61.6
    %Uninsured receivables
    
    
    39.8
    %
    
    
    38.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   September 30,
    
    September 30,2005
    
    20040 to 90 days
    
    
    63.1
    %
    
    
    63.4
    %90 to 180 days
    
    
    18.4
    %
    
    
    18.1
    %Over 180 days
    
    
    18.5
    %
    
    
    18.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 40




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##### Table of Contents



Additional Charity Care and Charges to the Uninsured
  Development of Sub-Acute Care Services
  Nursing Shortage
  Decreased Federal and State Funding for Medicaid Programs
  Growth in Outpatient Services
  Volatility of Insurance Costs
  41




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##### Table of Contents



Impact of Acquisitions
  Critical Accounting Policies and Estimates
   Allowance for Doubtful Accounts.
 42




---



##### Table of Contents



Allowance for Contractual Discounts and Settlement Estimates.
 Insurance Reserves.
 Medical Claims Payable.
 43




---



##### Table of Contents



Goodwill and Other Intangibles. Business
Combinations
 Income Taxes.
  44




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##### Table of Contents



Results of Operations Summary
  Year Ended
    
    Year Ended
    
    Year EndedConsolidated ($ in thousands):
    
    September 30, 2005
    
    September 30, 2004
    
    September 30, 2003Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet Revenue:Acute care revenue
    
    $
    1,170,483
    
    
    
    76.8
    %
    
    $
    1,096,192
    
    
    
    79.1
    %
    
    $
    934,192
    
    
    
    85.9
    %Premium revenue
    
    
    353,244
    
    
    
    23.2
    %
    
    
    290,442
    
    
    
    20.9
    %
    
    
    153,964
    
    
    
    14.1
    %Total
net
revenue
    
    
    1,523,727
    
    
    
    100.0
    %
    
    
    1,386,634
    
    
    
    100.0
    %
    
    
    1,088,156
    
    
    
    100.0
    %Costs and expenses:Salaries and
benefits
    
    
    442,173
    
    
    
    29.0
    %
    
    
    424,419
    
    
    
    30.6
    %
    
    
    375,509
    
    
    
    34.5
    %Supplies
    
    
    184,875
    
    
    
    12.1
    %
    
    
    176,245
    
    
    
    12.7
    %
    
    
    152,199
    
    
    
    14.0
    %Medical claims
    
    
    302,204
    
    
    
    19.8
    %
    
    
    242,389
    
    
    
    17.5
    %
    
    
    128,595
    
    
    
    11.8
    %Rents and leases
    
    
    32,750
    
    
    
    2.1
    %
    
    
    31,998
    
    
    
    2.3
    %
    
    
    33,545
    
    
    
    3.1
    %Other operating
expenses
    
    
    211,698
    
    
    
    13.9
    %
    
    
    202,994
    
    
    
    14.6
    %
    
    
    164,482
    
    
    
    15.0
    %Provision for bad
debts
    
    
    133,870
    
    
    
    8.8
    %
    
    
    126,952
    
    
    
    9.2
    %
    
    
    86,231
    
    
    
    7.9
    %Interest, net
    
    
    66,002
    
    
    
    4.4
    %
    
    
    59,394
    
    
    
    4.3
    %
    
    
    57,552
    
    
    
    5.3
    %Depreciation and
amortization
    
    
    71,037
    
    
    
    4.7
    %
    
    
    68,084
    
    
    
    4.9
    %
    
    
    52,609
    
    
    
    4.9
    %Management fees
    
    
    3,791
    
    
    
    0.3
    %
    
    
    746
    
    
    
    0.1
    %
    
    
    
    
    
    
    Hurricane-related
expenses
    
    
    4,762
    
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on early
extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    52,084
    
    
    
    3.8
    %
    
    
    3,900
    
    
    
    0.4
    %Merger expenses
    
    
    
    
    
    
    
    
    
    
    19,750
    
    
    
    1.4
    %
    
    
    
    
    
    
    Write-off of debt
issue costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    0.6
    %
    
    
    
    
    
    
    Impairment of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741
    
    
    
    1.1
    %Total
costs
and
expenses
    
    
    1,453,162
    
    
    
    95.4
    %
    
    
    1,413,905
    
    
    
    102.0
    %
    
    
    1,066,363
    
    
    
    98.0
    %Earnings before (gain) loss
on sale of assets, minority
interests,
and income taxes
    
    
    70,565
    
    
    
    4.6
    %
    
    
    (27,271
    )
    
    
    (2.0
    )%
    
    
    21,793
    
    
    
    2.0
    %Gain (loss) on sale of
assets, net
    
    
    (231
    )
    
    
    0.0
    %
    
    
    3,624
    
    
    
    0.3
    %
    
    
    588
    
    
    
    0.1
    %Minority interests
    
    
    (2,891
    )
    
    
    (0.2
    )%
    
    
    (4,305
    )
    
    
    (0.3
    )%
    
    
    (1,828
    )
    
    
    (0.2
    )%Earnings (loss) before income
taxes
    
    
    67,443
    
    
    
    4.4
    %
    
    
    (27,952
    )
    
    
    (2.0
    )%
    
    
    20,553
    
    
    
    1.9
    %Income tax expense
    
    
    26,851
    
    
    
    1.7
    %
    
    
    4,473
    
    
    
    0.3
    %
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    40,592
    
    
    
    2.7
    %
    
    $
    (32,425
    )
    
    
    (2.3
    )%
    
    $
    20,553
    
    
    
    1.9
    %
 45




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##### Table of Contents



Year Ended
    
    Year Ended
    
    Year EndedAcute Care ($ in thousands):
    
    September 30, 2005
    
    September 30, 2004
    
    September 30, 2003Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet Revenue:Acute care revenue
    
    $
    1,170,483
    
    
    
    99.3
    %
    
    $
    1,096,192
    
    
    
    99.0
    %
    
    $
    934,192
    
    
    
    99.2
    %Revenue between
segments
    
    
    8,475
    
    
    
    0.7
    %
    
    
    10,821
    
    
    
    1.0
    %
    
    
    7,062
    
    
    
    0.8
    %Total net
revenue (1)
    
    
    1,178,958
    
    
    
    100.0
    %
    
    
    1,107,013
    
    
    
    100.0
    %
    
    
    941,254
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    431,609
    
    
    
    36.6
    %
    
    
    414,797
    
    
    
    37.5
    %
    
    
    368,799
    
    
    
    39.2
    %Supplies
    
    
    184,676
    
    
    
    15.7
    %
    
    
    176,031
    
    
    
    15.9
    %
    
    
    151,896
    
    
    
    16.1
    %Rents and leases
    
    
    31,849
    
    
    
    2.7
    %
    
    
    31,296
    
    
    
    2.8
    %
    
    
    33,033
    
    
    
    3.5
    %Other operating
expenses
    
    
    200,411
    
    
    
    17.0
    %
    
    
    193,189
    
    
    
    17.4
    %
    
    
    162,153
    
    
    
    17.2
    %Provision for bad
debts
    
    
    133,870
    
    
    
    11.4
    %
    
    
    126,952
    
    
    
    11.5
    %
    
    
    86,231
    
    
    
    9.2
    %Interest, net
    
    
    66,002
    
    
    
    5.6
    %
    
    
    59,394
    
    
    
    5.4
    %
    
    
    57,552
    
    
    
    6.1
    %Depreciation and
amortization
    
    
    67,840
    
    
    
    5.7
    %
    
    
    67,893
    
    
    
    6.1
    %
    
    
    52,483
    
    
    
    5.6
    %Management fees
    
    
    3,791
    
    
    
    0.3
    %
    
    
    746
    
    
    
    0.1
    %
    
    
    
    
    
    
    Hurricane-related
expenses
    
    
    4,762
    
    
    
    0.4
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of assets
held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741
    
    
    
    1.1
    %Loss on early
extinguishment of
debt
    
    
    
    
    
    
    
    
    
    
    52,084
    
    
    
    4.7
    %
    
    
    3,900
    
    
    
    0.4
    %Merger expenses
    
    
    
    
    
    
    
    
    
    
    19,750
    
    
    
    1.8
    %
    
    
    
    
    
    
    Write-off of debt
issue costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    0.8
    %
    
    
    
    
    
    
    Total costs
and expenses
    
    
    1,124,810
    
    
    
    95.4
    %
    
    
    1,150,982
    
    
    
    104.0
    %
    
    
    927,788
    
    
    
    98.6
    %Earnings before (gain)
loss on sale of
assets, minority
interests,
and income taxes
    
    
    54,148
    
    
    
    4.6
    %
    
    
    (43,969
    )
    
    
    (4.0
    )%
    
    
    13,466
    
    
    
    1.4
    %Gain (loss) on sale of
assets, net
    
    
    (231
    )
    
    
    0.0
    %
    
    
    3,624
    
    
    
    0.3
    %
    
    
    588
    
    
    
    0.1
    %Minority interests
    
    
    (2,891
    )
    
    
    (0.3
    )%
    
    
    (4,305
    )
    
    
    (0.4
    )%
    
    
    (1,828
    )
    
    
    (0.2
    )%Earnings (loss) before
income taxes
    
    
    51,026
    
    
    
    4.3
    %
    
    
    (44,650
    )
    
    
    (4.1
    )%
    
    
    12,226
    
    
    
    1.3
    %Income tax expense
    
    
    26,851
    
    
    
    2.2
    %
    
    
    4,473
    
    
    
    0.4
    %
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    24,175
    
    
    
    2.1
    %
    
    $
    (49,123
    )
    
    
    (4.5
    )%
    
    $
    12,226
    
    
    
    1.3
    %
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. 46




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Year Ended
    
    Year Ended
    
    Year EndedHealth Choice ($ in thousands):
    
    September 30, 2005
    
    September 30, 2004
    
    September 30, 2003Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentagexPremium revenue
    
    $
    353,244
    
    
    
    100.0
    %
    
    $
    290,442
    
    
    
    100.0
    %
    
    $
    153,964
    
    
    
    100.0
    %Total
net
revenue
    
    
    353,244
    
    
    
    100.0
    %
    
    
    290,442
    
    
    
    100.0
    %
    
    
    153,964
    
    
    
    100.0
    %Costs and expenses:Salaries and
benefits
    
    
    10,564
    
    
    
    3.0
    %
    
    
    9,622
    
    
    
    3.3
    %
    
    
    6,710
    
    
    
    4.4
    %Supplies
    
    
    199
    
    
    
    0.1
    %
    
    
    214
    
    
    
    0.1
    %
    
    
    303
    
    
    
    0.2
    %Medical claims (2)
    
    
    310,679
    
    
    
    88.0
    %
    
    
    253,210
    
    
    
    87.2
    %
    
    
    135,657
    
    
    
    88.1
    %Rents and leases
    
    
    901
    
    
    
    0.2
    %
    
    
    702
    
    
    
    0.2
    %
    
    
    512
    
    
    
    0.3
    %Other operating
expenses
    
    
    11,287
    
    
    
    3.2
    %
    
    
    9,805
    
    
    
    3.4
    %
    
    
    2,329
    
    
    
    1.5
    %Depreciation and
amortization
    
    
    3,197
    
    
    
    0.9
    %
    
    
    191
    
    
    
    0.1
    %
    
    
    126
    
    
    
    0.1
    %Total
costs
and
expenses
    
    
    336,827
    
    
    
    95.4
    %
    
    
    273,744
    
    
    
    94.3
    %
    
    
    145,637
    
    
    
    94.6
    %Net earnings
    
    $
    16,417
    
    
    
    4.6
    %
    
    $
    16,698
    
    
    
    5.7
    %
    
    $
    8,327
    
    
    
    5.4
    %
 
 (2)
    
    Medical claims paid to our hospitals of $8.5 million, $10.8 million and $7.1 million for
the years ended September 30, 2005, 2004 and 2003, respectively, is eliminated in our
consolidated results. 47




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##### Table of Contents



Year Ended September 30, 2005 Compared to Year Ended September 30, 2004
 Net revenue
   Salaries and benefits
 Supplies
 Medical claims
 Other operating expenses
 48




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##### Table of Contents



Provision for bad debts
 Interest, net
 Depreciation and amortization
 Income tax expense
 Net earnings (loss)
 49




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Year Ended September 30, 2004 Compared to Year Ended September 30, 2003
 Net revenue
   Salaries and benefits
 Supplies
 Medical claims
 50




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##### Table of Contents



Other operating expenses
 Provision for bad debts
 Interest, net
 Depreciation and amortization
 Minority interests
 Income tax expense
 Net earnings (loss)
 51




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##### Table of Contents



Impairment and Sale of Rocky Mountain Medical Center Property
  Summary of Operations by Quarter
  Quarter EndedSept. 30,
    
    June 30,
    
    March 31,
    
    Dec. 31,2005 (1)
    
    2005
    
    2005
    

2004(in thousands)Net revenue
    
    $
    373,516
    
    
    $
    389,979
    
    
    $
    390,257
    
    
    $
    369,975Net earnings from continuing operations before income taxes
    
    
    7,331
    
    
    
    18,201
    
    
    
    27,270
    
    
    
    17,763Net earnings
    
    
    4,371
    
    
    
    10,466
    
    
    
    15,796
    
    
    
    9,960
 Quarter EndedSept. 30,
    
    June 30,
    
    March 31,
    
    Dec. 31,2004
    
    2004 (2)
    

2004(3)
    
    2003(in thousands)Net revenue
    
    $
    357,748
    
    
    $
    355,267
    
    
    $
    355,515
    
    
    $
    318,104Net earnings (loss)
from continuing
operations before income taxes
    
    
    8,023
    
    
    
    (54,619
    )
    
    
    10,235
    
    
    

    9,090Net earnings (loss)
    
    
    3,547
    
    
    
    (56,041
    )
    
    
    11,851
    
    
    
    8,218
 
 (1)
    
    Results for the quarter ended September 30, 2005 include $4.8 million in
hurricane-related expenses and a $6.8 million reduction to estimated liabilities for
general and professional insurance as a result of our semi-annual actuarial study.(2)
    
    For comparability, the results of IAS and IASIS LLC have been combined for the
quarter ended June 30, 2004. These results include $51.9 million of loss on the early
extinguishment of debt and $19.8 million of merger expenses.(3)
    
    Results for the quarter ended March 31, 2004 include $8.5 million in write-off
of debt issue costs and gain on sale of assets of $3.6 million. Liquidity and Capital Resources
  52




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##### Table of Contents



Available cash
    
    $
    89.1Available capacity under our senior credit facilities
    
    
    211.7Net available liquidity at September 30, 2005
    
    $
    308.8
   
    
    approximately $62.0 to $67.0 million for the construction on our new hospital in the
East Valley of Phoenix, Arizona, which we plan to open in the fourth quarter of fiscal
2007;
    
    approximately $72.0 million for other growth and new business projects;
    
    approximately $40.0 million in replacement or maintenance related projects at our hospitals; and
    
    approximately $21.0 million in hardware and software related costs in connection
with the implementation of our advanced clinical information system.
     53




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Overview of Cash Flow Activities for 2005 Compared to 2004
  2005
    
    2004Cash flow from operating activities
    
    $
    149.2
    
    
    $
    82.1Cash flow used in investing activities
    
    
    (151.7
    )
    
    
    (138.0
    )Cash flow from (used in) financing
activities
    
    
    (7.1
    )
    
    
    53.7
 Operating Activities
  Investing Activities
   
    
    $12.0 million in land and development costs associated with a 47-acre parcel of land
in the East Valley area of our Phoenix, Arizona market where a new hospital, Mountain Vista Medical
Center, is currently under construction;
    
    $9.0 million in hardware and software related costs incurred in connection with our
total commitment of approximately $30.0 million for the implementation of our new
advanced clinical system;
    
    $44.9 million for the construction and equipping of The Medical Center of Southeast
Texas, our new hospital in Port Arthur, Texas, which opened on April 16, 2005;
    
    $13.1 million in emergency room expansion and renovation projects at three of our
hospitals; and
    
    $10.3 million of capital expenditures for North Vista Hospital, which we acquired on
February 1, 2004.
 Financing Activities
  54




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Debt Instruments and Related Covenants
  
    
    $675.0 million senior secured credit facilities; and
    
    $475.0 million 8 3/4% senior subordinated notes due 2014.
 $675.0 Million Senior Secured Credit Facilities
   
    
    a senior secured Tranche B term loan of $425.0 million, which we refer to as the
Term Facility; and
    
    a senior secured revolving credit facility of up to $250.0 million, which we refer
to as the Revolving Facility, and which is available for working capital and other
general corporate purposes.
     September 30,2005Actual Total Leverage Ratio
    
    
    3.78Maximum Total Leverage Ratio
    
    
    6.00Actual Interest Coverage Ratio
    
    
    3.59Minimum Interest Coverage Ratio
    
    
    2.15
 55




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$475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
     56




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Off-Balance Sheet Arrangements
   Tabular Disclosure of Contractual Obligations
  Payments Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(in millions)Contractual Cash
Obligations:Long-term debt, with
interest (1)
    
    $
    66.9
    
    
    $
    133.2
    
    
    $
    232.5
    
    
    $
    936.2
    
    
    $
    1,368.8Capital lease obligations,
with interest
    
    
    3.8
    
    
    
    4.6
    
    
    
    0.1
    
    
    
    
    
    
    
    8.5Medical claims
    
    
    60.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60.2Operating leases
    
    
    26.4
    
    
    
    43.6
    
    
    
    26.2
    
    
    
    61.9
    
    
    
    158.1Estimated self-insurance
liabilities
    
    
    6.3
    
    
    
    13.0
    
    
    
    7.6
    
    
    
    6.5
    
    
    
    33.4Purchase obligations
    
    
    8.1
    
    
    
    7.9
    
    
    
    2.1
    
    
    
    0.1
    
    
    
    18.2Subtotal
    
    $
    171.7
    
    
    $
    202.3
    
    
    $
    268.5
    
    
    $
    1,004.7
    
    
    $
    1,647.2
 Amount of Commitment Expiration Per PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(in millions)Other Commitments:Construction and
improvement
commitments
    
    $
    112.1
    
    
    $
    101.8
    
    
    $
    1.6
    
    
    $
    
    
    
    $
    215.5Guarantees of surety
bonds
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.3
    
    
    
    38.3Physician commitments
    
    
    6.3
    
    
    
    1.1
    
    
    
    0.1
    
    
    
    
    
    
    
    7.5Other commitments
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    
    
    
    
    1.4Subtotal
    
    $
    119.5
    
    
    $
    103.6
    
    
    $
    1.8
    
    
    $
    38.3
    
    
    $
    263.2Total obligations
and commitments
    
    $
    291.2
    
    
    $
    305.9
    
    
    $
    270.3
    
    
    $
    1,043.0
    
    
    $
    1,910.4
 
 (1)
    
    We used 5.0%, the weighted average interest rate incurred on our bank credit facility
in 2005, as the assumed interest rate to be paid on amounts outstanding under the Term
Facility which accrues actual interest at a variable rate. Actual interest will vary based
on changes in interest rates. 57




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##### Table of Contents



Seasonality
  Recent Accounting Pronouncements
 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others,
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock
Issued to Employees Statement of Cash Flows
  Exchanges of Nonmonetary Assets  an
amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions,
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3,
 58




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    59




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 IASIS Healthcare LLC
Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    61Consolidated Balance Sheets at September 30, 2005 and 2004
    
    62Consolidated Statements of Operations for the Year ended September
30, 2005, the periods June 23, 2004 to September 30, 2004 and October
1, 2003 to June 22, 2004 (Predecessor) and the Year Ended September
30, 2003 (Predecessor)
    
    63Consolidated Statements of Equity for the Year ended September 30,
2005, the periods June 23, 2004 to September 30, 2004 and October 1,
2003 to June 22, 2004 (Predecessor) and the Year Ended September 30,
2003 (Predecessor)
    
    64Consolidated Statements of Cash Flows for the Year ended September
30, 2005, the periods June 23, 2004 to September 30, 2004 and October
1, 2003 to June 22, 2004 (Predecessor) and the Year Ended September
30, 2003 (Predecessor)
    
    65Notes to Consolidated Financial Statements
    
    67
 60




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Report of Independent Registered Public Accounting Firm
 
     
 61




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##### Table of Contents



IASIS HEALTHCARE LLC
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands except share amounts)
 September 30,
    
    
    September 30,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    89,097
    
    
    $
    98,805Accounts receivable, net
    
    
    166,456
    
    
    
    165,280Inventories
    
    
    29,866
    
    
    
    26,253Deferred income taxes
    
    
    56,003
    
    
    
    Prepaid expenses and other current assets
    
    
    25,236
    
    
    
    21,297Total current assets
    
    
    366,658
    
    
    
    311,635Property and equipment, net
    
    
    647,596
    
    
    
    532,459Goodwill
    
    
    754,375
    
    
    
    252,204Other intangible assets, net
    
    
    42,000
    
    
    
    Unallocated purchase price
    
    
    
    
    
    
    585,013Other assets, net
    
    
    42,095
    
    
    
    42,850Total assets
    
    $
    1,852,724
    
    
    $
    1,724,161LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    58,684
    
    
    $
    61,295Salaries and benefits payable
    
    
    24,887
    
    
    
    36,463Accrued interest payable
    
    
    18,489
    
    
    
    13,821Medical claims payable
    
    
    60,201
    
    
    
    55,421Other accrued expenses and other current liabilities
    
    
    30,550
    
    
    
    26,142Current portion of long-term debt and capital lease obligations
    
    
    7,757
    
    
    
    10,728Total current liabilities
    
    
    200,568
    
    
    
    203,870Long-term debt and capital lease obligations
    
    
    897,051
    
    
    
    902,026Deferred income taxes
    
    
    74,883
    
    
    
    Other long-term liabilities
    
    
    36,801
    
    
    
    31,596Minority interest
    
    
    26,474
    
    
    
    12,964Equity:Members equity
    
    
    616,947
    
    
    
    573,705Total liabilities and equity
    
    $
    1,852,724
    
    
    $
    1,724,161
  62




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands)
 PredecessorYear Ended
    
    
    June 23, 2004
    
    
    October 1, 2003
    
    
    Year EndedSeptember 30,
    
    
    through
    
    
    through
    
    
    September 30,2005
    
    
    September 30, 2004
    
    
    June 22, 2004
    
    
    2003Net revenue:Acute care revenue
    
    $
    1,170,483
    
    
    $
    301,305
    
    
    $
    794,887
    
    
    $
    934,192Premium revenue
    
    
    353,244
    
    
    
    88,169
    
    
    
    202,273
    
    
    
    153,964Total net revenue
    
    
    1,523,727
    
    
    
    389,474
    
    
    
    997,160
    
    
    
    1,088,156Costs and expenses:Salaries and benefits
    
    
    442,173
    
    
    
    115,538
    
    
    
    308,881
    
    
    
    375,509Supplies
    
    
    184,875
    
    
    
    46,580
    
    
    
    129,665
    
    
    
    152,199Medical claims
    
    
    302,204
    
    
    
    74,051
    
    
    
    168,338
    
    
    
    128,595Rents and leases
    
    
    32,750
    
    
    
    8,840
    
    
    
    23,158
    
    
    
    33,545Other operating expenses
    
    
    211,698
    
    
    
    57,346
    
    
    
    145,648
    
    
    
    164,482Provision for bad debts
    
    
    133,870
    
    
    
    39,486
    
    
    
    87,466
    
    
    
    86,231Interest expense, net
    
    
    66,002
    
    
    
    17,459
    
    
    
    41,935
    
    
    
    57,552Depreciation and amortization
    
    
    71,037
    
    
    
    19,856
    
    
    
    48,228
    
    
    
    52,609Management fees
    
    
    3,791
    
    
    
    746
    
    
    
    
    
    
    
    Hurricane-related expenses
    
    
    4,762
    
    
    
    
    
    
    
    
    
    
    
    Loss on early extinguishment of debt
    
    
    
    
    
    
    232
    
    
    
    51,852
    
    
    
    3,900Merger expenses
    
    
    
    
    
    
    
    
    
    
    19,750
    
    
    
    Write-off of debt issue costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    Impairment of assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741Total costs and expenses
    
    
    1,453,162
    
    
    
    380,134
    
    
    
    1,033,771
    
    
    
    1,066,363Earnings (loss) before gain (loss) on
sale of assets, minority interests and
income taxes
    
    
    70,565
    
    
    
    9,340
    
    
    
    (36,611
    )
    
    
    21,793Gain (loss) on sale of assets, net
    
    
    (231
    )
    
    
    (107
    )
    
    
    3,731
    
    
    
    588Minority interests
    
    
    (2,891
    )
    
    
    (1,207
    )
    
    
    (3,098
    )
    
    
    (1,828
    )Earnings (loss) before income taxes
    
    
    67,443
    
    
    
    8,026
    
    
    
    (35,978
    )
    
    
    20,553Income tax expense
    
    
    26,851
    
    
    
    3,321
    
    
    
    1,152
    
    
    
    Net earnings (loss)
    
    $
    40,592
    
    
    $
    4,705
    
    
    $
    (37,130
    )
    
    $
    20,553
  63




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF EQUITY
 (In thousands except share amounts)
 AdditionalCommon Stock
    
    
    Paid-In
    
    
    Treasury
    
    
    Accumulated
    
    
    MembersShares
    
    
    Par Value
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    Equity
    
    
    TotalBalance at September 30, 2002 (Predecessor)
    
    
    31,955,863
    
    
    $
    320
    
    
    $
    450,718
    
    
    $
    (155,300
    )
    
    $
    (140,194
    )
    
    $
    
    
    
    $
    155,544Shares issued
    
    
    250
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,553
    
    
    
    
    
    
    
    20,553Balance at September 30, 2003 (Predecessor)
    
    
    31,956,113
    
    
    
    320
    
    
    
    450,720
    
    
    
    (155,300
    )
    
    
    (119,641
    )
    
    
    
    
    
    
    176,099Net loss for the period October 1,
2003 to June 22, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,130
    )
    
    
    
    
    
    
    (37,130
    )Balance at June 22, 2004 (Predecessor)
    
    
    31,956,113
    
    
    
    320
    
    
    
    450,720
    
    
    
    (155,300
    )
    
    
    (156,771
    )
    
    
    
    
    
    
    138,969Elimination of the Predecessors
equity accounts as a result of the
merger
    
    
    (31,956,113
    )
    
    
    (320
    )
    
    
    (450,720
    )
    
    
    155,300
    
    
    
    156,771
    
    
    
    
    
    
    
    (138,969
    )Initial equity in IASIS Healthcare LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544,000
    
    
    
    544,000Rollover equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    40,000Sponsor fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )
    
    
    (15,000
    )Net earnings for the period June 23,
2004 to September 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,705
    
    
    
    4,705Balance at September 30, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573,705
    
    
    
    573,705Purchase price consideration for
vested rollover options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,650
    
    
    
    2,650Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,592
    
    
    
    40,592Balance at September 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    616,947
    
    
    $
    616,947
  64




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 PredecessorJune 23, 2004
    
    
    October 1,Year Ended
    
    
    through
    
    
    2003
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    through
    
    
    September 30,2005
    
    
    2004
    
    
    June 22, 2004
    
    
    2003Cash flows from operating activities:Net earnings (loss)
    
    $
    40,592
    
    
    $
    4,705
    
    
    $
    (37,130
    )
    
    $
    20,553Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    71,037
    
    
    
    19,856
    
    
    
    48,228
    
    
    
    52,609Amortization of loan costs
    
    
    5,789
    
    
    
    1,792
    
    
    
    2,262
    
    
    
    3,671Minority interests
    
    
    2,891
    
    
    
    1,207
    
    
    
    3,098
    
    
    
    1,828Impairment of assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741Deferred income taxes
    
    
    25,600
    
    
    
    3,234
    
    
    
    
    
    
    
    Loss (gain) on sale of assets
    
    
    231
    
    
    
    107
    
    
    
    (3,731
    )
    
    
    (588
    )Hurricane-related expenses
    
    
    4,762
    
    
    
    
    
    
    
    
    
    
    
    Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    14,993
    
    
    
    3,900Write-off of debt issue costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    Changes in operating assets and liabilities, net of
acquisition and disposal:Accounts receivable
    
    
    (1,176
    )
    
    
    8,722
    
    
    
    (8,542
    )
    
    
    1,413Establishment of accounts receivable of
recent acquisition
    
    
    
    
    
    
    
    
    
    
    (11,325
    )
    
    
    Inventories, prepaid expenses and other
current assets
    
    
    (7,556
    )
    
    
    (1,581
    )
    
    
    (5,656
    )
    
    
    (2,356
    )Accounts payable and other accrued liabilities
    
    
    6,983
    
    
    
    25,978
    
    
    
    6,991
    
    
    
    24,508Net cash provided by operating activities
    
    
    149,153
    
    
    
    64,020
    
    
    
    18,038
    
    
    
    117,279Cash flows from investing activities:Purchases of property and equipment
    
    
    (142,368
    )
    
    
    (44,806
    )
    
    
    (82,265
    )
    
    
    (80,600
    )Acquisitions including working capital settlement
payments
    
    
    (1,359
    )
    
    
    (1,950
    )
    
    
    (23,032
    )
    
    
    Investment in joint venture
    
    
    (3,732
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    14,928
    
    
    
    3,205Change in other assets
    
    
    (4,275
    )
    
    
    797
    
    
    
    (1,650
    )
    
    
    (2,853
    )Net cash used in investing activities
    
    
    (151,734
    )
    
    
    (45,959
    )
    
    
    (92,019
    )
    
    
    (80,248
    )Cash flows from financing activities:Payment of debt and capital leases
    
    
    (10,849
    )
    
    
    (1,852
    )
    
    
    (651,371
    )
    
    
    (516,249
    )Proceeds from borrowings
    
    
    2,274
    
    
    
    
    
    
    
    900,000
    
    
    
    589,600Debt financing costs incurred
    
    
    (487
    )
    
    
    (349
    )
    
    
    (31,469
    )
    
    
    (14,667
    )Distribution of minority interests
    
    
    (4,092
    )
    
    
    (983
    )
    
    
    (2,510
    )
    
    
    (762
    )Proceeds received from (costs paid for) hospital
syndications
    
    
    6,027
    
    
    
    (15
    )
    
    
    1,784
    
    
    
    6,115Proceeds from issuance of common stock, net
    
    
    
    
    
    
    
    
    
    
    529,000
    
    
    
    2Cash paid to security holders
    
    
    
    
    
    
    
    
    
    
    (677,780
    )
    
    
    Payment of merger costs incurred by members of
IASIS Investment LLC
    
    
    
    
    
    
    
    
    
    
    (10,800
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (7,127
    )
    
    
    (3,199
    )
    
    
    56,854
    
    
    
    64,039Increase (decrease) in cash and cash equivalents
    
    
    (9,708
    )
    
    
    14,862
    
    
    
    (17,127
    )
    
    
    101,070Cash and cash equivalents at beginning of period
    
    
    98,805
    
    
    
    83,943
    
    
    
    101,070
    
    
    
    Cash and cash equivalents at end of period
    
    $
    89,097
    
    
    $
    98,805
    
    
    $
    83,943
    
    
    $
    101,070Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    61,363
    
    
    $
    3,285
    
    
    $
    62,069
    
    
    $
    49,198Cash paid (refund received) for income taxes, net
    
    $
    2,421
    
    
    $
    (3
    )
    
    $
    (105
    )
    
    $
    57
 65




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##### Table of Contents



IASIS HEALTHCARE LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)  (In thousands)
 PredecessorJune 23, 2004
    
    
    October 1,Year Ended
    
    
    through
    
    
    2003
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    through
    
    
    September 30,2005
    
    
    2004
    
    
    June 22, 2004
    
    
    2003Supplemental schedule of noncash investing and
financing activities:Capital lease obligations incurred to acquire
equipment
    
    $
    
    
    
    $
    
    
    
    $
    1,542
    
    
    $
    8,033Property and equipment in accounts payable
    
    $
    7,449
    
    
    $
    11,006
    
    
    $
    13,165
    
    
    $
    Stock consideration received
    
    $
    
    
    
    $
    
    
    
    $
    40,000
    
    
    $
    
  66




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##### Table of Contents



IASIS HEALTHCARE LLC
 
 NOTES TO CONSOLIDATED
 FINANCIAL STATEMENTS
 1.
    
    Organization and Basis of Presentation
      
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio; and
    
    Las Vegas, Nevada.
    67




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  2.
    
    Significant Accounting Policies
 Net Revenue
      68




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  Cash and Cash Equivalents
  Accounts Receivable
   Inventories
  Long-lived Assets
 (a) Property and Equipment
   69




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (b) Goodwill and Other Intangible Assets
  (c) Other Assets
  Income Taxes
  Minority Interest in Consolidated Entities
  Medical Claims Payable
   70




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 Stock Based Compensation
 Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees
  PredecessorJune 23, 2004Year Ended
    
    
    through
    
    
    October 1, 2003
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    through June 22,
    
    
    September 30,2005
    
    
    2004
    
    
    2004
    
    
    2003Net earnings (loss)As reported
    
    $
    40,592
    
    
    $
    4,705
    
    
    $
    (37,130
    )
    
    $
    20,553Pro forma
    
    $
    39,434
    
    
    
    4,441
    
    
    
    (38,227
    )
    
    
    18,938
  Fair Value of Financial Instruments
  Reclassifications
  Recently Issued Accounting Pronouncements
 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 71




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
  Exchanges of Nonmonetary Assets  an
amendment of APB Opinion No. 29, Accounting
for Nonmonetary Transactions,
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3,
 Related Party Transactions
  72




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  3.
    
    The Transactions
 The Merger
    
    
    a cash investment made by the investor group totaling $544.0 million in cash;
    
    a contribution of shares of IAS common stock of $40.0 million;
    
    the execution of an amended and restated credit agreement governing new senior
secured credit facilities providing for a $425.0 million term loan, drawn at
closing, and a $250.0 million revolving credit facility for working capital and
general corporate purposes, which was not drawn at closing as discussed below; and
    
    the issuance and sale of $475.0 million in aggregate principal amount of the 8
3/4% notes, as discussed below.
  
    
    pay all amounts due to the security holders of IAS under the terms of the Merger Agreement;
    
    repay all outstanding indebtedness under IASs existing senior secured credit facilities;
    
    repurchase IASs 13% notes and 8 1/2% notes, as discussed below, and pay the
related tender premiums and consent fees, pursuant to a tender offer and consent
solicitation by IAS; and
    
    pay the fees and expenses related to the Merger and the related financing
transactions.
  73




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 4.
    
    Long-Term Debt and Capital Lease Obligations
  September 30,
    
    
    September 30,2005
    
    
    2004Senior secured credit facilities
    
    $
    419,688
    
    
    $
    423,938Senior subordinated notes
    
    
    475,000
    
    
    
    478,500Capital lease obligations and other
    
    
    10,120
    
    
    
    10,316904,808
    
    
    
    912,754Less current maturities
    
    
    7,757
    
    
    
    10,728$
    897,051
    
    
    $
    902,026
 Senior Secured Credit Facilities
        74




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
   13% Senior Subordinated Notes and 8 1/2% Senior Subordinated Notes
    8 3/4% Senior Subordinated Notes
     75




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 2006
    
    $
    4,4402007
    
    
    4,4432008
    
    
    4,4222009
    
    
    4,4022010
    
    
    104,604Thereafter
    
    
    774,625$
    896,936
 5.
    
    Acquisitions and Dispositions
 Acquisition of IASIS Healthcare Corporation
 Business Combinations
  Current assets, net
    
    $
    122,843Property and equipment
    
    
    547,462Non-current assets, net
    
    
    6,231Goodwill (see Note 7)
    
    
    764,328Other intangible assets (see Note 7)
    
    
    45,000Total net assets acquired
    
    $
    1,485,864
 Acquisition of North Vista Hospital
  Sale of Rocky Mountain Medical Center
  76




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  6.
    
    Property and Equipment
  September 30,
    
    
    September 30,2005
    
    
    2004Land
    
    $
    98,068
    
    
    $
    37,981Buildings and improvements
    
    
    363,986
    
    
    
    314,631Equipment
    
    
    262,185
    
    
    
    352,406724,239
    
    
    
    705,018Less accumulated depreciation and amortization
    
    
    (102,478
    )
    
    
    (242,728
    )621,761
    
    
    
    462,290Construction-in-progress (estimated cost to
complete at September 30, 2005 - $215.5
million)
    
    
    25,835
    
    
    
    70,169$
    647,596
    
    
    $
    532,459
  7.
    
    Goodwill and Other Intangible Assets
  Acute
    
    
    HealthCare
    
    
    Choice
    
    
    TotalBalance as of September 30, 2003,
June 22, 2004 (Predecessor) and
September 30, 2004
    
    $
    252,204
    
    
    $
    
    
    
    $
    252,204Adjustments resulting from purchase
price allocation of the Merger (see
Note 5)
    
    
    506,367
    
    
    
    5,757
    
    
    
    512,124Adjustments for change in deferred
tax assets and liabilities existing
at the date of the TPG merger
    
    
    (9,953
    )
    
    
    
    
    
    
    (9,953
    )Balance as September 30, 2005
    
    $
    748,618
    
    
    $
    5,757
    
    
    $
    754,375
   77




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  8. Members Equity and Stockholders Equity
 Common Interests of IASIS LLC
  Shares of Common Stock of IAS
  9. Stock Options
 2000 Stock Option Plan
   WeightedOption Price Per
    
    AverageStock Options
    
    Share
    
    Exercise PriceBalance at September 30, 2002 (Predecessor)
    
    
    6,575,253
    
    
    $
    9.52  40.00
    
    
    $
    24.32Granted
    
    
    1,166,349
    
    
    $
    9.52  40.00
    
    
    $
    24.35Exercised
    
    
    (250
    )
    
    $
    9.52
    
    
    $
    9.52Cancelled/Forfeited
    
    
    (907,648
    )
    
    $
    9.52  40.00
    
    
    $
    24.35Balance at September 30, 2003 (Predecessor)
    
    
    6,833,704
    
    
    $
    9.52  40.00
    
    
    $
    24.33Granted
    
    
    133,856
    
    
    $
    9.52  40.00
    
    
    $
    24.35Exercised
    
    
    (1,792,193
    )
    
    $
    9.52
    
    
    $
    9.52Rolled over
    
    
    (299,900
    )
    
    $
    9.52
    
    
    $
    9.52Cancelled/Forfeited
    
    
    (4,875,467
    )
    
    $
    9.52  40.00
    
    
    $
    24.35Balance at June 22, 2004 (Predecessor)
    
    
    
  78




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 2004 Stock Option Plan
   2004 Stock Option Plan
    
    
    Rollover OptionsWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedOption
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AveragePrice Per
    
    
    Exercise
    
    
    
    
    
    
    Option Price
    
    
    ExerciseOptions
    
    
    Share
    
    
    Price
    
    
    Options
    
    
    Per Share
    
    
    PriceBalance at June 23, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted/Rolled over
    
    
    1,105,750
    
    
    $
    20.00
    
    
    $
    20.00
    
    
    
    166,413
    
    
    $
    8.75- $437.48
    
    
    $
    17.16Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled/Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at September 30,
2004
    
    
    1,105,750
    
    
    $
    20.00
    
    
    $
    20.00
    
    
    
    166,413
    
    
    $
    8.75- $437.48
    
    
    $
    17.16Granted
    
    
    503,563
    
    
    $
    20.00
    
    
    $
    20.00
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled/Forfeited
    
    
    (98,550
    )
    
    $
    20.00
    
    
    $
    20.00
    
    
    
    
    
    
    
    
    
    
    
    Balance at September 30,
2005
    
    
    1,510,763
    
    
    $
    20.00
    
    
    $
    20.00
    
    
    
    166,413
    
    
    $
    8.75- $437.48
    
    
    $
    17.16
  Options OutstandingWeighted-Number
    
    Average
    
    OptionsOutstanding at
    
    Remaining
    
    Exercisable atExercise
    
    September 30,
    
    Contractual
    
    September 30,Price
    
    2005
    
    Life
    
    2005$
    8.75
    
    
    
    163,150
    
    
    
    5.6
    
    
    
    163,150$
    20.00
    
    
    
    1,510,763
    
    
    
    9.0
    
    
    
    217,140$
    437.48
    
    
    
    3,263
    
    
    
    5.6
    
    
    
    3,2631,677,176
    
    
    
    
    
    
    
    383,553
  79




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 PredecessorYear Ended
    
    June 23, 2004
    
    October 1, 2003
    
    Year EndedSeptember 30,
    
    through September
    
    through June
    
    September 30,2005
    
    30, 2004
    
    22, 2004
    
    2003Risk-free interest rate
    
    3.94%
    
    4.24%
    
    3.15%
    
    3.15%Expected life
    
    9.5 years
    
    9.8 years
    
    6.0 years
    
    6.0 yearsExpected dividend yield
    
    0.0%
    
    0.0%
    
    0.0%
    
    0.0%
 10. Income Taxes
  (Predecessor)June 23, 2004Year Ended
    
    
    through
    
    
    October 1, 2003
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    through
    
    
    September 30,2005
    
    
    2004
    
    
    June 22, 2004
    
    
    2003Current:Federal
    
    $
    1,241
    
    
    $
    
    
    
    $
    (136
    )
    
    $
    State
    
    
    10
    
    
    
    87
    
    
    
    1,288
    
    
    
    Deferred:Federal
    
    
    21,168
    
    
    
    2,700
    
    
    
    
    
    
    
    State
    
    
    4,432
    
    
    
    534
    
    
    
    
    
    
    
    $
    26,851
    
    
    $
    3,321
    
    
    $
    1,152
    
    
    $
    
  (Predecessor)June 23, 2004Year Ended
    
    
    through
    
    
    October 1, 2003
    
    
    Year EndedSeptember 30,
    
    
    September
    
    
    through
    
    
    September 30,2005
    
    
    30, 2004
    
    
    June 22, 2004
    
    
    2003Federal statutory rate
    
    $
    23,605
    
    
    $
    2,809
    
    
    $
    (12,592
    )
    
    $
    7,194State income taxes, net of
federal income tax benefit
    
    
    2,887
    
    
    
    404
    
    
    
    837
    
    
    
    Other non-deductible expenses
    
    
    385
    
    
    
    78
    
    
    
    4,417
    
    
    
    223Change in valuation
allowance charged to federal
tax provision
    
    
    
    
    
    
    
    
    
    
    8,097
    
    
    
    (8,235
    )Other items, net
    
    
    (26
    )
    
    
    30
    
    
    
    393
    
    
    
    818Provision for income taxes
    
    $
    26,851
    
    
    $
    3,321
    
    
    $
    1,152
    
    
    $
    
 80




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
  2005
    
    
    2004Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesDepreciation and fixed asset basis differences
    
    $
    
    
    
    $
    58,020
    
    
    $
    
    
    
    $
    49,456Amortization and intangible asset basis differences
    
    
    
    
    
    
    39,701
    
    
    
    5,710
    
    
    
    Allowance for doubtful accounts
    
    
    26,710
    
    
    
    
    
    
    
    25,444
    
    
    
    Professional liability
    
    
    13,102
    
    
    
    
    
    
    
    11,288Accrued expenses and other liabilities
    
    
    11,337
    
    
    
    
    
    
    
    10,586Deductible carryforwards and credits
    
    
    27,530
    
    
    
    
    
    
    
    53,117
    
    
    
    Other, net
    
    
    975
    
    
    
    
    
    
    
    744
    
    
    
    Valuation allowance
    
    
    (813
    )
    
    
    
    
    
    
    (57,433
    )
    
    
    Total
    
    $
    78,841
    
    
    $
    97,721
    
    
    $
    49,456
    
    
    $
    49,456
       81




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 11. Contingencies
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   Health Choice
  Capital Expenditure Commitments
  82




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
   Variable Interest Entities
  Tax Sharing Agreement and Consolidated Group Tax Liabilities
    83




---



##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 Acquisitions
  Other
    12. Leases
   84




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 Capital
    
    
    Net OperatingLeases
    
    
    Leases2006
    
    $
    3,742
    
    
    $
    24,3932007
    
    
    3,229
    
    
    
    21,4572008
    
    
    1,420
    
    
    
    20,1712009
    
    
    129
    
    
    
    14,2292010
    
    
    
    
    
    
    11,339Thereafter
    
    
    
    
    
    
    61,455Total minimum lease payments
    
    $
    8,520
    
    
    $
    153,044Amount representing interest (at rates ranging from 5.65% to 11.65%)
    
    
    648Present value of net minimum lease payments (including $2.9 million
classified as current)
    
    $
    7,872
  13. Retirement Plans
  85




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 14. Segment and Geographic Information
  For the Year Ended September 30, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    1,170,483
    
    
    $
    
    
    
    $
    
    
    
    $
    1,170,483Premium revenue
    
    
    
    
    
    
    353,244
    
    
    
    
    
    
    
    353,244Revenue between segments
    
    
    8,475
    
    
    
    
    
    
    
    (8,475
    )
    
    
    Net revenue
    
    
    1,178,958
    
    
    
    353,244
    
    
    
    (8,475
    )
    
    
    1,523,727Salaries and benefits
    
    
    431,609
    
    
    
    10,564
    
    
    
    
    
    
    
    442,173Supplies
    
    
    184,676
    
    
    
    199
    
    
    
    
    
    
    
    184,875Medical claims
    
    
    
    
    
    
    310,679
    
    
    
    (8,475
    )
    
    
    302,204Rents and Leases
    
    
    31,849
    
    
    
    901
    
    
    
    
    
    
    
    32,750Other operating expenses
    
    
    200,411
    
    
    
    11,287
    
    
    
    
    
    
    
    211,698Provision for bad debts
    
    
    133,870
    
    
    
    
    
    
    
    
    
    
    
    133,870Hurricane-related expenses
    
    
    4,762
    
    
    
    
    
    
    
    
    
    
    
    4,762Adjusted EBITDA(1)
    
    
    191,781
    
    
    
    19,614
    
    
    
    
    
    
    
    211,395Interest expense, net
    
    
    66,002
    
    
    
    
    
    
    
    
    
    
    
    66,002Depreciation and amortization
    
    
    67,840
    
    
    
    3,197
    
    
    
    
    
    
    
    71,037Management fees
    
    
    3,791
    
    
    
    
    
    
    
    
    
    
    
    3,791Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    54,148
    
    
    
    16,417
    
    
    
    
    
    
    
    70,565Loss on sale of assets, net
    
    
    (231
    )
    
    
    
    
    
    
    
    
    
    
    (231
    )Minority interests
    
    
    (2,891
    )
    
    
    
    
    
    
    
    
    
    
    (2,891
    )Earnings before income taxes
    
    $
    51,026
    
    
    $
    16,417
    
    
    $
    
    
    
    $
    67,443Segment assets
    
    $
    1,756,404
    
    
    $
    96,320
    
    
    
    
    
    
    $
    1,852,724Capital expenditures
    
    $
    141,625
    
    
    $
    743
    
    
    
    
    
    
    $
    142,368Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 86




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 For the Period June 23, 2004 through September 30, 2004Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    301,305
    
    
    $
    
    
    
    $
    
    
    
    $
    301,305Premium revenue
    
    
    
    
    
    
    88,169
    
    
    
    
    
    
    
    88,169Revenue between segments
    
    
    2,790
    
    
    
    
    
    
    
    (2,790
    )
    
    
    Net revenue
    
    
    304,095
    
    
    
    88,169
    
    
    
    (2,790
    )
    
    
    389,474Salaries and benefits
    
    
    112,702
    
    
    
    2,836
    
    
    
    
    
    
    
    115,538Supplies
    
    
    46,513
    
    
    
    67
    
    
    
    
    
    
    
    46,580Medical claims
    
    
    
    
    
    
    76,841
    
    
    
    (2,790
    )
    
    
    74,051Rents and Leases
    
    
    8,602
    
    
    
    238
    
    
    
    
    
    
    
    8,840Other operating expenses
    
    
    54,655
    
    
    
    2,691
    
    
    
    
    
    
    
    57,346Provision for bad debts
    
    
    39,486
    
    
    
    
    
    
    
    
    
    
    
    39,486Adjusted EBITDA(1)
    
    
    42,137
    
    
    
    5,496
    
    
    
    
    
    
    
    47,633Interest expense, net
    
    
    17,459
    
    
    
    
    
    
    
    
    
    
    
    17,459Depreciation and amortization
    
    
    19,795
    
    
    
    61
    
    
    
    
    
    
    
    19,856Management fees
    
    
    746
    
    
    
    
    
    
    
    
    
    
    
    746Loss on early extinguishment of debt
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    232Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    3,905
    
    
    
    5,435
    
    
    
    
    
    
    
    9,340Loss on sale of assets, net
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    (107
    )Minority interests
    
    
    (1,207
    )
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Earnings before income taxes
    
    $
    2,591
    
    
    $
    5,435
    
    
    $
    
    
    
    $
    8,026Segment assets
    
    $
    1,713,849
    
    
    $
    10,312
    
    
    
    
    
    
    $
    1,724,161Capital expenditures
    
    $
    44,638
    
    
    $
    168
    
    
    
    
    
    
    $
    44,806Goodwill
    
    $
    252,204
    
    
    $
    
    
    
    
    
    
    
    $
    252,204
 For the Period October 1, 2003 through June 22, 2004Predecessor
    
    Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    794,887
    
    
    $
    
    
    
    $
    
    
    
    $
    794,887Premium revenue
    
    
    
    
    
    
    202,273
    
    
    
    
    
    
    
    202,273Revenue between segments
    
    
    8,031
    
    
    
    
    
    
    
    (8,031
    )
    
    
    Net revenue
    
    
    802,918
    
    
    
    202,273
    
    
    
    (8,031
    )
    
    
    997,160Salaries and benefits
    
    
    302,095
    
    
    
    6,786
    
    
    
    
    
    
    
    308,881Supplies
    
    
    129,518
    
    
    
    147
    
    
    
    
    
    
    
    129,665Medical claims
    
    
    
    
    
    
    176,369
    
    
    
    (8,031
    )
    
    
    168,338Rents and leases
    
    
    22,694
    
    
    
    464
    
    
    
    
    
    
    
    23,158Other operating expenses
    
    
    138,534
    
    
    
    7,114
    
    
    
    
    
    
    
    145,648Provision for bad debts
    
    
    87,466
    
    
    
    
    
    
    
    
    
    
    
    87,466Adjusted EBITDA(1)
    
    
    122,611
    
    
    
    11,393
    
    
    
    
    
    
    
    134,004Interest expense, net
    
    
    41,935
    
    
    
    
    
    
    
    
    
    
    
    41,935Depreciation and amortization
    
    
    48,098
    
    
    
    130
    
    
    
    
    
    
    
    48,228Loss on early extinguishment of debt
    
    
    51,852
    
    
    
    
    
    
    
    
    
    
    
    51,852Merger expenses
    
    
    19,750
    
    
    
    
    
    
    
    
    
    
    
    19,750Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    8,850Earnings (loss) before gain on sale of
assets, minority interests and taxes
    
    
    (47,874
    )
    
    
    11,263
    
    
    
    
    
    
    
    (36,611
    )Gain on sale of assets, net
    
    
    3,731
    
    
    
    
    
    
    
    
    
    
    
    3,731Minority interests
    
    
    (3,098
    )
    
    
    
    
    
    
    
    
    
    
    (3,098
    )Earnings (loss) before income taxes
    
    $
    (47,241
    )
    
    $
    11,263
    
    
    $
    
    
    
    $
    (35,978
    )Capital expenditures
    
    $
    81,945
    
    
    $
    320
    
    
    
    
    
    
    $
    82,265
 87




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 For the Year Ended September 30, 2003Predecessor
    
    Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    934,192
    
    
    $
    
    
    
    $
    
    
    
    $
    934,192Premium revenue
    
    
    
    
    
    
    153,964
    
    
    
    
    
    
    
    153,964Revenue between segments
    
    
    7,062
    
    
    
    
    
    
    
    (7,062
    )
    
    
    Net revenue
    
    
    941,254
    
    
    
    153,964
    
    
    
    (7,062
    )
    
    
    1,088,156Salaries and benefits
    
    
    368,799
    
    
    
    6,710
    
    
    
    
    
    
    
    375,509Supplies
    
    
    151,896
    
    
    
    303
    
    
    
    
    
    
    
    152,199Medical claims
    
    
    
    
    
    
    135,657
    
    
    
    (7,062
    )
    
    
    128,595Rents and leases
    
    
    33,033
    
    
    
    512
    
    
    
    
    
    
    
    33,545Other operating expenses
    
    
    162,153
    
    
    
    2,329
    
    
    
    
    
    
    
    164,482Provision for bad debts
    
    
    86,231
    
    
    
    
    
    
    
    
    
    
    
    86,231Adjusted EBITDA(1)
    
    
    139,142
    
    
    
    8,453
    
    
    
    
    
    
    
    147,595Interest expense, net
    
    
    57,552
    
    
    
    
    
    
    
    
    
    
    
    57,552Depreciation and amortization
    
    
    52,483
    
    
    
    126
    
    
    
    
    
    
    
    52,609Impairment of assets held for sale
    
    
    11,741
    
    
    
    
    
    
    
    
    
    
    
    11,741Loss on early extinguishment of debt
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    3,900Earnings before gain on sale of
assets, minority interests and
taxes
    
    
    13,466
    
    
    
    8,327
    
    
    
    
    
    
    
    21,793Gain on sale of assets, net
    
    
    588
    
    
    
    
    
    
    
    
    
    
    
    588Minority interests
    
    
    (1,828
    )
    
    
    
    
    
    
    
    
    
    
    (1,828
    )Earnings before income taxes
    
    $
    12,226
    
    
    $
    8,327
    
    
    $
    
    
    
    $
    20,553Segment assets
    
    $
    1,027,643
    
    
    $
    2,356
    
    
    
    
    
    
    $
    1,029,999Capital expenditures
    
    $
    80,390
    
    
    $
    210
    
    
    
    
    
    
    $
    80,600Goodwill
    
    $
    252,204
    
    
    $
    
    
    
    
    
    
    
    $
    252,204
 
 (1)
    
    Adjusted EBITDA represents net earnings (loss) before interest expense, income tax
expense, depreciation and amortization, loss on early extinguishment of debt, write-off of
debt issue costs, merger expenses, management fees, gain (loss) on sale of assets, and
minority interests. Management fees represent monitoring and advisory fees paid to TPG, the
Companys majority financial sponsor, and certain other members of IASIS Investment. Merger
expenses include legal and advisory expenses and special bonus compensation of the Predecessor
incurred in connection with the acquisition of IASIS by TPG. Management routinely calculates
and communicates adjusted EBITDA and believes that it is useful to investors because it is
commonly used as an analytical indicator within the healthcare industry to evaluate hospital
performance, allocate resources and measure leverage capacity and debt service ability. In
addition, the Company uses adjusted EBITDA as a measure of performance for its business
segments and for incentive compensation purposes. Adjusted EBITDA should not be considered as
a measure of financial performance under generally accepted accounting principles (GAAP), and
the items excluded from adjusted EBITDA are significant components in understanding and
assessing financial performance. Adjusted EBITDA should not be considered in isolation or as
an alternative to net earnings, cash flows generated by operating, investing, or financing
activities or other financial statement data presented in the condensed consolidated financial
statements as an indicator of financial performance or liquidity. Adjusted EBITDA, as
presented, differs from what is defined under the Companys senior secured credit facilities
and may not be comparable to similarly titled measures of other companies. 15. Accrued Expenses and Other Current Liabilities
  September 302005
    
    
    2004Employee health insurance payable
    
    $
    6,926
    
    
    $
    6,854Taxes other than income taxes
    
    
    7,718
    
    
    
    6,774Workers compensation insurance payable
    
    
    10,066
    
    
    
    7,800Other
    
    
    5,840
    
    
    
    4,714$
    30,550
    
    
    $
    26,142
 88




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 16. Allowances for Doubtful Accounts
  AccountsWritten Off,Beginning
    
    
    Provision for
    
    
    
    
    
    
    Net of
    
    
    EndingBalance
    
    
    Bad Debts
    
    
    Other (1)
    
    
    Recoveries
    
    
    BalanceAllowance for doubtful accounts:Year ended September 30, 2003
(Predecessor)
    
    $
    34,450
    
    
    $
    86,231
    
    
    $
    4,227
    
    
    $
    (73,653
    )
    
    $
    51,255Period October 1, 2003 to June
22, 2004 (Predecessor)
    
    
    51,255
    
    
    
    87,466
    
    
    
    4,647
    
    
    
    (51,407
    )
    
    
    91,961Period June 23, 2004 to
September 30, 2004
    
    
    91,961
    
    
    
    39,486
    
    
    
    (532
    )
    
    
    (28,434
    )
    
    
    102,481Year Ended September 30, 2005
    
    
    102,481
    
    
    
    133,870
    
    
    
    (1,560
    )
    
    
    (131,172
    )
    
    
    103,619
 
 (1)
    
    included in the allowance for doubtful accounts are amounts representing estimated
uncollectible accounts receivable from managed care companies and other third-party payors.
Such amounts were recorded as adjustments to revenue. 17. Impact of Hurricane Rita
  18. Impairment and Sale of Rocky Mountain Medical Center
  19. Supplemental Condensed Consolidating Financial Information
   89




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    88,597
    
    
    $
    500
    
    
    $
    
    
    
    $
    89,097Accounts receivable, net
    
    
    
    
    
    
    120,853
    
    
    
    45,603
    
    
    
    
    
    
    
    166,456Inventories
    
    
    
    
    
    
    21,204
    
    
    
    8,662
    
    
    
    
    
    
    
    29,866Deferred income taxes
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    
    
    
    
    11,576
    
    
    
    13,660
    
    
    
    
    
    
    
    25,236Total current assets
    
    
    56,003
    
    
    
    242,230
    
    
    
    68,425
    
    
    
    
    
    
    
    366,658Property and equipment, net
    
    
    
    
    
    
    404,137
    
    
    
    243,459
    
    
    
    
    
    
    
    647,596Intercompany
    
    
    
    
    
    
    (111,074
    )
    
    
    111,074
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,458,056
    
    
    
    
    
    
    
    
    
    
    
    (1,458,056
    )
    
    
    Goodwill
    
    
    22,128
    
    
    
    230,941
    
    
    
    501,306
    
    
    
    
    
    
    
    754,375Other Intangible Assets, net
    
    
    
    
    
    
    
    
    
    
    42,000
    
    
    
    
    
    
    
    42,000Unallocated purchase price
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other assets, net
    
    
    23,675
    
    
    
    14,834
    
    
    
    3,586
    
    
    
    
    
    
    
    42,095Total assets
    
    $
    1,559,862
    
    
    $
    781,068
    
    
    $
    969,850
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    42,415
    
    
    $
    16,269
    
    
    $
    
    
    
    $
    58,684Salaries and benefits payable
    
    
    
    
    
    
    19,151
    
    
    
    5,736
    
    
    
    
    
    
    
    24,887Accrued interest payable
    
    
    18,489
    
    
    
    (1,070
    )
    
    
    1,070
    
    
    
    
    
    
    
    18,489Medical claims payable
    
    
    
    
    
    
    
    
    
    
    60,201
    
    
    
    
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    
    
    
    
    26,220
    
    
    
    4,330
    
    
    
    
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    2,241
    
    
    
    5,992
    
    
    
    (4,878
    )
    
    
    7,757Total current liabilities
    
    
    22,891
    
    
    
    88,957
    
    
    
    93,598
    
    
    
    (4,878
    )
    
    
    200,568Long-term debt and capital lease obligations
    
    
    890,438
    
    
    
    5,198
    
    
    
    204,489
    
    
    
    (203,074
    )
    
    
    897,051Deferred income taxes
    
    
    74,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,883Other long-term liabilities
    
    
    
    
    
    
    36,801
    
    
    
    
    
    
    
    
    
    
    
    36,801Minority interest
    
    
    
    
    
    
    26,474
    
    
    
    
    
    
    
    
    
    
    
    26,474Total liabilities
    
    
    988,212
    
    
    
    157,430
    
    
    
    298,087
    
    
    
    (207,952
    )
    
    
    1,235,777Members equity
    
    
    571,650
    
    
    
    623,638
    
    
    
    671,763
    
    
    
    (1,250,104
    )
    
    
    616,947Total liabilities and equity
    
    $
    1,559,862
    
    
    $
    781,068
    
    
    $
    969,850
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724
 90




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    97,463
    
    
    $
    1,342
    
    
    $
    
    
    
    $
    98,805Accounts receivable, net
    
    
    
    
    
    
    120,936
    
    
    
    44,344
    
    
    
    
    
    
    
    165,280Inventories
    
    
    
    
    
    
    18,320
    
    
    
    7,933
    
    
    
    
    
    
    
    26,253Prepaid expenses and other current assets
    
    
    
    
    
    
    9,542
    
    
    
    11,755
    
    
    
    
    
    
    
    21,297Total current assets
    
    
    
    
    
    
    246,261
    
    
    
    65,374
    
    
    
    
    
    
    
    311,635Property and equipment, net
    
    
    
    
    
    
    340,599
    
    
    
    191,860
    
    
    
    
    
    
    
    532,459Intercompany
    
    
    
    
    
    
    (60,977
    )
    
    
    60,977
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    871,269
    
    
    
    
    
    
    
    
    
    
    
    (871,269
    )
    
    
    Goodwill
    
    
    
    
    
    
    208,150
    
    
    
    44,054
    
    
    
    
    
    
    
    252,204Unallocated purchase price
    
    
    585,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585,013Other assets, net
    
    
    28,977
    
    
    
    10,450
    
    
    
    3,423
    
    
    
    
    
    
    
    42,850Total assets
    
    $
    1,485,259
    
    
    $
    744,483
    
    
    $
    365,688
    
    
    $
    (871,269
    )
    
    $
    1,724,161Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    47,950
    
    
    $
    13,345
    
    
    $
    
    
    
    $
    61,295Salaries and benefits payable
    
    
    
    
    
    
    26,984
    
    
    
    9,479
    
    
    
    
    
    
    
    36,463Accrued interest payable
    
    
    13,821
    
    
    
    (853
    )
    
    
    853
    
    
    
    
    
    
    
    13,821Medical claims payable
    
    
    
    
    
    
    
    
    
    
    55,421
    
    
    
    
    
    
    
    55,421Other accrued expenses and other current liabilities
    
    
    
    
    
    
    24,117
    
    
    
    2,025
    
    
    
    
    
    
    
    26,142Current portion of long-term debt and capital lease
obligations
    
    
    7,750
    
    
    
    1,740
    
    
    
    3,759
    
    
    
    (2,521
    )
    
    
    10,728Total current liabilities
    
    
    21,571
    
    
    
    99,938
    
    
    
    84,882
    
    
    
    (2,521
    )
    
    
    203,870Long-term debt and capital lease obligations
    
    
    894,688
    
    
    
    4,817
    
    
    
    132,862
    
    
    
    (130,341
    )
    
    
    902,026Other long-term liabilities
    
    
    
    
    
    
    31,596
    
    
    
    
    
    
    
    
    
    
    
    31,596Minority interest
    
    
    
    
    
    
    12,964
    
    
    
    
    
    
    
    
    
    
    
    12,964Total liabilities
    
    
    916,259
    
    
    
    149,315
    
    
    
    217,744
    
    
    
    (132,862
    )
    
    
    1,150,456Members equity
    
    
    569,000
    
    
    
    595,168
    
    
    
    147,944
    
    
    
    (738,407
    )
    
    
    573,705Total liabilities and equity
    
    $
    1,485,259
    
    
    $
    744,483
    
    
    $
    365,688
    
    
    $
    (871,269
    )
    
    $
    1,724,161
 91




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Year Ended September 30, 2005SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    832,575
    
    
    $
    346,383
    
    
    $
    (8,475
    )
    
    $
    1,170,483Premium revenue
    
    
    
    
    
    
    
    
    
    
    353,244
    
    
    
    
    
    
    
    353,244Total net revenue
    
    
    
    
    
    
    832,575
    
    
    
    699,627
    
    
    
    (8,475
    )
    
    $
    1,523,727Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    321,370
    
    
    
    120,803
    
    
    
    
    
    
    
    442,173Supplies
    
    
    
    
    
    
    142,576
    
    
    
    42,299
    
    
    
    
    
    
    
    184,875Medical claims
    
    
    
    
    
    
    
    
    
    
    310,679
    
    
    
    (8,475
    )
    
    
    302,204Rents and leases
    
    
    
    
    
    
    22,987
    
    
    
    9,763
    
    
    
    
    
    
    
    32,750Other operating expenses
    
    
    
    
    
    
    150,994
    
    
    
    60,704
    
    
    
    
    
    
    
    211,698Provision for bad debts
    
    
    
    
    
    
    106,689
    
    
    
    27,181
    
    
    
    
    
    
    
    133,870Interest expense, net
    
    
    66,002
    
    
    
    
    
    
    
    14,539
    
    
    
    (14,539
    )
    
    
    66,002Depreciation and amortization
    
    
    
    
    
    
    49,000
    
    
    
    22,037
    
    
    
    
    
    
    
    71,037Management fees
    
    
    3,791
    
    
    
    (7,294
    )
    
    
    7,294
    
    
    
    
    
    
    
    3,791Hurricane-related expenses
    
    
    
    
    
    
    
    
    
    
    4,762
    
    
    
    
    
    
    
    4,762Equity in earnings of affiliates
    
    
    (122,697
    )
    
    
    
    
    
    
    
    
    
    
    122,697
    
    
    
    Total costs and expenses
    
    
    (52,904
    )
    
    
    786,322
    
    
    
    620,061
    
    
    
    99,683
    
    
    
    1,453,162Earnings (loss) before gain (loss)
on sale of assets, minority
interests, and income taxes
    
    
    52,904
    
    
    
    46,253
    
    
    
    79,566
    
    
    
    (108,158
    )
    
    
    70,565Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (241
    )
    
    
    10
    
    
    
    
    
    
    
    (231
    )Minority interests
    
    
    
    
    
    
    (2,891
    )
    
    
    
    
    
    
    
    
    
    
    (2,891
    )Earnings (loss) before income taxes
    
    
    52,904
    
    
    
    43,121
    
    
    
    79,576
    
    
    
    (108,158
    )
    
    
    67,443Income tax expense
    
    
    26,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,851Net earnings (loss)
    
    $
    26,053
    
    
    $
    43,121
    
    
    $
    79,576
    
    
    $
    (108,158
    )
    
    $
    40,592
 92




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Period June 23, 2004 through September 30, 2004SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    214,678
    
    
    $
    89,415
    
    
    $
    (2,788
    )
    
    $
    301,305Premium revenue
    
    
    
    
    
    
    
    
    
    
    88,169
    
    
    
    
    
    
    
    88,169Total net revenue
    
    
    
    
    
    
    214,678
    
    
    
    177,584
    
    
    
    (2,788
    )
    
    
    389,474Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    83,467
    
    
    
    32,071
    
    
    
    
    
    
    
    115,538Supplies
    
    
    
    
    
    
    35,810
    
    
    
    10,770
    
    
    
    
    
    
    
    46,580Medical claims
    
    
    
    
    
    
    
    
    
    
    76,839
    
    
    
    (2,788
    )
    
    
    74,051Rents and leases
    
    
    
    
    
    
    6,149
    
    
    
    2,691
    
    
    
    
    
    
    
    8,840Other operating expenses
    
    
    
    
    
    
    41,563
    
    
    
    15,783
    
    
    
    
    
    
    
    57,346Provision for bad debts
    
    
    
    
    
    
    32,511
    
    
    
    6,975
    
    
    
    
    
    
    
    39,486Interest expense, net
    
    
    17,459
    
    
    
    
    
    
    
    2,328
    
    
    
    (2,328
    )
    
    
    17,459Depreciation and amortization
    
    
    
    
    
    
    15,920
    
    
    
    3,936
    
    
    
    
    
    
    
    19,856Management fees
    
    
    
    
    
    
    (1,123
    )
    
    
    1,869
    
    
    
    
    
    
    
    746Loss on early extinguishment of debt
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232Equity in earnings of affiliates
    
    
    (23,389
    )
    
    
    
    
    
    
    
    
    
    
    23,389
    
    
    
    Total costs and expenses
    
    
    (5,698
    )
    
    
    214,297
    
    
    
    153,262
    
    
    
    18,273
    
    
    
    380,134Earnings before loss on sale of
assets, minority interests, and income
taxes
    
    
    5,698
    
    
    
    381
    
    
    
    24,322
    
    
    
    (21,061
    )
    
    
    9,340Loss on sale of assets, net
    
    
    
    
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    (107
    )Minority interests
    
    
    
    
    
    
    (1,207
    )
    
    
    
    
    
    
    
    
    
    
    (1,207
    )Earnings (loss) before income taxes
    
    
    5,698
    
    
    
    (933
    )
    
    
    24,322
    
    
    
    (21,061
    )
    
    
    8,026Income tax expense
    
    
    3,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,321Net earnings (loss)
    
    $
    2,377
    
    
    $
    (933
    )
    
    $
    24,322
    
    
    $
    (21,061
    )
    
    $
    4,705
 93




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Period October 1, 2003 through June 22, 2004SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    563,697
    
    
    $
    239,221
    
    
    $
    (8,031
    )
    
    $
    794,887Premium revenue
    
    
    
    
    
    
    
    
    
    
    202,273
    
    
    
    
    
    
    
    202,273Total net revenue
    
    
    
    
    
    
    563,697
    
    
    
    441,494
    
    
    
    (8,031
    )
    
    
    997,160Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    223,954
    
    
    
    84,927
    
    
    
    
    
    
    
    308,881Supplies
    
    
    
    
    
    
    99,439
    
    
    
    30,226
    
    
    
    
    
    
    
    129,665Medical claims
    
    
    
    
    
    
    
    
    
    
    176,369
    
    
    
    (8,031
    )
    
    
    168,338Rents and leases
    
    
    
    
    
    
    16,180
    
    
    
    6,978
    
    
    
    
    
    
    
    23,158Other operating expenses
    
    
    
    
    
    
    105,238
    
    
    
    40,410
    
    
    
    
    
    
    
    145,648Provision for bad debts
    
    
    
    
    
    
    66,877
    
    
    
    20,589
    
    
    
    
    
    
    
    87,466Interest expense, net
    
    
    41,935
    
    
    
    
    
    
    
    7,753
    
    
    
    (7,753
    )
    
    
    41,935Depreciation and amortization
    
    
    
    
    
    
    38,847
    
    
    
    9,381
    
    
    
    
    
    
    
    48,228Management fees
    
    
    
    
    
    
    (5,011
    )
    
    
    5,011
    
    
    
    
    
    
    
    Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Loss on early extinguishment of debt
    
    
    51,852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,852Merger expenses
    
    
    19,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,750Equity in earnings of affiliates
    
    
    (78,656
    )
    
    
    
    
    
    
    
    
    
    
    78,656
    
    
    
    Total costs and expenses
    
    
    43,731
    
    
    
    545,524
    
    
    
    381,644
    
    
    
    62,872
    
    
    
    1,033,771Earnings (loss) before gain on sale of
assets, minority interests and income
taxes
    
    
    (43,731
    )
    
    
    18,173
    
    
    
    59,850
    
    
    
    (70,903
    )
    
    
    (36,611
    )Gain on sale of assets, net
    
    
    
    
    
    
    3,731
    
    
    
    
    
    
    
    
    
    
    
    3,731Minority interests
    
    
    
    
    
    
    (3,098
    )
    
    
    
    
    
    
    
    
    
    
    (3,098
    )Earnings (loss) before income taxes
    
    
    (43,731
    )
    
    
    18,806
    
    
    
    59,850
    
    
    
    (70,903
    )
    
    
    (35,978
    )Income tax expense
    
    
    1,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,152Net earnings (loss)
    
    $
    (44,883
    )
    
    $
    18,806
    
    
    $
    59,850
    
    
    $
    (70,903
    )
    
    $
    (37,130
    )
 94




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    640,181
    
    
    $
    301,073
    
    
    $
    (7,062
    )
    
    $
    934,192Premium revenue
    
    
    
    
    
    
    
    
    
    
    153,964
    
    
    
    
    
    
    
    153,964Total net revenue
    
    
    
    
    
    
    640,181
    
    
    
    455,037
    
    
    
    (7,062
    )
    
    
    1,088,156Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    267,637
    
    
    
    107,872
    
    
    
    
    
    
    
    375,509Supplies
    
    
    
    
    
    
    111,419
    
    
    
    40,780
    
    
    
    
    
    
    
    152,199Medical claims
    
    
    
    
    
    
    
    
    
    
    135,657
    
    
    
    (7,062
    )
    
    
    128,595Rents and leases
    
    
    
    
    
    
    25,560
    
    
    
    7,985
    
    
    
    
    
    
    
    33,545Other operating expenses
    
    
    
    
    
    
    117,374
    
    
    
    47,108
    
    
    
    
    
    
    
    164,482Provision for bad debts
    
    
    
    
    
    
    60,691
    
    
    
    25,540
    
    
    
    
    
    
    
    86,231Interest expense, net
    
    
    57,552
    
    
    
    
    
    
    
    27,902
    
    
    
    (27,902
    )
    
    
    57,552Depreciation and amortization
    
    
    
    
    
    
    39,632
    
    
    
    12,977
    
    
    
    
    
    
    
    52,609Management fees
    
    
    (10,725
    )
    
    
    
    
    
    
    10,725
    
    
    
    
    
    
    
    Loss on early extinguishment of debt
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,900Impairment of assets held for sale
    
    
    11,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741Equity in earnings of affiliates
    
    
    (55,119
    )
    
    
    
    
    
    
    
    
    
    
    55,119
    
    
    
    Total costs and expenses
    
    
    7,349
    
    
    
    622,313
    
    
    
    416,546
    
    
    
    20,155
    
    
    
    1,066,363Earnings (loss) before gain (loss) on
sale of assets, minority interests and
income taxes
    
    
    (7,349
    )
    
    
    17,868
    
    
    
    38,491
    
    
    
    (27,217
    )
    
    
    21,793Gain (loss) on sale of assets, net
    
    
    
    
    
    
    780
    
    
    
    (192
    )
    
    
    
    
    
    
    588Minority interests
    
    
    
    
    
    
    (1,828
    )
    
    
    
    
    
    
    
    
    
    
    (1,828
    )Earnings (loss) before income taxes
    
    
    (7,349
    )
    
    
    16,820
    
    
    
    38,299
    
    
    
    (27,217
    )
    
    
    20,553Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    (7,349
    )
    
    $
    16,820
    
    
    $
    38,299
    
    
    $
    (27,217
    )
    
    $
    20,553
 95




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Year Ended September 30, 2005SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings
    
    $
    26,053
    
    
    $
    43,121
    
    
    $
    79,576
    
    
    $
    (108,158
    )
    
    $
    40,592Adjustments: to reconcile net earnings to net cash
provided operating activities:Depreciation and amortization
    
    
    
    
    
    
    49,000
    
    
    
    22,037
    
    
    
    
    
    
    
    71,037Amortization of loan costs
    
    
    5,789
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,789Minority interests
    
    
    
    
    
    
    2,891
    
    
    
    
    
    
    
    
    
    
    
    2,891Deferred income taxes
    
    
    25,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,600Loss (gain)
on sale of assets
    
    
    
    
    
    
    241
    
    
    
    (10
    )
    
    
    
    
    
    
    231Hurricane-related expenses
    
    
    
    
    
    
    
    
    
    
    4,762
    
    
    
    
    
    
    
    4,762Equity in earnings of affiliates
    
    
    (122,697
    )
    
    
    
    
    
    
    
    
    
    
    122,697
    
    
    
    Changes in
operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (17
    )
    
    
    (1,159
    )
    
    
    
    
    
    
    (1,176
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (5,413
    )
    
    
    (2,143
    )
    
    
    
    
    
    
    (7,556
    )Accounts payable and other accrued liabilities
    
    
    4,668
    
    
    
    1,740
    
    
    
    575
    
    
    
    
    
    
    
    6,983Net cash provided by (used in) operating activities
    
    
    (60,587
    )
    
    
    91,563
    
    
    
    103,638
    
    
    
    14,539
    
    
    
    149,153Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (75,257
    )
    
    
    (67,111
    )
    
    
    
    
    
    
    (142,368
    )Acquisitions including working capital settlement payments
    
    
    
    
    
    
    (1,359
    )
    
    
    
    
    
    
    
    
    
    
    (1,359
    )Investment in joint venture
    
    
    
    
    
    
    
    
    
    
    (3,732
    )
    
    
    
    
    
    
    (3,732
    )Change in other assets
    
    
    
    
    
    
    (4,233
    )
    
    
    (42
    )
    
    
    
    
    
    
    (4,275
    )Net cash used in investing activities
    
    
    
    
    
    
    (80,849
    )
    
    
    (70,885
    )
    
    
    
    
    
    
    (151,734
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    (7,876
    )
    
    
    (1,742
    )
    
    
    (1,231
    )
    
    
    
    
    
    
    (10,849
    )Proceeds from borrowings
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274Debt financing costs incurred
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Proceeds received from hospital syndications
    
    
    
    
    
    
    6,027
    
    
    
    
    
    
    
    
    
    
    
    6,027Change in intercompany balances with affiliates, net
    
    
    66,676
    
    
    
    (23,865
    )
    
    
    (28,272
    )
    
    
    (14,539
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (4,092
    )
    
    
    
    
    
    
    (4,092
    )Net cash provided by (used in) financing activities
    
    
    60,587
    
    
    
    (19,580
    )
    
    
    (33,595
    )
    
    
    (14,539
    )
    
    
    (7,127
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (8,866
    )
    
    
    (842
    )
    
    
    
    
    
    
    (9,708
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    97,463
    
    
    
    1,342
    
    
    
    
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    88,597
    
    
    $
    500
    
    
    $
    
    
    
    $
    89,097
 96




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Period June 23, 2004 through September 30, 2004SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    2,377
    
    
    $
    (933
    )
    
    $
    24,322
    
    
    $
    (21,061
    )
    
    $
    4,705Adjustments: to reconcile net earnings (loss) to net cash
provided operating activities:Depreciation and amortization
    
    
    
    
    
    
    15,920
    
    
    
    3,936
    
    
    
    
    
    
    
    19,856Amortization of loan costs
    
    
    1,792
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,792Minority interests
    
    
    
    
    
    
    1,207
    
    
    
    
    
    
    
    
    
    
    
    1,207Deferred income taxes
    
    
    
    
    
    
    3,234
    
    
    
    
    
    
    
    
    
    
    
    3,234Loss on sale of property and equipment
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    107Equity in earnings of affiliates
    
    
    (23,389
    )
    
    
    
    
    
    
    
    
    
    
    23,389
    
    
    
    Changes in
operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    9,270
    
    
    
    (548
    )
    
    
    
    
    
    
    8,722Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    2,867
    
    
    
    (4,448
    )
    
    
    
    
    
    
    (1,581
    )Accounts payable and other accrued liabilities
    
    
    12,538
    
    
    
    (228
    )
    
    
    13,668
    
    
    
    
    
    
    
    25,978Net cash provided by (used in) operating activities
    
    
    (6,682
    )
    
    
    31,444
    
    
    
    36,930
    
    
    
    2,328
    
    
    
    64,020Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (5,289
    )
    
    
    (39,517
    )
    
    
    
    
    
    
    (44,806
    )Acquisitions including working capital settlement payments
    
    
    
    
    
    
    (1,950
    )
    
    
    
    
    
    
    
    
    
    
    (1,950
    )Change in other assets
    
    
    
    
    
    
    987
    
    
    
    (190
    )
    
    
    
    
    
    
    797Net cash used in investing activities
    
    
    
    
    
    
    (6,252
    )
    
    
    (39,707
    )
    
    
    
    
    
    
    (45,959
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    (1,129
    )
    
    
    (578
    )
    
    
    (145
    )
    
    
    
    
    
    
    (1,852
    )Debt financing costs incurred
    
    
    (349
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349
    )Costs paid for hospital syndications
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Change in intercompany balances with affiliates, net
    
    
    8,160
    
    
    
    (7,167
    )
    
    
    1,335
    
    
    
    (2,328
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (983
    )
    
    
    
    
    
    
    (983
    )Net cash provided by (used in) financing activities
    
    
    6,682
    
    
    
    (7,760
    )
    
    
    207
    
    
    
    (2,328
    )
    
    
    (3,199
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    17,432
    
    
    
    (2,570
    )
    
    
    
    
    
    
    14,862Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    80,031
    
    
    
    3,912
    
    
    
    
    
    
    
    83,943Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    97,463
    
    
    $
    1,342
    
    
    $
    
    
    
    $
    98,805
 97




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 For the Period October 1, 2003 through June 22, 2004SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    (44,883
    )
    
    $
    18,806
    
    
    $
    59,850
    
    
    $
    (70,903
    )
    
    $
    (37,130
    )Adjustments: to reconcile net earnings (loss) to net cash provided
by operating activities:Depreciation and amortization
    
    
    
    
    
    
    38,847
    
    
    
    9,381
    
    
    
    
    
    
    
    48,228Amortization of loan costs
    
    
    2,262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,262Minority interests
    
    
    
    
    
    
    3,098
    
    
    
    
    
    
    
    
    
    
    
    3,098Gain on sale of assets, net
    
    
    
    
    
    
    (3,731
    )
    
    
    
    
    
    
    
    
    
    
    (3,731
    )Loss on early extinguishment of debt
    
    
    14,993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,993Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Equity in earnings of affiliates
    
    
    (78,656
    )
    
    
    
    
    
    
    
    
    
    
    78,656
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (6,197
    )
    
    
    (2,345
    )
    
    
    
    
    
    
    (8,542
    )Establishment of accounts receivable of recent acquisition
    
    
    
    
    
    
    (11,325
    )
    
    
    
    
    
    
    
    
    
    
    (11,325
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (4,096
    )
    
    
    (1,560
    )
    
    
    
    
    
    
    (5,656
    )Accounts payable and other accrued liabilities
    
    
    (19,695
    )
    
    
    9,590
    
    
    
    17,096
    
    
    
    
    
    
    
    6,991Net cash provided by (used in) operating activities
    
    
    (117,129
    )
    
    
    44,992
    
    
    
    82,422
    
    
    
    7,753
    
    
    
    18,038Cash flows from investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (46,095
    )
    
    
    (36,170
    )
    
    
    
    
    
    
    (82,265
    )Acquisitions including working capital settlement payments
    
    
    
    
    
    
    (23,032
    )
    
    
    
    
    
    
    
    
    
    
    (23,032
    )Proceeds from sale of assets
    
    
    
    
    
    
    14,928
    
    
    
    
    
    
    
    
    
    
    
    14,928Change in other assets
    
    
    
    
    
    
    (1,969
    )
    
    
    319
    
    
    
    
    
    
    
    (1,650
    )Net cash used in investing activities
    
    
    
    
    
    
    (56,168
    )
    
    
    (35,851
    )
    
    
    
    
    
    
    (92,019
    )Cash flows from financing activitiesProceeds from issuance of common stock, net
    
    
    529,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    529,000Proceeds from debt borrowings
    
    
    900,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    900,000Cash paid to security holders
    
    
    (677,780
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (677,780
    )Payment of merger costs incurred by members of IASIS Investment
LLC
    
    
    (10,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,800
    )Payment of debt and capital leases
    
    
    (649,309
    )
    
    
    (1,019
    )
    
    
    (1,043
    )
    
    
    
    
    
    
    (651,371
    )Debt financing costs incurred
    
    
    (31,469
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,469
    )Proceeds from hospital syndications
    
    
    
    
    
    
    1,784
    
    
    
    
    
    
    
    
    
    
    
    1,784Change in intercompany balances with affiliates, net
    
    
    57,487
    
    
    
    (10,342
    )
    
    
    (39,392
    )
    
    
    (7,753
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (2,510
    )
    
    
    
    
    
    
    (2,510
    )Net cash provided by (used in) financing activities
    
    
    117,129
    
    
    
    (9,577
    )
    
    
    (42,945
    )
    
    
    (7,753
    )
    
    
    56,854Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (20,753
    )
    
    
    3,626
    
    
    
    
    
    
    
    (17,127
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    100,784
    
    
    
    286
    
    
    
    
    
    
    
    101,070Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    80,031
    
    
    $
    3,912
    
    
    $
    
    
    
    $
    83,943
 98




---



##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    (7,349
    )
    
    $
    16,820
    
    
    $
    38,299
    
    
    $
    (27,217
    )
    
    $
    20,553Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    39,632
    
    
    
    12,977
    
    
    
    
    
    
    
    52,609Amortization of loan costs
    
    
    3,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,671Minority interests
    
    
    
    
    
    
    1,828
    
    
    
    
    
    
    
    
    
    
    
    1,828Loss (gain) on sale of assets
    
    
    
    
    
    
    (780
    )
    
    
    192
    
    
    
    
    
    
    
    (588
    )Loss on early extinguishment of debt
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,900Impairment of assets held for sale
    
    
    11,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,741Equity in earnings of affiliates
    
    
    (55,119
    )
    
    
    
    
    
    
    
    
    
    
    55,119
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (425
    )
    
    
    1,838
    
    
    
    
    
    
    
    1,413Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (2,657
    )
    
    
    301
    
    
    
    
    
    
    
    (2,356
    )Accounts payable and other accrued liabilities
    
    
    5,961
    
    
    
    17,734
    
    
    
    813
    
    
    
    
    
    
    
    24,508Net cash provided by (used in) operating activities
    
    
    (37,195
    )
    
    
    72,152
    
    
    
    54,420
    
    
    
    27,902
    
    
    
    117,279Cash flows from investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (44,328
    )
    
    
    (36,272
    )
    
    
    
    
    
    
    (80,600
    )Proceeds from sale of assets
    
    
    
    
    
    
    3,205
    
    
    
    
    
    
    
    
    
    
    
    3,205Change in other assets
    
    
    
    
    
    
    (5,355
    )
    
    
    2,502
    
    
    
    
    
    
    
    (2,853
    )Net cash used in investing activities
    
    
    
    
    
    
    (46,478
    )
    
    
    (33,770
    )
    
    
    
    
    
    
    (80,248
    )Cash flows from financing activitiesProceeds from issuance of common stock, net
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Proceeds from debt borrowings
    
    
    589,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589,600Payment of debt and capital leases
    
    
    (514,590
    )
    
    
    (1,043
    )
    
    
    (616
    )
    
    
    
    
    
    
    (516,249
    )Debt financing costs incurred
    
    
    (14,677
    )
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    (14,667
    )Proceeds from hospital syndications
    
    
    
    
    
    
    6,115
    
    
    
    
    
    
    
    
    
    
    
    6,115Change in intercompany balances with affiliates, net
    
    
    (23,140
    )
    
    
    70,285
    
    
    
    (19,243
    )
    
    
    (27,902
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    (48
    )
    
    
    (714
    )
    
    
    
    
    
    
    (762
    )Net cash provided by (used in) financing activities
    
    
    37,195
    
    
    
    75,319
    
    
    
    (20,573
    )
    
    
    (27,902
    )
    
    
    64,039Net increase in cash and cash equivalents
    
    
    
    
    
    
    100,993
    
    
    
    77
    
    
    
    
    
    
    
    101,070Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    (209
    )
    
    
    209
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    100,784
    
    
    $
    286
    
    
    $
    
    
    
    $
    101,070
 99




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A . Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  Name
    
    Age
    
    PositionDavid R. White
    
    
    58
    
    
    Chairman of the Board and Chief Executive OfficerSandra K. McRee
    
    
    49
    
    
    President and Chief Operating OfficerW. Carl Whitmer
    
    
    41
    
    
    Chief Financial OfficerFrank A. Coyle
    
    
    41
    
    
    Secretary and General CounselJames Moake
    
    
    36
    
    
    Operations Chief Financial OfficerJohn M. Doyle
    
    
    45
    
    
    Vice President and TreasurerLarry D. Hancock
    
    
    47
    
    
    President, Utah MarketPhillip J. Mazzuca
    
    
    46
    
    
    President, Texas MarketJim McKinney
    
    
    52
    
    
    President, Nevada MarketBen Cluff
    
    
    60
    
    
    Chief Financial Officer, Utah MarketPeter Stanos
    
    
    42
    
    
    Vice President, Ethics and Business PracticesDavid Bonderman
    
    
    63
    
    
    DirectorJonathan J. Coslet
    
    
    41
    
    
    DirectorKirk E. Gorman
    
    
    55
    
    
    DirectorCurtis S. Lane
    
    
    48
    
    
    DirectorTodd B. Sisitsky
    
    
    34
    
    
    DirectorPaul S. Levy
    
    
    58
    
    
    DirectorJeffrey C. Lightcap
    
    
    46
    
    
    DirectorSharad Mansukani
    
    
    36
    
    
    Director
 100




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##### Table of Contents



David R. White
 Sandra K. McRee
 W. Carl Whitmer
 Frank A. Coyle
 James Moake
 John M. Doyle
 Larry D. Hancock
 101




---



##### Table of Contents



Phillip J. Mazzuca
 Jim McKinney
 Ben Cluff
 Peter Stanos
 David Bonderman
 Jonathan J. Coslet
 102




---



##### Table of Contents



Kirk E. Gorman
 Curtis S. Lane
 Todd B. Sisitsky
 Paul S. Levy
 Jeffrey C. Lightcap
 Sharad Mansukani
   Audit Committee Financial Expert
  Code of Ethics
  103




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##### Table of Contents



Item 11. Executive Compensation
  -
    
    the individual serving as Chief Executive Officer of the Company during the
fiscal year ended September 30, 2005; and-
    
    the four other most highly compensated executive officers of the Company who
were serving as executive officers of the Company at September 30, 2005.
 Annual Compensation
    
    
    Long-Term Compensation AwardsSecuritiesOther Annual
    
    
    Underlying
    
    
    All OtherName and Principal Position
    
    Year
    
    
    Salary ($)
    
    
    Bonus ($)
    
    
    Compensation ($)(1)
    
    
    Options (#)
    
    
    Compensation ($)David R. White (2)
    
    
    2005
    
    
    $
    770,000
    
    
    $
    1,248,940
    
    
    $
    
    
    
    
    
    
    
    
    194,000
    
    
    $
    5,967
    (4)Chairman of the Board
    
    
    2004
    
    
    
    700,000
    
    
    
    4,400,000
    (3)
    
    
    
    
    
    

    
    
    
    
    292,000
    
    
    
    6,500& Chief Executive Officer
    
    
    2003
    
    
    
    742,921
    
    
    
    1,400,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,804Sandra K. McRee (5)
    
    
    2005
    
    
    $
    514,800
    
    
    $
    417,503
    
    
    $
    
    
    
    

    
    
    
    
    85,200
    
    
    $
    7,000
    (4)President &
    
    
    2004
    
    
    
    468,000
    
    
    
    1,968,000
    (3)
    
    
    
    
    
    
    
    
    
    
    116,800
    
    
    
    6,500Chief Operating Officer
    
    
    2003
    
    
    
    502,422
    
    
    
    450,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,087W. Carl Whitmer (6)
    
    
    2005
    
    
    $
    459,000
    
    
    $
    372,184
    
    
    $
    
    
    
    
    

    
    
    
    85,200
    
    
    $
    6,055
    (4)Chief Financial Officer
    
    
    2004
    
    
    
    417,200
    
    
    
    1,917,200
    (3)
    
    
    
    
    
    
    
    
    
    
    116,800
    
    
    
    4,9362003
    
    
    
    412,156
    
    
    
    380,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,220Phil Mazzuca
    
    
    2005
    
    
    $
    303,753
    
    
    $
    121,501
    
    
    $
    
    
    
    

    
    
    
    
    30,000
    
    
    $
    4,930
    (4)President, Texas Market
    
    
    2004
    
    
    
    295,472
    
    
    
    147,736
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    24,835
    (7)2003
    
    
    
    284,938
    
    
    
    142,433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,259
    (8)Larry Hancock (9)
    
    
    2005
    
    
    $
    260,738
    
    
    $
    164,516
    
    
    $
    
    
    
    
    
    
    
    
    20,000
    
    
    $
    7,000
    (4)President, Utah Market
    
    
    2004
    
    
    
    191,250
    
    
    
    34,135
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    2003
    
    
    
    130,919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Perquisites and other personal benefits did not exceed the lesser of either $50,000 or 10% of
the total of annual salary and bonus for any named executive officer.(2)
    
    Mr. White served as IASs non-executive Chairman of the Board of Directors from October 1999
until November 2000. He was appointed Chief Executive Officer in December 2000 and President
in May 2001. He served as President of IAS until May 2004 and continues to serve as Chief
Executive Officer of IAS. Mr. White was appointed Chief Executive Officer of IASIS LLC upon
consummation of the Transactions.(3)
    
    Includes annual bonus compensation and special bonus compensation received in connection with
the Transactions.(4)
    
    Contribution on behalf of the employee to 401(k) plan.(5)
    
    Ms. McRee was appointed IASs Chief Operating Officer in May 2001 and President in May 2004.
She was appointed President and Chief Operating Officer of IASIS LLC upon consummation of the
Transactions.(6)
    
    Mr. Whitmer served as IASs Vice President and Treasurer from March 2000 until October 2001.
He was appointed Chief Financial Officer of IAS in November 2001. He was appointed Chief
Financial Officer of IASIS LLC upon consummation of the Transactions.(7)
    
    Contribution of $6,500 on behalf of Mr. Mazzuca to our 401(k) plan and relocation allowance
of $18,335.(8)
    
    Contribution of $8,072 on behalf of Mr. Mazzuca to our 401(k) plan and relocation allowance
of $12,187.(9)
    
    Mr. Hancock was appointed President, Utah Market for IAS in June 2003. He was appointed
President Utah Market for IASIS LLC upon consummation of the Transactions. 104




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##### Table of Contents



OPTION GRANTS IN LAST FISCAL YEAR
  Number of
    
    Percent of Total
    
    
    
    
    
    
    
    
    
    Potential Realizable Value atSecurities
    
    Options
    
    
    
    
    
    
    
    
    
    Assumed Annual Rates of Stock PriceUnderlying
    
    Granted to
    
    
    
    
    
    
    
    
    
    AppreciationOptions
    
    Employees in
    
    Exercise
    
    
    
    
    
    for Option TermName
    
    Granted (#)
    
    Fiscal Year (%)
    
    Price ($)
    
    Expiration Date
    
    5% ($)
    
    10% ($)David R. White
    
    
    194,000
    
    
    
    38.7
    %
    
    $
    20.00
    
    
    March 22, 2015
    
    $
    2,440,111
    
    
    $
    6,183,721Sandra K. McRee
    
    
    85,200
    
    
    
    17.0
    %
    
    $
    20.00
    
    
    March 22, 2015
    
    $
    1,071,636
    
    
    $
    2,715,737W. Carl Whitmer
    
    
    85,200
    
    
    
    17.0
    %
    
    $
    20.00
    
    
    March 22, 2015
    
    $
    1,071,636
    
    
    $
    2,715,737Phil Mazzuca
    
    
    30,000
    
    
    
    6.0
    %
    
    $
    20.00
    
    
    March 22, 2015
    
    $
    377,337
    
    
    $
    956,245Larry Hancock
    
    
    20,000
    
    
    
    4.0
    %
    
    $
    20.00
    
    
    March 22, 2015
    
    $
    251,558
    
    
    $
    637,497
  2005 FISCAL YEAR-END OPTION VALUES
 Number of Securities Underlying
    
    Value of UnexercisedUnexercised-Options Held at
    
    In-The-Money Options atSeptember 30, 2005
    
    September 30, 2005Name
    
    Exercisable (#)
    
    Unexercisable (#)
    
    Exercisable ($)
    
    Unexercisable ($)David R. White
    
    
    134,871
    
    
    
    413,000
    
    
    $
    1,364,851
    
    
    
    Sandra K. McRee
    
    
    68,751
    
    
    
    178,640
    
    
    $
    1,001,299
    
    
    
    W. Carl Whitmer
    
    
    59,428
    
    
    
    178,640
    
    
    $
    795,653
    
    
    
    Phil Mazzuca
    
    
    8,439
    
    
    
    46,000
    
    
    $
    97,927
    
    
    
    Larry Hancock
    
    
    7,773
    
    
    
    36,000
    
    
    $
    83,238
    
    
    
    
     105




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##### Table of Contents



Directors Compensation
    Employment Agreements
   106




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  Stock Option Plan
    107




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
 Equity Compensation Plans
  
  108




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##### Table of Contents



Remaining Availablefor Future IssuanceNumber of
    
    
    
    
    
    
    Under EquitySecurities to be
    
    
    
    
    
    
    Compensation PlansIssued Upon
    
    
    Weighted-average
    
    
    (excluding securitiesExercise of
    
    
    Exercise Price of
    
    
    reflected in thePlan Category
    
    Outstanding Options
    
    
    Outstanding Options
    
    
    first column)Equity compensation plans
approved by security holdersPreferred stock(1)
    
    
    3,263
    
    
    $
    437.48
    
    
    
    Common stock(2)
    
    
    1,673,913
    
    
    $
    18.90
    
    
    
    245,887Equity compensation plans not
approved by security
holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,677,176
    
    
    $
    19.71
    
    
    
    245,887
 
 (1)
    
    Shares of preferred stock to be issued upon exercise of rollover options issued in connection
with the Transactions.(2)
    
    Consists of 163,150 shares of common stock to be issued upon exercise of rollover options
issued in connection with the Transactions, with an exercise price of $8.75 per share, and
1,510,763 shares of common stock to be issued upon exercise of options issued under IASs 2004
Stock Option Plan, with an exercise price of $20.00 per share. Of the 1,756,650 shares of
common stock currently authorized for issuance under the 2004 Stock
Option Plan, 245,887 shares
remain available for future issuance. Beneficial Ownership of Common Stock
     Percentage of
    
    
    Percentage ofPreferred Shares
    
    
    Common Shares
    
    
    Preferred Shares
    
    
    Common SharesBeneficial Owners
    
    Beneficially Owned (a)
    
    
    Beneficially Owned (b)
    
    
    Beneficially Owned
    
    
    Beneficially OwnedIASIS Investment (c)
    
    
    292,000
    
    
    
    14,600,000
    
    
    
    100.0
    %
    
    
    100.0
    %David R. White
    
    
    1,213
    
    
    
    133,658
    
    
    
    *
    
    
    
    *Sandra K. McRee
    
    
    890
    
    
    
    67,861
    
    
    
    *
    
    
    
    *W. Carl Whitmer
    
    
    707
    
    
    
    58,721
    
    
    
    *
    
    
    
    *Phil Mazzuca
    
    
    87
    
    
    
    8,352
    
    
    
    *
    
    
    
    *Larry Hancock
    
    
    74
    
    
    
    7,699
    
    
    
    *
    
    
    
    *
 109




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##### Table of Contents



Percentage of
    
    
    Percentage ofPreferred Shares
    
    
    Common Shares
    
    
    Preferred Shares
    
    
    Common SharesBeneficial Owners
    
    Beneficially Owned (a)
    
    
    Beneficially Owned (b)
    
    
    Beneficially Owned
    
    
    Beneficially OwnedDavid Bonderman (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jonathan J. Coslet (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kirk E. Gorman
    
    
    
    
    
    
    1,175
    (e)
    
    
    *
    
    
    
    *Curtis Lane
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Todd B. Sisitsky (d)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paul S. Levy
(f)
    
    
    54,986
    
    
    
    2,744,800
    
    
    
    18.8
    %
    
    
    18.8
    %Jeffrey C.
Lightcap (f)
    
    
    54,986
    
    
    
    2,744,800
    
    
    
    18.8
    %
    
    
    18.8
    %Sharad Mansukani
    
    
    
    
    
    
    938
    (e)
    
    
    *
    
    
    
    *Current directors and
executive officers
as a group (19
persons)
    
    
    295,263
    
    
    
    14,892,983
    
    
    
    100.0
    %
    
    
    100.0
    %
 
 *
    
    Less than 1%.(a)
    
    The following shares of preferred stock subject to options converted by management in
connection with the Transactions currently exercisable or exercisable within 60 days of
September 30, 2005, are deemed outstanding for the purpose of computing the percentage
ownership of the person holding such options but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person: Mr. White, 1,213; Ms. McRee, 890; Mr.
Whitmer, 707; Mr. Mazzuca, 87; Mr. Hancock, 74; and all current directors and executive
officers as a group (19 persons), 3,263.(b)
    
    The following shares of common stock subject to options converted by management in connection
with the Transactions currently exercisable or exercisable within 60 days of September 30,
2005, are deemed outstanding for the purpose of computing the percentage ownership of the
person holding such options but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person: Mr. White, 133,658; Ms. McRee, 67,861; Mr. Whitmer,
58,721; Mr. Mazzuca, 8,352; Mr. Hancock, 7,699; and all current directors and executive
officers as a group (19 persons), 290,870.(c)
    
    The membership interests of IASIS Investment are owned as follows: TPG, 74.4%, JLL, 18.8%,
and Trimaran, 6.8%. TPG Advisors III, Inc. and TPG Advisors IV, Inc. through their ownership
of TPG, which owns a controlling interest in IASIS Investment, may be deemed to beneficially
own all of the shares of preferred stock and common stock owned by IASIS Investment.(d)
    
    David Bonderman, James G. Coulter and William S. Price, III are directors, executive officers
and the sole shareholders of TPG Advisors III, Inc. and TPG Advisors IV, Inc. TPG Advisors
III, Inc. and TPG Advisors IV, Inc. through their ownership of TPG, which owns a controlling
interest in IASIS Investment, may be deemed to beneficially own all of the shares of preferred
stock and common stock owned by IASIS Investment. Messrs. Bonderman, Coulter and Price, by
virtue of their positions with TPG Advisors III, Inc. and TPG Advisors IV, Inc. may be deemed
to have investment powers and beneficial ownership with respect to all of the shares of
preferred stock and common stock owned by IASIS Investment. Each of Messrs. Bonderman, Coulter
and Price disclaims beneficial ownership of these shares of preferred stock and common stock.
None of Messrs. Coslet and Sisitsky has investment power over any of the shares of preferred
stock and common stock owned by IASIS Investment.(e)
    
    Represents shares of restricted stock granted to
Messrs. Gorman and Mansukani pursuant to Director Compensation
and Restricted Stock Award Agreements.(f)
    
    Messrs. Levy and Lightcap are senior managing directors of JLL Partners, Inc. which, through
its controlling interest in JLL, which owns 18.8% of IASIS Investment, may be deemed to
beneficially own 18.8% of the shares of preferred stock and common stock owned by IASIS
Investment. Accordingly, each of Messrs. Levy and Lightcap may be deemed to beneficially own
18.8% of the shares of preferred stock and common stock owned by IASIS Investment.  
 Item 13. Certain Relationships and Related Transactions.
 IASIS Investment Limited Liability Company Operating Agreement
   110




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##### Table of Contents



Investor Rights Agreement
  Management Services Agreement
  Stockholders Agreement
  Tax Sharing Agreement and Other Tax Allocations
   111




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##### Table of Contents



Item 14. Principal Accountant Fees and Services
  Fiscal
    
    
    Fiscal2005
    
    
    2004Audit Fees (a)
    
    $
    975,000
    
    
    $
    1,106,000Audit-Related Fees (b)
    
    
    6,400
    
    
    
    154,000Tax Fees
    
    
    87,000
    
    
    
    89,000All Other Fees (c)
    
    
    
    
    
    
    
 
 (a)
    
    Audit Fees represent fees billed for professional services rendered for the audit of our
annual financial statements and review of our quarterly financial statements, and audit
services provided in connection with other statutory or regulatory filings, including services
related to our 8 1/2% senior subordinated notes issued in June 2003 and our 8 3/4% senior
subordinated notes issued in June 2004.(b)
    
    Audit-Related Fees represent fees billed for assurance services related to the audit of our
financial statements. The amount shown for fiscal 2004 consists primarily of services rendered
in connection with the Merger in June 2004.(c)
    
    All Other Fees represent fees for services provided to us not otherwise included in the
categories above.  
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    
    1.
    
    
    Financial Statements: See Item 82.
    
    
    Financial Statement Schedules: Not Applicable3.
    
    
    Management Contracts and Compensatory Plans and Arrangements
 112




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##### Table of Contents




    
    Employment Agreement, dated as of May 4, 2004, by and between
IASIS Healthcare Corporation and David R. White (1)
    
    Employment Agreement, dated as of May 4, 2004, by and between
IASIS Healthcare Corporation and Sandra K. McRee (1)
    
    Employment Agreement, dated as of May 4, 2004, by and between
IASIS Healthcare Corporation and W. Carl Whitmer (1)
    
    Form of Roll-over Option Letter Agreement (1)
    
    IASIS Healthcare Corporation 2004 Stock Option Plan (1)
    
    Form of Management Stockholders Agreement between IAS and each
of David R. White, Sandra K. McRee and W. Carl Whitmer (1)
    
    Form of Management Stockholders Agreement under IASIS
Healthcare Corporation 2004 Stock Option Plan (1)
    
    Form of Stock Option Grant Agreement under IASIS Healthcare
Corporation 2004 Stock Option Plan (1)
    
    Form of Management Stockholders Agreement for Rollover Options (1)
    
    IASIS Corporate Incentive Plan (1)
    
    IASIS Market Executive Incentive Program (1)
    
    Director Compensation and Restricted Share Award Agreement,
dated as of February 14, 2005, between IASIS Healthcare Corporation and Kirk
Gorman (11)
    
    First Amendment to IASIS Healthcare Corporation 2004 Stock
Option Plan (12)
    
    Director Compensation and Restricted Share Award Agreement,
dated as of April 14, 2005, between IASIS Healthcare Corporation and Sharad
Mansukani (13)
 (c)
    
    Exhibits:
 Exhibit No.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of May 4, 2004, by and among IASIS
Investment LLC, Titan Merger Corporation and IASIS Healthcare Corporation
(1)2.2
    
    Indemnification Agreement dated as of May 4, 2004, by and among IASIS
Investment LLC, IASIS Healthcare Corporation, and the stockholders and
option holders of IASIS Healthcare Corporation listed on the signature
pages thereof (2)2.3
    
    Asset Sale Agreement dated as of January 16, 2004, by and between NLVH,
Inc. and IASIS Healthcare Corporation (3)2.4
    
    Assignment and Assumption of Asset Sale Agreement dated as of January 16,
2004, by and between IASIS Healthcare Corporation and Lake Mead Hospital,
Inc. (3)2.5
    
    Guaranty of Payment and Performance dated as of January 16, 2004, executed
by IASIS Healthcare Corporation in favor of NLVH, Inc. (3)3.1
    
    Certificate of Formation of IASIS Healthcare LLC, as filed with the
Secretary of State of the State of Delaware on May 11, 2004 (1)3.2
    
    Limited Liability Company Agreement of IASIS Healthcare LLC dated as of
May 11, 2004 (1)4.1
    
    Indenture, dated as of June 22, 2004, among IASIS Healthcare LLC, IASIS
Capital Corporation, the Subsidiary Guarantors and The Bank of New York
Trust Company, N.A., as Trustee (1)
 113




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##### Table of Contents



Exhibit No.
    
    Description4.2
    
    Form of Notation of Subsidiary Guarantee (1)4.3
    
    Form of 8 3/4% Senior Subordinated Exchange Note due 2014 (1)4.4
    
    Supplemental Indenture, dated as of June 30, 2004, by and between IASIS
Finance Texas Holdings, LLC, IASIS Healthcare LLC, IASIS Capital
Corporation, the existing Subsidiary Guarantors and The Bank of New York
Trust Company, N.A., as Trustee (1)10.1
    
    Lease, dated as of July 29, 1977, by and between Sierra Equities, Inc., as
Landlord, and Mesa General Hospital, Inc., as Tenant (4)10.2
    
    Addendum to Lease entered into by and between Sierra Equities, Inc., as
Landlord, and Mesa General Hospital, Inc., as Tenant (4)10.3
    
    Conforming Amendment to Lease, dated as of June 10, 1991, by and between
Sierra Equities, Inc., as Landlord, and Mesa General Hospital, Inc., as
Tenant (4)10.4
    
    Amendment to Hospital Lease, dated as of October 31, 2000, by and between
Sierra Equities, Inc., as Landlord, and Mesa General Hospital, L.P., as
Tenant (4)10.5
    
    Amendment to Lease, dated April 30, 2003, by and between Sierra Equities,
Inc. and Mesa General Hospital, L.P. (5)10.6
    
    Letter Agreement effective May 6, 2005, amending Lease by and between
Sierra Equities Inc. and Mesa General Hospital, L.P. (6)10.7
    
    Amended and Restated Pioneer Hospital Lease, dated as of June 28, 2002, by
and between Health Care Property Investors, Inc. and Pioneer Valley
Hospital, Inc. (7)10.8
    
    Lease Agreement, dated as of October 6, 2003, between The Dover Centre,
LLC and IASIS Healthcare Corporation (8)10.9
    
    Form of Indemnification Agreement (1)10.10
    
    Contract between Arizona Health Care Cost Containment System and Health
Choice Arizona (including Amendment No. 1 thereto), effective as of
October 1, 2003 (5)10.11
    
    Amendment No. 2 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.12
    
    Amendment No. 3 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.13
    
    Amendment No. 4 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.14
    
    Amendment No. 5 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.15
    
    Amendment No. 6 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.16
    
    Amendment No. 7 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of April 1, 2004 (1)
 114




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Exhibit No.
    
    Description10.17
    
    Amendment No. 8 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2004 (1)10.18
    
    Amendment No. 9 to Contact between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2004 (9)10.19
    
    Amendment No. 10 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 200510.20
    
    Purchase and Sale Agreement dated as of December 15, 2003, by and between
Rocky Mountain Medical Center, Inc. and Board of Education of the Granite
School District (10)10.21
    
    Letter Agreement dated as of January 26, 2004 by and among Rocky Mountain
Medical Center, Inc., Board of Education of Granite School District and
Merrill Title Company (10)10.22
    
    Information System Agreement, dated February 23, 2000, between McKesson
Information Solutions LLC and IASIS Healthcare Corporation, as amended
(1)**10.23
    
    Amended and Restated Credit Agreement, dated June 22, 2004, by and among
IASIS Healthcare LLC, IASIS Healthcare Corporation, the Subsidiary
Guarantors, Bank of America, N.A., as Administrative Agent, L/C Issuer and
Swingline Lender and the other lenders party thereto (1)10.24
    
    Joinder Agreement, dated as of June 30, 2004, by and between IASIS Finance
Texas Holdings, LLC and Bank of America, N.A., as Administrative Agent (1)10.25
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and David R. White (1)10.26
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and Sandra K. McRee (1)10.27
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and W. Carl Whitmer (1)10.28
    
    Form of Roll-over Option Letter Agreement (1)10.29
    
    IASIS Healthcare Corporation 2004 Stock Option Plan (1)10.30
    
    Management Services Agreement dated as of June 22, 2004 by and among IASIS
Healthcare LLC, Trimaran Fund II, L.L.C., Trimaran Parallel Fund II, L.P.,
Trimaran Capital L.L.C., CIBC Employee Private Equity Partners (Trimaran),
CIBC MB Inc., JLL Partners Inc., TPG IASIS IV LLC, TPG IASIS III LLC, TPG
IASIS Co-Invest I LLC and TPG IASIS Co-Invest II LLC (1)10.31
    
    Investor Rights Agreement dated as of June 22, 2004, by and between IASIS
Investment LLC and IASIS Healthcare Corporation (1)10.32
    
    Form of Management Stockholders Agreement between IAS and each of David R.
White, Sandra K. McRee and W. Carl Whitmer (1)10.33
    
    Form of Management Stockholders Agreement under IASIS Healthcare
Corporation 2004 Stock Option Plan (1)
 115




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Exhibit No.
    
    Description10.34
    
    Form of Stock Option Grant Agreement under IASIS Healthcare Corporation
2004 Stock Option Plan (1)10.35
    
    Form of Management Stockholders Agreement for Rollover Options (1)10.36
    
    IASIS Corporate Incentive Plan (1)10.37
    
    IASIS Market Executive Incentive Program (1)10.38
    
    Director Compensation and Restricted Share Award Agreement, dated as of
February 14, 2005, between IASIS Healthcare Corporation and Kirk Gorman
(11)10.39
    
    First Amendment to IASIS Healthcare Corporation 2004 Stock Option Plan (12)10.40
    
    Director Compensation and Restricted Share Award Agreement, dated as of
April 14, 2005, between IASIS Healthcare Corporation and Sharad Mansukani
(13)14
    
    Code of Ethics (8)21
    
    Subsidiaries of IASIS Healthcare Corporation31.1
    
    Certification of Principal Executive Officer Pursuant to Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232
    
    Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 
 **
    
    Portions of this exhibit have been omitted and filed separately with the Commission pursuant
to a grant of confidential treatment pursuant to Rule 24(b)-2 promulgated under the Securities
Exchange Act of 1934, as amended.(1)
    
    Incorporated by reference to the Companys Registration Statement on Form S-4 (Registration
No. 333-117362).(2)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2004.(3)
    
    Incorporated by reference to IASIS Healthcare Corporations Current Report on Form 8-K filed
on February 2, 2004.(4)
    
    Incorporated by reference to IASIS Healthcare Corporations Annual Report on Form 10-K for
the fiscal year ended September 30, 2000.(5)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2003.(6)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on May 12, 2005.(7)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2002.(8)
    
    Incorporated by reference to IASIS Healthcare Corporations Annual Report on Form 10-K for
the fiscal year ended September 30, 2003.(9)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 2004.(10)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 2003.(11)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on February 18,
2005. 116




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(12)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on March 22,
2005.(13)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on April 20,
2005. 117




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SIGNATURES
  IASIS HEALTHCARE LLCDate: December 23, 2005
    By:
    /s/ David R. WhiteDavid R. WhiteChairman of the Board and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ David R. White

David R. White
    
    Chairman of the Board and
Chief Executive Officer
(Principal Executive
Officer)
    
    December 23, 2005/s/ W. Carl Whitmer

W. Carl Whitmer
    
    Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    December 23, 2005/s/ David Bonderman

David Bonderman
    
    Director of IASIS Healthcare
Corporation (sole member of
IASIS Healthcare LLC)
    
    December 23, 2005Jonathan J. Coslet
    
    Director of IASIS Healthcare
Corporation (sole member of
IASIS Healthcare LLC)/s/ Kirk E. Gorman

Kirk E. Gorman
    
    Director of IASIS Healthcare
Corporation (sole member of
IASIS Healthcare LLC)
    
    December 23, 2005/s/ Curtis Lane

Curtis Lane
    
    Director of IASIS Healthcare
Corporation (sole member of
IASIS Healthcare LLC)
    
    December 23, 2005/s/ Todd B. Sisitsky

Todd B. Sisitsky
    
    Director of IASIS Healthcare
Corporation (sole member of
IASIS Healthcare LLC)
    
    December 23, 2005
 118




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##### Table of Contents



Signature
    
    Title
    
    Date/s/ Paul S. Levy

Paul S. Levy
    
    Director of IASIS
Healthcare Corporation
(sole member of IASIS
Healthcare LLC)
    
    December 23, 2005/s/ Jeffrey C. Lightcap

Jeffrey C. Lightcap
    
    Director of IASIS
Healthcare Corporation
(sole member of IASIS
Healthcare LLC)
    
    December 23, 2005/s/ Sharad Mansukani

Sharad Mansukani
    
    Director of IASIS
Healthcare Corporation
(sole member of IASIS
Healthcare LLC)
    
    December 23, 2005
 119




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##### Table of Contents



SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
  120




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EXHIBIT INDEX
 Exhibit No.
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of May 4, 2004, by and among IASIS
Investment LLC, Titan Merger Corporation and IASIS Healthcare Corporation
(1)2.2
    
    Indemnification Agreement dated as of May 4, 2004, by and among IASIS
Investment LLC, IASIS Healthcare Corporation, and the stockholders and
option holders of IASIS Healthcare Corporation listed on the signature
pages thereof (2)2.3
    
    Asset Sale Agreement dated as of January 16, 2004, by and between NLVH,
Inc. and IASIS Healthcare Corporation (3)2.4
    
    Assignment and Assumption of Asset Sale Agreement dated as of January 16,
2004, by and between IASIS Healthcare Corporation and Lake Mead Hospital,
Inc. (3)2.5
    
    Guaranty of Payment and Performance dated as of January 16, 2004, executed
by IASIS Healthcare Corporation in favor of NLVH, Inc. (3)3.1
    
    Certificate of Formation of IASIS Healthcare LLC, as filed with the
Secretary of State of the State of Delaware on May 11, 2004 (1)3.2
    
    Limited Liability Company Agreement of IASIS Healthcare LLC dated as of
May 11, 2004 (1)4.1
    
    Indenture, dated as of June 22, 2004, among IASIS Healthcare LLC, IASIS
Capital Corporation, the Subsidiary Guarantors and The Bank of New York
Trust Company, N.A., as Trustee (1)4.2
    
    Form of Notation of Subsidiary Guarantee (1)4.3
    
    Form of 8 3/4% Senior Subordinated Exchange Note due 2014 (1)4.4
    
    Supplemental Indenture, dated as of June 30, 2004, by and between IASIS
Finance Texas Holdings, LLC, IASIS Healthcare LLC, IASIS Capital
Corporation, the existing Subsidiary Guarantors and The Bank of New York
Trust Company, N.A., as Trustee (1)10.1
    
    Lease, dated as of July 29, 1977, by and between Sierra Equities, Inc., as
Landlord, and Mesa General Hospital, Inc., as Tenant (4)10.2
    
    Addendum to Lease entered into by and between Sierra Equities, Inc., as
Landlord, and Mesa General Hospital, Inc., as Tenant (4)10.3
    
    Conforming Amendment to Lease, dated as of June 10, 1991, by and between
Sierra Equities, Inc., as Landlord, and Mesa General Hospital, Inc., as
Tenant (4)10.4
    
    Amendment to Hospital Lease, dated as of October 31, 2000, by and between
Sierra Equities, Inc., as Landlord, and Mesa General Hospital, L.P., as
Tenant (4)10.5
    
    Amendment to Lease, dated April 30, 2003, by and between Sierra Equities,
Inc. and Mesa General Hospital, L.P. (5)10.6
    
    Letter Agreement effective May 6, 2005, amending Lease by and between
Sierra Equities Inc. and Mesa General Hospital, L.P. (6)
 121




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Exhibit No.
    
    Description10.7
    
    Amended and Restated Pioneer Hospital Lease, dated as of June 28, 2002, by
and between Health Care Property Investors, Inc. and Pioneer Valley
Hospital, Inc. (7)10.8
    
    Lease Agreement, dated as of October 6, 2003, between The Dover Centre,
LLC and IASIS Healthcare Corporation (8)10.9
    
    Form of Indemnification Agreement (1)10.10
    
    Contract between Arizona Health Care Cost Containment System and Health
Choice Arizona (including Amendment No. 1 thereto), effective as of
October 1, 2003 (5)10.11
    
    Amendment No. 2 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.12
    
    Amendment No. 3 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.13
    
    Amendment No. 4 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.14
    
    Amendment No. 5 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.15
    
    Amendment No. 6 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2003 (8)10.16
    
    Amendment No. 7 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of April 1, 2004 (1)10.17
    
    Amendment No. 8 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2004 (1)10.18
    
    Amendment No. 9 to Contact between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 2004 (9)10.19
    
    Amendment No. 10 to Contract between Arizona Health Care Cost Containment
System and Health Choice Arizona, effective as of October 1, 200510.20
    
    Purchase and Sale Agreement dated as of December 15, 2003, by and between
Rocky Mountain Medical Center, Inc. and Board of Education of the Granite
School District (10)10.21
    
    Letter Agreement dated as of January 26, 2004 by and among Rocky Mountain
Medical Center, Inc., Board of Education of Granite School District and
Merrill Title Company (10)10.22
    
    Information System Agreement, dated February 23, 2000, between McKesson
Information Solutions LLC and IASIS Healthcare Corporation, as amended
(1)**10.23
    
    Amended and Restated Credit Agreement, dated June 22, 2004, by and among
IASIS Healthcare LLC, IASIS Healthcare Corporation, the Subsidiary
Guarantors, Bank of America, N.A., as Administrative Agent, L/C Issuer and
Swingline Lender and the other lenders party thereto (1)10.24
    
    Joinder Agreement, dated as of June 30, 2004, by and between IASIS Finance
Texas Holdings, LLC and Bank of America, N.A., as Administrative Agent (1)
 122




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Exhibit No.
    
    Description10.25
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and David R. White (1)10.26
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and Sandra K. McRee (1)10.27
    
    Employment Agreement, dated as of May 4, 2004, by and between IASIS
Healthcare Corporation and W. Carl Whitmer (1)10.28
    
    Form of Roll-over Option Letter Agreement (1)10.29
    
    IASIS Healthcare Corporation 2004 Stock Option Plan (1)10.30
    
    Management Services Agreement dated as of June 22, 2004 by and among IASIS
Healthcare LLC, Trimaran Fund II, L.L.C., Trimaran Parallel Fund II, L.P.,
Trimaran Capital L.L.C., CIBC Employee Private Equity Partners (Trimaran),
CIBC MB Inc., JLL Partners Inc., TPG IASIS IV LLC, TPG IASIS III LLC, TPG
IASIS Co-Invest I LLC and TPG IASIS Co-Invest II LLC (1)10.31
    
    Investor Rights Agreement dated as of June 22, 2004, by and between IASIS
Investment LLC and IASIS Healthcare Corporation (1)10.32
    
    Form of Management Stockholders Agreement between IAS and each of David R.
White, Sandra K. McRee and W. Carl Whitmer (1)10.33
    
    Form of Management Stockholders Agreement under IASIS Healthcare
Corporation 2004 Stock Option Plan (1)10.34
    
    Form of Stock Option Grant Agreement under IASIS Healthcare Corporation
2004 Stock Option Plan (1)10.35
    
    Form of Management Stockholders Agreement for Rollover Options (1)10.36
    
    IASIS Corporate Incentive Plan (1)10.37
    
    IASIS Market Executive Incentive Program (1)10.38
    
    Director Compensation and Restricted Share Award Agreement, dated as of
February 14, 2005, between IASIS Healthcare Corporation and Kirk Gorman
(11)10.39
    
    First Amendment to IASIS Healthcare Corporation 2004 Stock Option Plan (12)10.40
    
    Director Compensation and Restricted Share Award Agreement, dated as of
April 14, 2005, between IASIS Healthcare Corporation and Sharad Mansukani
(13)14
    
    Code of Ethics (8)21
    
    Subsidiaries of IASIS Healthcare Corporation31.1
    
    Certification of Principal Executive Officer Pursuant to Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
 123




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Exhibit No.
    
    Description32
    
    Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 
 **
    
    Portions of this exhibit have been omitted and filed separately with the Commission pursuant
to a grant of confidential treatment pursuant to Rule 24(b)-2 promulgated under the Securities
Exchange Act of 1934, as amended.(1)
    
    Incorporated by reference to the Companys Registration Statement on Form S-4 (Registration
No. 333-117362).(2)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2004.(3)
    
    Incorporated by reference to IASIS Healthcare Corporations Current Report on Form 8-K filed
on February 2, 2004.(4)
    
    Incorporated by reference to IASIS Healthcare Corporations Annual Report on Form 10-K for
the fiscal year ended September 30, 2000.(5)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2003.(6)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on May 12, 2005.(7)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2002.(8)
    
    Incorporated by reference to IASIS Healthcare Corporations Annual Report on Form 10-K for
the fiscal year ended September 30, 2003.(9)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 2004.(10)
    
    Incorporated by reference to IASIS Healthcare Corporations Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 2003.(11)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on February 18,
2005.(12)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on March 22,
2005.(13)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on April 20,
2005. 124