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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2002

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: 333-94521

IASIS HEALTHCARE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


|                                                                        |  |                                                 
|----------------------------------------------------------------------- |  | ------------------------------------------------
|DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization) |  | 76-0450619
(I.R.S. Employer
(Identification No.)

113 SEABOARD LANE, SUITE A-200
FRANKLIN, TENNESSEE 37067
(Address of Principal Executive Offices)

(615) 844-2747
(Registrants Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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

Indicate by check mark # whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   
YES   o   
NO   þ

As of February 14, 2003, 31,956,113 shares of the Registrants
Common Stock were outstanding.





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TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                     
|                                                  | Item 1. Financial Statements                                                                 
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                  | Item 4. Controls and Procedures                                                              
|PART II OTHER INFORMATION                        
|                                                  | Item 1. Legal Proceedings                                                                    
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|CERTIFICATION                                    
|EXHIBIT INDEX                                    
|AMENDMENT NO. 2 TO CONTRACT                      
|ODESSA REGIONAL HOSPITAL, LP FINANCIAL STATEMENTS



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TABLE OF CONTENTS

|                               |                                                                                               |                                                                                                                 |    |    |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | -- | -- | - | 
|PART I  FINANCIAL INFORMATION |                                                                                               |                                                                                                                 | 1  |   
|                               | Item 1. Financial Statements                                                                  |                                                                                                                 |    | 1  |  
|                               |                                                                                               | Condensed and Consolidated Balance Sheets  December 31, 2002 (Unaudited) and September 30, 2002                |    |    | 1 | 
|                               |                                                                                               | Condensed and Consolidated Statements of Operations (Unaudited)  Three Months Ended
December 31, 2002 and 2001 |    |    | 2 | 
|                               |                                                                                               | Condensed and Consolidated Statements of Cash Flows (Unaudited)  Three Months Ended
December 31, 2002 and 2001 |    |    | 3 | 
|                               |                                                                                               | Notes to Unaudited Condensed and Consolidated Financial Statements                                              |    |    | 4 | 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                 |    | 16 |  
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                 |    | 22 |  
|                               | Item 4. Controls and Procedures                                                               |                                                                                                                 |    | 22 |  
|PART II  OTHER INFORMATION    |                                                                                               |                                                                                                                 | 22 |   
|                               | Item 1.
Legal Proceedings                                                                     |                                                                                                                 |    | 22 |  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                 |    | 23 |  





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PART I
FINANCIAL INFORMATION




Item 1. Financial Statements

IASIS HEALTHCARE CORPORATION

CONDENSED AND CONSOLIDATED BALANCE SHEETS


(In thousands except share amounts)


|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |          |         |         | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | -------- | ------------ | ------- | ------------- | -------- | ------- | ------- | 
|                                             |                                                                                                                                                                        |                                            |                           |          | (Unaudited)  |         |               |          |        
|                                             |                                                                                                                                                                        |                                            |                           |          | December 31, |         | September 30,
|                                             |                                                                                                                                                                        |                                            |                           |          | 2002         |         | 2002         
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |              
|ASSETS                                       |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|Current assets:                              |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             | Cash and cash equivalents                                                                                                                                              |                                            | $                         |         |              |         | $             |         |        
|                                             | Accounts receivable, net of allowance for doubtful accounts of
$39,520 and $34,450, respectively                                                                       |                                            |                           | 155,665  |              |         |               | 154,452  |        
|                                             | Inventories                                                                                                                                                            |                                            |                           | 24,065   |              |         |               | 23,909   |        
|                                             | Prepaid expenses and other current assets                                                                                                                              |                                            |                           | 15,448   |              |         |               | 15,697   |        
|                                             | Assets held for sale                                                                                                                                                   |                                            |                           | 22,106   |              |         |               | 22,106   |        
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        |                                            | Total current assets      |          |              | 217,284 |               |          |         | 216,164 | 
|Property and equipment, net                  |                                                                                                                                                                        |                                            | 405,446                   |          |              |         | 402,171       |         
|Goodwill                                     |                                                                                                                                                                        |                                            | 252,204                   |          |              |         | 252,397       |         
|Other assets, net                            |                                                                                                                                                                        |                                            | 27,737                    |          |              |         | 27,751        |         
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        |                                            | Total assets              |          | $            | 902,671 |               |          | $       | 898,483 | 
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|LIABILITIES AND STOCKHOLDERS EQUITY         |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|Current liabilities:                         |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             | Accounts payable                                                                                                                                                       |                                            | $                         | 46,286   |              |         | $             | 51,920   |        
|                                             | Salaries and benefits payable                                                                                                                                          |                                            |                           | 19,643   |              |         |               | 16,692   |        
|                                             | Accrued interest payable                                                                                                                                               |                                            |                           | 9,670    |              |         |               | 15,016   |        
|                                             | Medical claims payable                                                                                                                                                 |                                            |                           | 30,333   |              |         |               | 30,262   |        
|                                             | Accrued expenses and other current liabilities                                                                                                                         |                                            |                           | 16,172   |              |         |               | 19,023   |        
|                                             | Current portion of long-term debt and capital lease
obligations                                                                                                        |                                            |                           | 5,108    |              |         |               | 26,252   |        
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        |                                            | Total current liabilities |          |              | 127,212 |               |          |         | 159,165 | 
|Long-term debt and capital lease obligations |                                                                                                                                                                        |                                            | 585,908                   |          |              |         | 556,691       |         
|Other long-term liabilities                  |                                                                                                                                                                        |                                            | 23,337                    |          |              |         | 22,347        |         
|Minority interest                            |                                                                                                                                                                        |                                            | 3,178                     |          |              |         | 4,736         |         
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        |                                            | Total liabilities         |          |              | 739,635 |               |          |         | 742,939 | 
|Stockholders equity                         |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             | Preferred stock  $0.01 par value, authorized 5,000,000
shares; no shares issued and outstanding at December 31, 2002
and September 30, 2002                           |                                            |                           |         |              |         |               |         |        
|                                             | Common stock  $0.01 par value, authorized 100,000,000 shares;
31,984,779 shares issued and 31,955,863 shares
outstanding at December 31, 2002, and September 30, 2002 |                                            |                           | 320      |              |         |               | 320      |        
|                                             | Nonvoting common stock  $0.01 par value, authorized
10,000,000 shares; no shares issued and outstanding at
December 31, 2002 and September 30, 2002                   |                                            |                           |         |              |         |               |         |        
|                                             | Additional paid-in capital                                                                                                                                             |                                            |                           | 450,718  |              |         |               | 450,718  |        
|                                             | Treasury stock, at cost, 16,306,541 shares at December 31,
2002 and September 30, 2002                                                                                 |                                            |                           | (155,300 | )            |         |               | (155,300 | )      
|                                             | Accumulated deficit                                                                                                                                                    |                                            |                           | (132,702 | )            |         |               | (140,194 | )      
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        | Total stockholders equity                 |                           |          | 163,036      |         |               |          | 155,544 |        
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         
|                                             |                                                                                                                                                                        | Total liabilities and stockholders equity |                           | $        | 902,671      |         |               | $        | 898,483 |        
|                                             |                                                                                                                                                                        |                                            |                           |          |              |         |               |         

See accompanying notes.

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IASIS HEALTHCARE CORPORATION

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


(In thousands)


|                                                                                                           |                               |                          |         |                    |         |      |         |        |         | 
|---------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------ | ------- | ------------------ | ------- | ---- | ------- | ------ | ------- | 
|                                                                                                           |                               |                          |         | Three Months Ended
|                                                                                                           |                               |                          |         | December 31,      
|                                                                                                           |                               |                          |         |                   
|                                                                                                           |                               |                          |         | 2002               |         | 2001
|                                                                                                           |                               |                          |         |                    |         |     
|Net revenue                                                                                                |                               | $                        | 254,765 |                    |         | $    | 220,881 |       
|Costs and expenses:                                                                                        |                               |                          |         |                    |         |      |         |       
|                                                                                                           | Salaries and benefits         |                          |         | 88,799             |         |      |         | 77,727 |        
|                                                                                                           | Supplies                      |                          |         | 35,683             |         |      |         | 31,293 |        
|                                                                                                           | Other operating expenses      |                          |         | 77,414             |         |      |         | 69,596 |        
|                                                                                                           | Provision for bad debts       |                          |         | 19,711             |         |      |         | 16,774 |        
|                                                                                                           | Interest, net                 |                          |         | 13,317             |         |      |         | 14,503 |        
|                                                                                                           | Depreciation and amortization |                          |         | 12,851             |         |      |         | 10,488 |        
|                                                                                                           | Gain on sale of assets, net   |                          |         | (780               | )       |      |         | (12    | )      
|                                                                                                           |                               |                          |         |                    |         |      |         |       
|                                                                                                           |                               | Total costs and expenses |         |                    | 246,995 |      |         |        | 220,369 | 
|                                                                                                           |                               |                          |         |                    |         |      |         |       
|Earnings before minority interests, income taxes and
cumulative effect of a change in accounting
principle |                               |                          | 7,770   |                    |         |      | 512     |       
|Minority interests                                                                                         |                               |                          | (278    | )                  |         |      | (223    | )     
|                                                                                                           |                               |                          |         |                    |         |      |         |       
|Earnings before income taxes and cumulative effect
of a change in accounting principle                     |                               |                          | 7,492   |                    |         |      | 289     |       
|Income tax expense                                                                                         |                               |                          |        |                    |         |      |        |       
|                                                                                                           |                               |                          |         |                    |         |      |         |       
|Net earnings before cumulative effect of a change in
accounting principle                                  |                               |                          | 7,492   |                    |         |      | 289     |       
|Cumulative effect of a change in accounting principle                                                      |                               |                          |        |                    |         |      | (39,497 | )     
|                                                                                                           |                               |                          |         |                    |         |      |         |       
|Net earnings (loss)                                                                                        |                               | $                        | 7,492   |                    |         | $    | (39,208 | )     
|                                                                                                           |                               |                          |         |                    |         |      |         |       

See accompanying notes.

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IASIS HEALTHCARE CORPORATION

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(In thousands)


|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |         |         |        |  
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------------------------ | ------- | ------------------ | ------ | ------ | ------- | ------- | ------ | -
|                                                                     |                                                                                            |                                                                |                                                        |         | Three Months Ended
|                                                                     |                                                                                            |                                                                |                                                        |         | December 31,      
|                                                                     |                                                                                            |                                                                |                                                        |         |                   
|                                                                     |                                                                                            |                                                                |                                                        |         | 2002               |        | 2001  
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |       
|Cash flows from operating activities:                                |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Net earnings (loss)                                                                        |                                                                | $                                                      | 7,492   |                    |        | $      | (39,208 | )      
|                                                                     | Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities: |                                                                |                                                        |         |                    |        |        |         |        
|                                                                     |                                                                                            | Depreciation and amortization                                  |                                                        |         | 12,851             |        |        |         | 10,488  |       
|                                                                     |                                                                                            | Minority interests                                             |                                                        |         | 278                |        |        |         | 223     |       
|                                                                     |                                                                                            | Cumulative effect of a change in accounting principle          |                                                        |         |                   |        |        |         | 39,497  |       
|                                                                     |                                                                                            | Gain on sale of assets                                         |                                                        |         | (780               | )      |        |         | (12     | )     
|                                                                     |                                                                                            | Changes in operating assets and liabilities,
net of disposals: |                                                        |         |                    |        |        |         |         |       
|                                                                     |                                                                                            |                                                                | Accounts receivable                                    |         |                    | (1,069 | )      |         |         | 712    |  
|                                                                     |                                                                                            |                                                                | Inventories, prepaid expenses and other
current assets |         |                    | (1,041 | )      |         |         | (4,522 | )
|                                                                     |                                                                                            |                                                                | Accounts payable and other accrued liabilities         |         |                    | (9,471 | )      |         |         | (5,646 | )
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     |                                                                                            | Net cash provided by operating activities                      |                                                        |         | 8,260              |        |        |         | 1,532   |       
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Cash flows from investing activities:                                |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Purchases of property and equipment                                                        |                                                                |                                                        | (14,415 | )                  |        |        | (6,945  | )      
|                                                                     | Purchase of real estate                                                                    |                                                                |                                                        |        |                    |        |        | (55,338 | )      
|                                                                     | Proceeds from sale of assets                                                               |                                                                |                                                        | 2,463   |                    |        |        | 12      |        
|                                                                     | Change in other assets                                                                     |                                                                |                                                        | (861    | )                  |        |        | (1,900  | )      
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     |                                                                                            | Net cash used in investing activities                          |                                                        |         | (12,813            | )      |        |         | (64,171 | )     
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Cash flows from financing activities:                                |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Proceeds from issuance of common stock                                                     |                                                                |                                                        |        |                    |        |        | 222     |        
|                                                                     | Proceeds from senior bank debt borrowings                                                  |                                                                |                                                        | 62,200  |                    |        |        | 94,600  |        
|                                                                     | Payment of debt and capital leases                                                         |                                                                |                                                        | (57,347 | )                  |        |        | (35,914 | )      
|                                                                     | Debt financing costs incurred                                                              |                                                                |                                                        |        |                    |        |        | (2,325  | )      
|                                                                     | Distribution of minority interests                                                         |                                                                |                                                        | (300    | )                  |        |        |        |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     |                                                                                            | Net cash provided by financing activities                      |                                                        |         | 4,553              |        |        |         | 56,583  |       
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Change in cash and cash equivalents                                  |                                                                                            |                                                                |                                                       |         |                    |        | (6,056 | )      
|Cash and cash equivalents at beginning of period                     |                                                                                            |                                                                |                                                       |         |                    |        | 6,056  |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Cash and cash equivalents at end of period                           |                                                                                            | $                                                              |                                                       |         |                    | $      |       |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Supplemental disclosure of cash flow information:                    |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Cash paid for interest                                                                     |                                                                | $                                                      | 18,720  |                    |        | $      | 22,931  |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Cash paid for income taxes                                                                 |                                                                | $                                                      |        |                    |        | $      |        |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|Supplemental schedule of noncash investing and
financing activities: |                                                                                            |                                                                |                                                        |         |                    |        |        |        
|                                                                     | Capital lease obligations incurred to acquire
equipment                                    |                                                                | $                                                      | 3,318   |                    |        | $      |        |        
|                                                                     |                                                                                            |                                                                |                                                        |         |                    |        |        |        

See accompanying notes.

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IASIS HEALTHCARE CORPORATION

NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED


FINANCIAL STATEMENTS


1. Basis of Presentation

The unaudited condensed and consolidated financial statements include the
accounts of IASIS Healthcare Corporation (IASIS or the Company) and all
subsidiaries and entities under common control of the Company and have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial reporting and in accordance with Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
for complete financial statements. The balance sheet at September 30, 2002 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended September 30, 2002.

In the opinion of management, the accompanying unaudited condensed and
consolidated financial statements contain all material adjustments (consisting
of normal recurring items) necessary for a fair presentation of results for the
interim periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year.

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

IASIS operates networks of medium-sized hospitals in high-growth urban and
suburban markets. At December 31, 2002, the Company owned or leased 14
hospitals with a total of 2,116 beds in service. The Companys hospitals are
located in four regions:



| |  |  | Salt Lake City, Utah;                                      
| | - |  | -----------------------------------------------------------
|
| |  |  | Phoenix, Arizona;                                          
|
| |  |  | Tampa-St. Petersburg, Florida; and                         
|
| |  |  | three markets in the State of Texas, including San Antonio.

The Company also operates three ambulatory surgery centers and a Medicaid
managed health plan in Phoenix called Health Choice, serving over 60,000
members at December 31, 2002.

2. Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consist of the following (in
thousands):

|                          |  |              |         |               |  |   |         | 
|------------------------- |  | ------------ | ------- | ------------- |  | - | ------- | 
|                          |  | December 31, |         | September 30,
|                          |  | 2002         |         | 2002         
|                          |  |              |         |              
|Bank facilities           |  | $            | 353,020 |               |  | $ | 347,846 | 
|Senior subordinated notes |  |              | 230,000 |               |  |   | 230,000 | 
|Capital lease obligations |  |              | 7,996   |               |  |   | 5,097   | 
|                          |  |              |         |               |  |   |         | 
|                          |  |              | 591,016 |               |  |   | 582,943 | 
|Less current maturities   |  |              | 5,108   |               |  |   | 26,252  | 
|                          |  |              |         |               |  |   |         | 
|                          |  | $            | 585,908 |               |  | $ | 556,691 | 
|                          |  |              |         |               |  |   |         | 

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

Bank Facilities

On October 15, 1999, the Company entered into a bank credit facility
through which a syndicate of lenders made a total of $455.0 million available
in the form of an $80.0 million tranche A term loan, a $250.0 million tranche B
term loan and a $125.0 million revolving credit facility. Effective October 5,
2001, the Company amended its bank credit facility to provide for an additional
$30.0 million incremental senior secured term loan on substantially the same
terms and conditions as the existing bank credit facility. The new incremental
term loan was used solely to fund the purchase on October 15, 2001 of the land
and buildings at two facilities in Arizona previously operated under long-term
leases and related costs and expenses. The amended bank credit facility also
provided for revisions to certain financial covenants.

On February 7, 2003, the Company completed the refinancing of its bank
credit facility to provide for a new $475.0 million credit facility in the form
of a $350.0 million, six year term B loan and $125.0 million, five year
revolving credit facility. The loans under the new credit facility
accrue interest at variable rates at specified margins above either
the agent banks alternate base rate or its Eurodollar rate. Principal
payments on the new term B loan are due in quarterly installments of $875,000
beginning March 31, 2003 until maturity. The new credit facility is also
subject to mandatory prepayment under specific circumstances including a
portion of excess cash flow and the net proceeds from an initial public
offering, asset sales, debt issuances and specified casualty events, each
subject to various exceptions. Proceeds from the new credit facility were used
to refinance amounts outstanding under the previous credit facility and to fund
closing and other transaction related costs incurred in connection with the
refinancing. The new credit facility increases the Companys annual capital
expenditure limitation to $80.0 million per year. In addition, the new credit
facility provides for revisions to certain financial covenants and replaces the
fixed charge coverage covenant under the previous credit facility with a senior
leverage test. The new $125.0 million revolving credit facility is available
for working capital and other general corporate purposes. Consistent with the
previous credit facility, the new bank credit facility requires that the
Company comply with various financial ratios and tests and contains covenants
limiting the Companys ability to, among other things, incur debt, engage in
acquisitions or mergers, sell assets, make investments or capital expenditures,
make distributions or stock repurchases and pay dividends. The new bank credit
facility is guaranteed by the Companys subsidiaries and these guaranties are
secured by a pledge of substantially all of the subsidiaries
assets. Substantially all of the Companys outstanding common
stock is pledged for the benefit of the Companys lenders as
security for the Companys obligations under the new credit
facility.

At December 31, 2002, the amounts outstanding under the previous credit
facilitys tranche A, tranche B and incremental term loans were $51.9 million,
$241.8 million and $29.8 million, respectively, and the Company had $29.5
million outstanding under the revolving credit facility. The new revolving
credit facility includes a $75.0 million sub-limit for letters of credit that
may be issued. At December 31, 2002, the Company had issued $38.3 million in
letters of credit. The loans under the previous bank credit facility accrued
interest at variable rates at specified margins above either the agent banks
alternate base rate or its reserve-adjusted Eurodollar rate. The weighted
average interest rate of outstanding borrowings under the previous bank credit
facility was approximately 5.9% for the three months ended
December 31, 2002. The Company will also pay a commitment fee
equal to 0.5% of the average daily amount available under the new
revolving credit facility. During the three months ended March 31, 2003, the Company will write off
approximately $3.9 million in deferred financing costs associated with the
previous credit facility.

Senior Subordinated Notes

On October 13, 1999, the Company issued $230.0 million of 13% senior
subordinated notes due 2009. On May 25, 2000, the Company exchanged all of its
outstanding 13% senior subordinated notes due 2009 for 13% senior subordinated
exchange notes due 2009 that have been registered under the Securities Act of
1933, as amended (the Notes). Terms and conditions of the exchange offer
were as set forth in the registration statement on Form S-4 filed with the
Securities and Exchange Commission that became effective on April 17, 2000.
The Notes are unsecured obligations and are subordinated in right of payment to
all existing and future senior indebtedness of the Company. Interest on the
Notes is payable semi-annually.

Except with respect to a change of control, the Company is not required to
make mandatory redemption or sinking fund payments with respect to the Notes.
The Notes are guaranteed, jointly and severally, by all of the

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

Companys subsidiaries (Subsidiary Guarantors). The Company is a
holding company with no independent assets or operations apart from its
ownership of the Subsidiary Guarantors. At December 31, 2002, all of the
Subsidiary Guarantors fully and unconditionally guaranteed the Notes and, with
the exception of Odessa Regional Hospital, LP, all were 100% owned by the
Company. The indenture for the Notes contains certain covenants, including but
not limited to, restrictions on new indebtedness, asset sales, capital
expenditures, dividends and the Companys ability to merge or consolidate.

3. Contingencies

Net Revenue

The calculation of appropriate payments from the Medicare and Medicaid
programs as well as terms governing agreements with other third party payors
are complex and subject to interpretation. Final determination of amounts
earned under the Medicare and Medicaid programs often occurs subsequent to the
year in which services are rendered because of audits by the programs, rights
of appeal and the application of numerous technical provisions. As a result,
there is at least a reasonable possibility that recorded estimates will change
by a material amount in the near term. In the opinion of management, adequate
provision has been made for adjustments that may result from such routine
audits and appeals.

Professional, General and Workers Compensation Liability Risks

The Company is subject to claims and legal actions in the ordinary course
of business, including claims relating to patient treatment and personal
injuries. To cover these types of claims, the Company maintains general
liability and professional liability insurance in excess of self-insured
retentions through a commercial insurance carrier in amounts that the Company
believes to be sufficient for its operations, although, potentially, some
claims may exceed the scope of coverage in effect. Plaintiffs may request
punitive or other damages that may not be covered by insurance. The Company is
currently not a party to any such proceedings that, in the Companys opinion,
would have a material adverse effect on the Companys business, financial
condition or results of operations. The Company expenses an actuarially
determined estimate of the cost it expects to incur under the self-insured
retention exposure for professional liability claims. As of December 31, 2002
and September 30, 2002, the Companys professional and general liability
accrual for asserted and unasserted claims was approximately $18.9 million and
$17.6 million, respectively, which is included within other long-term
liabilities in the accompanying condensed and consolidated balance sheets.

The Company is subject to claims and legal actions in the ordinary course
of business relative to workers compensation and other labor and employment
matters. To cover these types of claims, the Company maintains workers
compensation insurance coverage with a self-insured retention. The Company
accrues costs of workers compensation claims based upon estimates derived from
its claims experience.

Health Choice

Health Choice has entered into a capitated contract whereby the plan
provides healthcare services in exchange for fixed periodic and supplemental
payments from Arizona Health Care Cost Containment System (AHCCCS). These
services are provided regardless of the actual costs incurred to provide these
services. The Company receives reinsurance and other supplemental payments
from AHCCCS to cover certain costs of healthcare services that exceed certain
thresholds. The Company believes the capitated payments, together with
reinsurance and other supplemental payments, are sufficient to pay for the
services Health Choice is obligated to deliver. As of December 31, 2002, the
Company provided performance guaranties in the form of a letter of credit in
the amount of

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

$20.6 million for the benefit of AHCCCS to support its obligations under
the Health Choice contract to provide and pay for the healthcare services.

Tax Sharing Agreement

The Company and some of its subsidiaries are included in JLL Healthcare,
LLCs consolidated group for U.S. Federal income tax purposes as well as in
some consolidated, combined or unitary groups which include JLL Healthcare, LLC
for state, local and foreign income tax purposes. The Company and JLL
Healthcare, LLC have entered into a tax sharing agreement that requires the
Company to make payments to JLL Healthcare, LLC such that, with respect to tax
returns for any taxable period in which the Company or any of its subsidiaries
is included in JLL Healthcare, LLCs consolidated group or any combined group,
including JLL Healthcare, LLC, the amount of taxes to be paid by the Company
will be determined, subject to some adjustments, as if the Company and each of
its subsidiaries included in JLL Healthcare, LLCs consolidated group or a
combined group including JLL Healthcare, LLC filed their own consolidated,
combined or unitary tax return.

Each member of a consolidated group for U.S. Federal income tax purposes
is jointly and severally liable for the Federal income tax liability of each
other member of the consolidated group. Accordingly, although the tax sharing
agreement allocates tax liabilities between the Company and JLL Healthcare,
LLC, for any period in which the Company is included in JLL Healthcare, LLCs
consolidated group, the Company could be liable in the event that any Federal
tax liability was incurred, but not discharged, by any other member of JLL
Healthcare, LLCs consolidated group.

Other

The Company has been advised that its hospital in
San Antonio, Texas, Southwest General Hospital, is a subject of an
investigation relating to the provision of hyperbaric oxygen therapy
services. In a letter dated February 11, 2003, the U.S. Attorney
for the Western District of Texas stated that the investigation
relates to certain billing practices for these services since 1998.
The Company is cooperating with the U.S. Attorneys office with
respect to this investigation. Based on information currently
available, the Company believes the investigation relates primarily
to the period when Tenet Healthcare Corporation owned the hospital.
Although the Company is unable to predict the outcome of this
investigation, management does not believe it will have a material
adverse effect on the Companys business, financial condition or results of
operations.

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

4. Goodwill

The Company adopted SFAS No. 142 effective October 1, 2001. As a result of
the transitional impairment test required by SFAS No. 142, the Company recorded
an impairment charge to goodwill of $39.5 million as of October 1, 2001. The
impairment charge to goodwill is reflected as a cumulative effect of a change
in accounting principle in the accompanying condensed and consolidated
statements of operations. The impairment relates to goodwill associated with
the Arizona market included in the acute care service segment and was based on
a discounted cash flow analysis. Pursuant to the provisions of SFAS No. 142,
goodwill is no longer amortized but is subject to annual impairment reviews.

5. Asset Revaluation and Closure Costs

In the third quarter of fiscal 2001, the Company recorded a pre-tax asset
revaluation charge of approximately $2.8 million related to the closure of
Rocky Mountain Medical Center and revaluation of net assets in conjunction with
their classification as held for sale. At December 31, 2002, Rocky Mountain
Medical Center net assets held for sale consisted of property and equipment and
totaled approximately $22.1 million.

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

The Company adopted and implemented an exit plan and recorded pre-tax
closure charges of approximately $9.1 million in the third quarter of fiscal
2001 with respect to the closure of Rocky Mountain Medical Center. These
closure plans included the involuntary termination of approximately 200
hospital and business office personnel, which were completed by September 20,
2001. At December 31, 2002, accrued closure costs totaled approximately $1.7
million. The following table summarizes the closure costs accrual and payment
activity for the three months ended December 31, 2002 (in thousands):

|                               |          |   |               |   |             |   |              |      |            |   |       |   |  |   |     |      |   |   |       |      |  
|------------------------------ | -------- | - | ------------- | - | ----------- | - | ------------ | ---- | ---------- | - | ----- | - |  | - | --- | ---- | - | - | ----- | ---- | -
|                               |          |   |               |   |             |   | Facility and |      |            |   |       |   |  |   |     |      |   |   |      
|                               |          |   |               |   |             |   | Lease        |      | Contract   |   |       |   |  |   |     |      |  
|                               |          |   | Severance and |   | Termination |   | Termination  |      | Other      |   |       |   | 
|                               |          |   | Related Costs |   | Costs       |   | Costs        |      | Exit Costs |   | Total
|                               |          |   |               |   |             |   |              |      |            |   |      
|Balances at September 30, 2002 |          | $ |              |   |             | $ | 1,334        |      |            | $ |      |   |  | $ | 825 |      |   | $ | 2,159 |     
|                               | Payments |   |               |  |             |   |              | (188 | )          |   |       |  |  |   |     | (255 | ) |   |       | (443 | )
|                               |          |   |               |   |             |   |              |      |            |   |       |   |  |   |     |      |   |   |       |     
|Balances at December 31, 2002  |          | $ |              |   |             | $ | 1,146        |      |            | $ |      |   |  | $ | 570 |      |   | $ | 1,716 |     
|                               |          |   |               |   |             |   |              |      |            |   |       |   |  |   |     |      |   |   |       |     

6. Segment and Geographic Information

The Companys acute care hospitals and related healthcare businesses are
similar in their activities and the economic environments in which they operate
(i.e., urban and suburban markets). Accordingly, the Companys reportable
operating segments consist of (1) acute care hospitals and related healthcare
businesses, collectively, and (2) its Medicaid managed health plan, Health
Choice and a related entity (collectively referred to as Health Choice).The
following is a financial summary by business segment for the periods indicated:

|                              |                                                                                                                   |   |                    |         |      |   |         |         |  
|----------------------------- | ----------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------- | ---- | - | ------- | ------- | -
|                              |                                                                                                                   |   | Three Months      
|                              |                                                                                                                   |   | Ended December 31,
|                              |                                                                                                                   |   |                   
|                              |                                                                                                                   |   | 2002               |         | 2001
|                              |                                                                                                                   |   |                    |         |     
|                              |                                                                                                                   |   | (In thousands)    
|Acute Care Service:           |                                                                                                                   |   |                    |         |      |   |         |        
|Net patient revenue           |                                                                                                                   | $ | 219,725            |         |      | $ | 189,148 |        
|Revenue between segments      |                                                                                                                   |   | (1,908             | )       |      |   | (1,437  | )      
|                              |                                                                                                                   |   |                    |         |      |   |         |        
|                              | Net revenue                                                                                                       |   |                    | 217,817 |      |   |         | 187,711 |  
|Salaries and benefits         |                                                                                                                   |   | 87,243             |         |      |   | 76,488  |        
|Supplies                      |                                                                                                                   |   | 35,561             |         |      |   | 31,193  |        
|Other operating expenses      |                                                                                                                   |   | 43,975             |         |      |   | 38,909  |        
|Provision for bad debts       |                                                                                                                   |   | 19,711             |         |      |   | 16,774  |        
|                              |                                                                                                                   |   |                    |         |      |   |         |        
|                              | EBITDA(1)                                                                                                         |   |                    | 31,327  |      |   |         | 24,347  |  
|Interest expense, net         |                                                                                                                   |   | 13,317             |         |      |   | 14,551  |        
|Depreciation and amortization |                                                                                                                   |   | 12,818             |         |      |   | 10,459  |        
|Gain on sale of assets, net   |                                                                                                                   |   | (780               | )       |      |   | (12     | )      
|                              |                                                                                                                   |   |                    |         |      |   |         |        
|                              | Earnings (loss) before
minority interests, income
taxes and cumulative
effect of a change in
accounting principle |   |                    | 5,972   |      |   |         | (651    | )
|Minority interests            |                                                                                                                   |   | (278               | )       |      |   | (223    | )      
|                              |                                                                                                                   |   |                    |         |      |   |         |        
|                              | Earnings (loss) before
income taxes and
cumulative effect of a
change in accounting
principle                     |   | $                  | 5,694   |      |   | $       | (874    | )
|                              |                                                                                                                   |   |                    |         |      |   |         |        
|Segment assets                |                                                                                                                   | $ | 900,221            |         |      | $ | 904,763 |        
|                              |                                                                                                                   |   |                    |         |      |   |         |        

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

|                                       |                                                                                                            |   |                    |        |      |   |        |        | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ---- | - | ------ | ------ | 
|                                       |                                                                                                            |   | Three Months Ended
|                                       |                                                                                                            |   | December 31,      
|                                       |                                                                                                            |   |                   
|                                       |                                                                                                            |   | 2002               |        | 2001
|                                       |                                                                                                            |   |                    |        |     
|                                       |                                                                                                            |   | (In
thousands)    
|Health Choice:                         |                                                                                                            |   |                    |        |      |   |        |       
|Capitation premiums and other payments |                                                                                                            | $ | 36,948             |        |      | $ | 33,170 |       
|Revenue between segments               |                                                                                                            |   |                   |        |      |   |       |       
|                                       |                                                                                                            |   |                    |        |      |   |        |       
|                                       | Net revenue                                                                                                |   |                    | 36,948 |      |   |        | 33,170 | 
|Salaries and benefits                  |                                                                                                            |   | 1,556              |        |      |   | 1,239  |       
|Supplies                               |                                                                                                            |   | 122                |        |      |   | 100    |       
|Other operating expenses               |                                                                                                            |   | 33,439             |        |      |   | 30,687 |       
|Provision for bad debts                |                                                                                                            |   |                   |        |      |   |       |       
|                                       |                                                                                                            |   |                    |        |      |   |        |       
|                                       | EBITDA(1)                                                                                                  |   |                    | 1,831  |      |   |        | 1,144  | 
|Interest income                        |                                                                                                            |   |                   |        |      |   | (48    | )     
|Depreciation and amortization          |                                                                                                            |   | 33                 |        |      |   | 29     |       
|                                       |                                                                                                            |   |                    |        |      |   |        |       
|                                       | Earnings before minority interests,
income taxes and cumulative effect
of a change in accounting principle |   |                    | 1,798  |      |   |        | 1,163  | 
|Minority interests                     |                                                                                                            |   |                   |        |      |   |       |       
|                                       |                                                                                                            |   |                    |        |      |   |        |       
|                                       | Earnings before income taxes and
cumulative effect of a change in
accounting principle                     |   | $                  | 1,798  |      |   | $      | 1,163  | 
|                                       |                                                                                                            |   |                    |        |      |   |        |       
|Segment assets                         |                                                                                                            | $ | 2,450              |        |      | $ | 15,760 |       
|                                       |                                                                                                            |   |                    |        |      |   |        |       



|(1) |  | EBITDA represents earnings before interest expense, gain on sale of
assets, minority interests, income taxes and depreciation and
amortization.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

7. Supplemental Condensed Consolidating Financial Information

The Notes described in Note 2 are fully and unconditionally guaranteed on
a joint and several basis by all of the Companys Subsidiary Guarantors.

A summarized condensed consolidating balance sheet at December 31, 2002
and September 30, 2002 and condensed consolidating statement of operations and
statement of cash flows for the three months ended December 31, 2002 and 2001
for the Company, segregating the parent company issuer, the combined 100% owned
Subsidiary Guarantors, the non-100% owned Subsidiary Guarantor and
eliminations, are found below. Separate unaudited financial statements of the
non-100% owned Subsidiary Guarantor, Odessa Regional Hospital, LP (Odessa),
are included as Exhibit 99.1 to this report. On February
1, 2001, Odessa sold 11.2% of its limited partner units, which reduced the
Companys ownership accordingly. However, Odessas guaranty continues to be
full and unconditional with respect to the Notes.

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Balance Sheet (unaudited)
December 31, 2002(in thousands)

|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |         |         | 
|---------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ---------- | -------- | --------------------- | ------- | ------------ | ------ | ------------ | ------ |  | ------- | - | ------- | --------- | ------- | ------- | ------- | 
|                                               |                                                                 |                                            |         |               |         |            |          | Subsidiary Guarantors
|                                               |                                                                 |                                            |         |               |         |            |          |                      
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        | Non-         |        |  |         |   |         | Condensed
|                                               |                                                                 |                                            |         | Parent Issuer |         | 100% Owned |          | 100% Owned            |         | Eliminations |        | Consolidated
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |             
|Assets                                         |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|Current assets:                                |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               | Cash and cash equivalents                                       |                                            | $       |              |         |            | $        |                      |         |              | $      |             |        |  | $       |  |         |           | $       |        |        
|                                               | Accounts receivable, net                                        |                                            |         |              |         |            |          | 144,944               |         |              |        | 10,721       |        |  |         |  |         |           |         | 155,665 |        
|                                               | Inventories                                                     |                                            |         |              |         |            |          | 22,254                |         |              |        | 1,811        |        |  |         |  |         |           |         | 24,065  |        
|                                               | Prepaid expenses and other current assets                       |                                            |         |              |         |            |          | 15,094                |         |              |        | 354          |        |  |         |  |         |           |         | 15,448  |        
|                                               | Assets held for sale                                            |                                            |         |              |         |            |          | 22,106                |         |              |        |             |        |  |         |  |         |           |         | 22,106  |        
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               |                                                                 | Total current assets                       |         |               |        |            |          |                       | 204,398 |              |        |              | 12,886 |  |         |   |        |           |         |         | 217,284 | 
|Property and equipment, net                    |                                                                 |                                            |        |               |         |            | 381,279  |                       |         |              | 24,167 |              |        |  |        |   |         |           | 405,446 |        
|Net investment in and advances to subsidiaries |                                                                 |                                            | 871,533 |               |         |            | (834,241 | )                     |         |              | 3,733  |              |        |  | (41,025 | ) |         |           |        |        
|Goodwill                                       |                                                                 |                                            |        |               |         |            | 223,377  |                       |         |              | 28,827 |              |        |  |        |   |         |           | 252,204 |        
|Other assets                                   |                                                                 |                                            | 16,893  |               |         |            | 10,057   |                       |         |              | 787    |              |        |  |        |   |         |           | 27,737  |        
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               |                                                                 | Total assets                               |         | $             | 888,426 |            |          | $                     | (15,130 | )            |        | $            | 70,400 |  |         |   | (41,025 | )         |         | $       | 902,671 | 
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|Liabilities and Stockholders Equity           |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|Current liabilities:                           |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               | Accounts payable                                                |                                            | $       |              |         |            | $        | 43,552                |         |              | $      | 2,734        |        |  | $       |  |         |           | $       | 46,286  |        
|                                               | Salaries and benefits payable                                   |                                            |         |              |         |            |          | 18,674                |         |              |        | 969          |        |  |         |  |         |           |         | 19,643  |        
|                                               | Accrued interest payable                                        |                                            |         | 9,670         |         |            |          |                      |         |              |        |             |        |  |         |  |         |           |         | 9,670   |        
|                                               | Medical claims payable                                          |                                            |         |              |         |            |          | 30,333                |         |              |        |             |        |  |         |  |         |           |         | 30,333  |        
|                                               | Other accrued expenses and other current liabilities            |                                            |         |              |         |            |          | 15,773                |         |              |        | 399          |        |  |         |  |         |           |         | 16,172  |        
|                                               | Current portion of long-term debt and capital lease
obligations |                                            |         | 3,500         |         |            |          | 718                   |         |              |        | 890          |        |  |         |  |         |           |         | 5,108   |        
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               |                                                                 | Total current liabilities                  |         |               | 13,170  |            |          |                       | 109,050 |              |        |              | 4,992  |  |         |   |        |           |         |         | 127,212 | 
|Long-term debt and capital lease obligations   |                                                                 |                                            | 579,519 |               |         |            | 6,440    |                       |         |              | 40,974 |              |        |  | (41,025 | ) |         |           | 585,908 |        
|Other long-term liabilities                    |                                                                 |                                            |        |               |         |            | 23,337   |                       |         |              |       |              |        |  |        |   |         |           | 23,337  |        
|Minority interest                              |                                                                 |                                            |        |               |         |            | 3,178    |                       |         |              |       |              |        |  |        |   |         |           | 3,178   |        
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               |                                                                 | Total liabilities                          |         |               | 592,689 |            |          |                       | 142,005 |              |        |              | 45,966 |  |         |   | (41,025 | )         |         |         | 739,635 | 
|Stockholders equity                           |                                                                 |                                            | 295,737 |               |         |            | (157,135 | )                     |         |              | 24,434 |              |        |  |        |   |         |           | 163,036 |        
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        
|                                               |                                                                 | Total liabilities and stockholders equity |         | $             | 888,426 |            |          | $                     | (15,130 | )            |        | $            | 70,400 |  |         | $ | (41,025 | )         |         | $       | 902,671 | 
|                                               |                                                                 |                                            |         |               |         |            |          |                       |         |              |        |              |        |  |         |   |         |           |         |        

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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Balance Sheet
September 30, 2002(in thousands)

|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |         |         | 
|---------------------------------------------- | --------------------------------------------------------------- | ------------------------- | ------- | ------------- | ------- | ---------- | -------- | --------------------- | ------- | ------------ | ------ | ------------ | ------ |  | ------- | ------- | ------- | --------- | ------- | ------- | ------- | 
|                                               |                                                                 |                           |         |               |         |            |          | Subsidiary Guarantors
|                                               |                                                                 |                           |         |               |         |            |          |                      
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        | Non-         |        |  |         |         |         | Condensed
|                                               |                                                                 |                           |         | Parent Issuer |         | 100% Owned |          | 100% Owned            |         | Eliminations |        | Consolidated
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |             
|Assets                                         |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|Current assets:                                |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               | Cash and cash equivalents                                       |                           | $       |              |         |            | $        |                      |         |              | $      |             |        |  | $       |        |         |           | $       |        |        
|                                               | Accounts receivable, net                                        |                           |         |              |         |            |          | 145,704               |         |              |        | 8,748        |        |  |         |        |         |           |         | 154,452 |        
|                                               | Inventories                                                     |                           |         |              |         |            |          | 22,218                |         |              |        | 1,691        |        |  |         |        |         |           |         | 23,909  |        
|                                               | Prepaid expenses and other current assets                       |                           |         |              |         |            |          | 14,792                |         |              |        | 905          |        |  |         |        |         |           |         | 15,697  |        
|                                               | Assets held for sale                                            |                           |         |              |         |            |          | 22,106                |         |              |        |             |        |  |         |        |         |           |         | 22,106  |        
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               |                                                                 | Total current assets      |         |               |        |            |          |                       | 204,820 |              |        |              | 11,344 |  |         |         |        |           |         |         | 216,164 | 
|Property and equipment, net                    |                                                                 |                           |        |               |         |            | 378,715  |                       |         |              | 23,456 |              |        |  |        |         |         |           | 402,171 |        
|Net investment in and advances to subsidiaries |                                                                 |                           | 870,372 |               |         |            | (833,886 | )                     |         |              | (3,426 | )            |        |  | (33,060 | )       |         |           |        |        
|Goodwill                                       |                                                                 |                           |        |               |         |            | 223,570  |                       |         |              | 28,827 |              |        |  |        |         |         |           | 252,397 |        
|Other assets, net                              |                                                                 |                           | 18,006  |               |         |            | 9,081    |                       |         |              | 664    |              |        |  |        |         |         |           | 27,751  |        
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               |                                                                 | Total assets              |         | $             | 888,378 |            |          | $                     | (17,700 | )            |        | $            | 60,865 |  |         |         | (33,060 | )         |         | $       | 898,483 | 
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|Liabilities and Stockholders Equity           |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|Current liabilities:                           |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               | Accounts payable                                                |                           | $       |              |         |            | $        | 49,986                |         |              | $      | 1,934        |        |  | $       |        |         |           | $       | 51,920  |        
|                                               | Salaries and benefits payable                                   |                           |         |              |         |            |          | 15,645                |         |              |        | 1,047        |        |  |         |        |         |           |         | 16,692  |        
|                                               | Accrued interest payable                                        |                           |         | 15,016        |         |            |          |                      |         |              |        |             |        |  |         |        |         |           |         | 15,016  |        
|                                               | Medical claims payable                                          |                           |         |              |         |            |          | 30,262                |         |              |        |             |        |  |         |        |         |           |         | 30,262  |        
|                                               | Accrued expenses and other current liabilities                  |                           |         |              |         |            |          | 18,824                |         |              |        | 199          |        |  |         |        |         |           |         | 19,023  |        
|                                               | Current portion of long-term debt and capital
lease obligations |                           |         | 25,307        |         |            |          | 945                   |         |              |        | 470          |        |  |         | (470    | )       |           |         | 26,252  |        
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               |                                                                 | Total current liabilities |         |               | 40,323  |            |          |                       | 115,662 |              |        |              | 3,650  |  |         |         | (470    | )         |         |         | 159,165 | 
|Long-term debt and capital lease obligations   |                                                                 |                           | 552,539 |               |         |            | 4,152    |                       |         |              | 32,590 |              |        |  | (32,590 | )       |         |           | 556,691 |        
|Other long-term liabilities                    |                                                                 |                           |        |               |         |            | 22,347   |                       |         |              |       |              |        |  |        |         |         |           | 22,347  |        
|Minority interest                              |                                                                 |                           |        |               |         |            | 4,736    |                       |         |              |       |              |        |  |        |         |         |           | 4,736   |        
|Stockholders equity                           |                                                                 |                           | 295,516 |               |         |            | (164,597 | )                     |         |              | 24,625 |              |        |  |        |         |         |           | 155,544 |        
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        
|                                               | Total liabilities and stockholders equity                      |                           | $       | 888,378       |         |            | $        | (17,700               | )       |              | $      | 60,865       |        |  | $       | (33,060 | )       |           | $       | 898,483 |        
|                                               |                                                                 |                           |         |               |         |            |          |                       |         |              |        |              |        |  |         |         |         |           |         |        

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Statement of Operations
for the Three Months Ended December 31, 2002 (unaudited)(in thousands)

|                                                    |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |         | 
|--------------------------------------------------- | ------------------------ | - | ------------- | ------ | ---------- | - | --------------------- | ------- | ------------ | - | ------------ | ------ |  | - | ------- | ------ | --------- | - | ------- | ------- | 
|                                                    |                          |   |               |        |            |   | Subsidiary Guarantors
|                                                    |                          |   |               |        |            |   |                      
|                                                    |                          |   |               |        |            |   |                       |         |              |   | Non-         |        |  |   |         |        | Condensed
|                                                    |                          |   | Parent Issuer |        | 100% Owned |   | 100% Owned            |         | Eliminations |   | Consolidated
|                                                    |                          |   |               |        |            |   |                       |         |              |   |             
|Net revenue                                         |                          | $ |              |        |            | $ | 238,860               |         |              | $ | 16,220       |        |  | $ | (315    | )      |           | $ | 254,765 |        
|Costs and expenses:                                 |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |        
|Salaries and benefits                               |                          |   |              |        |            |   | 83,484                |         |              |   | 5,315        |        |  |   |        |        |           |   | 88,799  |        
|Supplies                                            |                          |   |              |        |            |   | 33,254                |         |              |   | 2,429        |        |  |   |        |        |           |   | 35,683  |        
|Other operating expenses                            |                          |   |              |        |            |   | 74,867                |         |              |   | 2,547        |        |  |   |        |        |           |   | 77,414  |        
|Provision for bad debts                             |                          |   |              |        |            |   | 18,286                |         |              |   | 1,425        |        |  |   |        |        |           |   | 19,711  |        
|Interest, net                                       |                          |   | 13,246        |        |            |   | 71                    |         |              |   | 1,255        |        |  |   | (1,255  | )      |           |   | 13,317  |        
|Depreciation and amortization                       |                          |   | 1,114         |        |            |   | 11,230                |         |              |   | 507          |        |  |   |        |        |           |   | 12,851  |        
|Gain on sale of assets, net                         |                          |   |              |        |            |   | (780                  | )       |              |   |             |        |  |   |         |        |           |   | (780    | )      
|Management fees                                     |                          |   |              |        |            |   |                      |         |              |   | 315          |        |  |   | (315    | )      |           |   |        |        
|Equity in earnings of affiliates                    |                          |   | (20,597       | )      |            |   |                      |         |              |   |             |        |  |   | 20,597  |        |           |   |        |        
|                                                    |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |        
|                                                    | Total costs and expenses |   |               | (6,237 | )          |   |                       | 220,412 |              |   |              | 13,793 |  |   |         | 19,027 |           |   |         | 246,995 | 
|Earnings before minority interests and income taxes |                          |   | 6,237         |        |            |   | 18,448                |         |              |   | 2,427        |        |  |   | (19,342 | )      |           |   | 7,770   |        
|Minority interests                                  |                          |   |              |        |            |   | (278                  | )       |              |   |             |        |  |   |        |        |           |   | (278    | )      
|                                                    |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |        
|Earnings before income taxes                        |                          |   | 6,237         |        |            |   | 18,170                |         |              |   | 2,427        |        |  |   | (19,342 | )      |           |   | 7,492   |        
|Income tax expense                                  |                          |   |              |        |            |   |                      |         |              |   |             |        |  |   |        |        |           |   |        |        
|                                                    |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |        
|Net earnings (loss)                                 |                          | $ | 6,237         |        |            | $ | 18,170                |         |              | $ | 2,427        |        |  | $ | (19,342 | )      |           | $ | 7,492   |        
|                                                    |                          |   |               |        |            |   |                       |         |              |   |              |        |  |   |         |        |           |   |         |        

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Statement of Operations
for the Three Months Ended December 31, 2001 (unaudited)(in thousands)

|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |        |         | 
|----------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------------------------ | ---- | ------------- | --- | ---------- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ----- | - | ------- | ------ | ------ | --------- | ------- | ------ | ------- | 
|                                                                                                                  |                                  |                          |      |               |     |            |         | Subsidiary Guarantors
|                                                                                                                  |                                  |                          |      |               |     |            |         |                      
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        | Non-         |       |   |         |        |        | Condensed
|                                                                                                                  |                                  |                          |      | Parent Issuer |     | 100% Owned |         | 100% Owned            |         | Eliminations |        | Consolidated
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |             
|Net revenue                                                                                                       |                                  | $                        |     |               |     | $          | 210,160 |                       |         | $            | 10,935 |              |       | $ | (214    | )      |        | $         | 220,881 |       
|Costs and expenses:                                                                                               |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       
|                                                                                                                  | Salaries and benefits            |                          |      |              |     |            |         | 73,953                |         |              |        | 3,774        |       |   |         |       |        |           |         | 77,727 |        
|                                                                                                                  | Supplies                         |                          |      |              |     |            |         | 30,196                |         |              |        | 1,097        |       |   |         |       |        |           |         | 31,293 |        
|                                                                                                                  | Other operating expenses         |                          |      |              |     |            |         | 67,695                |         |              |        | 1,901        |       |   |         |       |        |           |         | 69,596 |        
|                                                                                                                  | Provision for bad debts          |                          |      |              |     |            |         | 15,828                |         |              |        | 946          |       |   |         |       |        |           |         | 16,774 |        
|                                                                                                                  | Interest, net                    |                          |      | 14,408        |     |            |         | 95                    |         |              |        | 1,087        |       |   |         | (1,087 | )      |           |         | 14,503 |        
|                                                                                                                  | Depreciation and amortization    |                          |      | 1,059         |     |            |         | 9,083                 |         |              |        | 346          |       |   |         |       |        |           |         | 10,488 |        
|                                                                                                                  | Gain on sale of assets           |                          |      |              |     |            |         | (12                   | )       |              |        |             |       |   |         |       |        |           |         | (12    | )      
|                                                                                                                  | Management fees                  |                          |      |              |     |            |         |                      |         |              |        | 214          |       |   |         | (214   | )      |           |         |       |        
|                                                                                                                  | Equity in earnings of affiliates |                          |      | (14,669       | )   |            |         |                      |         |              |        |             |       |   |         | 14,669 |        |           |         |       |        
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       
|                                                                                                                  |                                  | Total costs and expenses |      |               | 798 |            |         |                       | 196,838 |              |        |              | 9,365 |   |         |        | 13,368 |           |         |        | 220,369 | 
|Earnings (loss) before minority
interests, income taxes and
cumulative effect of a change in
accounting principle |                                  |                          | (798 | )             |     |            | 13,322  |                       |         |              | 1,570  |              |       |   | (13,582 | )      |        |           | 512     |       
|Minority interests                                                                                                |                                  |                          |     |               |     |            | (223    | )                     |         |              |       |              |       |   |        |        |        |           | (223    | )     
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       
|Earnings (loss) before income
taxes and cumulative effect of a
change in accounting principle                     |                                  |                          | (798 | )             |     |            | 13,099  |                       |         |              | 1,570  |              |       |   | (13,582 | )      |        |           | 289     |       
|Income tax expense                                                                                                |                                  |                          |     |               |     |            |        |                       |         |              |       |              |       |   |        |        |        |           |        |       
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       
|Net earnings (loss) before
cumulative effect of a change in
accounting principle                                  |                                  |                          | (798 | )             |     |            | 13,099  |                       |         |              | 1,570  |              |       |   | (13,582 | )      |        |           | 289     |       
|Cumulative effect of a change in
accounting principle                                                             |                                  |                          |     |               |     |            | (39,497 | )                     |         |              |       |              |       |   |        |        |        |           | (39,497 | )     
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       
|Net earnings (loss)                                                                                               |                                  | $                        | (798 | )             |     | $          | (26,398 | )                     |         | $            | 1,570  |              |       | $ | (13,582 | )      |        | $         | (39,208 | )     
|                                                                                                                  |                                  |                          |      |               |     |            |         |                       |         |              |        |              |       |   |         |        |        |           |         |       

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Statement of Cash Flows
for the Three Months Ended December 31, 2002 (unaudited)(in thousands)

|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |         |         |        |  
|------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------- | ------------- | ------ | ---------- | ------- | --------------------- | ------ | ------------ | ------ | ------------ | ------ | - | ------- | ------ | - | --------- | ------- | ------- | ------ | -
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         | Subsidiary Guarantors
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                      
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        | Non-         |        |   |         |        |   | Condensed
|                                     |                                                                                           |                                                                                 |                                                            |         | Parent Issuer |        | 100% Owned |         | 100% Owned            |        | Eliminations |        | Consolidated
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |             
|Cash flows from operating activities |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     | Net earnings (loss)                                                                       |                                                                                 | $                                                          | 6,237   |               |        | $          | 18,170  |                       |        | $            | 2,427  |              |        | $ | (19,342 | )      |   | $         | 7,492   |        
|                                     | Adjustments to reconcile net earnings(loss) to net cash
provided by operating activities: |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |         |        
|                                     |                                                                                           | Depreciation and amortization                                                   |                                                            |         | 1,114         |        |            |         | 11,230                |        |              |        | 507          |        |   |         |       |   |           |         | 12,851  |       
|                                     |                                                                                           | Minority interests                                                              |                                                            |         |              |        |            |         | 278                   |        |              |        |             |        |   |         |       |   |           |         | 278     |       
|                                     |                                                                                           | Gain on sale of property and equipment                                          |                                                            |         |              |        |            |         | (780                  | )      |              |        |             |        |   |         |       |   |           |         | (780    | )     
|                                     |                                                                                           | Equity in earnings of affiliates                                                |                                                            |         | (20,597       | )      |            |         |                      |        |              |        |             |        |   |         | 20,597 |   |           |         |        |       
|                                     |                                                                                           | Changes in operating assets and liabilities, net of the
effect of dispositions: |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |         |         |       
|                                     |                                                                                           |                                                                                 | Accounts receivable                                        |         |               |       |            |         |                       | 903    |              |        |              | (1,972 | ) |         |        |  |           |         |         | (1,069 | )
|                                     |                                                                                           |                                                                                 | Inventories, prepaid expenses and other     current assets |         |               |       |            |         |                       | (1,472 | )            |        |              | 431    |   |         |        |  |           |         |         | (1,041 | )
|                                     |                                                                                           |                                                                                 | Accounts payable and other accrued liabilities             |         |               | (5,346 | )          |         |                       | (5,047 | )            |        |              | 922    |   |         |        |  |           |         |         | (9,471 | )
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     |                                                                                           | Net cash provided by (used in) operating activities                             |                                                            |         | (18,592       | )      |            |         | 23,282                |        |              |        | 2,315        |        |   |         | 1,255  |   |           |         | 8,260   |       
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|Cash flows from investing activities |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     | Purchase of property and equipment                                                        |                                                                                 |                                                            |        |               |        |            | (14,038 | )                     |        |              | (377   | )            |        |   |        |        |   |           | (14,415 | )      
|                                     | Proceeds from sale of property and equipment                                              |                                                                                 |                                                            |        |               |        |            | 2,463   |                       |        |              |       |              |        |   |        |        |   |           | 2,463   |        
|                                     | Change in other assets                                                                    |                                                                                 |                                                            |        |               |        |            | (735    | )                     |        |              | (126   | )            |        |   |        |        |   |           | (861    | )      
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     |                                                                                           | Net cash used in investing activities                                           |                                                            |         |              |        |            |         | (12,310               | )      |              |        | (503         | )      |   |         |       |   |           |         | (12,813 | )     
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|Cash flows from financing activities |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     | Proceeds from senior bank debt borrowings                                                 |                                                                                 |                                                            | 62,200  |               |        |            |        |                       |        |              |       |              |        |   |        |        |   |           | 62,200  |        
|                                     | Payment of debt and capital leases                                                        |                                                                                 |                                                            | (57,027 | )             |        |            | (320    | )                     |        |              |       |              |        |   |        |        |   |           | (57,347 | )      
|                                     | Change in intercompany balances with affiliates, net                                      |                                                                                 |                                                            | 13,419  |               |        |            | (10,642 | )                     |        |              | (1,522 | )            |        |   | (1,255  | )      |   |           |        |        
|                                     | Distribution of minority interests                                                        |                                                                                 |                                                            |        |               |        |            | (10     | )                     |        |              | (290   | )            |        |   |        |        |   |           | (300    | )      
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     |                                                                                           | Net cash provided by (used in) financing activities                             |                                                            |         | 18,592        |        |            |         | (10,972               | )      |              |        | (1,812       | )      |   |         | (1,255 | ) |           |         | 4,553   |       
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     | Change in cash and cash equivalents                                                       |                                                                                 |                                                            |        |               |        |            |        |                       |        |              |       |              |        |   |        |        |   |           |        |        
|                                     | Cash and cash equivalents at beginning of period                                          |                                                                                 |                                                            |        |               |        |            |        |                       |        |              |       |              |        |   |        |        |   |           |        |        
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        
|                                     | Cash and cash equivalents at end of period                                                |                                                                                 | $                                                          |        |               |        | $          |        |                       |        | $            |       |              |        | $ |        |        |   | $         |        |        
|                                     |                                                                                           |                                                                                 |                                                            |         |               |        |            |         |                       |        |              |        |              |        |   |         |        |   |           |        

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS

IASIS Healthcare Corporation

Condensed Consolidating Statement of Cash Flows
for the Three Months Ended December 31, 2001 (unaudited)(in thousands)

|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |         |         |        |  
|------------------------------------ | --------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------ | ------- | ------------- | ----- | ---------- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ---- | - | ------- | ------ | - | --------- | ------- | ------- | ------ | -
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         | Subsidiary Guarantors
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                      
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        | Non-         |      |   |         |        |   | Condensed
|                                     |                                                                                                     |                                                       |                                                        |         | Parent Issuer |       | 100% Owned |         | 100% Owned            |         | Eliminations |        | Consolidated
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |             
|Cash flows from operating activities |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     | Net earnings (loss)                                                                                 |                                                       | $                                                      | (798    | )             |       | $          | (26,398 | )                     |         | $            | 1,570  |              |      | $ | (13,582 | )      |   | $         | (39,208 | )      
|                                     | Adjustments to reconcile net earnings(loss) to net cash
provided by (used in) operating activities: |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |         |        
|                                     |                                                                                                     | Depreciation and amortization                         |                                                        |         | 1,059         |       |            |         | 9,083                 |         |              |        | 346          |      |   |         |       |   |           |         | 10,488  |       
|                                     |                                                                                                     | Minority interests                                    |                                                        |         |              |       |            |         | 223                   |         |              |        |             |      |   |         |       |   |           |         | 223     |       
|                                     |                                                                                                     | Cumulative effect of a change in accounting principle |                                                        |         |              |       |            |         | 39,497                |         |              |        |             |      |   |         |       |   |           |         | 39,497  |       
|                                     |                                                                                                     | Gain on sale of assets                                |                                                        |         |              |       |            |         | (12                   | )       |              |        |             |      |   |         |       |   |           |         | (12     | )     
|                                     |                                                                                                     | Equity in earnings of affiliates                      |                                                        |         | (14,669       | )     |            |         |                      |         |              |        |             |      |   |         | 14,669 |   |           |         |        |       
|                                     |                                                                                                     | Changes in operating assets and liabilities:          |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |         |         |       
|                                     |                                                                                                     |                                                       | Accounts receivable                                    |         |               |      |            |         |                       | 483     |              |        |              | 229  |   |         |        |  |           |         |         | 712    |  
|                                     |                                                                                                     |                                                       | Inventories, prepaid expenses and other current assets |         |               |      |            |         |                       | (4,266  | )            |        |              | (256 | ) |         |        |  |           |         |         | (4,522 | )
|                                     |                                                                                                     |                                                       | Accounts payable and other accrued liabilities         |         |               | 8,496 |            |         |                       | (14,077 | )            |        |              | (65  | ) |         |        |  |           |         |         | (5,646 | )
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     |                                                                                                     | Net cash provided by (used in) operating activities   |                                                        |         | (5,912        | )     |            |         | 4,533                 |         |              |        | 1,824        |      |   |         | 1,087  |   |           |         | 1,532   |       
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|Cash flows from investing activities |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     | Purchases of property and equipment                                                                 |                                                       |                                                        |        |               |       |            | (3,840  | )                     |         |              | (3,105 | )            |      |   |        |        |   |           | (6,945  | )      
|                                     | Purchase of real estate                                                                             |                                                       |                                                        |        |               |       |            | (55,338 | )                     |         |              |       |              |      |   |        |        |   |           | (55,338 | )      
|                                     | Proceeds from sale of assets                                                                        |                                                       |                                                        |        |               |       |            | 12      |                       |         |              |       |              |      |   |        |        |   |           | 12      |        
|                                     | Change in other assets                                                                              |                                                       |                                                        |        |               |       |            | (1,900  | )                     |         |              |       |              |      |   |        |        |   |           | (1,900  | )      
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     |                                                                                                     | Net cash used in investing activities                 |                                                        |         |              |       |            |         | (61,066               | )       |              |        | (3,105       | )    |   |         |       |   |           |         | (64,171 | )     
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|Cash flows from financing activities |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     | Proceeds from issuance of common stock                                                              |                                                       |                                                        | 222     |               |       |            |        |                       |         |              |       |              |      |   |        |        |   |           | 222     |        
|                                     | Proceeds from senior bank debt borrowings                                                           |                                                       |                                                        | 94,600  |               |       |            |        |                       |         |              |       |              |      |   |        |        |   |           | 94,600  |        
|                                     | Payment of debt and capital leases                                                                  |                                                       |                                                        | (35,850 | )             |       |            | (64     | )                     |         |              |       |              |      |   |        |        |   |           | (35,914 | )      
|                                     | Change in intercompany balances with affiliates, net                                                |                                                       |                                                        | (50,735 | )             |       |            | 50,541  |                       |         |              | 1,281  |              |      |   | (1,087  | )      |   |           |        |        
|                                     | Debt financing costs incurred                                                                       |                                                       |                                                        | (2,325  | )             |       |            |        |                       |         |              |       |              |      |   |        |        |   |           | (2,325  | )      
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     |                                                                                                     | Net cash provided by (used in) financing activities   |                                                        |         | 5,912         |       |            |         | 50,477                |         |              |        | 1,281        |      |   |         | (1,087 | ) |           |         | 56,583  |       
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     | Change in cash and cash equivalents                                                                 |                                                       |                                                        |        |               |       |            | (6,056  | )                     |         |              |       |              |      |   |        |        |   |           | (6,056  | )      
|                                     | Cash and cash equivalents at beginning of period                                                    |                                                       |                                                        |        |               |       |            | 6,056   |                       |         |              |       |              |      |   |        |        |   |           | 6,056   |        
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        
|                                     | Cash and cash equivalents at end of period                                                          |                                                       | $                                                      |        |               |       | $          |        |                       |         | $            |       |              |      | $ |        |        |   | $         |        |        
|                                     |                                                                                                     |                                                       |                                                        |         |               |       |            |         |                       |         |              |        |              |      |   |         |        |   |           |        

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results
of operations should be read in conjunction with our unaudited condensed and
consolidated financial statements, the notes to our unaudited condensed and
consolidated financial statements and the other financial information appearing
elsewhere in this report. Data for the three months ended December 31, 2002 and
2001 has been derived from our unaudited condensed and consolidated financial
statements.

Forward Looking Statements

Some of the statements we make in this report are forward-looking within
the meaning of the federal securities laws, which are intended to be covered by
the safe harbors created thereby. Those forward-looking statements include all
statements that are not historical statements of fact and those regarding our
intent, belief or expectations including, but not limited to, the discussions
of our operating and growth strategy (including possible acquisitions and
dispositions), financing needs, projections of revenue, income or loss, capital
expenditures and future operations. Forward-looking statements involve known
and unknown risks and uncertainties that may cause actual results in future
periods to differ materially from those anticipated in the forward-looking
statements. Those risks and uncertainties include, among others, the risks and
uncertainties discussed under the caption Risk Factors in our Annual Report
on Form 10-K for the fiscal year ended September 30, 2002. Although we believe
that the assumptions underlying the forward-looking statements contained in
this report are reasonable, any of these assumptions could prove to be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
in this report, you should not regard the inclusion of such information as a
representation by us or any other person that our objectives and plans will be
achieved. We undertake no obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events and circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.

General

We are a leading owner and operator of acute care hospitals that develops
and operates networks of medium-sized hospitals in high-growth urban and
suburban markets. We operate our hospitals with a strong community focus by
offering and developing healthcare services to meet the needs of the markets we
serve, promoting strong relationships with physicians and working with local
managed care plans. At December 31, 2002 we owned or leased 14 hospitals with a
total of 2,116 beds in service. Our hospitals are located in four regions:



| |  |  | Salt Lake City, Utah;                                      
| | - |  | -----------------------------------------------------------
|
| |  |  | Phoenix, Arizona;                                          
|
| |  |  | Tampa-St. Petersburg, Florida; and                         
|
| |  |  | three markets in the State of Texas, including San Antonio.

We also operate three ambulatory surgery centers and a Medicaid managed health
plan called Health Choice, serving over 60,000 members in Arizona at December
31, 2002.

Net revenue is comprised of net patient service revenue and other revenue.
Net patient service revenue is reported net of contractual adjustments. The
adjustments principally result from differences between the hospitals
established charges and payment rates under Medicare, Medicaid and various
managed care plans. Established hospital charges generally have increased at a
faster rate than the rate of increase for Medicare and Medicaid payments. The
calculation of appropriate payments from the Medicare and Medicaid programs as
well as terms governing agreements with other third party payors are complex
and subject to interpretation. As a result, there is at least a reasonable
possibility that recorded estimates will change by a material amount. Other
revenue includes revenue from Health Choice, medical office building rental
income and other miscellaneous revenue. Operating expenses consist of salaries
and benefits, supplies, other operating expenses and provision for bad debts.

Our hospitals net patient service revenue continues to be affected by an
increasing proportion of revenue being derived from fixed payment, higher
discount sources including Medicare, Medicaid, managed care organizations and
others. Fixed payment amounts for Medicare and Medicaid are often based upon a
diagnosis regardless of the cost incurred or the level of services provided.
Our net revenue, cash flows and results of

16



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operations have been negatively impacted by this reimbursement
methodology. We expect patient volumes from Medicare and Medicaid to continue
to increase due to the general aging of the population and expansion of state
Medicaid programs. The percentage of our net patient revenue related to
Medicare and Medicaid was approximately 39.8% and 37.9% for the three months
ended December 31, 2002 and 2001, respectively.

Our hospitals continue to experience growth in outpatient volume at a
faster rate than the growth in inpatient volume primarily as a result of
improvements in technology, pharmacology and clinical practices and hospital
payment changes by Medicare and managed care organizations. In response to this
shift toward outpatient care, we have reconfigured some of our hospitals to
more effectively accommodate outpatient services and restructured existing
surgical and diagnostic capacity to permit additional outpatient volume and a
greater variety of outpatient services.

In addition, inpatient care is expanding to include sub-acute care when a
less-intensive, lower cost level of care is appropriate. We have been proactive
in the development of a variety of sub-acute inpatient services to utilize a
portion of our available capacity. By offering cost-effective sub-acute
services in appropriate circumstances, we are able to provide a continuum of
care when the demand for such services exists. We have identified opportunities
to expand existing physical rehabilitation units and develop other post-acute
services such as long term acute care arrangements within our facilities.

Critical Accounting Policies

A summary of significant accounting policies is disclosed in Note 1 to the
Consolidated Financial Statements included in the Annual Report on Form 10-K
for the year ended September 30, 2002. The Companys critical accounting
policies are further described under the caption Critical Accounting Policies
in Managements Discussion and Analysis in the Annual Report on Form 10-K for
the year ended September 30, 2002. There have been no changes in the nature of
the Companys critical accounting policies or the application of those policies
since September 30, 2002.

Selected Operating Data

The following table sets forth certain unaudited operating data for each
of the periods presented.

|                                                            |  |                    |         |                    |  |  |         |  
|----------------------------------------------------------- |  | ------------------ | ------- | ------------------ |  |  | ------- | -
|                                                            |  | Three Months Ended |         | Three Months Ended
|                                                            |  | December 31, 2002  |         | December 31, 2001 
|                                                            |  |                    |         |                   
|Number of hospitals at end of period                        |  |                    | 14      |                    |  |  | 14      |  
|Licensed beds at end of period                              |  |                    | 2,590   |                    |  |  | 2,520   |  
|Beds in service at end of period                            |  |                    | 2,116   |                    |  |  | 2,092   |  
|Average length of stay (days)(1)                            |  |                    | 4.40    |                    |  |  | 4.18    |  
|Occupancy rates (average beds in service)                   |  |                    | 45.3    | %                  |  |  | 40.3    | %
|Admissions(2)                                               |  |                    | 20,034  |                    |  |  | 18,558  |  
|Adjusted admissions(3)                                      |  |                    | 34,098  |                    |  |  | 31,065  |  
|Patient days(4)                                             |  |                    | 88,148  |                    |  |  | 77,492  |  
|Adjusted patient days(3)                                    |  |                    | 143,302 |                    |  |  | 126,415 |  
|Outpatient revenue as a percentage of
gross patient revenue |  |                    | 38.1    | %                  |  |  | 39.1    | %



---

|(1) |  | Represents the average number of days that a patient stayed in our
hospitals.                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 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.                                                                                                
|   
|(3) |  | 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.
|   
|(4) |  | Represents the number of days our beds were occupied over the period.                                                                                                                                                                                                                

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Results of Operations

The following table presents, for the periods indicated, information
expressed as a percentage of net revenue. Such information has been derived
from our unaudited condensed and consolidated statements of operations.

|                                                                                       |  |                    |       |                    |  |  |       |   
|-------------------------------------------------------------------------------------- |  | ------------------ | ----- | ------------------ |  |  | ----- | --
|                                                                                       |  | Three Months Ended |       | Three Months Ended
|                                                                                       |  | December 31, 2002  |       | December 31, 2001 
|                                                                                       |  |                    |       |                   
|Net revenue                                                                            |  |                    | 100.0 | %                  |  |  | 100.0 | % 
|Salaries and benefits                                                                  |  |                    | 34.9  |                    |  |  | 35.2  |   
|Supplies                                                                               |  |                    | 14.0  |                    |  |  | 14.2  |   
|Other operating expenses                                                               |  |                    | 30.4  |                    |  |  | 31.5  |   
|Provision for bad debts                                                                |  |                    | 7.7   |                    |  |  | 7.6   |   
|                                                                                       |  |                    |       |                    |  |  |       |   
|Total operating expenses                                                               |  |                    | 87.0  |                    |  |  | 88.5  |   
|                                                                                       |  |                    |       |                    |  |  |       |   
|EBITDA(1)                                                                              |  |                    | 13.0  |                    |  |  | 11.5  |   
|Depreciation and amortization                                                          |  |                    | 5.1   |                    |  |  | 4.7   |   
|Interest, net                                                                          |  |                    | 5.2   |                    |  |  | 6.6   |   
|Gain on sale of assets, net                                                            |  |                    | (0.3  | )                  |  |  |      |   
|Minority interests                                                                     |  |                    | 0.1   |                    |  |  | 0.1   |   
|                                                                                       |  |                    |       |                    |  |  |       |   
|Earnings before income taxes
and cumulative effect of a
change in accounting principle |  |                    | 2.9   |                    |  |  | 0.1   |   
|Income tax expense                                                                     |  |                    |      |                    |  |  |      |   
|                                                                                       |  |                    |       |                    |  |  |       |   
|Earnings before cumulative
effect of a change in
accounting principle                  |  |                    | 2.9   |                    |  |  | 0.1   |   
|Cumulative effect of a change
in accounting principle(2)                               |  |                    |      |                    |  |  | (17.9 | ) 
|                                                                                       |  |                    |       |                    |  |  |       |   
|Net
earnings (loss)                                                                    |  |                    | 2.9   | %                  |  |  | (17.8 | )%
|                                                                                       |  |                    |       |                    |  |  |       |   



---

|(1) |  | EBITDA represents earnings before interest expense, gain on sale of
assets, minority interests, income taxes, and depreciation and
amortization. Although EBITDA should not be considered in isolation or
as a substitute for net earnings, operation cash flows or other cash
flow statement data determined in accordance with accounting principles
generally accepted in the United States, management understands that
EBITDA is commonly used to evaluate a companys financial performance,
especially in evaluating healthcare companies. EBITDA, as presented, may
not be comparable to similarly titled measures of other companies.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Cumulative effect of a change in accounting principle consists of a
$39.5 million non-cash transitional impairment charge, related to the
adoption of SFAS 142, Goodwill and Other Intangible Assets, during the
three months ended December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                        

Three Months Ended December 31, 2002 Compared to Three Months Ended December 31, 2001

Net revenue for the three months ended December 31, 2002 was $254.8
million, an increase of $33.9 million, or 15.3%, from $220.9 million for same
period in 2001. The increase in net revenue was due to a combination of an
increase of $30.1 million in net revenue from hospital operations, which we
refer to as our acute care service segment in our financial statements, and an
increase of $3.8 million in net revenue from Health Choice.

Net revenue from our hospital operations for the three months ended
December 31, 2002 was $217.8 million, up $30.1 million, or 16.0%, from $187.7
million for the same period in 2001. Net patient revenue per adjusted
admission and patient day increased 6.9% and 3.6%, respectively, for the three
months ended December 31,

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2002, compared to the same period in 2001, and was due to a combination of
increased acuity and price increases in our hospital operations.

Admissions increased 8.0% to 20,034 for the three months ended December
31, 2002 from 18,558 for the same period in 2001, and patient days increased
13.8% to 88,148 for the three months ended December 31, 2002 from 77,492 for
the same period in 2001. Adjusted admissions increased 9.8% to 34,098 for the
three months ended December 31, 2002 from 31,065 for the same period in 2001,
and adjusted patient days increased 13.4% to 143,302 for the three months ended
December 31, 2002, from 126,415 for the same period in 2001. The
increase in volume was
due in part to a combination of population growth in our markets,
introduction of new and expanded services at our hospitals, results of our
physician recruiting efforts and weak volume in the prior year
quarter, particularly in our Arizona market, which we have previously
discussed. The average length of stay resulting from
admissions and patient days increased 5.3% from 4.18 days for the three months
ended December 31, 2001, to 4.40 days for the same period in 2002. This
increase in the average length of stay was attributable to greater acuity and
an increased emphasis on product lines requiring longer lengths of stay.

Net revenue from Health Choice was $36.9 million for the three months
ended December 31, 2002, an increase of $3.7 million, or 11.1%, from $33.2
million for the same period in 2001. Covered lives under this prepaid Medicaid
plan have increased 11.9% to 60,242 at December 31, 2002 from 53,833 at
December 31, 2001. The increase in covered lives has positively impacted Health
Choices net revenue for the three months ended December 31, 2002 compared to
the same period in 2001. Our growth in covered lives is due primarily to a
change in the eligibility standards in Arizona that increased the
Medicaid-eligible population during 2001.

Operating expenses increased $26.2 million from $195.4 million for the
three months ended December 31, 2001 to $221.6 million for the same period in
2002. Operating expenses as a percentage of net revenue were 87.0% for the
three months ended December 31, 2002, compared to 88.5% for the same period in
2001.

Operating expenses from our hospital operations for the three months ended
December 31, 2002 were $186.5 million, an increase of $23.1 million, or 14.1%,
from $163.4 million for the same period in 2001. This increase was comprised
of a $15.9 million increase in operating expenses due to volume growth in our
markets, along with increases in insurance costs, rent expense, physician and
employee recruiting costs and general inflation.

Operating expenses from our hospital operations as a percentage of net
revenue were 85.6% for the three months ended December 31, 2002 compared to
87.1% for the same period in 2001. This decrease was due to a reduction in
salaries and benefits expense, supplies expense and other operating expenses as
a percentage of net revenue. Salaries and benefits expense as a percentage of
net revenue decreased 0.7% from period to period due primarily to the growth in
net revenue, achieving and maintaining a more efficient skill mix and greater
emphasis on profitable product lines. Salaries and benefits expense increased
by approximately $10.8 million for the three months ended December 31, 2002
compared to the same period in 2001 due primarily to volume growth, general
wage inflation and an increase in employee benefits and contract labor.
Contract labor, a component of salaries and benefits expense, increased by $3.0
million for the three months ended December 31, 2002 compared to the same
period in 2001 due primarily to significant volume growth in certain markets
requiring greater utilization of agency nurses and technicians, coupled with
increases in the rates charged by the staffing agencies. Benefits expense
increased by approximately $1.8 million for the three months ended December 31,
2002 compared to the same period in 2001 due primarily to the increased cost
and utilization of healthcare benefits for employees. Provision for bad debts
as a percentage of net revenue was generally unchanged from period to period. Supplies
expense as a percentage of net revenue decreased 0.3% from period to period due
in part to our new group purchasing contract which we entered into in the third
quarter of fiscal 2002, which has resulted in better pricing generally and
discounts on implants and cardiac devices. The supplies expense improvement was
also due to better compliance with the group purchasing contract compared to
the prior year, as well as having better inventory systems and processes in
place. Other operating expenses as a percentage of net revenue decreased 0.5%
from period to period due primarily to the growth in net revenue, offset to an
extent by an increase in insurance costs. We expect our other operating
expenses to continue to be negatively impacted for the remainder of fiscal year
2003 by these insurance expense increases. On an annual basis, insurance costs
are currently estimated to increase in the range of $3.6 million to $4.0 million, or
19.9% to 22.1%, over the prior year.

Operating expenses for Health Choice increased $3.1 million to $35.1
million for the three months ended December 31, 2002 compared to $32.0 million
for the same period in 2001. Operating expenses as a percentage of net revenue
for Health Choice were 95.1% for the three months ended December 31, 2002 and
96.4% for the same

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period in 2001. The increase in operating expenses was due primarily to
the incremental cost of increased enrollment. Operating expenses as a
percentage of net revenue declined, reflecting an improvement in the medical
loss and administrative expense ratios.

EBITDA was $33.2 million, or 13.0% of net revenue, for the three months
ended December 31, 2002, compared to $25.5 million, or 11.5% of net revenue,
for the same period in 2001. EBITDA for hospital operations was $31.3 million,
or 14.4% of net revenue, for the three months ended December 31, 2002, compared
to $24.3 million, or 12.9% of net revenue, for the same period in 2001. The
improvement in the EBITDA margin for hospital operations was due primarily to
increases in volume and net revenue coupled with decreases in salaries and
benefits, supplies and other operating expenses as a percentage of net revenue
as noted above.

Health Choice, our Medicaid managed health plan, has a significantly lower
EBITDA margin than our hospital operations. EBITDA for Health Choice was $1.8
million, or 4.9% of net revenue, for the three months ended December 31, 2002,
compared to $1.1 million for the same period in 2001, representing 3.3% of net
revenue. The increases in EBITDA and EBITDA margin were due to increased
enrollment and an improvement in the medical loss and administrative
expense ratios, as noted above.

Depreciation and amortization expense increased $2.4 million from $10.5
million for the three months ended December 31, 2001 to $12.9 million for the
same period in 2002. The increase in depreciation and amortization was the
result of additions to property and equipment during 2002.

Interest expense decreased $1.2 million from $14.5 million for the three
months ended December 31, 2001 to $13.3 million for the same period in 2002 due
to declines in interest rates during fiscal year 2002. Borrowings under our
bank credit facility bear interest at variable rates, and the weighted average
interest rate of outstanding borrowings under the bank credit facility was
approximately 5.9% for the three months ended December 31, 2002 compared to
6.9% for the same period in 2001.

We recorded no provision for income taxes for the three months ended
December 31, 2002 and 2001 due to the use of deferred tax assets that were
previously reserved with a valuation allowance.

Liquidity and Capital Resources

At December 31, 2002, we had $90.1 million in working capital, after the
effect of the refinancing on February 7, 2003 (see discussion below), compared
to $57.0 million at September 30, 2002. We generated cash of $8.3 million from
operating activities during the three months ended December 31, 2002, compared
to $1.5 million during the three months ended December 31, 2001. Net accounts
receivable increased from $154.5 million at September 30, 2002 to $155.7
million at December 31, 2002. Excluding third-party settlement receivables, our
days of net revenue outstanding at December 31, 2002 were 59 compared to 60 at
September 30, 2002.

Investing activities used $12.8 million during the three months ended
December 31, 2002. Capital expenditures for the three months ended December
31, 2002 were approximately $14.4 million. Our growth strategy requires
significant capital expenditures during the year ending September 30, 2003 and
future years. We have budgeted capital expenditures for the remainder of fiscal
2003 to be approximately $55.0 million to $66.0 million, including $29.3
million of construction costs for the renovation and expansion of certain of
our existing facilities and $18.7 million to $26.3 million for new equipment at
our facilities. On November 20, 2002, we announced plans to build a new
hospital in Jefferson County, Texas to replace our Mid-Jefferson Hospital in
Nederland, Texas and Park Place Medical Center in Port Arthur, Texas. We plan
to commence construction in the summer of 2003 and open the new facility in
early 2005. The total cost to build the new hospital is currently estimated to
be approximately $80.0 million. Included in our budgeted capital expenditures
are construction and other project related costs for the new hospital of
approximately $8.0 to $10.0 million that we expect to incur during 2003. We plan to
finance our proposed capital expenditures, including the construction of the
new hospital, with borrowings under our revolving credit facility, cash
generated from operations, real estate financing and other capital sources that
become available.

Financing activities during the three months ended December 31, 2002
provided net cash of $4.6 million. During the three months ended December 31,
2002, we borrowed $62.2 million pursuant to the terms of our bank credit
facility, repaid $6.6 million in outstanding borrowings pursuant to the terms
of our bank credit facility and

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capital lease obligations and made voluntary prepayments of $50.7 million
pursuant to the terms of our revolving credit facility. During the next twelve
months, we are required to repay $3.5 million under our new bank credit
facility, as discussed below.

On October 15, 1999, we entered into a bank credit facility through which
a syndicate of lenders made a total of $455.0 million available to us in the
form of an $80.0 million tranche A term loan, a $250.0 million tranche B term
loan and a $125.0 million revolving credit facility. Proceeds from the tranche
A and tranche B term loans were used in conjunction with the recapitalization
and acquisition transactions. Effective October 5, 2001, we amended our bank
credit facility to provide for an additional $30.0 million incremental senior
secured term loan on substantially the same terms and conditions as our current
existing bank credit facility. The new incremental term loan was used solely to
fund the purchase on October 15, 2001, of the land and buildings at two of our
facilities in Arizona previously operated under long-term leases and related
costs and expenses. The amended bank credit facility also provided for
revisions to certain financial covenants.

On February 7, 2003, we completed the refinancing of our bank credit
facility to provide for a new $475.0 million credit facility in the form of a
$350.0 million, six year term B loan and $125.0 million, five year revolving
credit facility. The loans under the new credit facility accrue
interest at variable rates at specified margins above either the
agent banks alternate base rate or its Eurodollar rate. Principal payments on the
new term B loan are due in quarterly installments of $875,000 beginning March
31, 2003 until maturity. Proceeds from the new credit facility were used to
refinance amounts outstanding under our previous credit facility and to fund
closing and other transaction related costs incurred in conjunction with the
refinancing. The new credit facility increases our annual capital expenditure
limitation to $80.0 million per year. In addition, the new credit facility
provides for revisions to certain financial covenants and replaces the fixed
charge coverage covenant under our previous credit facility with a senior
leverage test. The new $125.0 million revolving credit facility is available
for working capital and other general corporate purposes. Consistent with the
previous credit facility, the new bank credit facility requires that we comply
with various financial ratios and tests and contains covenants limiting our
ability to, among other things, incur debt, engage in acquisitions or mergers,
sell assets, make investments or capital expenditures, make distributions or
stock repurchases and pay dividends. The new bank credit facility is guaranteed
by our subsidiaries and these guaranties are secured by a pledge of
substantially all of the subsidiaries assets. Substantially all
of the Companys outstanding common stock is pledged for the
benefit of the Companys lenders as security for the
Companys obligations under the new credit facility.

At December 31, 2002, amounts outstanding under the previous credit
facilitys tranche A, tranche B and incremental term loans were $51.9 million,
$241.8 million and $29.8 million, respectively, and we had $29.5 million
outstanding under our revolving credit facility. The new revolving credit
facility includes a $75.0 million sub-limit for letters of credit that may be
issued by us and, at December 31, 2002, we had issued $38.3 million in letters
of credit. The loans under the previous bank credit facility accrued interest
at variable rates at specified margins above either the agent banks alternate
base rate or its reserve-adjusted Eurodollar rate. The weighted average
interest rate of outstanding borrowings under the previous bank credit
facility
was approximately 5.9% for the three months ended December 31,
2002. The Company will also pay a commitment fee equal to 0.5% of the
average daily amount available under the new revolving credit
facility. At
February 14, 2003, we had drawn $6.0 million under our new revolving credit
facility and had issued $38.3 million in letters of credit, resulting in
remaining availability under the revolving credit facility of $80.7 million.
During the second quarter of fiscal year 2003, we expect to write off
approximately $3.9 million in deferred financing costs associated with the
previous credit facility.

On October 13, 1999, we issued $230.0 million of 13% senior subordinated
notes due 2009. On May 25, 2000, we exchanged all of our outstanding 13% senior
subordinated notes due 2009 for 13% senior subordinated exchange notes due 2009
that have been registered under the Securities Act of 1933, as amended. The
notes are unsecured obligations and are subordinated in right of payment to all
of our existing and future senior indebtedness. If a change in control occurs,
as defined in the indenture, each holder of the notes will have the right to
require us to repurchase all or any part of that holders notes in cash at 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest to the date of purchase. Except with respect to a change of control,
we are not required to make mandatory redemption or sinking fund payments with
respect to the notes. At December 31, 2002, all of the subsidiaries fully and
unconditionally guaranteed the notes on a joint and several basis. The
indenture for the notes contains certain covenants, including but not limited
to, restrictions on new indebtedness, asset sales, capital expenditures,
dividends and our ability to merge or consolidate.

As of December 31, 2002, we provided a performance guaranty in the form of
a letter of credit in the amount of $20.6 million for the benefit of the
Arizona Health Care Cost Containment System to support our obligations under
the Health Choice contract to provide and pay for healthcare services. The
amount of the

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performance guaranty that the Arizona Health Care Cost Containment System
requires is based upon the membership in the plan and the related capitation
revenue paid to us.

Based upon our current level of operations and anticipated growth, we
believe that cash generated from operations and amounts available under the
revolving credit facility will be adequate to meet our anticipated debt service
requirements, capital expenditures and working capital needs for the next 12
months. We cannot assure you, however, that our business will generate
sufficient cash flow from operations or that future borrowings will be
available under our bank credit facility, or otherwise, to enable us to grow
our business, service our indebtedness, including the bank credit facility and
our senior subordinated exchange notes, or make anticipated capital
expenditures. One element of our business strategy is expansion through the
acquisition of hospitals in existing and new markets. The completion of
acquisitions may result in the incurrence, or assumption by us, of
additional indebtedness. Our future operating performance, ability to service
or refinance the senior subordinated exchange notes and ability to service and
extend or refinance the bank credit facility will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the three months ended December 31, 2002, there were no material
changes to our quantitative and qualitative disclosures about the market risk
associated with financial instruments as described in our Annual Report on Form
10-K for the year ended September 30, 2002. At December 31, 2002, the fair
market value of our outstanding senior subordinated exchange notes was
$246.1 million, based upon quoted market prices as of that date.




Item 4. Controls and Procedures

Under the supervision and with the participation of our management team,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended, within 90 days of the filing date of this report. Based on
this evaluation, the principal executive officer and principal accounting
officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic reports.

There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in the paragraph above.




PART IIOTHER INFORMATION




Item 1. Legal Proceedings.

The Company has been
advised that Southwest General Hospital is a subject of an
investigation relating to the provision of hyperbaric oxygen therapy
services. In a letter dated February 11, 2003, the U.S. Attorney for
the Western District of Texas stated that the investigation relates
to certain billing practices for these services since 1998. We are
cooperating with the U.S. Attorneys office with respect to the
investigation. Based on information currently available, we believe
the investigation relates primarily to the period when Tenet
Healthcare Corporation owned the hospital. Although we are unable to
predict the outcome of this investigation, we do not believe it will
have a material adverse effect on our business, financial condition
or results of operations.

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Item 6. Exhibits and Reports on Form 8-K

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | List of Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|10.1 |  | Amendment No. 20 to Contract between Arizona Health Care Cost
Containment System and HealthChoice Arizona, dated December 13,
2002, effective as of January 1, 2003                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|10.2 |  | Amended and Restated Credit Agreement dated as of February 7,
2003, among IASIS Healthcare Corporation, as Borrower, Certain
Subsidiaries of the Borrower, as Guarantors, Various Lenders,
CitiCorp North America, Inc. and UBS AG, Stamford Branch, as
Co-Syndication Agents, General Electric Capital Corporation and
Residential Funding Corporation dba GMAC-RFC Health Capital, as
Co-Documentation Agents, Bank of America, N.A., as Administrative
Agent and Banc of America Securities, LLC and Salomon Smith Barney
Inc., as Joint Lead Arrangers and Joint Book Managers*
|    
|99.1 |  | Odessa Regional Hospital, LP Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



---

|* |  | Incorporated by reference to the Companys Current Report on Form 8-K filed on February 11, 2003.
|- |  | -------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K:

On November 8, 2002, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing the date of the
online web simulcast of its fiscal year 2002 earnings conference call.

On November 22, 2002, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing its earnings for the
fourth quarter and fiscal year ended September 30, 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                              |  |                                         
|----------------------- |  | ---------------------------- |  | ----------------------------------------
|                        |  | IASIS HEALTHCARE CORPORATION
|                        |  |                              |  |                                         
|Date: February 14, 2003 |  | By:                          |  | /s/ W. Carl Whitmer                     
|                        |  |                              |  |                                         
|                        |  |                              |  | W. Carl Whitmer, Chief Financial Officer

24



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CERTIFICATION

I, David R. White, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IASIS Healthcare
Corporation;                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             |  | 
|------------------------------------------------------------ |  | 
|Date: February 14, 2003                                      |  | 
|                                                            
|/s/ David R. White                                           |  | 
|                                                             |  | 
|David R. White                                               |  | 
|Chairman of the Board, President and
Chief Executive Officer |  | 





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##### Table of Contents



CERTIFICATION

I, W. Carl Whitmer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IASIS Healthcare
Corporation;                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  | 
|----------------------- |  | 
|Date: February 14, 2003 |  | 
|                       
|/s/ W. Carl Whitmer     |  | 
|                        |  | 
|W. Carl Whitmer         |  | 
|Chief Financial Officer |  | 





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##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1        |  | Amendment No. 20 to Contract between Arizona Health Care Cost Containment
System and HealthChoice Arizona, dated December 13, 2002, effective as of
January 1, 2003                                                                                                                                                                                                                                                                                                                                                                                                                
|           
|10.2        |  | Amended and Restated Credit Agreement dated as of February 7, 2003, among
IASIS Healthcare Corporation, as Borrower, Certain Subsidiaries of the
Borrower, as Guarantors, Various Lenders, CitiCorp North America, Inc. and
UBS AG, Stamford Branch, as Co-Syndication Agents, General Electric
Capital Corporation and Residential Funding Corporation dba GMAC-RFC
Health Capital, as Co-Documentation Agents, Bank of America, N.A., as
Administrative Agent and Banc of America Securities, LLC and Salomon Smith
Barney Inc., as Joint Lead Arrangers and Joint Book Managers*
|           
|99.1        |  | Odessa Regional Hospital, LP Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



---

|* |  | Incorporated by reference to the Companys Current Report on Form 8-K filed on February 11, 2003.
|- |  | -------------------------------------------------------------------------------------------------