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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 June 30, 2002                                            
|      |  |                                                                                         
|OR   
|      |  |                                                                                         
|[   ] |  | 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                                                       |  | 76-0450619                           
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (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 mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [   ]

As of August 12, 2002, 31,955,863 shares of the Registrants
Common Stock were outstanding.





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TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                    |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION                     
|                                                  | Item 1. Financial Statements                                                                 
|                                                  |                                                                                               | CONDENSED AND CONSOLIDATED BALANCE SHEETS                         
|                                                  |                                                                                               | CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)   
|                                                  |                                                                                               | CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)   
|                                                  |                                                                                               | NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED 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                           
|PART II                                          
|OTHER INFORMATION                                
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|Amendment No.17 to Contract                      
|Amended and Restated Pioneer Hospital Lease      
|Odessa Regional Hospital, LP Unaudited Financials



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TABLE OF CONTENTS



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|         |                       |  |   |         |  |                                                                                                                                                          |  |   
|-------- | --------------------- |  | - | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I.  | FINANCIAL INFORMATION |  | 1
|         |                       |  |   | Item 1. |  | Financial Statements:                                                                                                                                    | 
|         |                       |  |   |         |  | Condensed and Consolidated Balance Sheets at June 30, 2002 (Unaudited)
and September 30, 2001                                                            |  | 1 
|         |                       |  |   |         |  | Condensed and Consolidated Statements of Operations
(Unaudited)  Three Months Ended June 30, 2002 and 2001 and
Nine Months Ended June 30, 2002 and 2001 |  | 2 
|         |                       |  |   |         |  | Condensed and Consolidated Statements of Cash Flows
(Unaudited)  Nine Months Ended June 30, 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                                                                    |  | 17
|         |                       |  |   | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                               |  | 27
|PART II. | OTHER INFORMATION     |  |  
|         |                       |  |   | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                         |  | 28





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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) |         |               |         |        
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         | June 30,    |         | September 30,
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         | 2002        |         | 2001         
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            |                           | ASSETS                               |         |             |         |               |         |         |  | 
|Current assets:                                                      |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     | Cash and cash equivalents                                                                                                                                                                                                    |                                            | $                         |                                     |         |             | $       | 6,056         |        
|                                                                     | Accounts receivable, net of allowance for doubtful accounts of
$30,271 and $25,945, respectively                                                                                                                             |                                            |                           | 155,464                              |         |             |         | 147,810       |        
|                                                                     | Inventories                                                                                                                                                                                                                  |                                            |                           | 23,444                               |         |             |         | 21,891        |        
|                                                                     | Prepaid expenses and other current assets                                                                                                                                                                                    |                                            |                           | 21,228                               |         |             |         | 15,454        |        
|                                                                     | Assets held for sale                                                                                                                                                                                                         |                                            |                           | 22,377                               |         |             |         | 25,106        |        
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            | Total current assets      |                                      |         | 222,513     |         |               |         | 216,317 | 
|Property and equipment, net                                          |                                                                                                                                                                                                                              |                                            | 392,609                   |                                      |         |             | 335,037 |              
|Goodwill, net                                                        |                                                                                                                                                                                                                              |                                            | 292,039                   |                                      |         |             | 292,060 |              
|Deferred debt financing costs, net                                   |                                                                                                                                                                                                                              |                                            | 18,902                    |                                      |         |             | 19,768  |              
|Other assets                                                         |                                                                                                                                                                                                                              |                                            | 3,546                     |                                      |         |             | 3,127   |              
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            | Total assets              |                                      | $       | 929,609     |         |               | $       | 866,309 | 
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            |                           | LIABILITIES AND STOCKHOLDERS EQUITY |         |             |         |               |         |         |  | 
|Current liabilities:                                                 |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     | Accounts payable                                                                                                                                                                                                             |                                            | $                         | 47,073                               |         |             | $       | 48,062        |        
|                                                                     | Salaries and benefits payable                                                                                                                                                                                                |                                            |                           | 16,025                               |         |             |         | 16,806        |        
|                                                                     | Accrued interest payable                                                                                                                                                                                                     |                                            |                           | 10,307                               |         |             |         | 18,297        |        
|                                                                     | Medical claims payable                                                                                                                                                                                                       |                                            |                           | 28,066                               |         |             |         | 21,871        |        
|                                                                     | Other accrued expenses and other current liabilities                                                                                                                                                                         |                                            |                           | 19,953                               |         |             |         | 21,647        |        
|                                                                     | Current portion of accrued loss on discontinued operations                                                                                                                                                                   |                                            |                           | 244                                  |         |             |         | 396           |        
|                                                                     | Current portion of long-term debt and capital lease
obligations                                                                                                                                                              |                                            |                           | 28,410                               |         |             |         | 19,603        |        
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            | Total current liabilities |                                      |         | 150,078     |         |               |         | 146,682 | 
|Long-term debt and capital lease obligations, net of current portion |                                                                                                                                                                                                                              |                                            | 566,165                   |                                      |         |             | 530,574 |              
|Other long-term liabilities                                          |                                                                                                                                                                                                                              |                                            | 20,386                    |                                      |         |             | 18,380  |              
|Minority interest                                                    |                                                                                                                                                                                                                              |                                            | 4,706                     |                                      |         |             | 4,379   |              
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              |                                            | Total liabilities         |                                      |         | 741,335     |         |               |         | 700,015 | 
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|Stockholders equity:                                                |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     | Common stock  $0.01 par value, authorized 100,000,000 shares;
31,984,779 shares issued and 31,955,863 shares outstanding
at June 30, 2002; 31,961,445 shares issued and 31,932,529
shares outstanding at September 30, 2001 |                                            |                           | 320                                  |         |             |         | 320           |        
|                                                                     | Additional paid-in capital                                                                                                                                                                                                   |                                            |                           | 450,718                              |         |             |         | 450,496       |        
|                                                                     | Treasury stock, at cost, 16,306,541 shares at June 30, 2002 and
September 30, 2001                                                                                                                                           |                                            |                           | (155,300                             | )       |             |         | (155,300      | )      
|                                                                     | Accumulated deficit                                                                                                                                                                                                          |                                            |                           | (107,464                             | )       |             |         | (129,222      | )      
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              | Total stockholders equity                 |                           |                                      | 188,274 |             |         |               | 166,294 |        
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              
|                                                                     |                                                                                                                                                                                                                              | Total liabilities and stockholders equity |                           | $                                    | 929,609 |             |         | $             | 866,309 |        
|                                                                     |                                                                                                                                                                                                                              |                                            |                           |                                      |         |             |         |              

See accompanying notes.

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IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)

|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |         |         |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------------- | ------- | ------------------ | ------- | ----------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                                      |                                                          |                                                |         | Three Months Ended |         | Nine Months Ended
|                                                                                      |                                                          |                                                |         | June 30,           |         | June 30,         
|                                                                                      |                                                          |                                                |         |                    |         |                  
|                                                                                      |                                                          |                                                |         | 2002               |         | 2001              |         | 2002   |         | 2001
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |     
|Net revenue                                                                           |                                                          | $                                              | 239,898 |                    |         | $                 | 216,975 |        |         | $    | 705,203 |         |         | $ | 668,963 |        
|Costs and expenses:                                                                   |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|                                                                                      | Salaries and benefits                                    |                                                |         | 81,057             |         |                   |         | 79,205 |         |      |         | 239,102 |         |   |         | 237,520 |        
|                                                                                      | Supplies                                                 |                                                |         | 32,617             |         |                   |         | 34,810 |         |      |         | 98,615  |         |   |         | 100,397 |        
|                                                                                      | Other operating expenses                                 |                                                |         | 74,093             |         |                   |         | 67,215 |         |      |         | 217,255 |         |   |         | 195,363 |        
|                                                                                      | Provision for bad debts                                  |                                                |         | 18,503             |         |                   |         | 18,578 |         |      |         | 52,868  |         |   |         | 55,148  |        
|                                                                                      | Interest, net                                            |                                                |         | 13,356             |         |                   |         | 15,726 |         |      |         | 41,895  |         |   |         | 49,583  |        
|                                                                                      | Depreciation and amortization                            |                                                |         | 11,283             |         |                   |         | 12,372 |         |      |         | 32,951  |         |   |         | 40,339  |        
|                                                                                      | Provision for asset revaluation, closure and
other costs |                                                |         |                   |         |                   |         | 16,612 |         |      |         |        |         |   |         | 16,612  |        
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|                                                                                      |                                                          | Total costs and expenses                       |         |                    | 230,909 |                   |         |        | 244,518 |      |         |         | 682,686 |   |         |         | 694,962 |  
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|Earnings (loss) from continuing operations before
minority interests and income taxes |                                                          |                                                | 8,989   |                    |         |                   | (27,543 | )      |         |      | 22,517  |         |         |   | (25,999 | )      
|Minority interests                                                                    |                                                          |                                                | 235     |                    |         |                   | 156     |        |         |      | 759     |         |         |   | 329     |        
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|Earnings (loss) from continuing operations before
income taxes                        |                                                          |                                                | 8,754   |                    |         |                   | (27,699 | )      |         |      | 21,758  |         |         |   | (26,328 | )      
|Income tax expense                                                                    |                                                          |                                                |        |                    |         |                   |        |        |         |      |        |         |         |   |        |        
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|                                                                                      |                                                          | Net earnings (loss) from continuing operations |         |                    | 8,754   |                   |         |        | (27,699 | )    |         |         | 21,758  |   |         |         | (26,328 | )
|Discontinued operations:                                                              |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|Reversal of excess loss accrual for discontinued
physician practice operations        |                                                          |                                                |        |                    |         |                   | (1,000  | )      |         |      |        |         |         |   | (1,000  | )      
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|                                                                                      |                                                          | Net earnings (loss)                            |         |                    | 8,754   |                   |         |        | (26,699 | )    |         |         | 21,758  |   |         |         | (25,328 | )
|Preferred stock dividends reversed                                                    |                                                          |                                                |        |                    |         |                   |        |        |         |      |        |         |         |   | (25,348 | )      
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        
|Net earnings (loss) attributable to common
stockholders                               |                                                          | $                                              | 8,754   |                    |         | $                 | (26,699 | )      |         | $    | 21,758  |         |         | $ | 20      |        
|                                                                                      |                                                          |                                                |         |                    |         |                   |         |        |         |      |         |         |         |   |         |        

See accompanying notes.

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IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |          |         |        |  
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------ | -------- | ----------------- | ------ | ----- | -------- | ------- | ------ | -
|                                                                     |                                                                                            |                                                                                 |                                                        |          | Nine Months Ended
|                                                                     |                                                                                            |                                                                                 |                                                        |          | June 30,         
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                  
|                                                                     |                                                                                            |                                                                                 |                                                        |          | 2002              |        | 2001 
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |      
|Cash flows from operating activities:                                |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Net earnings (loss)                                                                        |                                                                                 | $                                                      | 21,758   |                   |        | $     | (25,328  | )      
|                                                                     | Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities: |                                                                                 |                                                        |          |                   |        |       |          |        
|                                                                     |                                                                                            | Depreciation and amortization                                                   |                                                        |          | 32,951            |        |       |          | 40,339  |       
|                                                                     |                                                                                            | Minority interests                                                              |                                                        |          | 759               |        |       |          | 329     |       
|                                                                     |                                                                                            | Loss (gain) on sale of property and equipment                                   |                                                        |          | 7                 |        |       |          | (52     | )     
|                                                                     |                                                                                            | Reversal of excess loss accrual for discontinued operations                     |                                                        |          |                  |        |       |          | (1,000  | )     
|                                                                     |                                                                                            | Provision for asset revaluation and closure costs                               |                                                        |          |                  |        |       |          | 11,900  |       
|                                                                     |                                                                                            | Changes in operating assets and liabilities,
net of the effect of dispositions: |                                                        |          |                   |        |       |          |         |       
|                                                                     |                                                                                            |                                                                                 | Accounts receivable                                    |          |                   | (7,439 | )     |          |         | (5,905 | )
|                                                                     |                                                                                            |                                                                                 | Inventories, prepaid expenses and other current assets |          |                   | (7,493 | )     |          |         | (4,068 | )
|                                                                     |                                                                                            |                                                                                 | Accounts payable and other accrued liabilities         |          |                   | (1,161 | )     |          |         | 7,841  |  
|                                                                     |                                                                                            |                                                                                 | Accrued loss on discontinued operations                |          |                   | (491   | )     |          |         | (2,772 | )
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     |                                                                                            | Net cash provided by operating activities                                       |                                                        |          | 38,891            |        |       |          | 21,284  |       
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Cash flows from investing activities:                                |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Purchases of property and equipment                                                        |                                                                                 |                                                        | (84,687  | )                 |        |       | (29,269  | )      
|                                                                     | Proceeds from sale of property and equipment                                               |                                                                                 |                                                        | 149      |                   |        |       | 536      |        
|                                                                     | Payments for dispositions, net                                                             |                                                                                 |                                                        |         |                   |        |       | (101     | )      
|                                                                     | Change in other assets                                                                     |                                                                                 |                                                        | (535     | )                 |        |       | 4        |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     |                                                                                            | Net cash used in investing activities                                           |                                                        |          | (85,073           | )      |       |          | (28,830 | )     
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Cash flows from financing activities:                                |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Proceeds from issuance of common stock                                                     |                                                                                 |                                                        | 222      |                   |        |       | 1,900    |        
|                                                                     | Proceeds from senior bank debt borrowings                                                  |                                                                                 |                                                        | 160,600  |                   |        |       | 124,000  |        
|                                                                     | Payment of debt and capital leases                                                         |                                                                                 |                                                        | (117,916 | )                 |        |       | (115,428 | )      
|                                                                     | Debt financing costs incurred                                                              |                                                                                 |                                                        | (2,347   | )                 |        |       |         |        
|                                                                     | Other                                                                                      |                                                                                 |                                                        | (433     | )                 |        |       | 1,697    |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     |                                                                                            | Net cash provided by financing activities                                       |                                                        |          | 40,126            |        |       |          | 12,169  |       
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Increase (decrease) in cash and cash equivalents                     |                                                                                            |                                                                                 | (6,056                                                 | )        |                   |        | 4,623 |         
|Cash and cash equivalents at beginning of the period                 |                                                                                            |                                                                                 | 6,056                                                  |          |                   |        |      |         
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Cash and cash equivalents at end of the period                       |                                                                                            | $                                                                               |                                                       |          |                   | $      | 4,623 |         
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Supplemental disclosure of cash flow information:                    |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Cash paid for interest                                                                     |                                                                                 | $                                                      | 49,986   |                   |        | $     | 58,080   |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Cash paid (refunded) for income taxes, net                                                 |                                                                                 | $                                                      | (1,835   | )                 |        | $     | 2,262    |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Supplemental schedule of investing activities:                       |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Effects of dispositions, net:                                                              |                                                                                 |                                                        |          |                   |        |       |          |        
|                                                                     |                                                                                            | Assets disposed of, net of cash                                                 |                                                        | $        |                  |        |       | $        | 853     |       
|                                                                     |                                                                                            | Liabilities paid                                                                |                                                        |          |                  |        |       |          | (679    | )     
|                                                                     |                                                                                            | Repurchase of common stock                                                      |                                                        |          |                  |        |       |          | (275    | )     
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     |                                                                                            |                                                                                 | Payments for dispositions, net                         |          | $                 |       |       |          | $       | (101   | )
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|Supplemental schedule of noncash investing and financing
activities: |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Capital lease obligations incurred to acquire equipment                                    |                                                                                 | $                                                      | 1,714    |                   |        | $     | 667      |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         
|                                                                     | Exchange of preferred stock for common stock                                               |                                                                                 | $                                                      |         |                   |        | $     | 189,278  |        
|                                                                     |                                                                                            |                                                                                 |                                                        |          |                   |        |       |         

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, 2001 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 and combined financial
statements and footnotes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2001.

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.

Certain prior period amounts have been reclassified in order to conform to
current period presentation. Such reclassifications had no material effect on
the financial position and results of operations as previously reported.

IASIS operates networks of medium-sized hospitals in high-growth urban and
suburban markets. At June 30, 2002, the Company owned or leased 14 hospitals
with a total of 2,096 beds in service. The Companys hospitals are located in
four regions:



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

The Company also operates five ambulatory surgery centers and a Medicaid
managed health plan in Phoenix called Health Choice, serving over 56,500
members at June 30, 2002.

2. Long-Term Debt and Capital Lease Obligations

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

|                          |  |          |         |               |  |   |         | 
|------------------------- |  | -------- | ------- | ------------- |  | - | ------- | 
|                          |  | June 30, |         | September 30,
|                          |  | 2002     |         | 2001         
|                          |  |          |         |              
|Bank facilities           |  | $        | 362,250 |               |  | $ | 319,375 | 
|Senior subordinated notes |  |          | 230,000 |               |  |   | 230,000 | 
|Capital lease obligations |  |          | 2,325   |               |  |   | 802     | 
|                          |  |          |         |               |  |   |         | 
|                          |  |          | 594,575 |               |  |   | 550,177 | 
|Less current maturities   |  |          | 28,410  |               |  |   | 19,603  | 
|                          |  |          |         |               |  |   |         | 
|                          |  | $        | 566,165 |               |  | $ | 530,574 | 
|                          |  |          |         |               |  |   |         | 

4



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

Bank Facilities

Under a credit facility dated October 15, 1999, a syndicate of lenders
made a total of $455.0 million available to the Company 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 (collectively, the Bank Facilities).
Effective October 5, 2001, the Company amended its Bank Facilities. The
amended Bank Facilities provided for an additional $30.0 million incremental
term loan on substantially the same terms and conditions as the Companys
existing Bank Facilities. The amended Bank Facilities also provided for
revisions to certain financial covenants.

On October 15, 2001, the Company acquired the land and buildings at two of
its hospitals previously operated under long-term leases for an aggregate
purchase price of approximately $55.3 million. The purchase price was financed
by the $30.0 million new incremental term loan and borrowings under the
Companys revolving credit facility.

At June 30, 2002, amounts outstanding under the tranche A, tranche B and
incremental term loans were approximately $65.0 million, $243.8 million and
$30.0 million, respectively. At June 30, 2002, the Company had drawn $23.5
million under the revolving credit facility and had issued approximately $31.2
million in letters of credit, resulting in remaining availability under the
revolving credit facility of approximately $70.3 million. The revolving credit
facility includes a $75.0 million sub-limit for letters of credit that may be
issued by the Company. Repayments under the term loans are due in quarterly
installments. In addition, the loans under the Bank Facilities are subject to
mandatory prepayment under specific circumstances, including from a portion of
excess cash flow and the net proceeds of specified casualty events, asset sales
and debt issuances, each subject to various exceptions. The loans under the
Bank Facilities bear 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 on outstanding borrowings under the
Bank Facilities was approximately 6.5% for the nine months ended June 30, 2002.
The Company also pays a commitment fee equal to 0.5% of the average daily
amount available under the revolving credit facility.

The Bank Facilities require the Company to comply with various financial
ratios and tests and contain 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 Bank Facilities are 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 Bank Facilities.

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 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 June 30, 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.

5



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATEDFINANCIAL STATEMENTS
(Continued)

3. Preferred Stock

In October 1999, the Company acquired ten acute care hospitals and other
related facilities and assets from Tenet Healthcare Corporation (Tenet) for
approximately $431.8 million in cash and approximately $41.2 million in assumed
liabilities. Concurrent with the Tenet transaction, the Company issued 160,000
shares of mandatorily redeemable Series A preferred stock for proceeds, net of
issuance costs, of $158.6 million. In conjunction with the Tenet transaction,
a company formed by members of the Companys management merged with and into
the Company. In connection with the merger, the Company issued 5,311 shares of
mandatorily redeemable Series B preferred stock valued at an aggregate of $5.3
million, net of issuance costs. On October 26, 2000, all shares of the
Companys mandatorily redeemable Series A and Series B preferred stock were
exchanged for shares of the Companys common stock on the basis of ten common
shares for each preferred share. The preferred stock was exchanged for common
stock without benefit to the preferred stockholders of the accrued dividends,
therefore, previously accrued preferred stock dividends were reversed. The
exchange increased the net earnings available for common stockholders and
stockholders equity by approximately $25.3 million and $189.3 million,
respectively.

4. 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. 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.

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. Current
insurance industry trends suggest that premium costs and self-insured
retentions for general liability and professional liability insurance will
continue to increase at a significant rate for healthcare providers in general
in order to maintain commercial insurance coverage with reasonable terms and
conditions. While these trends will have a negative effect on the cost of the
Companys overall insurance program, currently the Company is actively
marketing its insurance program for renewal to commence at the beginning of its
next fiscal year and does not expect these changes to have a material adverse
effect on the Companys business, financial condition or results of operation.
The Company expenses an actuarially determined estimate of the cost it expects
to incur under the self-insured retention exposure for professional liability
claims. 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 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

6



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

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 operates under 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 June 30, 2002, the
Company has provided performance guaranties in the form of a surety bond in the
amount of $9.4 million and a letter of credit in the amount of $11.2 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.

5. Discontinued Operations

During the fourth quarter of fiscal 2000, the Company implemented plans to
sell its physician practice operations and close related practice support
offices, resulting in an estimated loss on sale and closure of $7.4 million in
the fiscal year ended September 30, 2000. During the fiscal year ended
September 30, 2001, $1.0 million of previously recorded loss accruals were
reversed due to discontinuing these operations at costs that were less than
previously estimated. During the three months ended December 31, 2001, the
Company completed its exit activities related to this business. At June 30,
2002, the remaining accrual for estimated loss on sale and closure was
approximately $2.5 million and consisted primarily of lease termination costs.

6. Goodwill and Intangible Assets

The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets,effective October 1, 2001.
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but are subject to impairment tests on an annual
basis, or more frequently if certain indicators arise. Other intangible assets
will continue to be amortized over their useful lives. The Company has
performed the first step of the required transitional impairment tests of
goodwill as of October 1, 2001 and, as a result of adopting the Statement,
expects to recognize a noncash impairment loss under the new Statement by the
fourth quarter of fiscal 2002 of approximately $30 to $40 million based on a
discounted cash flow analysis. This loss relates to the impairment of goodwill
associated with the Arizona market included in the acute

7



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

care service segment and will be reflected as a cumulative effect of a change
in accounting principle at the beginning of fiscal year 2002. Prior to
adoption of the Statement in fiscal year 2002, the Companys policy for
measuring goodwill impairment was based on an undiscounted cash flow analysis
at the facility level, which did not result in an indicated impairment at
September 30, 2001.

Application of the nonamortization provisions of SFAS No. 142 is expected
to result in an increase to pre-tax net earnings of approximately $11.8 million
per year. For the three months and nine months ended June 30, 2001, excluding
amortization of goodwill of approximately $2.9 million and $9.0 million,
respectively, the net loss would have been $23.8 million and $16.3 million,
respectively. Amortization expense on other intangible assets was
approximately $26,000 and $137,000 for the three months and nine months ended
June 30, 2002, respectively, and $18,000 for each of the three months and nine
months ended June 30, 2001.

7. Asset Revaluation and Closure Costs

During the year ended September 30, 2001, the Company recorded $11.9
million of pre-tax charges relating to asset revaluation and closure expenses
of Rocky Mountain Medical Center, which was closed on June 2, 2001.
Approximately $2.8 million of these charges related to the revaluation of Rocky
Mountain Medical Center net assets in conjunction with their classification as
held for sale. At June 30, 2002, Rocky Mountain Medical Center net assets held
for sale and expected to be sold within the next 12 months, consisted of
property and equipment and totaled approximately $22.0 million, net of the
asset revaluation allowance.

The remaining $9.1 million charge related to the adoption and
implementation of an exit plan with respect to the closure of Rocky Mountain
Medical Center. This closure plan included the involuntary termination of
approximately 200 hospital and business office personnel, which was completed
by September 30, 2001. At June 30, 2002, accrued closure costs totaled
approximately $3.1 million. The following table summarizes the closure costs
payment activity for the nine months ended June 30, 2002 (in thousands):

|                               |                         |   |               |      |             |   |                   |        |                 |   |       |        |   |   |       |       |   |   |       |        |  
|------------------------------ | ----------------------- | - | ------------- | ---- | ----------- | - | ----------------- | ------ | --------------- | - | ----- | ------ | - | - | ----- | ----- | - | - | ----- | ------ | -
|                               |                         |   |               |      |             |   | Facility and      |        |                 |   |       |        |   |   |       |       |   |   |      
|                               |                         |   |               |      |             |   | Lease             |        |                 |   |       |        |   |   |       |       |   |   |      
|                               |                         |   | Severance and |      | Termination |   | Contract          |        | Legal and Other |   |       |        |  
|                               |                         |   | Related Costs |      | Costs       |   | Termination Costs |        | Exit Costs      |   | Total
|                               |                         |   |               |      |             |   |                   |        |                 |  
|Balances at September 30, 2001 |                         | $ | 266           |      |             | $ | 2,749             |        |                 | $ | 1,968 |        |   | $ | 658   |       |   | $ | 5,641 |       
|                               | Payments                |   |               | (155 | )           |   |                   | (1,131 | )               |   |       | (426   | ) |   |       | (804  | ) |   |       | (2,516 | )
|                               | Re-allocation of charge |   |               | (100 | )           |   |                   |       |                 |   |       | (1,300 | ) |   |       | 1,400 |   |   |       |       |  
|                               |                         |   |               |      |             |   |                   |        |                 |   |       |        |   |   |       |       |   |   |       |       
|Balances at June 30, 2002      |                         | $ | 11            |      |             | $ | 1,618             |        |                 | $ | 242   |        |   | $ | 1,254 |       |   | $ | 3,125 |       
|                               |                         |   |               |      |             |   |                   |        |                 |   |       |        |   |   |       |       |   |   |       |       

Excluding the asset revaluation and closure charges, net revenue and
pre-tax losses from Rocky Mountain Medical Center were $3.2 million and $5.1
million, respectively, for the three months ended June 30, 2001 and $12.9
million and $14.7 million, respectively, for the nine months ended June 30,
2001.

8



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

8. Segment 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   |         | Nine Months   
|                                                         |                                                                                           |   | Ended June 30, |         | Ended June 30,
|                                                         |                                                                                           |   |                |         |               
|                                                         |                                                                                           |   | 2002           |         | 2001           |   | 2002    |         | 2001
|                                                         |                                                                                           |   |                |         |                |   |         |         |     
|                                                         |                                                                                           |   | (in thousands)
|Acute Care Service:                                      |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|Net revenue(1)                                           |                                                                                           | $ | 206,763        |         |                | $ | 190,918 |         |      | $ | 606,054 |         |  | $ | 594,340 |        
|Revenue between segments                                 |                                                                                           |   | (1,550         | )       |                |   | (1,908  | )       |      |   | (4,394  | )       |  |   | (6,000  | )      
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Net revenue                                                                               |   |                | 205,213 |                |   |         | 189,010 |      |   |         | 601,660 |  |   |         | 588,340 |  
|Salaries and benefits                                    |                                                                                           |   | 79,678         |         |                |   | 78,157  |         |      |   | 235,213 |         |  |   | 234,112 |        
|Supplies                                                 |                                                                                           |   | 32,529         |         |                |   | 34,762  |         |      |   | 98,330  |         |  |   | 100,112 |        
|Other operating expenses (2)                             |                                                                                           |   | 43,092         |         |                |   | 41,107  |         |      |   | 122,991 |         |  |   | 121,563 |        
|Provision for bad debts                                  |                                                                                           |   | 18,503         |         |                |   | 18,578  |         |      |   | 52,868  |         |  |   | 55,148  |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | EBITDA (3)                                                                                |   |                | 31,411  |                |   |         | 16,406  |      |   |         | 92,258  |  |   |         | 77,405  |  
|Interest expense, net                                    |                                                                                           |   | 13,356         |         |                |   | 15,770  |         |      |   | 41,943  |         |  |   | 49,627  |        
|Depreciation and amortization                            |                                                                                           |   | 11,253         |         |                |   | 12,308  |         |      |   | 32,865  |         |  |   | 40,156  |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Earnings (loss) from continuing operations
before minority interests and income taxes
(2) |   |                | 6,802   |                |   |         | (11,672 | )    |   |         | 17,450  |  |   |         | (12,378 | )
|Provision for asset revaluation, closure and
other costs |                                                                                           |   |               |         |                |   | 16,612  |         |      |   |        |         |  |   | 16,612  |        
|Minority interests                                       |                                                                                           |   | 235            |         |                |   | 156     |         |      |   | 759     |         |  |   | 329     |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Earnings (loss) from continuing operations before income taxes                            |   | $              | 6,567   |                |   | $       | (28,440 | )    |   | $       | 16,691  |  |   | $       | (29,319 | )
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|Segment assets                                           |                                                                                           | $ | 906,972        |         |                | $ | 868,052 |         |      | $ | 906,972 |         |  | $ | 868,052 |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|Health Choice:                                           |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|Capitation premiums and other payments                   |                                                                                           | $ | 34,685         |         |                | $ | 27,965  |         |      | $ | 103,543 |         |  | $ | 80,623  |        
|Revenue between segments                                 |                                                                                           |   |               |         |                |   |        |         |      |   |        |         |  |   |        |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Net revenue                                                                               |   |                | 34,685  |                |   |         | 27,965  |      |   |         | 103,543 |  |   |         | 80,623  |  
|Salaries and benefits                                    |                                                                                           |   | 1,379          |         |                |   | 1,048   |         |      |   | 3,889   |         |  |   | 3,408   |        
|Supplies                                                 |                                                                                           |   | 88             |         |                |   | 48      |         |      |   | 285     |         |  |   | 285     |        
|Other operating expenses                                 |                                                                                           |   | 31,001         |         |                |   | 26,108  |         |      |   | 94,264  |         |  |   | 73,800  |        
|Provision for bad debts                                  |                                                                                           |   |               |         |                |   |        |         |      |   |        |         |  |   |        |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | EBITDA (3)                                                                                |   |                | 2,217   |                |   |         | 761     |      |   |         | 5,105   |  |   |         | 3,130   |  
|Interest income                                          |                                                                                           |   |               |         |                |   | (44     | )       |      |   | (48     | )       |  |   | (44     | )      
|Depreciation and amortization                            |                                                                                           |   | 30             |         |                |   | 64      |         |      |   | 86      |         |  |   | 183     |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Earnings from operations before minority
interests and income taxes                       |   |                | 2,187   |                |   |         | 741     |      |   |         | 5,067   |  |   |         | 2,991   |  
|Minority interests                                       |                                                                                           |   |               |         |                |   |        |         |      |   |        |         |  |   |        |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|                                                         | Earnings from operations before income taxes                                              |   | $              | 2,187   |                |   | $       | 741     |      |   | $       | 5,067   |  |   | $       | 2,991   |  
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        
|Segment assets                                           |                                                                                           | $ | 22,602         |         |                | $ | 9,535   |         |      | $ | 22,602  |         |  | $ | 9,535   |        
|                                                         |                                                                                           |   |                |         |                |   |         |         |      |   |         |         |  |   |         |        



---

|(1) |  | Includes $6.35 million in managed care valuation allowances for the three
months and nine months ended June 30, 2001.                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes provision for asset revaluation, closure and other costs.                                                                                                                                          
|   
|(3) |  | EBITDA represents earnings from continuing operations before interest
expense, minority interests, income taxes, provision for asset
revaluation, closure and other costs and depreciation and amortization.

9



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

9. 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 June 30, 2002,
condensed consolidating statements of operations for the three months and nine
months ended June 30, 2002 and 2001 and condensed consolidating statements of
cash flows for the nine months ended June 30, 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 the Companys filing on Form 10-Q. 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.

IASIS Healthcare Corporation
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2002(in thousands)

|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |           |         |         |         | 
|---------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ------------------------- | ------- | ------------- | -------- | -------- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ------- | ------- | ------- | ------- | ------- | --------- | ------- | ------- | ------- | 
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         | Subsidiary Guarantors |         |              |        |              |         |         |         |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         | 100%                  |         |              |        |              |         |         |         |         |         | Condensed
|                                               |                                                                      |                                                                 |                                            |                           |         | Parent Issuer |          | Owned    |         | Non-100% Owned        |         | Eliminations |        | Consolidated
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |             
|                                               |                                                                      | Assets                                                          |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |           |         |        
|                                               |                                                                      | Current
assets:                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |           |         |        
|                                               |                                                                      | Cash and cash equivalents                                       |                                            | $                         |        |               |          | $        |        |                       |         | $            |       |              |         | $       |        |         |         | $         |        |        
|                                               |                                                                      | Accounts receivable, net                                        |                                            |                           |        |               |          |          | 146,018 |                       |         |              | 9,446  |              |         |         |        |         |         |           | 155,464 |        
|                                               |                                                                      | Inventories                                                     |                                            |                           |        |               |          |          | 21,972  |                       |         |              | 1,472  |              |         |         |        |         |         |           | 23,444  |        
|                                               |                                                                      | Prepaid expenses and other current assets                       |                                            |                           |        |               |          |          | 20,314  |                       |         |              | 914    |              |         |         |        |         |         |           | 21,228  |        
|                                               |                                                                      | Assets held for sale                                            |                                            |                           |        |               |          |          | 22,377  |                       |         |              |       |              |         |         |        |         |         |           | 22,377  |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      |                                                                 |                                            | Total current assets      |         |               |         |          |         |                       | 210,681 |              |        |              | 11,832  |         |         |         |        |           |         |         | 222,513 | 
|Property and equipment, net                    |                                                                      |                                                                 |                                           |                           |         |               | 370,326  |          |         |                       | 22,283  |              |        |              |        |         |         |         | 392,609 |          
|Net investment in and advances to subsidiaries |                                                                      |                                                                 | 879,393                                    |                           |         |               | (845,725 | )        |         |                       | (500    | )            |        |              | (33,168 | )       |         |         |        |          
|Goodwill, net                                  |                                                                      |                                                                 |                                           |                           |         |               | 263,212  |          |         |                       | 28,827  |              |        |              |        |         |         |         | 292,039 |          
|Deferred debt financing costs, net             |                                                                      |                                                                 | 18,902                                     |                           |         |               |         |          |         |                       |        |              |        |              |        |         |         |         | 18,902  |          
|Other assets                                   |                                                                      |                                                                 |                                           |                           |         |               | 3,517    |          |         |                       | 29      |              |        |              |        |         |         |         | 3,546   |          
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      |                                                                 |                                            | Total assets              |         | $             | 898,295  |          |         | $                     | 2,011   |              |        | $            | 62,471  |         |         | $       | (33,168 | )         |         | $       | 929,609 | 
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      | Liabilities and stockholders equity                            |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |           |         |        
|                                               |                                                                      | Current liabilities:                                            |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |           |         |        
|                                               |                                                                      | Accounts payable                                                |                                            | $                         | --      |               |          | $        | 45,237  |                       |         | $            | 1,836  |              |         | $       |        |         |         | $         | 47,073  |        
|                                               |                                                                      | Salaries and benefits payable                                   |                                            |                           |        |               |          |          | 15,285  |                       |         |              | 740    |              |         |         |        |         |         |           | 16,025  |        
|                                               |                                                                      | Accrued interest payable                                        |                                            |                           | 10,307  |               |          |          |        |                       |         |              |       |              |         |         |        |         |         |           | 10,307  |        
|                                               |                                                                      | Medical claims payable                                          |                                            |                           |        |               |          |          | 28,066  |                       |         |              |       |              |         |         |        |         |         |           | 28,066  |        
|                                               |                                                                      | Other accrued expenses and other current liabilities            |                                            |                           |        |               |          |          | 19,788  |                       |         |              | 165    |              |         |         |        |         |         |           | 19,953  |        
|                                               |                                                                      | Current portion of accrued loss on discontinued operations      |                                            |                           |        |               |          |          | 244     |                       |         |              |       |              |         |         |        |         |         |           | 244     |        
|                                               |                                                                      | Current portion of long-term debt and capital lease
obligations |                                            |                           | 27,885  |               |          |          | 525     |                       |         |              |       |              |         |         |        |         |         |           | 28,410  |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      |                                                                 |                                            | Total current liabilities |         |               | 38,192   |          |         |                       | 109,145 |              |        |              | 2,741   |         |         |         |        |           |         |         | 150,078 | 
|                                               | Long-term debt and capital lease obligations, net of current
portion |                                                                 |                                            | 564,365                   |         |               |          | 1,800    |         |                       |         | 33,168       |        |              |         | (33,168 | )       |         |         | 566,165   |        
|                                               | Other long-term liabilities                                          |                                                                 |                                            |                          |         |               |          | 20,386   |         |                       |         |             |        |              |         |        |         |         |         | 20,386    |        
|                                               | Minority interest                                                    |                                                                 |                                            |                          |         |               |          | 4,706    |         |                       |         |             |        |              |         |        |         |         |         | 4,706     |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      | Total liabilities                                               |                                            |                           | 602,557 |               |          |          | 136,037 |                       |         |              | 35,909 |              |         |         | (33,168 | )       |         |           | 741,335 |        
|                                               | Stockholders equity                                                 |                                                                 |                                            | 295,738                   |         |               |          | (134,026 | )       |                       |         | 26,562       |        |              |         |        |         |         |         | 188,274   |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          
|                                               |                                                                      |                                                                 | Total liabilities and stockholders equity |                           | $       | 898,295       |          |          | $       | 2,011                 |         |              | $      | 62,471       |         |         | $       | (33,168 | )       |           | $       | 929,609 |        
|                                               |                                                                      |                                                                 |                                            |                           |         |               |          |          |         |                       |         |              |        |              |         |         |         |         |         |          

10



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Three Months Ended June 30, 2002 (unaudited)(in thousands)

|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        |         | 
|-------------------------------------------------------------------------- | -------------------------------- | ------------------------ | ----- | ------------- | ------ | ----- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ------ | - | ------- | --------- | ------ | - | ------- | ------ | ------- | 
|                                                                           |                                  |                          |       |               |        |       |         | Subsidiary Guarantors |         |              |        |              |        |   |         |          
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |          
|                                                                           |                                  |                          |       |               |        |       |         | 100%                  |         | Non-100%     |        |              |        |   |         | Condensed
|                                                                           |                                  |                          |       | Parent Issuer |        | Owned |         | Owned                 |         | Eliminations |        | Consolidated
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |       
|Net revenue                                                                |                                  | $                        |      |               |        | $     | 227,693 |                       |         | $            | 12,448 |              |        | $ | (243    | )         |        | $ | 239,898 |       
|Costs and expenses:                                                        |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       
|                                                                           | Salaries and benefits            |                          |       |              |        |       |         | 76,534                |         |              |        | 4,523        |        |   |         |          |        |   |         | 81,057 |        
|                                                                           | Supplies                         |                          |       |              |        |       |         | 31,289                |         |              |        | 1,328        |        |   |         |          |        |   |         | 32,617 |        
|                                                                           | Other operating expenses         |                          |       |              |        |       |         | 71,979                |         |              |        | 2,114        |        |   |         |          |        |   |         | 74,093 |        
|                                                                           | Provision for bad debts          |                          |       |              |        |       |         | 17,323                |         |              |        | 1,180        |        |   |         |          |        |   |         | 18,503 |        
|                                                                           | Interest, net                    |                          |       | 13,680        |        |       |         | 159                   |         |              |        | 598          |        |   |         | (1,081    | )      |   |         | 13,356 |        
|                                                                           | Depreciation and amortization    |                          |       | 1,083         |        |       |         | 9,848                 |         |              |        | 352          |        |   |         |          |        |   |         | 11,283 |        
|                                                                           | Management fees                  |                          |       |              |        |       |         |                      |         |              |        | 243          |        |   |         | (243      | )      |   |         |       |        
|                                                                           | Equity in earnings of affiliates |                          |       | (22,436       | )      |       |         |                      |         |              |        |             |        |   |         | 22,436    |        |   |         |       |        
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       
|                                                                           |                                  | Total costs and expenses |       |               | (7,673 | )     |         |                       | 207,132 |              |        |              | 10,338 |   |         |           | 21,112 |   |         |        | 230,909 | 
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       
|Earnings (loss) from operations before minority
interests and income taxes |                                  |                          | 7,673 |               |        |       | 20,561  |                       |         |              | 2,110  |              |        |   | (21,355 | )         |        |   | 8,989   |       
|Minority interests                                                         |                                  |                          |      |               |        |       | 235     |                       |         |              |       |              |        |   |        |           |        |   | 235     |       
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       
|Earnings (loss) from operations before income taxes                        |                                  |                          | 7,673 |               |        |       | 20,326  |                       |         |              | 2,110  |              |        |   | (21,355 | )         |        |   | 8,754   |       
|Income tax expense                                                         |                                  |                          |      |               |        |       |        |                       |         |              |       |              |        |   |        |           |        |   |        |       
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       
|Net earnings (loss)                                                        |                                  | $                        | 7,673 |               |        | $     | 20,326  |                       |         | $            | 2,110  |              |        | $ | (21,355 | )         |        | $ | 8,754   |       
|                                                                           |                                  |                          |       |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |       

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Three Months Ended June 30, 2001 (unaudited)(in thousands)

|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |        |         | 
|------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------------- | ------ | ----- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ----- | - | ------ | --------- | ------- | - | ------- | ------ | ------- | 
|                                                                                      |                                                          |                          |         |               |        |       |         | Subsidiary Guarantors |         |              |        |              |       |   |        |          
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |          
|                                                                                      |                                                          |                          |         |               |        |       |         | 100%                  |         | Non-100%     |        |              |       |   |        | Condensed
|                                                                                      |                                                          |                          |         | Parent Issuer |        | Owned |         | Owned                 |         | Eliminations |        | Consolidated
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |      
|Net revenue                                                                           |                                                          | $                        |        |               |        | $     | 207,107 |                       |         | $            | 10,019 |              |       | $ | (151   | )         |         | $ | 216,975 |       
|Costs and expenses:                                                                   |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|                                                                                      | Salaries and benefits                                    |                          |         |              |        |       |         | 75,425                |         |              |        | 3,780        |       |   |        |          |         |   |         | 79,205 |        
|                                                                                      | Supplies                                                 |                          |         |              |        |       |         | 33,564                |         |              |        | 1,246        |       |   |        |          |         |   |         | 34,810 |        
|                                                                                      | Other operating expenses                                 |                          |         |              |        |       |         | 65,662                |         |              |        | 1,553        |       |   |        |          |         |   |         | 67,215 |        
|                                                                                      | Provision for bad debts                                  |                          |         |              |        |       |         | 17,781                |         |              |        | 797          |       |   |        |          |         |   |         | 18,578 |        
|                                                                                      | Interest, net                                            |                          |         | 15,602        |        |       |         | 124                   |         |              |        | 413          |       |   |        | (413      | )       |   |         | 15,726 |        
|                                                                                      | Depreciation and amortization                            |                          |         | 932           |        |       |         | 10,823                |         |              |        | 617          |       |   |        |          |         |   |         | 12,372 |        
|                                                                                      | Provision for asset revaluation, closure
and other costs |                          |         |              |        |       |         | 16,612                |         |              |        |             |       |   |        |          |         |   |         | 16,612 |        
|                                                                                      | Management fees                                          |                          |         |              |        |       |         |                      |         |              |        | 151          |       |   |        | (151      | )       |   |         |       |        
|                                                                                      | Equity in earnings of affiliates                         |                          |         | 10,578        |        |       |         |                      |         |              |        |             |       |   |        | (10,578   | )       |   |         |       |        
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|                                                                                      |                                                          | Total costs and expenses |         |               | 27,112 |       |         |                       | 219,991 |              |        |              | 8,557 |   |        |           | (11,142 | ) |         |        | 244,518 | 
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|Earnings (loss) from continuing operations
before minority interests and income taxes |                                                          |                          | (27,112 | )             |        |       | (12,884 | )                     |         |              | 1,462  |              |       |   | 10,991 |           |         |   | (27,543 | )     
|Minority interests                                                                    |                                                          |                          |        |               |        |       | 156     |                       |         |              |       |              |       |   |       |           |         |   | 156     |       
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|Earnings (loss) from continuing operations
before income taxes                        |                                                          |                          | (27,112 | )             |        |       | (13,040 | )                     |         |              | 1,462  |              |       |   | 10,991 |           |         |   | (27,699 | )     
|Income tax expense                                                                    |                                                          |                          |        |               |        |       |        |                       |         |              |       |              |       |   |       |           |         |   |        |       
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|Net earnings (loss) from continuing operations                                        |                                                          |                          | (27,112 | )             |        |       | (13,040 | )                     |         |              | 1,462  |              |       |   | 10,991 |           |         |   | (27,699 | )     
|Discontinued operations:                                                              |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|Reversal of excess loss accrual for
discontinued physician practice operations        |                                                          |                          |        |               |        |       | (1,000  | )                     |         |              |       |              |       |   |       |           |         |   | (1,000  | )     
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       
|Net earnings (loss)                                                                   |                                                          | $                        | (27,112 | )             |        | $     | (12,040 | )                     |         | $            | 1,462  |              |       | $ | 10,991 |           |         | $ | (26,699 | )     
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       |   |        |           |         |   |         |       

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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Nine Months Ended June 30, 2002 (unaudited)(in thousands)

|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |         |         | 
|-------------------------------------------------------------------------- | -------------------------------- | ------------------------ | ------ | ------------- | ------- | ----- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ------ | - | ------- | --------- | ------ | - | ------- | ------- | ------- | 
|                                                                           |                                  |                          |        |               |         |       |         | Subsidiary Guarantors |         |              |        |              |        |   |         |          
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |          
|                                                                           |                                  |                          |        |               |         |       |         | 100%                  |         | Non-100%     |        |              |        |   |         | Condensed
|                                                                           |                                  |                          |        | Parent Issuer |         | Owned |         | Owned                 |         | Eliminations |        | Consolidated
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |       
|Net revenue                                                                |                                  | $                        |       |               |         | $     | 670,435 |                       |         | $            | 35,461 |              |        | $ | (693    | )         |        | $ | 705,203 |        
|Costs and expenses:                                                        |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                           | Salaries and benefits            |                          |        |              |         |       |         | 226,848               |         |              |        | 12,254       |        |   |         |          |        |   |         | 239,102 |        
|                                                                           | Supplies                         |                          |        |              |         |       |         | 94,985                |         |              |        | 3,630        |        |   |         |          |        |   |         | 98,615  |        
|                                                                           | Other operating expenses         |                          |        |              |         |       |         | 211,275               |         |              |        | 5,980        |        |   |         |          |        |   |         | 217,255 |        
|                                                                           | Provision for bad debts          |                          |        |              |         |       |         | 49,712                |         |              |        | 3,156        |        |   |         |          |        |   |         | 52,868  |        
|                                                                           | Interest, net                    |                          |        | 41,919        |         |       |         | 459                   |         |              |        | 2,768        |        |   |         | (3,251    | )      |   |         | 41,895  |        
|                                                                           | Depreciation and amortization    |                          |        | 3,213         |         |       |         | 28,691                |         |              |        | 1,047        |        |   |         |          |        |   |         | 32,951  |        
|                                                                           | Management fees                  |                          |        |              |         |       |         |                      |         |              |        | 693          |        |   |         | (693      | )      |   |         |        |        
|                                                                           | Equity in earnings of affiliates |                          |        | (63,639       | )       |       |         |                      |         |              |        |             |        |   |         | 63,639    |        |   |         |        |        
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                           |                                  | Total costs and expenses |        |               | (18,507 | )     |         |                       | 611,970 |              |        |              | 29,528 |   |         |           | 59,695 |   |         |         | 682,686 | 
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Earnings (loss) from operations before minority
interests and income taxes |                                  |                          | 18,507 |               |         |       | 58,465  |                       |         |              | 5,933  |              |        |   | (60,388 | )         |        |   | 22,517  |        
|Minority interests                                                         |                                  |                          |       |               |         |       | 759     |                       |         |              |       |              |        |   |        |           |        |   | 759     |        
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Earnings (loss) from operations before income taxes                        |                                  |                          | 18,507 |               |         |       | 57,706  |                       |         |              | 5,933  |              |        |   | (60,388 | )         |        |   | 21,758  |        
|Income tax expense                                                         |                                  |                          |       |               |         |       |        |                       |         |              |       |              |        |   |        |           |        |   |        |        
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Net earnings (loss)                                                        |                                  | $                        | 18,507 |               |         | $     | 57,706  |                       |         | $            | 5,933  |              |        | $ | (60,388 | )         |        | $ | 21,758  |        
|                                                                           |                                  |                          |        |               |         |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        

13



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Nine Months Ended June 30, 2001 (unaudited)(in thousands)

|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |         |         | 
|------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | ------- | ------------- | ------ | ----- | ------- | --------------------- | ------- | ------------ | ------ | ------------ | ------ | - | ------- | --------- | ------ | - | ------- | ------- | ------- | 
|                                                                                      |                                                          |                          |         |               |        |       |         | Subsidiary Guarantors |         |              |        |              |        |   |         |          
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |          
|                                                                                      |                                                          |                          |         |               |        |       |         | 100%                  |         | Non-100%     |        |              |        |   |         | Condensed
|                                                                                      |                                                          |                          |         | Parent Issuer |        | Owned |         | Owned                 |         | Eliminations |        | Consolidated
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |       
|Net revenue                                                                           |                                                          | $                        |        |               |        | $     | 640,241 |                       |         | $            | 29,381 |              |        | $ | (659    | )         |        | $ | 668,963 |        
|Costs and expenses:                                                                   |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                                      | Salaries and benefits                                    |                          |         |              |        |       |         | 226,167               |         |              |        | 11,353       |        |   |         |          |        |   |         | 237,520 |        
|                                                                                      | Supplies                                                 |                          |         |              |        |       |         | 96,494                |         |              |        | 3,903        |        |   |         |          |        |   |         | 100,397 |        
|                                                                                      | Other operating expenses                                 |                          |         |              |        |       |         | 190,968               |         |              |        | 4,395        |        |   |         |          |        |   |         | 195,363 |        
|                                                                                      | Provision for bad debts                                  |                          |         |              |        |       |         | 52,787                |         |              |        | 2,361        |        |   |         |          |        |   |         | 55,148  |        
|                                                                                      | Interest, net                                            |                          |         | 49,297        |        |       |         | 286                   |         |              |        | 3,143        |        |   |         | (3,143    | )      |   |         | 49,583  |        
|                                                                                      | Depreciation and amortization                            |                          |         | 2,769         |        |       |         | 35,847                |         |              |        | 1,723        |        |   |         |          |        |   |         | 40,339  |        
|                                                                                      | Provision for asset revaluation, closure and
other costs |                          |         |              |        |       |         | 16,612                |         |              |        |             |        |   |         |          |        |   |         | 16,612  |        
|                                                                                      | Management fees                                          |                          |         |              |        |       |         |                      |         |              |        | 659          |        |   |         | (659      | )      |   |         |        |        
|                                                                                      | Equity in earnings of affiliates                         |                          |         | (23,595       | )      |       |         |                      |         |              |        |             |        |   |         | 23,595    |        |   |         |        |        
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                                      |                                                          | Total costs and expenses |         |               | 28,471 |       |         |                       | 619,161 |              |        |              | 27,537 |   |         |           | 19,793 |   |         |         | 694,962 | 
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Earnings (loss) from continuing operations
before minority interests and income taxes |                                                          |                          | (28,471 | )             |        |       | 21,080  |                       |         |              | 1,844  |              |        |   | (20,452 | )         |        |   | (25,999 | )      
|Minority interests                                                                    |                                                          |                          |        |               |        |       | 329     |                       |         |              |       |              |        |   |        |           |        |   | 329     |        
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Earnings (loss) from continuing operations
before income taxes                        |                                                          |                          | (28,471 | )             |        |       | 20,751  |                       |         |              | 1,844  |              |        |   | (20,452 | )         |        |   | (26,328 | )      
|Income tax expense                                                                    |                                                          |                          |        |               |        |       |        |                       |         |              |       |              |        |   |        |           |        |   |        |        
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                                      | Net earnings (loss) from continuing operations           |                          |         | (28,471       | )      |       |         | 20,751                |         |              |        | 1,844        |        |   |         | (20,452   | )      |   |         | (26,328 | )      
|Discontinued operations:                                                              |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Reversal of excess loss accrual for discontinued
physician practice operations        |                                                          |                          |        |               |        |       | (1,000  | )                     |         |              |       |              |        |   |        |           |        |   | (1,000  | )      
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|                                                                                      | Net earnings (loss)                                      |                          |         | (28,471       | )      |       |         | 21,751                |         |              |        | 1,844        |        |   |         | (20,452   | )      |   |         | (25,328 | )      
|Preferred stock dividends reversed                                                    |                                                          |                          | (25,348 | )             |        |       |        |                       |         |              |       |              |        |   |        |           |        |   | (25,348 | )      
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        
|Net earnings (loss) due to common stockholders                                        |                                                          | $                        | (3,123  | )             |        | $     | 21,751  |                       |         | $            | 1,844  |              |        | $ | (20,452 | )         |        | $ | 20      |        
|                                                                                      |                                                          |                          |         |               |        |       |         |                       |         |              |        |              |        |   |         |           |        |   |         |        

14



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Cash Flows
for the Nine Months Ended June 30, 2002 (unaudited)(in thousands)

|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |          |         |        |  
|------------------------------------ | ---------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------ | -------- | ------------- | ------ | ----- | ------- | --------------------- | ------ | ------------ | ------ | ------------ | ---- | - | ------- | --------- | - | - | -------- | ------- | ------ | -
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         | Subsidiary Guarantors |        |              |        |              |      |   |         |          
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |          
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         | 100%                  |        | Non-100%     |        |              |      |   |         | Condensed
|                                     |                                                                                                      |                                                     |                                                        |          | Parent Issuer |        | Owned |         | Owned                 |        | Eliminations |        | Consolidated
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |       
|Cash flows from operating activities |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     | Net earnings (loss)                                                                                  |                                                     | $                                                      | 18,507   |               |        | $     | 57,706  |                       |        | $            | 5,933  |              |      | $ | (60,388 | )         |   | $ | 21,758   |        
|                                     | Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities: |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |          |        
|                                     |                                                                                                      | Depreciation and amortization                       |                                                        |          | 3,213         |        |       |         | 28,691                |        |              |        | 1,047        |      |   |         |          |   |   |          | 32,951  |       
|                                     |                                                                                                      | Minority interests                                  |                                                        |          |              |        |       |         | 759                   |        |              |        |             |      |   |         |          |   |   |          | 759     |       
|                                     |                                                                                                      | Loss on sale of property and equipment              |                                                        |          |              |        |       |         | 7                     |        |              |        |             |      |   |         |          |   |   |          | 7       |       
|                                     |                                                                                                      | Equity in earnings of affiliates                    |                                                        |          | (63,639       | )      |       |         |                      |        |              |        |             |      |   |         | 63,639    |   |   |          |        |       
|                                     |                                                                                                      | Changes in operating assets and liabilities:        |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |          |         |       
|                                     |                                                                                                      |                                                     | Accounts receivable                                    |          |               |       |       |         |                       | (6,607 | )            |        |              | (832 | ) |         |           |  |   |          |         | (7,439 | )
|                                     |                                                                                                      |                                                     | Inventories, prepaid expenses and other current assets |          |               |       |       |         |                       | (6,682 | )            |        |              | (811 | ) |         |           |  |   |          |         | (7,493 | )
|                                     |                                                                                                      |                                                     | Accounts payable and other accrued liabilities         |          |               | (7,989 | )     |         |                       | 7,423  |              |        |              | (595 | ) |         |           |  |   |          |         | (1,161 | )
|                                     |                                                                                                      |                                                     | Accrued loss on discontinued operations                |          |               |       |       |         |                       | (491   | )            |        |              |     |   |         |           |  |   |          |         | (491   | )
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     |                                                                                                      | Net cash provided by (used in) operating activities |                                                        |          | (49,908       | )      |       |         | 80,806                |        |              |        | 4,742        |      |   |         | 3,251     |   |   |          | 38,891  |       
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|Cash flows from investing activities |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     | Purchases of property and equipment                                                                  |                                                     |                                                        |         |               |        |       | (76,787 | )                     |        |              | (7,900 | )            |      |   |        |           |   |   | (84,687  | )      
|                                     | Proceeds from sale of property and equipment                                                         |                                                     |                                                        |         |               |        |       | 149     |                       |        |              |       |              |      |   |        |           |   |   | 149      |        
|                                     | Change in other assets                                                                               |                                                     |                                                        |         |               |        |       | (506    | )                     |        |              | (29    | )            |      |   |        |           |   |   | (535     | )      
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     |                                                                                                      | Net cash used in investing activities               |                                                        |          |              |        |       |         | (77,144               | )      |              |        | (7,929       | )    |   |         |          |   |   |          | (85,073 | )     
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|Cash flows from financing activities |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     | Proceeds from issuance of common stock                                                               |                                                     |                                                        | 222      |               |        |       |        |                       |        |              |       |              |      |   |        |           |   |   | 222      |        
|                                     | Proceeds from senior bank debt borrowings                                                            |                                                     |                                                        | 160,600  |               |        |       |        |                       |        |              |       |              |      |   |        |           |   |   | 160,600  |        
|                                     | Payment of debt and capital leases                                                                   |                                                     |                                                        | (117,725 | )             |        |       | (191    | )                     |        |              |       |              |      |   |        |           |   |   | (117,916 | )      
|                                     | Change in intercompany balances with affiliates, net                                                 |                                                     |                                                        | 9,158    |               |        |       | (9,346  | )                     |        |              | 3,439  |              |      |   | (3,251  | )         |   |   |         |        
|                                     | Debt financing costs incurred                                                                        |                                                     |                                                        | (2,347   | )             |        |       |        |                       |        |              |       |              |      |   |        |           |   |   | (2,347   | )      
|                                     | Other                                                                                                |                                                     |                                                        |         |               |        |       | (181    | )                     |        |              | (252   | )            |      |   |        |           |   |   | (433     | )      
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     |                                                                                                      | Net cash provided by (used in) financing activities |                                                        |          | 49,908        |        |       |         | (9,718                | )      |              |        | 3,187        |      |   |         | (3,251    | ) |   |          | 40,126  |       
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         
|                                     | Decrease 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                                                           |                                                     | $                                                      |         |               |        | $     |        |                       |        | $            |       |              |      | $ |        |           |   | $ |         |        
|                                     |                                                                                                      |                                                     |                                                        |          |               |        |       |         |                       |        |              |        |              |      |   |         |           |   |   |         

15



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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

IASIS Healthcare Corporation
Condensed Consolidating Statement of Cash Flows
for the Nine Months Ended June 30, 2001 (unaudited)(in thousands)

|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |          |         |        |  
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------ | -------- | ------------- | ------ | ------ | ------- | --------------------- | ------ | ------------ | ------ | ------------ | ------ | ------- | ------ | --------- | - | ------- | -------- | ------- | ------ | -
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         | Subsidiary Guarantors |        |              |        |              |        |         |        |          
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |          
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         | 100%                  |        | Non-100%     |        |              |        |         |        | Condensed
|                                                                                                     |                                                      |                                                             |                                                        |          | Parent Issuer |        | Owned  |         | Owned                 |        | Eliminations |        | Consolidated
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |             
|Cash flows from operating activities                                                                 |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|Net earnings (loss)                                                                                  |                                                      | $                                                           | (28,471                                                | )        |               | $      | 21,751 |         |                       | $      | 1,844        |        |              | $      | (20,452 | )      |           | $ | (25,328 | )       
|Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities: |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     |                                                      | Depreciation and amortization                               |                                                        |          | 2,769         |        |        |         | 35,847                |        |              |        | 1,723        |        |         |        |          |   |         |          | 40,339  |       
|                                                                                                     |                                                      | Minority interests                                          |                                                        |          |              |        |        |         | 329                   |        |              |        |             |        |         |        |          |   |         |          | 329     |       
|                                                                                                     |                                                      | Gain on sale of property and equipment                      |                                                        |          |              |        |        |         | (52                   | )      |              |        |             |        |         |        |          |   |         |          | (52     | )     
|                                                                                                     |                                                      | Equity in earnings of affiliates                            |                                                        |          | (23,595       | )      |        |         |                      |        |              |        |             |        |         |        | 23,595    |   |         |          |        |       
|                                                                                                     |                                                      | Provision for asset revaluation and closure costs           |                                                        |          |              |        |        |         | 11,900                |        |              |        |             |        |         |        |          |   |         |          | 11,900  |       
|                                                                                                     |                                                      | Reversal of excess loss accrual for discontinued operations |                                                        |          |              |        |        |         | (1,000                | )      |              |        |             |        |         |        |          |   |         |          | (1,000  | )     
|                                                                                                     |                                                      | Changes in operating assets and liabilities:                |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |          |         |       
|                                                                                                     |                                                      |                                                             | Accounts receivable                                    |          |               |       |        |         |                       | (2,193 | )            |        |              | (3,712 | )       |        |           |  |         |          |         | (5,905 | )
|                                                                                                     |                                                      |                                                             | Inventories, prepaid expenses and other current assets |          |               |       |        |         |                       | (4,222 | )            |        |              | 154    |         |        |           |  |         |          |         | (4,068 | )
|                                                                                                     |                                                      |                                                             | Accounts payable and other accrued liabilities         |          |               | (8,642 | )      |         |                       | 15,526 |              |        |              | 957    |         |        |           |  |         |          |         | 7,841  |  
|                                                                                                     |                                                      |                                                             | Accrued loss on discontinued operations                |          |               |       |        |         |                       | (2,772 | )            |        |              |       |         |        |           |  |         |          |         | (2,772 | )
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     |                                                      | Net cash provided by (used in) operating activities         |                                                        |          | (57,939       | )      |        |         | 75,114                |        |              |        | 966          |        |         |        | 3,143     |   |         |          | 21,284  |       
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|Cash flows from investing activities                                                                 |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     | Purchases of property and equipment                  |                                                             |                                                        |         |               |        |        | (26,898 | )                     |        |              | (2,371 | )            |        |         |       |           |   |         | (29,269  | )      
|                                                                                                     | Proceeds from sale of property and equipment         |                                                             |                                                        |         |               |        |        | 536     |                       |        |              |       |              |        |         |       |           |   |         | 536      |        
|                                                                                                     | Payments for dispositions, net                       |                                                             |                                                        |         |               |        |        | (101    | )                     |        |              |       |              |        |         |       |           |   |         | (101     | )      
|                                                                                                     | Change in other assets                               |                                                             |                                                        |         |               |        |        | (10     | )                     |        |              | 14     |              |        |         |       |           |   |         | 4        |        
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     |                                                      | Net cash used in investing activities                       |                                                        |          |              |        |        |         | (26,473               | )      |              |        | (2,357       | )      |         |        |          |   |         |          | (28,830 | )     
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|Cash flows from financing activities                                                                 |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     | Proceeds from issuance of common stock               |                                                             |                                                        | 1,900    |               |        |        |        |                       |        |              |       |              |        |         |       |           |   |         | 1,900    |        
|                                                                                                     | Proceeds from senior bank debt borrowings            |                                                             |                                                        | 124,000  |               |        |        |        |                       |        |              |       |              |        |         |       |           |   |         | 124,000  |        
|                                                                                                     | Payment of debt and capital leases                   |                                                             |                                                        | (114,918 | )             |        |        | (510    | )                     |        |              |       |              |        |         |       |           |   |         | (115,428 | )      
|                                                                                                     | Change in intercompany balances with affiliates, net |                                                             |                                                        | 46,957   |               |        |        | (43,130 | )                     |        |              | (684   | )            |        |         | (3,143 | )         |   |         |         |        
|                                                                                                     | Other                                                |                                                             |                                                        |         |               |        |        | (378    | )                     |        |              | 2,075  |              |        |         |       |           |   |         | 1,697    |        
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     |                                                      | Net cash provided by (used in) financing activities         |                                                        |          | 57,939        |        |        |         | (44,018               | )      |              |        | 1,391        |        |         |        | (3,143    | ) |         |          | 12,169  |       
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     | Increase in cash and cash equivalents                |                                                             |                                                        |         |               |        |        | 4,623   |                       |        |              |       |              |        |         |       |           |   |         | 4,623    |        
|                                                                                                     | Cash and cash equivalents at beginning of period     |                                                             |                                                        |         |               |        |        |        |                       |        |              |       |              |        |         |       |           |   |         |         |        
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         
|                                                                                                     | Cash and cash equivalents at end of period           |                                                             | $                                                      |         |               |        | $      | 4,623   |                       |        | $            |       |              |        | $       |       |           |   | $       | 4,623    |        
|                                                                                                     |                                                      |                                                             |                                                        |          |               |        |        |         |                       |        |              |        |              |        |         |        |           |   |         |         

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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 and nine months ended June
30, 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, 2001. 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 an 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 June 30, 2002, we owned or leased 14 hospitals with a total of
2,096 beds in service. Our hospitals are located in four regions:



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

We also operate five ambulatory surgery centers and a Medicaid managed
health plan called Health Choice, serving over 56,500 members in Arizona at
June 30, 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 organizations. 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 in the near term. We believe that we are in material compliance
with all applicable laws and regulations and are not aware of any pending or
threatened investigations involving allegations of potential wrongdoing that
would have a material effect on our financial statements. 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.

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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 are often based upon a diagnosis related group
code regardless of the cost incurred or the level of services provided. 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. Under the Balanced Budget Act of 1997, reimbursement from Medicare
and Medicaid was reduced from 1998 through 2001 and continues to be reduced as
certain changes have been phased in during 2002. Certain of the rate reductions
resulting from the Balanced Budget Act of 1997 are being mitigated by the
Balanced Budget Refinement Act of 1999 and the Medicare, Medicaid and SCHIP
Benefit Improvement and Protection Act of 2000. It is estimated that the
Benefit Improvement and Protection Act will provide approximately $35.0 billion
in funding restorations to Medicare healthcare providers over a period of five
years, approximately one-third of which will go to hospitals. Exclusive of
Health Choice, the percentage of our net patient revenue related to Medicare
and Medicaid was approximately 39% for the nine months ended June 30, 2002.

Our net revenue also is affected by the trend toward performing more
services on an outpatient basis due to advances in medical technology and
pharmacology as well as cost containment pressures from Medicare, Medicaid,
managed care organizations and other sources of revenue. Approximately 38% of
our gross patient revenue during the nine months ended June 30, 2002, was
generated from outpatient procedures.

Selected Operating Data

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

|                                          |  |                |         |                |  |      |         |      |  |  |         |   |  |  |         |  
|----------------------------------------- |  | -------------- | ------- | -------------- |  | ---- | ------- | ---- |  |  | ------- | - |  |  | ------- | -
|                                          |  | Three Months   |         | Nine Months   
|                                          |  | Ended June 30, |         | Ended June 30,
|                                          |  |                |         |               
|                                          |  | 2002           |         | 2001           |  | 2002 |         | 2001
|                                          |  |                |         |                |  |      |         |     
|Number of hospitals at end of period      |  |                | 14      |                |  |      | 14      |      |  |  | 14      |   |  |  | 14      |  
|Licensed beds at end of period            |  |                | 2,520   |                |  |      | 2,588   |      |  |  | 2,520   |   |  |  | 2,588   |  
|Beds in service at end of period          |  |                | 2,096   |                |  |      | 2,152   |      |  |  | 2,096   |   |  |  | 2,152   |  
|Average length of stay (days) (1)         |  |                | 4.29    |                |  |      | 4.24    |      |  |  | 4.29    |   |  |  | 4.35    |  
|Occupancy rates (average beds in service) |  |                | 43.4    | %              |  |      | 42.1    | %    |  |  | 43.7    | % |  |  | 44.5    | %
|Admissions(2)                             |  |                | 19,271  |                |  |      | 19,854  |      |  |  | 58,450  |   |  |  | 61,447  |  
|Adjusted admissions(3)                    |  |                | 33,625  |                |  |      | 32,679  |      |  |  | 98,156  |   |  |  | 98,834  |  
|Patient days(4)                           |  |                | 82,686  |                |  |      | 84,083  |      |  |  | 250,808 |   |  |  | 267,269 |  
|Adjusted patient days(3)                  |  |                | 138,513 |                |  |      | 134,296 |      |  |  | 407,295 |   |  |  | 416,573 |  



---

|(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.                                                                                                                                                                                                                

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.

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|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|-------------------------------------------------------------- |  | --------------------------- | ----- | -------------------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | --
|                                                               |  | Three Months Ended June 30, |       | Nine Months Ended June 30,
|                                                               |  |                             |       |                           
|                                                               |  | 2002                        |       | 2001                       |  | 2002 |       | 2001
|                                                               |  |                             |       |                            |  |      |       |     
|Net revenue                                                    |  |                             | 100.0 | %                          |  |      | 100.0 | %    |  |  | 100.0 | % |  |  | 100.0 | % 
|Salaries and benefits                                          |  |                             | 33.8  |                            |  |      | 36.5  |      |  |  | 33.9  |   |  |  | 35.5  |   
|Supplies                                                       |  |                             | 13.6  |                            |  |      | 16.0  |      |  |  | 14.0  |   |  |  | 15.0  |   
|Other operating expenses                                       |  |                             | 30.9  |                            |  |      | 31.0  |      |  |  | 30.8  |   |  |  | 29.2  |   
|Provision for bad debts                                        |  |                             | 7.7   |                            |  |      | 8.6   |      |  |  | 7.5   |   |  |  | 8.3   |   
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|Total operating expenses                                       |  |                             | 86.0  |                            |  |      | 92.1  |      |  |  | 86.2  |   |  |  | 88.0  |   
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|EBITDA (a)                                                     |  |                             | 14.0  |                            |  |      | 7.9   |      |  |  | 13.8  |   |  |  | 12.0  |   
|Depreciation and amortization                                  |  |                             | 4.7   |                            |  |      | 5.7   |      |  |  | 4.7   |   |  |  | 6.0   |   
|Interest, net                                                  |  |                             | 5.6   |                            |  |      | 7.3   |      |  |  | 5.9   |   |  |  | 7.4   |   
|Minority interests                                             |  |                             | 0.1   |                            |  |      | 0.1   |      |  |  | 0.1   |   |  |  |      |   
|Provision for asset
revaluation, closure and
other costs       |  |                             |      |                            |  |      | 7.6   |      |  |  |      |   |  |  | 2.5   |   
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|Earnings (loss) from
continuing operations before
income taxes |  |                             | 3.6   |                            |  |      | (12.8 | )    |  |  | 3.1   |   |  |  | (3.9  | ) 
|Income tax expense                                             |  |                             |      |                            |  |      |      |      |  |  |      |   |  |  |      |   
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|Earnings (loss) from
continuing operations                     |  |                             | 3.6   |                            |  |      | (12.8 | )    |  |  | 3.1   |   |  |  | (3.9  | ) 
|Earnings from discontinued
operations                          |  |                             |      |                            |  |      | 0.5   |      |  |  |      |   |  |  | 0.1   |   
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   
|Net earnings (loss)                                            |  |                             | 3.6   | %                          |  |      | (12.3 | )%   |  |  | 3.1   | % |  |  | (3.8  | )%
|                                                               |  |                             |       |                            |  |      |       |      |  |  |       |   |  |  |       |   



---

|(a) |  | EBITDA represents earnings from continuing operations before interest
expense, minority interests, income taxes, provision for asset
revaluation, closure and other costs and depreciation and amortization.
Although EBITDA should not be considered in isolation or as a
substitute for net earnings, operating 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.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Net revenue for the three months ended June 30, 2002 was $239.9 million,
an increase of $22.9 million, or 10.6%, from $217.0 million for the same period
in 2001. The increase in net revenue was due to an increase of $16.2 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 $6.7 million in
net revenue from Health Choice. The increase in net revenue from hospital
operations from period to period was due in part to a reduction to net revenue
during the prior year period of $6.35 million to provide for managed care
valuation allowances for healthcare service claims disputed with certain
managed care organizations.

Net revenue from our hospital operations for the three months ended June
30, 2002 was $205.2 million, up $16.2 million, or 8.6%, from $189.0 million for
the same period in 2001. Rocky Mountain Medical Center generated $3.2 million
of net revenue for the three months ended June 30, 2001 and was closed on June
2, 2001, as discussed below. Excluding Rocky Mountain Medical Center and the
$6.35 million managed care valuation allowances noted above, same facility net
revenue from our hospital operations increased $13.0 million, or 6.8%, from
period to period. Our net patient revenue per adjusted patient day increased
2.7% for the three months ended June 30, 2002, compared to the same period in
2001, excluding Rocky Mountain Medical Center and the managed care valuation
allowances. The increase in net patient revenue per adjusted patient day was
due primarily to increased acuity and price increases in our hospital
operations.

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Admissions decreased 1.6% from 19,590 for the three months ended June 30,
2001, excluding Rocky Mountain Medical Center, to 19,271 for the same period in
2002, and patient days decreased 0.5% from 83,119 for the three months ended
June 30, 2001, excluding Rocky Mountain Medical Center, to 82,686 for the same
period in 2002. Adjusted admissions increased 4.3% from 32,248 for the three
months ended June 30, 2001, excluding Rocky Mountain Medical Center, to 33,625
for the same period in 2002, and adjusted patient days increased 4.4% from
132,719 for the three months ended June 30, 2001, excluding Rocky Mountain
Medical Center, to 138,513 for the same period in 2002. Volume was negatively
impacted during the three months ended June 30, 2002 by the results from our
Arizona market, as discussed below, as well as the closure of sub-acute units
in other markets during the prior year. The average length of stay resulting
from admissions and patient days increased 1.1% from 4.24 days for the three
months ended June 30, 2001, excluding Rocky Mountain Medical Center, to 4.29
days for the same period in 2002. This increase in length of stay was
attributable in part to growth in new services and services with higher acuity
requiring longer length of stays.

In our Arizona market, admissions and patient days continued to be lower
during the three months ended June 30, 2002, compared to the same period in
2001. The decline in volume in that market was due primarily to the Companys
decision to eliminate unprofitable services, along with the closure of two
sub-acute units in the third and fourth quarters of fiscal 2001 and turnover in
management at certain of the hospitals during fiscal 2001. In response to the
declines in volume and net revenue in the Arizona market, we have focused on
obtaining favorable price increases, growing profitable product lines and
recruiting additional primary care physicians to improve the patient and
service mix. Additionally, in December 2001 we obtained discounts for certain
supplies and implemented a workforce reduction plan.

Net revenue from Health Choice was $34.7 million for the three months
ended June 30, 2002, an increase of $6.7 million, or 23.9%, from $28.0 million
for the same period in 2001. Covered lives under this prepaid Medicaid plan
have increased 26.9% from 44,562 at June 30, 2001 to 56,558 at June 30, 2002.
The increase in covered lives has positively impacted Health Choices net
revenue for the three months ended June 30, 2002 compared to the same period in
2001. The growth in covered lives is due primarily to a change in the
eligibility standards in Arizona beginning in April 2001, with additional
phase-in dates in July 2001 and October 2001, which increased the
Medicaid-eligible population.

Operating expenses increased $6.5 million from $199.8 million for the
three months ended June 30, 2001 to $206.3 million for the same period in 2002.
Operating expenses as a percentage of net revenue were 86.0% for the three
months ended June 30, 2002, compared to 92.1% for the same period in 2001.
Excluding Rocky Mountain Medical Center and the effect of the $6.35 million
managed care valuation allowances recorded as a reduction of net revenue,
operating expenses as a percentage of net revenue were 87.8% for the three
months ended June 30, 2001.

Operating expenses from our hospital operations for the three months ended
June 30, 2002 were $173.8 million, an increase of $1.2 million from $172.6
million for the same period in 2001. This increase was comprised of a $7.7
million increase in operating expenses due to volume growth in our markets,
excluding Arizona, offset by a $6.5 million decrease in operating expenses from
Rocky Mountain Medical Center due to its closure.

Operating expenses from our hospital operations as a percentage of net
revenue were 84.7% for the three months ended June 30, 2002 compared to 86.4%
for the same period in 2001, excluding Rocky Mountain Medical Center and the
effect of the managed care valuation allowances. This decrease was due to a
combination of decreased salaries and benefits expense, supplies expense and
provision for bad debts as a percentage of net revenue, offset partially by an
increase in other operating expenses as a percentage of net revenue. Salaries
and benefits expense as a percentage of net revenue decreased 0.8% from period
to period as a result of implementation of a workforce reduction plan,
achieving and maintaining a more efficient skill mix and improved management of
the use of contract labor. Salaries expense increased by approximately $2.2
million for the three months ended June 30, 2002 compared to the same period in
2001 due primarily to increased staffing at the corporate level. Benefits
expense increased by approximately $1.0 million for the three months ended June
30, 2002 compared to the same period in 2001 due primarily to the increased
cost and utilization of healthcare benefits for employees. However, benefits
expense as a percentage of net revenue for the third quarter was comparable to
the same period in 2001 and improved compared to the first and second quarters
of 2002. Changes in the employee healthcare benefits plan were initiated in
the second quarter of 2002 that reduced the rate of increase in healthcare
benefit costs in the third quarter. Nurses at one of our hospitals voted in
the third quarter of fiscal year 2002 regarding union representation; however,
the ballots have been impounded by the National Labor Relations Board (NLRB)
pending the results of an

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appeal filed by us. We anticipate a decision from the NLRB regarding our
appeal will be made in the fourth quarter of fiscal year 2002 or early in
fiscal year 2003. Because we believe that union affiliation is not in the
best interest of the hospitals employees or patients, we are vigorously
opposing the unionization attempt. We do not currently believe that the
nurses affiliation with a union would have a material adverse effect on the
results of our operations. Supplies expense as a percentage of net revenue
decreased 1.6% from period to period due in part to our new group purchasing
contract which we entered into in the third quarter, which has resulted in
better pricing generally and greater 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. Provision for bad debts as a
percentage of net revenue decreased 0.3% from the prior year period due
primarily to better performance in a number of areas in our business offices,
including improved collections on self-pay accounts receivable. Other
operating expenses as a percentage of net revenue increased 0.9% from period to
period due primarily to an overall increase in insurance premiums generally and
a significant increase in our self-insured retention and premiums for
professional liability insurance effective October 2001, as well as increases
in professional fees and repairs and maintenance expense. Insurance expense
increased by approximately $1.9 million for the three months ended June 30,
2002 compared to the same period in 2001, and we expect our other operating
expenses to continue to be negatively impacted for the near term by these
insurance expense increases. As a result of the October 2001 acquisition of
the land and buildings at two of our facilities in Arizona previously operated
under long-term leases, approximately $1.9 million in rent expense for the
three months ended June 30, 2001 was not incurred in the current quarter.

We opened Rocky Mountain Medical Center in Salt Lake City, Utah on April
10, 2000 with 118 licensed beds and 71 beds in service. Our census levels and
net revenue were slow to grow and significantly lower than we expected prior to
opening the hospital primarily as a result of what we believe to be
exclusionary contracting practices pursued in the Salt Lake City market by a
competitor. As a result, we closed Rocky Mountain Medical Center on June 2,
2001 and recorded asset revaluation and closure costs of $11.9 million during
the year ended September 30, 2001, as discussed below. We have classified the
assets at Rocky Mountain Medical Center as held for sale and currently expect
to sell these assets within the next 12 months. In addition, as a result of the
exclusionary contracting practices that we believe had a material adverse
effect on the business and operations of Rocky Mountain Medical Center, we
filed a lawsuit against the competitor seeking damages and other remedies. The
lawsuit is currently pending. During the three months ended June 30, 2001,
Rocky Mountain Medical Center generated net revenue of $3.2 million and
incurred operating expenses of $6.5 million, resulting in an EBITDA loss of
$3.3 million. Operating expenses for the three months ended June 30, 2001,
consisted of $2.1 million in salaries and benefits, $1.3 million in supplies,
$700,000 in provision for bad debts and $2.4 million in other operating
expenses. Other operating expenses included costs for purchased services, rents
and leases, utilities, marketing, insurance and other expenses.

Operating expenses for Health Choice increased $5.3 million to $32.5
million for the three months ended June 30, 2002 compared to $27.2 million for
the same period in 2001. Operating expenses as a percentage of net revenue for
Health Choice were 93.6% for the three months ended June 30, 2002 and 97.3% for
the same period in 2001. The increase in operating expenses was due to the
incremental cost of increased enrollment. Operating expenses as a percentage
of net revenue improved, reflecting an improvement in the medical loss expense
ratio.

EBITDA was $33.6 million, or 14.0% of net revenue, for the three months
ended June 30, 2002, compared to $17.2 million, or 7.9% of net revenue, for the
same period in 2001. Excluding results from Rocky Mountain Medical Center and
the $6.35 million managed care valuation allowances for the three months ended
June 30, 2001, net revenue and EBITDA were $220.2 million and $26.9 million,
respectively, resulting in an EBITDA margin of 12.2% for the prior year period.

EBITDA for hospital operations was $31.4 million, or 15.3% of net revenue,
for the three months ended June 30, 2002, compared to $26.1 million, or 13.6%
of net revenue, for the same period in 2001, excluding Rocky Mountain Medical
Center and the managed care valuation allowances. The improvement in the
EBITDA margin, excluding the effect of Rocky Mountain Medical Center and the
managed care valuation allowances, was due primarily to increases in net
revenue coupled with decreases in salaries and benefits expense, supplies
expense and provision for bad debts as a percentage of net revenue, as noted
above.

Health Choice has a significantly lower EBITDA margin than hospital
operations. EBITDA for Health Choice was $2.2 million, or 6.4% of net revenue,
for the three months ended June 30, 2002, compared to $800,000,

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or 2.7% of net revenue, for the same period in 2001. The increase in
EBITDA and EBITDA margin were due to increased enrollment and an improvement in
the medical loss expense ratio, as noted above.

Depreciation and amortization expense decreased $1.1 million from $12.4
million for the three months ended June 30, 2001 to $11.3 million for the same
period in 2002. Effective October 1, 2001, we adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
which eliminated amortization for goodwill and other intangible assets with
indefinite lives, as discussed below. The adoption of this accounting standard
was responsible for a $2.9 million decrease in amortization expense for the
three months ended June 30, 2002 compared to the same period in 2001.

Interest expense decreased $2.3 million from $15.7 million for the three
months ended June 30, 2001 to $13.4 million for the same period in 2002 due to
declines in interest rates during fiscal years 2001 and 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 6.3% for the three months ended June 30, 2002 compared to
8.8% for the same period in 2001. The decrease in interest expense due to
lower interest rates was partially offset by the expense of additional
borrowings of approximately $55.3 million on October 15, 2001 for the
acquisition of the land and buildings at two of our facilities in Arizona
previously operated under long-term operating leases.

We recorded no provision for income taxes for the three months ended June
30, 2002 due to the use of deferred tax assets that were previously reserved
with a valuation allowance. We recorded no provision for income taxes for the
three months ended June 30, 2001 due to the uncertainty of realizing a tax
benefit related to the losses incurred.

Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001

Net revenue for the nine months ended June 30, 2002 was $705.2 million, an
increase of $36.2 million, or 5.4%, from $669.0 million for the same period in
2001. The increase in net revenue was a combination of an increase of $13.3
million in net revenue from hospital operations and an increase of $22.9
million in net revenue from Health Choice.

Net revenue from our hospital operations for the nine months ended June
30, 2002 was $601.7 million, an increase of $13.3 million, or 2.3%, from $588.4
million for the same period in 2001. The increase in net revenue from period
to period was due in part to a reduction to net revenue of $6.35 million to
provide for managed care valuation allowances during the nine months ended June
30, 2001, as discussed above. Rocky Mountain Medical Center generated $12.9
million of net revenue for the nine months ended June 30, 2001 and was closed
on June 2, 2001, as discussed above. Excluding Rocky Mountain Medical Center
and the managed care valuation allowances, same facility net revenue from our
hospital operations increased $19.9 million, or 3.4%, from period to period.
Our net patient revenue per adjusted patient day increased 4.4% for the nine
months ended June 30, 2002, compared to the same period in 2001, excluding
Rocky Mountain Medical Center and the managed care valuation allowances. The
increase in net patient revenue per adjusted patient day was due primarily to
increased acuity and price increases in our hospital operations.

Admissions decreased 3.4% from 60,530 for the nine months ended June 30,
2001, excluding Rocky Mountain Medical Center, to 58,450 for the same period in
2002, and patient days decreased 5.0% from 263,974 for the nine months ended
June 30, 2001, excluding Rocky Mountain Medical Center, to 250,808 for the same
period in 2002. Adjusted admissions increased 0.9% from 97,255 for the nine
months ended June 30, 2001, excluding Rocky Mountain Medical Center, to 98,156
for the same period in 2002, and adjusted patient days decreased 0.9% from
410,899 for the nine months ended June 30, 2001, excluding Rocky Mountain
Medical Center, to 407,295 for the same period in 2002. Volume was negatively
impacted during the nine months ended June 30, 2002 by the results from our
Arizona market, as discussed above, as well as the closure of sub-acute units
in other markets during the prior year. The average length of stay resulting
from admissions and patient days decreased 1.6% from 4.36 days for the nine
months ended June 30, 2001, excluding Rocky Mountain Medical Center, to 4.29
days for the same period in 2002. This decrease in length of stay was
attributable in part to the transition of the managed care contract in Arizona
from a capitated contract to a per diem contract, improved case management,
closure of sub-acute units and changes in technology, pharmacology and clinical
practices.

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Net revenue from Health Choice was $103.5 million for the nine months
ended June 30, 2002, an increase of $22.9 million, or 28.4%, from $80.6 million
for the same period in 2001. Covered lives under this prepaid Medicaid plan
have increased 26.9% from June 30, 2001 to June 30, 2002, as noted above. The
increase in covered lives has positively impacted Health Choices net revenue
for the nine months ended June 30, 2002 compared to the same period in 2001.
The growth in covered lives is due primarily to a change in the eligibility
standards in Arizona beginning in April 2001, with additional phase-in dates in
July 2001 and October 2001, which increased the Medicaid-eligible population.

Operating expenses increased $19.3 million from $588.5 million for the
nine months ended June 30, 2001 to $607.8 million for the same period in 2002.
Operating expenses as a percentage of net revenue were 86.2% for the nine
months ended June 30, 2002, compared to 88.0% for the same period in 2001.
Excluding Rocky Mountain Medical Center and the effect of the $6.35 million
managed care valuation allowances recorded as a reduction of net revenue,
operating expenses as a percentage of net revenue were 85.6% for the nine
months ended June 30, 2001.

Operating expenses from our hospital operations for the nine months ended
June 30, 2002 were $509.4 million, a decrease of $1.5 million from $510.9
million for the same period in 2001. This decrease was comprised of a $21.4
million decrease in operating expenses from Rocky Mountain Medical Center due
to its closure, offset by a $19.9 million increase in operating expenses due to
volume growth in our markets, excluding Arizona.

Operating expenses from our hospital operations as a percentage of net
revenue were 84.7% for the nine months ended June 30, 2002 compared to 84.1%
for the same period in 2001, excluding Rocky Mountain Medical Center and the
effect of the managed care valuation allowances. This increase was due to a
combination of increased salaries and benefits expense and other operating
expenses as a percentage of net revenue, offset partially by a decrease in
supplies expense and the provision for bad debts as a percentage of net
revenue. Salaries and benefits expense as a percentage of net revenue
increased 0.2% from period to period due primarily to increases in benefits
expense. Salaries expense increased by approximately $5.7 million for the nine
months ended June 30, 2002 compared to the same period in 2001 due primarily to
general wage inflation and increased staffing at the corporate level; however,
salaries expense as a percentage of net revenue was comparable to the prior
year period. Contract labor for the nine months ended June 30, 2002 was
comparable to the same period in 2001 due primarily to a decline in the use of
contract labor in our Arizona market as a result of a reduction in patient
volume, offset by increased contract labor in markets with growing volume.
Benefits expense increased by approximately $3.6 million for the nine months
ended June 30, 2002 compared to the same period in 2001 due primarily to the
increased cost and utilization of healthcare benefits for employees. Changes
in the employee healthcare benefits plan were initiated in the second quarter
of 2002 that have begun to reduce the rate of increase in healthcare benefit
costs. Other operating expenses as a percentage of net revenue increased 0.9%
from period to period due primarily to an overall increase in insurance
premiums generally and a significant increase in our self-insured retention and
premiums for professional liability insurance effective October 2001, as well
as increases in professional fees and repairs and maintenance expenses.
Insurance expense increased by approximately $5.8 million for the nine months
ended June 30, 2002 compared to the same period in 2001, and we expect our
other operating expenses to continue to be negatively impacted for the near
term by these insurance expense increases. As a result of the October 2001
acquisition of the land and buildings at two of our facilities in Arizona
previously operated under long-term leases, approximately $5.4 million in rent
expense for the nine months ended June 30, 2001 was not incurred in the current
fiscal year. Supplies expense as a percentage of net revenue decreased 0.5%
from period to period due in part to our new group purchasing contract which we
entered into in the third quarter, which has resulted in better pricing
generally and greater 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. Provision for bad debts as a percentage of net revenue
decreased 0.2% from the prior year period due primarily to better performance
in a number of areas in our business offices, including improved collections on
self-pay accounts receivable.

During the nine months ended June 30, 2001, Rocky Mountain Medical Center
generated net revenue of $12.9 million and incurred operating expenses of $21.4
million, resulting in an EBITDA loss of $8.5 million. Operating expenses for
the nine months ended June 30, 2001, consisted of $7.8 million in salaries and
benefits, $2.6 million in supplies, $2.7 million in provision for bad debts and
$8.3 million in other operating expenses. Other operating expenses included
costs for purchased services, rents and leases, utilities, marketing, insurance
and other expenses.

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Operating expenses for Health Choice increased $20.9 million to $98.4
million for the nine months ended June 30, 2002 compared to $77.5 million for
the same period in 2001. Operating expenses as a percentage of net revenue for
Health Choice were 95.1% for the nine months ended June 30, 2002 and 96.1% for
the same period in 2001. The increase in operating expenses was due to the
incremental cost of increased enrollment. Operating expenses as a percentage
of net revenue improved, reflecting the benefit of spreading fixed
administrative costs over a larger enrollment base and an improvement in the
medical loss expense ratio.

EBITDA was $97.4 million, or 13.8% of net revenue, for the nine months
ended June 30, 2002, compared to $80.5 million, or 12.0% of net revenue, for
the same period in 2001. Excluding results from Rocky Mountain Medical Center
and the managed care valuation allowances for the nine months ended June 30,
2001, net revenue and EBITDA were $662.4 million and $95.4 million,
respectively, resulting in an EBITDA margin of 14.4% for the prior year period.

EBITDA for hospital operations was $92.3 million, or 15.3% of net revenue,
for the nine months ended June 30, 2002, compared to $92.3 million, or 15.9% of
net revenue, for the same period in 2001, excluding Rocky Mountain Medical
Center and the managed care valuation allowances. The decline in the EBITDA
margin, excluding the effect of Rocky Mountain Medical Center and the managed
care valuation allowances, was due primarily to increases in salaries and
benefits and other operating expenses as a percentage of net revenue, as noted
above.

Health Choice has a significantly lower EBITDA margin than hospital
operations. EBITDA for Health Choice was $5.1 million, or 4.9% of net revenue,
for the nine months ended June 30, 2002, compared to $3.1 million, or 3.9% of
net revenue, for the same period in 2001. The increase in EBITDA and EBITDA
margin were due to increased enrollment and an improvement in fixed
administrative costs and medical loss expenses as a percentage of net revenue,
as noted above.

Depreciation and amortization expense decreased $7.3 million from $40.3
million for the nine months ended June 30, 2001 to $33.0 million for the same
period in 2002. Effective October 1, 2001, we adopted SFAS No. 142, Goodwill
and Other Intangible Assets,which eliminated amortization for goodwill and
other intangible assets with indefinite lives, as discussed below. The
adoption of this accounting standard was responsible for a $9.0 million
decrease in amortization expense for the nine months ended June 30, 2002
compared to the same period in 2001.

Interest expense decreased $7.7 million from $49.6 million for the nine
months ended June 30, 2001 to $41.9 million for the same period in 2002 due to
declines in interest rates during fiscal years 2001 and 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 6.5% for the nine months ended June 30, 2002 compared to
10.0% for the same period in 2001. The decrease in interest expense due to
lower interest rates was partially offset by the expense of additional
borrowings of approximately $55.3 million on October 15, 2001 for the
acquisition of the land and buildings at two of our facilities in Arizona
previously operated under long-term operating leases.

We recorded no provision for income taxes for the nine months ended June
30, 2002 due to the use of deferred tax assets that were previously reserved
with a valuation allowance. We recorded no provision for income taxes for the
nine months ended June 30, 2001 due to the uncertainty of realizing a tax
benefit related to the losses incurred.

We recorded a reversal of preferred stock dividends of $25.3 million
during the nine months ended June 30, 2001. The preferred stock, which was
exchanged for shares of our common stock on the basis of ten common shares for
each preferred share in October 2000, was mandatorily redeemable and dividends
were payable in shares of our common stock. The preferred stock was exchanged
for common stock without benefit to the preferred stockholders of the accrued
dividends, therefore, the accrual of dividends was reversed in the first
quarter of fiscal 2001. Net earnings attributable to common stockholders after
the effect of the preferred stock dividend reversal for the nine months ended
June 30, 2001 was $20,000.

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Implementation of New Accounting Pronouncement

We adopted SFAS No. 142, Goodwill and Other Intangible Assets,effective
October 1, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized but are subject to impairment
tests on an annual basis, or more frequently if certain indicators arise.
Other intangible assets will continue to be amortized over their useful lives.
We were required to complete our transitional impairment test of existing
goodwill by March 31, 2002. We performed the first step of the required
transitional impairment tests of goodwill as of October 1, 2001 and, as a
result of adopting the Statement, expect to recognize a noncash impairment loss
under the new Statement by the fourth quarter of fiscal 2002 of approximately
$30 to $40 million based on a discounted cash flow analysis. This loss relates
to the impairment of goodwill associated with the Arizona market included in
the acute care service segment and will be reflected as a cumulative effect of
a change in accounting principle at the beginning of fiscal year 2002.
Application of the nonamortization provisions of SFAS No. 142 is expected to
result in an increase to pre-tax net earnings of approximately $11.8 million
per year. Excluding the amortization of goodwill, the net loss would have been
approximately $23.8 million for the three months ended June 30, 2001 and $16.3
million for the nine months ended June 30, 2001.

Asset Revaluation and Closure Costs

Asset Revaluation

During the year ended September 30, 2001, we closed Rocky Mountain Medical
Center and recorded a pre-tax asset revaluation charge of approximately $2.8
million related to the revaluation of net assets in conjunction with their
classification as held for sale. At June 30, 2002, Rocky Mountain Medical
Center net assets held for sale and expected to be sold within the next 12
months, totaled approximately $22.0 million, net of the asset revaluation
allowance. There can be no assurance, however, that we will recover the entire
amount or sell the property within the next 12 months. Excluding the asset
revaluation and closure charges, net revenue and pre-tax losses from Rocky
Mountain Medical Center were $3.2 million and $5.1 million, respectively, for
the three months ended June 30, 2001 and $12.9 million and $14.7 million,
respectively, for the nine months ended June 30, 2001.

Closure Costs

During the year ended September 30, 2001, we adopted and implemented an
exit plan and recorded pre-tax closure charges of approximately $9.1 million
with respect to the closure of Rocky Mountain Medical Center. These charges
were comprised of approximately $1.5 million in severance and related costs,
$3.5 million in facility and lease termination costs, $2.4 million in contract
termination costs and $1.7 million in legal and other exit costs. This closure
plan included the involuntary termination of approximately 200 hospital and
business office personnel, which was completed by September 30, 2001. During
the three months ended June 30, 2002, we paid a total of approximately $600,000
in closure costs, including approximately $350,000 in facility and lease
termination costs, $100,000 in contract termination costs and $150,000 in legal
and other exit costs related to the closure of Rocky Mountain Medical Center.
During the nine months ended June 30, 2002, we paid a total of approximately
$2.5 million in closure costs, including approximately $200,000 in severance
and related costs, $1.1 million in facility and lease termination costs,
$400,000 in contract termination costs and $800,000 in legal and other exit
costs related to the closure of Rocky Mountain Medical Center. At June 30,
2002, accrued closure costs totaled approximately $3.1 million and consisted of
approximately $1.6 million in facility and lease termination costs, $200,000 in
contract termination costs and $1.3 million in legal and other exit costs.

Liquidity and Capital Resources

At June 30, 2002, we had $72.4 million in working capital, compared to
$69.6 million at September 30, 2001, an increase of $2.8 million. We generated
cash from operating activities of $38.9 million during the nine months ended
June 30, 2002, compared to $21.3 million during the nine months ended June 30,
2001. During the nine months ended June 30, 2002, the increase in working
capital was due in part to the growth in accounts receivable. Net accounts
receivable increased $7.7 million from $147.8 million at September 30, 2001 to
$155.5 million at June 30, 2002. Until the third quarter of fiscal year 2002,
the fiscal intermediaries were unable to provide data necessary to complete
cost reports for periods after the August 1, 2000 implementation date of the
outpatient prospective payment system, resulting in industry-wide extensions of
the due dates for filing cost reports for such periods. During the third
quarter, we began receiving the necessary data from the fiscal intermediaries
and are in the

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process of filing cost reports for these periods. These delays have
caused our Medicare settlement receivables to increase from approximately $3.0
million at September 30, 2000 to approximately $12.5 million at September 30,
2001 and to approximately $16.1 million at June 30, 2002. Excluding Medicare
settlement receivables, our days of net revenue outstanding at June 30, 2002
were 61 compared to 64 days at September 30, 2001. Prepaid expenses and other
current assets increased $5.7 million from $15.5 million at September 30, 2001
to $21.2 million at June 30, 2002 due in part to a prepaid information systems
maintenance contract.

Investing activities used $85.1 million during the nine months ended June
30, 2002. Capital expenditures for the nine months ended June 30, 2002, were
approximately $84.7 million, including $55.3 million for the acquisition of the
land and buildings at two of our facilities previously operated under long-term
leases and $9.8 million for renovation and expansion at two of our hospitals.
We have budgeted capital expenditures for the remainder of fiscal year 2002 of
approximately $18 million to $23 million, including $6.5 million for renovation
and expansion at our facilities and $11.5 million to $16.5 million for new
equipment at our facilities. The capital expenditures budget for fiscal year
2002 is based upon our analysis of various factors, many of which are beyond
our control, and we cannot assure you that our capital expenditures will not
significantly exceed budgeted amounts.

Financing activities during the nine months ended June 30, 2002, provided
net cash of $40.1 million due primarily to borrowings of $30.0 million under a
new incremental senior secured term loan and borrowings under our revolving
credit facility for the acquisition of the land and buildings at two of our
facilities previously operated under long-term leases for an aggregate purchase
price of approximately $55.3 million. During the nine months ended June 30,
2002, we borrowed $160.6 million pursuant to the terms of our bank credit
facility, repaid $10.8 million in outstanding borrowings pursuant to the terms
of our bank credit facility and capital lease obligations and made voluntary
prepayments of $107.1 million pursuant to the terms of our revolving credit
facility. During the next twelve months, we are required to repay approximately
$27.9 million under our bank credit facility. During the nine months ended
June 30, 2002, we received proceeds of approximately $200,000 from the issuance
of 23,334 shares of common stock to David R. White, our Chairman, President and
Chief Executive Officer.

Effective 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. The $125.0 million revolving
credit facility is available for working capital and other general corporate
purposes. The 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 bank credit facility is guaranteed by our
subsidiaries and these guaranties are secured by a pledge of substantially all
of the subsidiaries assets. 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.

At June 30, 2002, amounts outstanding under the tranche A, tranche B and
incremental term loans were $65.0 million, $243.8 million and $30.0 million,
respectively, and we had $23.5 million outstanding under our revolving credit
facility. The revolving credit facility includes a $75.0 million sub-limit for
letters of credit that may be issued by us and, at June 30, 2002, we had issued
$31.2 million in letters of credit. The loans under the bank credit facility
bear 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 bank credit
facility was approximately 6.5% for the nine months ended June 30, 2002. On
October 15, 2001, we acquired the land and buildings at two of our facilities
previously operated under long-term leases for an aggregate purchase price of
approximately $55.3 million. The acquisition will eliminate $7.4 million in
rent expense in fiscal year 2002. The purchase price was financed by the $30.0
million new incremental senior secured term loan and borrowings under our
revolving credit facility. At August 14, 2002, we had drawn $25.5 million under
our revolving credit facility and had issued approximately $31.2 million in
letters of credit, resulting in remaining availability under the revolving
credit facility of approximately $68.3 million.

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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 June 30, 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.

Our liquidity and capital resources have been negatively affected by Rocky
Mountain Medical Center, which was closed on June 2, 2001. During the nine
months ended June 30, 2002, we paid a total of $2.5 million in costs related to
the closure of Rocky Mountain Medical Center.

As of June 30, 2002, we provided performance guaranties in the form of a
surety bond in the amount of $9.4 million and a letter of credit in the amount
of $11.2 million for the benefit of the Arizona Health Care Cost Containment
System (AHCCCS) to support our obligations under the Health Choice contract to
provide and pay for healthcare services. The amount of the performance guaranty
that AHCCCS requires is based upon the membership in the plan and the related
capitation 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 high-growth markets. The
completion of acquisitions may result in the incurrence of, 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 nine months ended June 30, 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, 2001. At June 30, 2002, the fair market
value of our outstanding senior subordinated exchange notes was approximately
$240.4 million, based upon quoted market prices as of that date.

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PART II




OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

|    |  |                      |  |                                                                                                                                                             
|--- |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | List of Exhibits:   
|    |  |                      |  |                                                                                                                                                             
|    |  | 10.1                 |  | Amendment No. 17 to Contract between Arizona
Health Care Cost Containment System Administration and Health
Choice Arizona, effective as of April 1, 2002    
|    |  | 10.2                 |  | Amended and Restated Pioneer Hospital Lease dated
as of June 28, 2002, by and between Health Care Property
Investors, Inc. and Pioneer Valley Hospital, Inc.
|    |  | 99.1                 |  | Odessa Regional Hospital, LP Financial Statements                                                                                                           
|    |  |                      |  |                                                                                                                                                             
|(b) |  | Reports on Form 8-K:

On April 19, 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 second quarter 2002 earnings
conference call.

On May 2, 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 fiscal
second quarter ended March 31, 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
|                      |  |                             
|                      |  |                             
|                      |  | By:                          | /s/ W. Carl WhitmerW. Carl Whitmer, Chief Financial Officer
|Date: August 14, 2002 |  |                             

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EXHIBIT INDEX

|            |  |                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                 
|            |  |                                                                                                                                                             
|10.1        |  | Amendment No. 17 to Contract between Arizona Health Care Cost
Containment System Administration and Health Choice Arizona,
effective as of April 1, 2002    
|            |  |                                                                                                                                                             
|10.2        |  | Amended and Restated Pioneer Hospital Lease dated as of June
28, 2002, by and between Health Care Property Investors, Inc.
and Pioneer Valley Hospital, Inc.
|            |  |                                                                                                                                                             
|99.1        |  | Odessa Regional Hospital, LP Unaudited Financial Statements                                                                                                 

30