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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 March 31, 2004 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  DELAWARE
(State or Other Jurisdiction of Incorporation
or Organization)
    
    76-0450619
(I.R.S. Employer
Identification No.)
 DOVER CENTRE
117 SEABOARD LANE, BUILDING E
FRANKLIN, TENNESSEE 37067
(Address of Principal Executive Offices) (615) 844-2747
(Registrants Telephone Number, Including Area Code) 113 SEABOARD LANE, SUITE A-200
FRANKLIN, TENNESSEE 37067
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report) Indicate by check ü 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
[ü] NO
[   ] Indicate by check mark ü whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES [   ] NO [ü] As
of May 10, 2004, 31,956,113 shares of the Registrants
Common Stock were outstanding.




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TABLE OF CONTENTS PART I  FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1Condensed Consolidated Balance Sheets  March 31, 2004 (Unaudited) and September 30, 2003
    
    
    1Condensed Consolidated Statements of Earnings (Unaudited)  Three Months Ended March 31, 2004 and 2003 and Six Months Ended March 31, 2004 and 2003
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Six Months Ended March 31, 2004 and 2003
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4.
    
    Controls and Procedures
    
    
    39PART II  OTHER INFORMATION
    
    
    39Item 1.
    

Legal
Proceedings
    
    
    39Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    39EX-2.1  AGREEMENT AND PLAN OF MERGEREX-2.2  INDEMNIFICATION AGREEMENTEX-4.1  SUPPLEMENTAL INDENTUREEX-4.2  SUPPLEMENTAL INDENTUREEX-10.1  INFORMATION SYSTEM AGREEMENTEX-10.2  JOINDER AGREEMENTEX-31.1  SECTION 302 CERTIFICATION OF THE PEOEX-31.2  SECTION 302 CERTIFICATION OF THE PFOex-99.1  ODESSA REGIONAL FINANCIALSEX-99.2  JORDAN VALLEY HOSPITAL FINANCIALSEX-99.3  MEDICAL CENTER OF SE TEXAS FINANCIALSEX-99.4  DAVIS HOSPITAL & MEDICAL CTR. FINANCIALS




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##### Table of Contents



PART I
FINANCIAL INFORMATION 
 Item 1. Financial Statements IASIS HEALTHCARE
CORPORATION 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
 (Unaudited)March 31,
    
    September 30,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    98,795
    
    
    $
    101,070Accounts receivable, net of allowance for doubtful accounts of
$79,775 and $47,028, respectively
    
    
    175,909
    
    
    
    153,183Inventories
    
    
    26,507
    
    
    
    23,842Prepaid expenses and other current assets
    
    
    19,076
    
    
    
    16,316Assets held for sale
    
    
    
    
    
    
    11,070Total current assets
    
    
    320,287
    
    
    
    305,481Property and equipment, net
    
    
    481,719
    
    
    
    435,477Goodwill
    
    
    252,204
    
    
    
    252,204Other assets, net
    
    
    28,995
    
    
    
    36,837Total assets
    
    $
    1,083,205
    
    
    $
    1,029,999LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    62,920
    
    
    $
    54,172Salaries and benefits payable
    
    
    30,483
    
    
    
    29,842Accrued interest payable
    
    
    19,468
    
    
    
    20,978Medical claims payable
    
    
    45,288
    
    
    
    25,767Accrued expenses and other current liabilities
    
    
    24,734
    
    
    
    20,529Current portion of long-term debt and capital lease
obligations
    
    
    6,357
    
    
    
    5,903Total current liabilities
    
    
    189,250
    
    
    
    157,191Long-term debt and capital lease obligations
    
    
    656,415
    
    
    
    658,531Other long-term liabilities
    
    
    28,981
    
    
    
    27,795Minority interest in consolidated entities
    
    
    12,391
    
    
    
    10,383Stockholders equity:Preferred stock  $0.01 par value, authorized 5,000,000
shares; no shares issued and outstanding at March 31, 2004
and September 30, 2003
    
    
    
    
    
    
    Common stock  $0.01 par value, authorized 100,000,000 shares;
31,985,029 shares issued and 31,956,113 shares
outstanding at March 31, 2004 and September 30, 2003
    
    
    320
    
    
    
    320Nonvoting common stock  $0.01 par value, authorized
10,000,000 shares; no shares issued and outstanding at March
31, 2004 and September 30, 2003
    
    
    
    
    
    
    Additional paid-in capital
    
    
    450,720
    
    
    
    450,720Treasury stock, at cost, 16,306,541 shares at March 31, 2004
and September 30, 2003
    
    
    (155,300
    )
    
    
    (155,300
    )Accumulated deficit
    
    
    (99,572
    )
    
    
    (119,641
    )Total stockholders equity
    
    
    196,168
    
    
    
    176,099Total liabilities and stockholders equity
    
    $
    1,083,205
    
    
    $
    1,029,999
 See accompanying notes. 1




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IASIS HEALTHCARE
CORPORATION 
 CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands)
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net
Revenue:Net acute care revenue
    
    $
    286,213
    
    
    $
    234,177
    
    
    $
    535,603
    
    
    $
    451,994Premium revenue
    
    
    69,302
    
    
    
    37,259
    
    
    
    138,016
    
    
    
    74,207Total net revenue
    
    
    355,515
    
    
    
    271,436
    
    
    
    673,619
    
    
    
    526,201Costs and
expenses:Salaries and benefits
    
    
    110,487
    
    
    
    94,153
    
    
    
    209,903
    
    
    
    182,952Supplies
    
    
    46,301
    
    
    
    37,768
    
    
    
    86,580
    
    
    
    73,451Medical claims
    
    
    57,880
    
    
    
    31,098
    
    
    
    115,651
    
    
    
    61,999Other operating expenses
    
    
    58,467
    
    
    
    47,191
    
    
    
    114,294
    
    
    
    93,704Provision for bad debts
    
    
    32,169
    
    
    
    20,154
    
    
    
    57,268
    
    
    
    39,865Interest, net
    
    
    13,878
    
    
    
    13,131
    
    
    
    27,769
    
    
    
    26,448Depreciation and amortization
    
    
    17,248
    
    
    
    12,682
    
    
    
    33,979
    
    
    
    25,533Write-off of debt issue costs
    
    
    8,850
    
    
    
    3,900
    
    
    
    8,850
    
    
    
    3,900Total costs and expenses
    
    
    345,280
    
    
    
    260,077
    
    
    
    654,294
    
    
    
    507,852Earnings before gain on sale of
assets, minority interests and
income taxes
    
    
    10,235
    
    
    
    11,359
    
    
    
    19,325
    
    
    
    18,349Gain on sale of assets, net
    
    
    3,602
    
    
    
    
    
    
    
    3,753
    
    
    
    780Minority interests
    
    
    (1,033
    )
    
    
    (421
    )
    
    
    (2,024
    )
    
    
    (699
    )Earnings before income taxes
    
    
    12,804
    
    
    
    10,938
    
    
    
    21,054
    
    
    
    18,430Income tax expense
    
    
    953
    
    
    
    
    
    
    
    985
    
    
    
    Net earnings
    
    $
    11,851
    
    
    $
    10,938
    
    
    $
    20,069
    
    
    $
    18,430
 See accompanying notes. 2




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IASIS HEALTHCARE
CORPORATION 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 Six Months EndedMarch 31,2004
    
    2003Cash flows from operating activities:Net earnings
    
    $
    20,069
    
    
    $
    18,430Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    33,979
    
    
    
    25,533Minority interests
    
    
    2,024
    
    
    
    699Gain on sale of assets
    
    
    (3,753
    )
    
    
    (780
    )Write-off of debt issue costs
    
    
    8,850
    
    
    
    3,900Changes in operating assets and liabilities,
net of acquisition and disposal:Accounts receivable
    
    
    (12,388
    )
    
    
    (1,340
    )Establishment of accounts receivable of recent acquisition
    
    
    (10,338
    )
    
    
    Inventories, prepaid expenses and other current assets
    
    
    (3,645
    )
    
    
    (916
    )Accounts payable and other accrued liabilities
    
    
    28,439
    
    
    
    6,583Net cash provided by operating activities
    
    
    63,237
    
    
    
    52,109Cash flows from investing activities:Purchases of property and equipment
    
    
    (51,524
    )
    
    
    (36,520
    )Cash paid for acquisition
    
    
    (23,032
    )
    
    
    Proceeds from sales of assets
    
    
    14,928
    
    
    
    2,863Change in other assets
    
    
    (1,761
    )
    
    
    (1,732
    )Net cash used in investing activities
    
    
    (61,389
    )
    
    
    (35,389
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    2Proceeds from senior bank debt borrowings
    
    
    
    
    
    
    454,100Payment of debt and capital leases
    
    
    (3,083
    )
    
    
    (453,450
    )Debt financing costs incurred
    
    
    (1,024
    )
    
    
    (10,600
    )Distribution of minority interests
    
    
    (1,817
    )
    
    
    (410
    )Proceeds from hospital syndication
    
    
    1,801
    
    
    
    Net cash used in financing activities
    
    
    (4,123
    )
    
    
    (10,358
    )Increase (decrease) in cash and cash equivalents
    
    
    (2,275
    )
    
    
    6,362Cash and cash equivalents at beginning of the period
    
    
    101,070
    
    
    
    Cash and cash equivalents at end of the period
    
    $
    98,795
    
    
    $
    6,362Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    30,553
    
    
    $
    24,789Cash paid for income taxes, net
    
    $
    21
    
    
    $
    6Supplemental schedule of noncash investing and financing activities:Capital lease obligations incurred to acquire equipment
    
    $
    1,419
    
    
    $
    3,318
 See accompanying notes. 3




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IASIS HEALTHCARE
CORPORATION 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
 1. Basis of Presentation The unaudited condensed 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 condensed consolidated balance sheet at
September 30, 2003 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-K for the fiscal year ended September 30,
2003. In the opinion of management, the accompanying unaudited condensed
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 consolidated financial statements and notes. Actual
results could differ from those estimates. IASIS owns and operates medium-sized acute care hospitals in high-growth
urban and suburban markets. At March 31, 2004, the Company owned or leased 15
acute care hospitals and one behavioral health hospital, with a total of 2,257 beds in service, located in five
regions:  -
    
    Salt Lake City, Utah;-
    
    Phoenix, Arizona;-
    
    Tampa-St. Petersburg, Florida;-
    
    Las Vegas, Nevada; and-
    
    four cities in Texas, including San Antonio. The
Company also has an ownership interest in three ambulatory surgery
centers and owns and operates a Medicaid managed health plan in
Phoenix called Health Choice Arizona, Inc. (Health Choice or the Plan),
serving over 92,000 members at March 31, 2004. 2. Recently Issued Accounting Pronouncements In December 2003, the Financial Accounting Standards Board (FASB) issued
Revised Interpretation No. 46, Consolidation of Variable Interest Entities
(FIN 46R), which requires the consolidation of variable interest entities.
FIN 46R was applicable to financial statements of companies that had interests
in special purpose entities during the calendar year 2003. Effective as of
the Companys second fiscal quarter of 2004, FIN 46R is applicable to financial
statements of companies that have interests in all other types of entities.
The adoption of FIN 46R did not have a material effect on the Companys results
of operations or financial position. In May 2003, the FASB Issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities(SFAS 149). SFAS 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. Most provisions of SFAS 149 are effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. SFAS 149 is not expected to have
a material effect on the Companys financial statements. The Company held no
derivative instruments as of March 31, 2004. In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity(SFAS 150). SFAS 150 establishes standards for
how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) because
that financial instrument embodies an obligation of the issuer. SFAS 150 is
effective for 4




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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this Statement did not have a material
effect on the Companys financial position or results of operations. 3. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consist of the following (in
thousands): March 31,
    
    September 30,2004
    
    2003Bank facilities
    
    $
    321,125
    
    
    $
    322,875Senior subordinated notes
    
    
    330,000
    
    
    
    330,000Capital lease obligations and other
    
    
    11,647
    
    
    
    11,559662,772
    
    
    
    664,434Less current maturities
    
    
    6,357
    
    
    
    5,903$
    656,415
    
    
    
    658,531
 Bank Facilities On February 7, 2003, the Company completed the refinancing of its credit
facility to provide for a new $475.0 million credit facility in the form of a
$350.0 million, six year term B loan and a $125.0 million, five year revolving
credit facility (the 2003 credit facility). Proceeds from the 2003 credit
facility were used to refinance amounts outstanding under the 1999 credit
facility and to fund closing and other transaction related costs of $10.9
million incurred in connection with the refinancing. The $125.0 million
revolving credit facility is available for working capital and other general
corporate purposes. Principal payments on the term B loan are due in quarterly
installments of $875,000 until maturity. The 2003 credit facility is also
subject to mandatory prepayment under specific circumstances, including a
portion of excess cash flow and the net proceeds from an initial public
offering, asset sales, debt issuances and specified casualty events, each
subject to various exceptions. The 2003 credit facility was amended on June 6, 2003 to allow for the
issuance of the Companys 81/2% senior subordinated notes, as discussed
below. On February 9, 2004, the 2003 credit facility was further amended to,
among other things, reduce the applicable margin on the term loans by 150 basis
points and increase the annual capital expenditure limitations beginning in
fiscal year 2005. In connection with this amendment, the Company wrote off
approximately $8.9 million of deferred financing costs and incurred $1.0
million in new debt financing costs. The 2003 credit facility requires that the Company comply with various
other financial ratios and tests and contains covenants limiting the Companys
ability to, among other things, incur debt, engage in acquisitions or mergers,
sell assets, make investments or capital expenditures, make distributions or
stock repurchases and pay dividends. The 2003 credit facility is guaranteed by all of the Companys material
subsidiaries (the Subsidiary Guarantors) and these guaranties are secured by
a pledge of substantially all of the Subsidiary Guarantors 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 2003 credit facility. At March 31, 2004, there was $321.1 million outstanding under the six-year
term B loan and no amounts outstanding under the revolving credit facility. The
revolving credit facility includes a $75.0 million sub-limit for letters of
credit that may be issued. At March 31, 2004, the Company had issued $36.7
million in letters of credit. The loans under the credit facilities accrued
interest at variable rates at specified margins above either the agent banks
alternate base rate or its reserve-adjusted Eurodollar rate. The weighted
average interest rate of outstanding borrowings under the 2003 credit facility
was approximately 5.1% for the six months ended March 31, 2004. The Company
pays a commitment fee equal to 0.5% of the average daily amount available under
the revolving credit facility. 5




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 13% 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 1999 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
1999 Notes are unsecured obligations and are subordinated in right of payment
to all existing and future senior indebtedness of the Company. Interest on the
1999 Notes is payable semi-annually on April 15 and October 15. 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 1999
Notes. The Company may redeem the 1999 Notes, in whole or in part, at any time
from October 15, 2004 to October 14, 2008 at redemption prices ranging from
106.500% to 101.625%, plus accrued and unpaid interest. Thereafter, the Company
may redeem the 1999 Notes at a 100% redemption price plus accrued and unpaid
interest. The 1999 Notes are guaranteed, fully and unconditionally, jointly and
severally, by the Subsidiary Guarantors. The Company is a holding company with
no independent assets or operations apart from its ownership of the Subsidiary
Guarantors. At March 31, 2004, all of the Subsidiary Guarantors fully and
unconditionally guaranteed the 1999 Notes and, with the exception of Odessa
Regional Hospital, LP, Jordan Valley Hospital, LP, The Medical Center of
Southeast Texas, LP and Davis Hospital & Medical Center, LP, all were 100%
owned by the Company. The indenture for the 1999 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. 81⁄2% Senior Subordinated Notes On
June 6, 2003, the Company issued $100.0 million of 81⁄2% senior
subordinated notes due 2009. On August 14, 2003, the Company exchanged all of
its outstanding 81⁄2% senior subordinated notes due 2009 for
81⁄2% senior
subordinated notes due 2009 that have been registered under the Securities Act
of 1933, as amended (the 2003 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 July 16, 2003.
The 2003 Notes are unsecured obligations and are subordinated in right of
payment to all existing and future senior indebtedness of the Company. Interest
on the 2003 Notes is payable semi-annually on April 15 and October 15. 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 2003
Notes. Subject to certain conditions, at any time prior to June 15, 2006, the
Company may on any one or more occasions redeem up to 35.0% of the aggregate
principal amount of 2003 Notes at a redemption price of 108.5% of the principal
amount thereof, plus accrued and unpaid interest to the redemption date, with
the net cash proceeds of one or more equity offerings. The Company may redeem
the 2003 Notes, in whole or in part, at any time from June 15, 2006 to June 14,
2008 at redemption prices ranging from 104.250% to 102.125%, plus accrued and
unpaid interest. Thereafter, the Company may redeem the 2003 Notes at a 100%
redemption price plus accrued and unpaid interest. The 2003 Notes are
guaranteed, fully and unconditionally, jointly and severally, by the Subsidiary
Guarantors, except Health Choice Arizona, Inc. The indenture for the 2003 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. As described more fully in Note 9, the Company entered into a definitive
Agreement and Plan of Merger on May 5, 2004 in which all of the Companys stock
will be acquired through a merger by an entity formed by affiliates of Texas
Pacific Group and other investors. In
connection with the transaction, the Company commenced a tender offer and
consent solicitation relating to all of its 1999 Notes and 2003 Notes. The
purchase price offered for each $1,000 principal amount of 1999 Notes and
2003 Notes validly tendered will be based on a fixed spread of 50
basis points over the yield on a specified date of the 1-7/8% U.S. Treasury
Note due September 30, 2004 for the 1999 Notes and the 4-5/8% U.S. Treasury
Note due May 15, 2006 for the 2003 Notes, plus accrued and unpaid interest up
to, but not including, the date of payment for the 1999 Notes and 2003 Notes,
in each case less the consent payment described below. In connection with the offer, the
Company is also soliciting consents to certain proposed amendments to eliminate
substantially all of the restrictive covenants in the indentures governing the
1999 Notes and 2003 Notes in exchange for a consent payment of $30.00 per
$1,000 principal amount of 1999 Notes and 2003 Notes. 6




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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 4. Acquisitions and Dispositions Acquisition of Lake Mead Hospital Medical Center Effective as of February 1, 2004, the Company, through a wholly-owned
subsidiary, acquired substantially all of the assets of Lake Mead Hospital
Medical Center in Las Vegas, Nevada (Lake Mead). The Company acquired the
198-bed hospital from a subsidiary of Tenet Healthcare Corporation (Tenet).
The purchase price was $25.0 million. The net consideration paid, after
working capital adjustments and including direct transaction costs, was $23.0
million, which was funded with cash on hand. The Tenet subsidiary retained the
accounts receivable related to the operation of the hospital prior to the
acquisition. The final purchase price is subject to net working capital and
other purchase price adjustments. In addition, the Tenet subsidiary agreed to
indemnify the Company for all liabilities related to the operation of the
hospital prior to closing, other than the assumed liabilities. The
subsidiarys indemnification obligations are guaranteed by Tenet. The results
of operations of Lake Mead are included in the accompanying condensed
consolidated statements of earnings for the three and six months ended March
31, 2004 from the effective date of the acquisition. The purchase price for the Lake Mead acquisition, including direct
transaction costs, was allocated as follows (in thousands): Fair value of assets acquired and liabilities assumed:Assets acquired:Inventory
    
    $
    1,782Prepaid expenses and other current assets
    
    
    46Property and equipment
    
    
    25,502Liabilities assumed
    
    
    (2,361
    )$
    24,969
 This purchase price allocation will be adjusted subsequent to the working
capital settlement with the seller and the Companys finalization of its
estimate of the value of the property, plant and equipment acquired. 7




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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS Pro Forma Results The following table shows the unaudited pro forma results of consolidated
operations as if the Lake Mead acquisition had occurred at the beginning of the
period presented, after giving effect to certain adjustments, including the
depreciation and amortization of the assets acquired based upon their fair
values, changes in net interest expense resulting from changes in consolidated
debt and invested cash and changes in income taxes (in thousands). Three months ended
    
    Six months endedMarch 31,
    
    March 31,2003
    
    2004
    
    2003
    
    2004Net revenue
    
    $
    295,728
    
    
    
    365,348
    
    
    $
    572,166
    
    
    
    712,773Earnings (loss) before
income taxes
    
    
    (3,650
    )
    
    
    13,200
    
    
    
    2,296
    
    
    
    4,176Income tax expense
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    985Net earnings (loss)
    
    $
    (3,650
    )
    
    
    12,247
    
    
    $
    2,296
    
    
    
    3,167
 Sale of Rocky Mountain Medical Center On February 13, 2004, the Company closed the sale of its Rocky Mountain
Medical Center property in Salt Lake City, Utah. The approximately 23.5-acre
property, as well as certain associated equipment, fixtures and other personal
property, were acquired by the Board of Education of the Granite School
District (of Salt Lake County) for approximately $15.2 million. Rocky Mountain
Medical Center was a hospital owned by the Company that ceased operations in
June 2001. The Company recorded a gain on sale of the property during the
three months ended March 31, 2004 of approximately $3.6 million. 5. Stock Benefit Plans The Company, from time to time, grants stock options for a fixed number of
common shares to employees. Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation(SFAS 123), encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
employee stock option grants in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees,and, accordingly,
uses the intrinsic method to value options and recognizes no compensation
expense for the stock option grants when the exercise price of the options
equals, or is greater than, the market value of the underlying stock on the
date of grant. Pro forma information regarding interim net earnings is required by SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method. If the Company had measured compensation
cost for the stock options granted under the fair value based method prescribed
by SFAS 123, the Companys net earnings would have been changed to the pro
forma amounts set forth below (in thousands): Three months ended,
    
    Six months ended,March 31,
    
    March 31,
    
    March 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003Net earnings, as reported
    
    $
    11,851
    
    
    $
    10,938
    
    
    $
    20,069
    
    
    $
    18,430Less: stock-based
compensation expense
determined under fair
value based method
    
    
    (373
    )
    
    
    (372
    )
    
    
    (747
    )
    
    
    (739
    )Pro forma net earnings
    
    $
    11,478
    
    
    $
    10,566
    
    
    $
    19,322
    
    
    $
    17,691
 The effect of applying SFAS 123 for providing pro forma disclosure is not
likely to be representative of the effect on reported net earnings for future
years. 8




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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 6. Contingencies Net Revenue The calculation of appropriate payments from the Medicare and Medicaid
programs as well as terms governing agreements with other third party payors
are complex and subject to interpretation. Final determination of amounts
earned under the Medicare and Medicaid programs often occurs subsequent to the
year in which services are rendered because of audits by the programs, rights
of appeal and the application of numerous technical provisions. As a result,
there is at least a reasonable possibility that recorded estimates will change
by a material amount in the near term. In the opinion of management, adequate
provision has been made for adjustments that may result from such routine
audits and appeals. Professional, General and Workers Compensation Liability Risks The Company is subject to claims and legal actions in the ordinary course
of business, including claims relating to patient treatment and personal
injuries. To cover these types of claims, the Company maintains general
liability and professional liability insurance in excess of self-insured
retentions through a commercial insurance carrier in amounts that the Company
believes to be sufficient for its operations, although, potentially, some
claims may exceed the scope of coverage in effect. Plaintiffs in these matters
may request punitive or other damages that may not be covered by insurance.
The Company is currently not a party to any such proceedings that, in the
Companys opinion, would have a material adverse effect on the Companys
business, financial condition or results of operations. The Company expenses
an estimate of the costs it expects to incur under the self-insured retention
exposure for general and professional liability claims using historical claims
data, demographic factors, severity factors, current incident logs and other
actuarial analysis. As of March 31, 2004 and September 30, 2003, the Companys
professional and general liability accrual for asserted and unasserted claims
was approximately $25.9 million and $24.3 million, respectively, which is
included within other long-term liabilities in the accompanying condensed
consolidated balance sheets. The Company is subject to claims and legal actions in the ordinary course
of business relative to workers compensation and other labor and employment
matters. To cover these types of claims, the Company maintains workers
compensation insurance coverage with a self-insured retention. The Company
accrues costs of workers compensation claims based upon estimates derived from
its claims experience. Health Choice Health Choice has entered into a capitated contract whereby the Plan
provides healthcare services in exchange for fixed periodic and supplemental
payments from the 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 March 31, 2004, the
Company has provided a performance guaranty in the form of a letter of credit
in the amount of $20.6 million for the benefit of AHCCCS to support its
obligations under the Health Choice contract to provide and pay for the
healthcare services. Additionally, Health Choice maintains a cash balance of $5
million and an intercompany demand note with the Company. The amount of the
performance guaranty is based upon the membership in the plan and the related
capitation revenue paid to Health Choice. Capital Expenditure Commitments The Company is expanding and renovating some of its facilities to permit
additional patient volume and to provide a greater variety of services. At
March 31, 2004, the Company had various construction and other
projects in progress with an
estimated additional cost to complete and equip of approximately $126.7
million. 9




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IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 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 entered into a tax sharing agreement in connection with the
capitalization of the Company. The tax sharing agreement 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. Acquisitions The Company may choose to acquire businesses with prior operating
histories. If acquired, such companies may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws
and regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. Although the Company has policies designed to conform
business practices to its policies following the completion of any
acquisitions, there can be no assurance that the Company will not become liable
for previous activities of prior owners that may later be asserted to be
improper by private plaintiffs or government agencies. Although, the Company
generally would seek to obtain indemnification from prospective sellers
covering such matters, there can be no assurance that any such matter will be
covered by indemnification, or if covered, that such indemnification will be
adequate to cover potential losses and fines. Other The Company has been advised that its hospital in San Antonio, Texas,
Southwest General Hospital, is a subject of an investigation relating to the
provision of hyperbaric oxygen therapy services. In a letter dated February
11, 2003, the U.S. Attorney for the Western District of Texas stated that the
investigation relates to certain billing practices for these services since
1998. The Company is cooperating with the U.S. Attorneys office with respect
to this investigation. Based on information currently available, the Company
believes the investigation relates primarily to the period when Tenet owned the
hospital. Although the Company is unable to predict the outcome of this
investigation, management does not currently believe it will have a material
adverse effect on the Companys business, financial condition or results of
operations. Tenet and its affiliates are defendants in a civil action brought on
January 9, 2003 in the U.S. District Court for the Central District of
California by the United States for the improper assignment of diagnostic codes
and submitting false claims to Medicare. The litigation stems from an
investigation by the U.S. Department of Justice, in conjunction with the Office
of Inspector General, of certain hospital billings to Medicare for inpatient
stays reimbursed pursuant to diagnosis related groups 79 (pneumonia), 415
(operating room procedure for infectious and parasitic diseases), 416
(septicemia) and 475 (respiratory system diagnosis with mechanical ventilator).
Although hospitals that the Company acquired from Tenet are referenced in the
complaint, all of the actions complained of occurred prior to December 31, l998
and thus before the hospitals acquisition by the Company. The Company has
informed Tenet that the Company has no obligation or liability for any of the
matters described in the complaint and that the Company is entitled to
indemnification if any damages or relief were to be sought against IASIS in
connection with the proceeding. Tenet has accepted service of process on behalf
of these hospitals and has agreed to indemnify the Company. 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 it believes 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. 10




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 7. Segment and Geographic Information The Companys acute care hospitals and related healthcare businesses are
similar in their activities and the economic environments in which they operate
(i.e., urban and suburban markets). Accordingly, the Companys reportable
operating segments consist of (1) acute care hospitals and related healthcare
businesses, collectively, and (2) its Medicaid managed health plan, Health
Choice. The
following is a financial summary by business segment for the periods indicated: For the Three Months Ended March 31, 2004Acute Care
    
    Health Choice
    
    Eliminations
    
    ConsolidatedNet acute care revenue
    
    $
    286,213
    
    
    $
    
    
    
    $
    
    
    
    $
    286,213Premium revenue
    
    
    
    
    
    
    69,302
    
    
    
    
    
    
    
    69,302Revenue between segments
    
    
    2,335
    
    
    
    
    
    
    
    (2,335
    )
    
    
    Net revenue
    
    
    288,548
    
    
    
    69,302
    
    
    
    (2,335
    )
    
    
    355,515Salaries and benefits
    
    
    108,147
    
    
    
    2,340
    
    
    
    
    
    
    
    110,487Supplies
    
    
    46,251
    
    
    
    50
    
    
    
    
    
    
    
    46,301Medical claims
    
    
    
    
    
    
    60,215
    
    
    
    (2,335
    )
    
    
    57,880Other operating expenses
    
    
    55,894
    
    
    
    2,573
    
    
    
    
    
    
    
    58,467Provision for bad debts
    
    
    32,169
    
    
    
    
    
    
    
    
    
    
    
    32,169Adjusted EBITDA(1)
    
    
    46,087
    
    
    
    4,124
    
    
    
    
    
    
    
    50,211Interest expense, net
    
    
    13,878
    
    
    
    
    
    
    
    
    
    
    
    13,878Depreciation and amortization
    
    
    17,203
    
    
    
    45
    
    
    
    
    
    
    
    17,248Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    8,850Earnings before gain on sale of
assets, minority interests and
income taxes
    
    $
    6,156
    
    
    $
    4,079
    
    
    $
    
    
    
    $
    10,235Gain on sale of assets, net
    
    
    3,602
    
    
    
    
    
    
    
    
    
    
    
    3,602Minority interests
    
    
    (1,033
    )
    
    
    
    
    
    
    
    
    
    
    (1,033
    )Earnings before income taxes
    
    $
    8,725
    
    
    $
    4,079
    
    
    $
    
    
    
    $
    12,804Segment assets
    
    $
    1,076,737
    
    
    $
    6,468
    
    
    
    
    
    
    $
    1,083,205
 For the Three Months Ended March 31, 2003Acute Care
    
    Health Choice
    
    Eliminations
    
    ConsolidatedNet acute care revenue
    
    $
    234,177
    
    
    $
    
    
    
    $
    
    
    
    $
    234,177Premium revenue
    
    
    
    
    
    
    37,259
    
    
    
    
    
    
    
    37,259Revenue between segments
    
    
    1,625
    
    
    
    
    
    
    
    (1,625
    )
    
    
    Net revenue
    
    
    235,802
    
    
    
    37,259
    
    
    
    (1,625
    )
    
    
    271,436Salaries and benefits
    
    
    92,495
    
    
    
    1,658
    
    
    
    
    
    
    
    94,153Supplies
    
    
    37,663
    
    
    
    105
    
    
    
    
    
    
    
    37,768Medical claims
    
    
    
    
    
    
    32,723
    
    
    
    (1,625
    )
    
    
    31,098Other operating expenses
    
    
    46,530
    
    
    
    661
    
    
    
    
    
    
    
    47,191Provision for bad debts
    
    
    20,154
    
    
    
    
    
    
    
    
    
    
    
    20,154Adjusted EBITDA(1)
    
    
    38,960
    
    
    
    2,112
    
    
    
    
    
    
    
    41,072Interest expense, net
    
    
    13,131
    
    
    
    
    
    
    
    
    
    
    
    13,131Depreciation and amortization
    
    
    12,653
    
    
    
    29
    
    
    
    
    
    
    
    12,682Write-off of debt issue costs
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    3,900Earnings before minority
interests and income taxes
    
    
    9,276
    
    
    
    2,083
    
    
    
    
    
    
    
    11,359Minority interests
    
    
    (421
    )
    
    
    
    
    
    
    
    
    
    
    (421
    )Earnings before income taxes
    
    $
    8,855
    
    
    $
    2,083
    
    
    $
    
    
    
    $
    10,938Segment assets
    
    $
    922,043
    
    
    $
    3,691
    
    
    
    
    
    
    $
    925,734
 11




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS For the Six Months Ended March 31, 2004Acute Care
    
    Health Choice
    
    Eliminations
    
    ConsolidatedNet acute care revenue
    
    $
    535,603
    
    
    $
    
    
    
    $
    
    
    
    $
    535,603Premium revenue
    
    
    
    
    
    
    138,016
    
    
    
    
    
    
    
    138,016Revenue between segments
    
    
    5,314
    
    
    
    
    
    
    
    (5,314
    )
    
    
    Net revenue
    
    
    540,917
    
    
    
    138,016
    
    
    
    (5,314
    )
    
    
    673,619Salaries and benefits
    
    
    205,390
    
    
    
    4,513
    
    
    
    
    
    
    
    209,903Supplies
    
    
    86,488
    
    
    
    92
    
    
    
    
    
    
    
    86,580Medical claims
    
    
    
    
    
    
    120,965
    
    
    
    (5,314
    )
    
    
    115,651Other operating expenses
    
    
    109,037
    
    
    
    5,257
    
    
    
    
    
    
    
    114,294Provision for bad debts
    
    
    57,268
    
    
    
    
    
    
    
    
    
    
    
    57,268Adjusted EBITDA(1)
    
    
    82,734
    
    
    
    7,189
    
    
    
    
    
    
    
    89,923Interest expense, net
    
    
    27,769
    
    
    
    
    
    
    
    
    
    
    
    27,769Depreciation and amortization
    
    
    33,893
    
    
    
    86
    
    
    
    
    
    
    
    33,979Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    8,850Earnings before gain on sale of
assets, minority interests and
income taxes
    
    $
    12,222
    
    
    $
    7,103
    
    
    $
    
    
    
    $
    19,325Gain on sale of assets, net
    
    
    3,753
    
    
    
    
    
    
    
    
    
    
    
    3,753Minority interests
    
    
    (2,024
    )
    
    
    
    
    
    
    
    
    
    
    (2,024
    )Earnings before income taxes
    
    $
    13,951
    
    
    $
    7,103
    
    
    $
    
    
    
    $
    21,054Segment assets
    
    $
    1,076,737
    
    
    $
    6,468
    
    
    
    
    
    
    $
    1,083,205
 12




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS For the Six Months Ended March 31, 2003Acute Care
    
    Health Choice
    
    Eliminations
    
    ConsolidatedNet acute care revenue
    
    $
    451,994
    
    
    $
    
    
    
    $
    
    
    
    $
    451,994Premium revenue
    
    
    
    
    
    
    74,207
    
    
    
    
    
    
    
    74,207Revenue between segments
    
    
    3,533
    
    
    
    
    
    
    
    (3,533
    )
    
    
    Net revenue
    
    
    455,527
    
    
    
    74,207
    
    
    
    (3,533
    )
    
    
    526,201Salaries and benefits
    
    
    179,738
    
    
    
    3,214
    
    
    
    
    
    
    
    182,952Supplies
    
    
    73,224
    
    
    
    227
    
    
    
    
    
    
    
    73,451Medical claims
    
    
    
    
    
    
    65,532
    
    
    
    (3,533
    )
    
    
    61,999Other operating expenses
    
    
    92,413
    
    
    
    1,291
    
    
    
    
    
    
    
    93,704Provision for bad debts
    
    
    39,865
    
    
    
    
    
    
    
    
    
    
    
    39,865Adjusted EBITDA(1)
    
    
    70,287
    
    
    
    3,943
    
    
    
    
    
    
    
    74,230Interest expense, net
    
    
    26,448
    
    
    
    
    
    
    
    
    
    
    
    26,448Depreciation and amortization
    
    
    25,471
    
    
    
    62
    
    
    
    
    
    
    
    25,533Write-off of debt issue costs
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    3,900Earnings before minority
interests and income taxes
    
    
    14,468
    
    
    
    3,881
    
    
    
    
    
    
    
    18,349Gain on sale of assets, net
    
    
    780
    
    
    
    
    
    
    
    
    
    
    
    780Minority interests
    
    
    (699
    )
    
    
    
    
    
    
    
    
    
    
    (699
    )Earnings before income taxes
    
    $
    14,549
    
    
    $
    3,881
    
    
    $
    
    
    
    $
    18,430Segment assets
    
    $
    922,043
    
    
    $
    3,691
    
    
    
    
    
    
    $
    925,734
  (1) Adjusted EBITDA represents net earnings before interest expense, gain on
sale of assets, minority interests, income taxes, depreciation and
amortization and write-off of debt issue costs. Management routinely
calculates and communicates Adjusted EBITDA and believes that it is useful
to investors because it is commonly used as an analytical indicator within
the healthcare industry to evaluate hospital performance, allocate
resources and measure leverage capacity and debt service ability. In
addition, the Company uses Adjusted EBITDA as a measure of performance for
its business segments and for incentive compensation purposes. Adjusted
EBITDA should not be considered as a measure of financial performance
under generally accepted accounting principles (GAAP), and the items
excluded from Adjusted EBITDA are significant components in understanding
and assessing financial performance. Adjusted EBITDA should not be
considered in isolation or as an alternative to net income, cash flows
generated by operating, investing, or financing activities or other
financial statement data presented in the consolidated financial
statements as an indicator of financial performance or liquidity. Adjusted
EBITDA, as presented, may not be comparable to similarly titled measures
of other companies. 8. Supplemental Condensed Consolidating Financial Information The 1999 Notes described in Note 3 are fully and unconditionally
guaranteed on a joint and several basis by all of the Companys material
subsidiaries. The 2003 Notes described in Note 3 are fully and unconditionally
guaranteed on a joint and several basis by all of the Companys material
subsidiaries except Health Choice. A summarized condensed consolidating balance sheet at March 31, 2004 and
September 30, 2003, condensed consolidating statement of operations for the
three months and six months ended March 31, 2004 and 2003 and condensed
consolidating statement of cash flows for the six months ended March 31, 2004
and 2003 for the Company, segregating the parent company issuer, the combined
100% owned subsidiary guarantors, the non-100% owned subsidiary guarantors and
eliminations, are found below. Separate unaudited condensed financial
statements of the non-100% owned subsidiary guarantors, Odessa Regional
Hospital, LP (Odessa), Jordan Valley Hospital, LP (Jordan Valley), The
Medical Center of Southeast Texas, LP (Southeast Texas) and Davis Hospital &
Medical Center, LP (Davis) are included as Exhibits 99.1, 99.2, 99.3, and
99.4, respectively, to this report on Form 10-Q. During the year ended
September 30, 2001, Odessa sold limited partner units, which diluted the
Companys ownership to 88.8%. On April 1, 2003, Jordan Valley sold limited
partner units, which diluted the Companys ownership to 97.4%. On August 1,
2003, Southeast Texas sold limited partner units, which diluted the Companys
ownership to 88.8%. On October 1, 2003, Davis sold limited partner units, which
diluted the Companys ownership to 97.5%. However, each of Odessa, Jordan
Valley, Southeast Texas and Davis continues to fully and unconditionally
guarantee the 1999 Notes and 2003 Notes. Prior to these transactions, all of
the Companys subsidiary guarantors were 100% owned. 13




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Condensed Consolidating Balance Sheet (unaudited)
March 31, 2004(in thousands) Subsidiary Guarantors
    
    HealthParent
    
    100%
    
    non-100%
    
    Choice
    
    
    
    
    
    CondensedIssuer
    
    owned
    
    owned (1)
    
    100% owned
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    97,432
    
    
    $
    1,363
    
    
    $
    
    
    
    $
    
    
    
    $
    98,795Accounts receivable, net
    
    
    
    
    
    
    136,155
    
    
    
    39,754
    
    
    
    
    
    
    
    
    
    
    
    175,909Inventories
    
    
    
    
    
    
    19,112
    
    
    
    7,395
    
    
    
    
    
    
    
    
    
    
    
    26,507Prepaid expenses and other current assets
    
    
    
    
    
    
    9,942
    
    
    
    3,021
    
    
    
    6,113
    
    
    
    
    
    
    
    19,076Total current assets
    
    
    
    
    
    
    262,641
    
    
    
    51,533
    
    
    
    6,113
    
    
    
    
    
    
    
    320,287Property and equipment, net
    
    
    
    
    
    
    337,232
    
    
    
    143,731
    
    
    
    756
    
    
    
    
    
    
    
    481,719Intercompany
    
    
    
    
    
    
    (92,634
    )
    
    
    36,216
    
    
    
    56,418
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    950,784
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (950,784
    )
    
    
    Goodwill
    
    
    
    
    
    
    208,150
    
    
    
    44,054
    
    
    
    
    
    
    
    
    
    
    
    252,204Other assets
    
    
    15,549
    
    
    
    10,195
    
    
    
    3,239
    
    
    
    12
    
    
    
    
    
    
    
    28,995Total assets
    
    $
    966,333
    
    
    $
    725,584
    
    
    $
    278,773
    
    
    $
    63,299
    
    
    $
    (950,784
    )
    
    $
    1,083,205Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    51,064
    
    
    $
    11,295
    
    
    $
    561
    
    
    $
    
    
    
    $
    62,920Salaries and benefits payable
    
    
    
    
    
    
    22,219
    
    
    
    7,517
    
    
    
    747
    
    
    
    
    
    
    
    30,483Accrued interest payable
    
    
    19,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,468Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,288
    
    
    
    
    
    
    
    45,288Accrued expenses and other current
liabilities
    
    
    
    
    
    
    22,785
    
    
    
    1,440
    
    
    
    509
    
    
    
    
    
    
    
    24,734Current portion of long-term debt and
capital lease obligations
    
    
    3,500
    
    
    
    1,700
    
    
    
    4,019
    
    
    
    
    
    
    
    (2,862
    )
    
    
    6,357Total current liabilities
    
    
    22,968
    
    
    
    97,768
    
    
    
    24,271
    
    
    
    47,105
    
    
    
    (2,862
    )
    
    
    189,250Long-term debt and capital lease obligations
    
    
    647,625
    
    
    
    5,643
    
    
    
    134,588
    
    
    
    
    
    
    
    (131,441
    )
    
    
    656,415Other long-term liabilities
    
    
    
    
    
    
    28,981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,981Minority interest
    
    
    
    
    
    
    12,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,391Total liabilities
    
    
    670,593
    
    
    
    144,783
    
    
    
    158,859
    
    
    
    47,105
    
    
    
    (134,303
    )
    
    
    887,037Stockholders equity
    
    
    295,740
    
    
    
    580,801
    
    
    
    119,914
    
    
    
    16,194
    
    
    
    (816,481
    )
    
    
    196,168Total liabilities and stockholders equity
    
    $
    966,333
    
    
    $
    725,584
    
    
    $
    278,773
    
    
    $
    63,299
    
    
    $
    (950,784
    )
    
    $
    1,083,205
  (1)
    
    A Supplemental Condensed Balance Sheet which presents information for the
individual non-100% owned subsidiary guarantors is presented below. 14




---



##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Non-100% Owned
Subsidiary Guarantors Supplemental Condensed Balance Sheet (unaudited)
March 31, 2004(in thousands) Total Non-100% OwnedOdessa
    
    Jordan
    
    Southeast
    
    
    
    
    
    SubsidiaryRegional
    
    Valley
    
    Texas
    
    Davis
    
    GuarantorsAssetsCurrent assets:Cash and cash equivalents
    
    $
    376
    
    
    $
    
    
    
    $
    987
    
    
    $
    
    
    
    $
    1,363Accounts receivable, net
    
    
    7,104
    
    
    
    7,650
    
    
    
    14,165
    
    
    
    10,835
    
    
    
    39,754Inventories
    
    
    1,229
    
    
    
    1,197
    
    
    
    3,418
    
    
    
    1,551
    
    
    
    7,395Prepaid expenses and other current assets
    
    
    189
    
    
    
    240
    
    
    
    1,995
    
    
    
    597
    
    
    
    3,021Total current assets
    
    
    8,898
    
    
    
    9,087
    
    
    
    20,565
    
    
    
    12,983
    
    
    
    51,533Property and equipment, net
    
    
    24,957
    
    
    
    42,364
    
    
    
    32,988
    
    
    
    43,422
    
    
    
    143,731Intercompany
    
    
    7,008
    
    
    
    (922
    )
    
    
    19,942
    
    
    
    10,188
    
    
    
    36,216Goodwill
    
    
    28,827
    
    
    
    8,925
    
    
    
    
    
    
    
    6,302
    
    
    
    44,054Other assets
    
    
    903
    
    
    
    1,406
    
    
    
    585
    
    
    
    345
    
    
    
    3,239Total assets
    
    $
    70,593
    
    
    $
    60,860
    
    
    $
    74,080
    
    
    $
    73,240
    
    
    $
    278,773Liabilities and equityCurrent liabilities:Accounts payable
    
    $
    2,436
    
    
    $
    2,804
    
    
    $
    3,349
    
    
    $
    2,706
    
    
    $
    11,295Salaries and benefits payable
    
    
    1,363
    
    
    
    1,520
    
    
    
    2,704
    
    
    
    1,930
    
    
    
    7,517Accrued interest payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued expenses and other current
liabilities
    
    
    171
    
    
    
    121
    
    
    
    310
    
    
    
    838
    
    
    
    1,440Current portion of long-term debt and
capital lease obligations
    
    
    1,101
    
    
    
    998
    
    
    
    754
    
    
    
    1,166
    
    
    
    4,019Total current liabilities
    
    
    5,071
    
    
    
    5,443
    
    
    
    7,117
    
    
    
    6,640
    
    
    
    24,271Long-term debt and capital lease obligations
    
    
    39,733
    
    
    
    31,925
    
    
    
    23,272
    
    
    
    39,658
    
    
    
    134,588Total liabilities
    
    
    44,804
    
    
    
    37,368
    
    
    
    30,389
    
    
    
    46,298
    
    
    
    158,859Stockholders equity
    
    
    25,789
    
    
    
    23,492
    
    
    
    43,691
    
    
    
    26,942
    
    
    
    119,914Total liabilities and stockholders equity
    
    $
    70,593
    
    
    $
    60,860
    
    
    $
    74,080
    
    
    $
    73,240
    
    
    $
    278,773
 15




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Condensed Consolidating Balance Sheet
September 30, 2003
(in thousands) Subsidiary Guarantors
    
    HealthParent
    
    100%
    
    non-100%
    
    Choice
    
    
    
    
    
    CondensedIssuer
    
    owned
    
    owned (1)
    
    100% owned
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    100,881
    
    
    $
    189
    
    
    $
    
    
    
    $
    
    
    
    $
    101,070Accounts receivable, net
    
    
    
    
    
    
    124,884
    
    
    
    28,299
    
    
    
    
    
    
    
    
    
    
    
    153,183Inventories
    
    
    
    
    
    
    17,774
    
    
    
    6,068
    
    
    
    
    
    
    
    
    
    
    
    23,842Prepaid expenses and other current assets
    
    
    
    
    
    
    10,230
    
    
    
    2,008
    
    
    
    4,078
    
    
    
    
    
    
    
    16,316Assets held for sale
    
    
    
    
    
    
    11,070
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,070Total current assets
    
    
    
    
    
    
    264,839
    
    
    
    36,564
    
    
    
    4,078
    
    
    
    
    
    
    
    305,481Property and equipment, net
    
    
    
    
    
    
    348,968
    
    
    
    85,841
    
    
    
    668
    
    
    
    
    
    
    
    435,477Intercompany
    
    
    
    
    
    
    (84,741
    )
    
    
    44,801
    
    
    
    39,940
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    948,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (948,121
    )
    
    
    Goodwill
    
    
    
    
    
    
    214,452
    
    
    
    37,752
    
    
    
    
    
    
    
    
    
    
    
    252,204Other assets
    
    
    21,472
    
    
    
    12,311
    
    
    
    3,054
    
    
    
    
    
    
    
    
    
    
    
    36,837Total assets
    
    $
    969,593
    
    
    $
    755,829
    
    
    $
    208,012
    
    
    $
    44,686
    
    
    $
    (948,121
    )
    
    $
    1,029,999Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    44,718
    
    
    $
    8,521
    
    
    $
    933
    
    
    $
    
    
    
    $
    54,172Salaries and benefits payable
    
    
    
    
    
    
    24,036
    
    
    
    5,806
    
    
    
    
    
    
    
    
    
    
    
    29,842Accrued interest payable
    
    
    20,978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,978Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,767
    
    
    
    
    
    
    
    25,767Accrued expenses and other current liabilities
    
    
    
    
    
    
    18,317
    
    
    
    2,212
    
    
    
    
    
    
    
    
    
    
    
    20,529Current portion of long-term debt and capital
lease obligations
    
    
    3,500
    
    
    
    1,714
    
    
    
    2,675
    
    
    
    
    
    
    
    (1,986
    )
    
    
    5,903Total current liabilities
    
    
    24,478
    
    
    
    88,785
    
    
    
    19,214
    
    
    
    26,700
    
    
    
    (1,986
    )
    
    
    157,191Long-term debt and capital lease obligations
    
    
    649,375
    
    
    
    6,005
    
    
    
    96,494
    
    
    
    
    
    
    
    (93,343
    )
    
    
    658,531Other long-term liabilities
    
    
    
    
    
    
    27,795
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,795Minority interest
    
    
    
    
    
    
    10,383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,383Stockholders equity
    
    
    295,740
    
    
    
    622,861
    
    
    
    92,304
    
    
    
    17,986
    
    
    
    (852,792
    )
    
    
    176,099Total liabilities and stockholders equity
    
    $
    969,593
    
    
    $
    755,829
    
    
    $
    208,012
    
    
    $
    44,686
    
    
    $
    (948,121
    )
    
    $
    1,029,999
  (1)
    
    A Supplemental Condensed Balance Sheet which presents information for the
individual non-100% owned subsidiary guarantors is presented below. 16




---



##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Non-100% Owned
Subsidiary Guarantors Supplemental Condensed Balance Sheet
September 30, 2003(in thousands) Total Non-100%Owned SubsidiaryOdessa Regional
    
    Jordan Valley
    
    Southeast Texas
    
    GuarantorsAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    189
    
    
    $
    
    
    
    $
    189Accounts receivable, net
    
    
    7,365
    
    
    
    6,938
    
    
    
    13,996
    
    
    
    28,299Inventories
    
    
    1,299
    
    
    
    1,210
    
    
    
    3,559
    
    
    
    6,068Prepaid expenses and other current assets
    
    
    249
    
    
    
    429
    
    
    
    1,330
    
    
    
    2,008Total current assets
    
    
    8,913
    
    
    
    8,766
    
    
    
    18,885
    
    
    
    36,564Property and equipment, net
    
    
    23,991
    
    
    
    36,670
    
    
    
    25,180
    
    
    
    85,841Intercompany
    
    
    14,107
    
    
    
    4,396
    
    
    
    26,298
    
    
    
    44,801Goodwill
    
    
    28,827
    
    
    
    8,925
    
    
    
    
    
    
    
    37,752Other assets
    
    
    864
    
    
    
    1,165
    
    
    
    1,025
    
    
    
    3,054Total assets
    
    $
    76,702
    
    
    $
    59,922
    
    
    $
    71,388
    
    
    $
    208,012Liabilities and equityCurrent liabilities:Accounts payable
    
    $
    2,501
    
    
    $
    2,431
    
    
    $
    3,589
    
    
    $
    8,521Salaries and benefits payable
    
    
    1,489
    
    
    
    1,496
    
    
    
    2,821
    
    
    
    5,806Accrued expenses and other current liabilities
    
    
    405
    
    
    
    242
    
    
    
    1,565
    
    
    
    2,212Current portion of long-term debt and capital lease obligations
    
    
    1,142
    
    
    
    957
    
    
    
    576
    
    
    
    2,675Total current liabilities
    
    
    5,537
    
    
    
    5,126
    
    
    
    8,551
    
    
    
    19,214Long-term debt and capital lease obligations
    
    
    40,253
    
    
    
    32,435
    
    
    
    23,806
    
    
    
    96,494Equity
    
    
    30,912
    
    
    
    22,361
    
    
    
    39,031
    
    
    
    92,304Total liabilities and equity
    
    $
    76,702
    
    
    $
    59,922
    
    
    $
    71,388
    
    
    $
    208,012
 17




---



##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Condensed Consolidating Statement of Operations
for the Three Months Ended March 31, 2004 (unaudited)(in thousands) Subsidiary Guarantors
    
    HealthParent
    
    100%
    
    non-100%
    
    Choice
    
    
    
    
    
    CondensedIssuer
    
    owned
    
    owned (1)
    
    Arizona
    
    Eliminations
    
    ConsolidatedNet revenue:Net acute care revenue
    
    $
    
    
    
    $
    207,764
    
    
    $
    80,784
    
    
    $
    
    
    
    $
    (2,335
    )
    
    $
    286,213Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,302
    
    
    
    
    
    
    
    69,302Total net revenue
    
    
    
    
    
    
    207,764
    
    
    
    80,784
    
    
    
    69,302
    
    
    
    (2,335
    )
    
    
    355,515Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    81,044
    
    
    
    27,103
    
    
    
    2,340
    
    
    
    
    
    
    
    110,487Supplies
    
    
    
    
    
    
    36,529
    
    
    
    9,722
    
    
    
    50
    
    
    
    
    
    
    
    46,301Medical claims
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,215
    
    
    
    (2,335
    )
    
    
    57,880Other operating expenses
    
    
    
    
    
    
    42,650
    
    
    
    13,244
    
    
    
    2,573
    
    
    
    
    
    
    
    58,467Provision for bad debts
    
    
    
    
    
    
    24,709
    
    
    
    7,460
    
    
    
    
    
    
    
    
    
    
    
    32,169Interest, net
    
    
    14,017
    
    
    
    (139
    )
    
    
    2,297
    
    
    
    
    
    
    
    (2,297
    )
    
    
    13,878Depreciation and amortization
    
    
    792
    
    
    
    13,365
    
    
    
    3,046
    
    
    
    45
    
    
    
    
    
    
    
    17,248Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Management fees
    
    
    (1,719
    )
    
    
    
    
    
    
    1,719
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (31,494
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,494
    
    
    
    Total costs and expenses
    
    
    (9,554
    )
    
    
    198,158
    
    
    
    64,591
    
    
    
    65,223
    
    
    
    26,862
    
    
    
    345,280Earnings before gain on sale of
assets, minority interest, and
income taxes
    
    
    9,554
    
    
    
    9,606
    
    
    
    16,193
    
    
    
    4,079
    
    
    
    (29,197
    )
    
    
    10,235Gain on sale of assets, net
    
    
    
    
    
    
    3,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,602Minority interests
    
    
    
    
    
    
    (1,033
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,033
    )Earnings before income taxes
    
    
    9,554
    
    
    
    12,175
    
    
    
    16,193
    
    
    
    4,079
    
    
    
    (29,197
    )
    
    
    12,804Income tax expense
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    953Net earnings (loss)
    
    $
    9,554
    
    
    $
    11,222
    
    
    
    16,193
    
    
    $
    4,079
    
    
    $
    (29,197
    )
    
    $
    11,851
  (1)
    
    A Supplemental Condensed Statement of Operations which presents
information for the individual non-100% owned subsidiary guarantors is
presented below. 18




---



##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation
Non-100% Owned Subsidiary Guarantors Supplemental Condensed Statement of Operations (unaudited)
for the Three Months Ended March 31, 2004(in thousands) Total Non-100%Odessa
    
    Jordan
    
    Southeast
    
    Davis
    
    Owned SubsidiaryRegional
    
    Valley
    
    Texas
    
    Hospital
    
    GuarantorsNet acute care revenue
    
    $
    14,555
    
    
    $
    15,064
    
    
    $
    29,213
    
    
    $
    21,952
    
    
    $
    80,784Costs and expenses:Salaries and benefits
    
    
    5,500
    
    
    
    5,096
    
    
    
    9,800
    
    
    
    6,707
    
    
    
    27,103Supplies
    
    
    1,439
    
    
    
    1,579
    
    
    
    4,041
    
    
    
    2,663
    
    
    
    9,722Other operating expenses
    
    
    2,087
    
    
    
    2,108
    
    
    
    5,799
    
    
    
    3,250
    
    
    
    13,244Provision for bad debts
    
    
    1,411
    
    
    
    1,287
    
    
    
    3,350
    
    
    
    1,412
    
    
    
    7,460Interest, net
    
    
    940
    
    
    
    747
    
    
    
    (313
    )
    
    
    923
    
    
    
    2,297Depreciation and
amortization
    
    
    588
    
    
    
    618
    
    
    
    957
    
    
    
    883
    
    
    
    3,046Management fees
    
    
    323
    
    
    
    301
    
    
    
    656
    
    
    
    439
    
    
    
    1,719Total costs and expenses
    
    
    12,288
    
    
    
    11,736
    
    
    
    24,290
    
    
    
    16,277
    
    
    
    64,591Earnings before income taxes
    
    
    2,267
    
    
    
    3,328
    
    
    
    4,923
    
    
    
    5,675
    
    
    
    16,193Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    $
    2,267
    
    
    $
    3,328
    
    
    $
    4,923
    
    
    $
    5,675
    
    
    $
    16,193
 19




---



##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Three Months Ended March 31, 2003 (unaudited)(in thousands) Subsidiary Guarantors100%
    
    Non-100%
    
    
    
    
    
    CondensedParent Issuer
    
    Owned
    
    Owned(1)
    
    Eliminations
    
    ConsolidatedNet revenue:Net acute care revenue
    
    $
    
    
    
    $
    218,033
    
    
    $
    17,769
    
    
    $
    (1,625
    )
    
    
    234,177Premium revenue
    
    
    
    
    
    
    37,259
    
    
    
    
    
    
    
    
    
    
    
    37,259Total net revenue
    
    
    
    
    
    
    255,292
    
    
    
    17,769
    
    
    
    (1,625
    )
    
    
    271,436Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    88,630
    
    
    
    5,523
    
    
    
    
    
    
    
    94,153Supplies
    
    
    
    
    
    
    35,402
    
    
    
    2,366
    
    
    
    
    
    
    
    37,768Medical claims
    
    
    
    
    
    
    32,723
    
    
    
    
    
    
    
    (1,625
    )
    
    
    31,098Other operating expenses
    
    
    
    
    
    
    44,561
    
    
    
    2,630
    
    
    
    
    
    
    
    47,191Provision for bad debts
    
    
    
    
    
    
    18,799
    
    
    
    1,355
    
    
    
    
    
    
    
    20,154Interest, net
    
    
    12,920
    
    
    
    211
    
    
    
    1,262
    
    
    
    (1,262
    )
    
    
    13,131Depreciation and amortization
    
    
    839
    
    
    
    11,318
    
    
    
    525
    
    
    
    
    
    
    
    12,682Write-off of debt issue costs
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,900Management fees
    
    
    (348
    )
    
    
    
    
    
    
    348
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (26,987
    )
    
    
    
    
    
    
    
    
    
    
    26,987
    
    
    
    Total costs and expenses
    
    
    (9,676
    )
    
    
    231,644
    
    
    
    14,009
    
    
    
    24,100
    
    
    
    260,077Earnings (loss) from operations before minority
interests and income taxes
    
    
    9,676
    
    
    
    23,648
    
    
    
    3,760
    
    
    
    (25,725
    )
    
    
    11,359Minority interests
    
    
    
    
    
    
    (421
    )
    
    
    
    
    
    
    
    
    
    
    (421
    )Earnings (loss) from operations before income taxes
    
    
    9,676
    
    
    
    23,227
    
    
    
    3,760
    
    
    
    (25,725
    )
    
    
    10,938Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    9,676
    
    
    $
    23,227
    
    
    $
    3,760
    
    
    $
    (25,725
    )
    
    $
    10,938
  (1)
    
    Odessa Regional. 20




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation Condensed Consolidating Statement of Operations
for the Six Months Ended March 31, 2004 (unaudited)(in thousands) Subsidiary Guarantors
    
    HealthParent
    
    100%
    
    Non-100%
    
    Choice
    
    
    
    
    
    CondensedIssuer
    
    owned
    
    owned (1)
    
    Arizona
    
    Eliminations
    
    ConsolidatedNet revenue:Net acute care revenue
    
    $
    
    
    
    $
    381,046
    
    
    $
    159,871
    
    
    $
    
    
    
    $
    (5,314
    )
    
    $
    535,603Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,016
    
    
    
    
    
    
    
    138,016Total net revenue
    
    
    
    
    
    
    381,046
    
    
    
    159,871
    
    
    
    138,016
    
    
    
    (5,314
    )
    
    
    673,619Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    152,304
    
    
    
    53,086
    
    
    
    4,513
    
    
    
    
    
    
    
    209,903Supplies
    
    
    
    
    
    
    66,898
    
    
    
    19,591
    
    
    
    91
    
    
    
    
    
    
    
    86,580Medical claims
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,965
    
    
    
    (5,314
    )
    
    
    115,651Other operating expenses
    
    
    
    
    
    
    82,504
    
    
    
    26,533
    
    
    
    5,257
    
    
    
    
    
    
    
    114,294Provision for bad debts
    
    
    
    
    
    
    43,361
    
    
    
    13,907
    
    
    
    
    
    
    
    
    
    
    
    57,268Interest, net
    
    
    28,596
    
    
    
    (827
    )
    
    
    5,205
    
    
    
    
    
    
    
    (5,205
    )
    
    
    27,769Depreciation and amortization
    
    
    1,776
    
    
    
    26,305
    
    
    
    5,812
    
    
    
    86
    
    
    
    
    
    
    
    33,979Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Management fees
    
    
    (3,364
    )
    
    
    
    
    
    
    3,364
    
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (50,722
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,722
    
    
    
    Total costs and expenses
    
    
    (14,864
    )
    
    
    370,545
    
    
    
    127,498
    
    
    
    130,912
    
    
    
    40,203
    
    
    
    654,294Earnings before gain on sale of
assets, minority interest, and
income taxes
    
    
    14,864
    
    
    
    10,501
    
    
    
    32,373
    
    
    
    7,104
    
    
    
    (45,517
    )
    
    
    19,325Gain on sale of assets, net
    
    
    
    
    
    
    3,753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,753Minority interests
    
    
    
    
    
    
    (2,024
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,024
    )Earnings before income taxes
    
    
    14,864
    
    
    
    12,230
    
    
    
    32,373
    
    
    
    7,104
    
    
    
    (45,517
    )
    
    
    21,054Income tax expense
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985Net earnings (loss)
    
    $
    14,864
    
    
    $
    11,245
    
    
    $
    32,373
    
    
    $
    7,104
    
    
    $
    (45,517
    )
    
    $
    20,069
  (1)
    
    A Supplemental Condensed Statement of Operations which presents
information for the individual non-100% owned subsidiary guarantors is
presented below. 21




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation
Non-100% Owned Subsidiary Guarantors Supplemental Condensed Statement of Operations (unaudited)
for the Six Months Ended March 31, 2004(in thousands) Total Non-100%Odessa
    
    Jordan
    
    Southeast
    
    
    
    
    
    Owned SubsidiaryRegional
    
    Valley
    
    Texas
    
    Davis
    
    GuarantorsNet acute care revenue
    
    $
    30,145
    
    
    $
    29,978
    
    
    $
    57,171
    
    
    $
    42,577
    
    
    $
    159,871Costs and expenses:Salaries and benefits
    
    
    10,812
    
    
    
    9,812
    
    
    
    19,507
    
    
    
    12,955
    
    
    
    53,086Supplies
    
    
    2,979
    
    
    
    3,113
    
    
    
    8,192
    
    
    
    5,307
    
    
    
    19,591Other operating expenses
    
    
    4,157
    
    
    
    4,411
    
    
    
    11,577
    
    
    
    6,388
    
    
    
    26,533Provision for bad debts
    
    
    2,704
    
    
    
    2,592
    
    
    
    6,303
    
    
    
    2,308
    
    
    
    13,907Interest, net
    
    
    1,887
    
    
    
    1,372
    
    
    
    450
    
    
    
    1,496
    
    
    
    5,205Depreciation and
amortization
    
    
    1,168
    
    
    
    1,220
    
    
    
    1,850
    
    
    
    1,574
    
    
    
    5,812Management fees
    
    
    627
    
    
    
    600
    
    
    
    1,285
    
    
    
    852
    
    
    
    3,364Total costs and expenses
    
    
    24,334
    
    
    
    23,120
    
    
    
    49,164
    
    
    
    30,880
    
    
    
    127,498Earnings before income taxes.
    
    
    5,811
    
    
    
    6,858
    
    
    
    8,007
    
    
    
    11,697
    
    
    
    32,373Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    $
    5,811
    
    
    $
    6,858
    
    
    $
    8,007
    
    
    $
    11,697
    
    
    $
    32,373
 22




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
IASIS Healthcare Corporation
Condensed Consolidating Statement of Operations
for the Six Months Ended March 31, 2003 (unaudited)
(in thousands) Subsidiary Guarantors100%
    
    Non-100%
    
    
    
    
    
    CondensedParent Issuer
    
    Owned
    
    Owned(1)
    
    Eliminations
    
    ConsolidatedNet revenueNet acute care revenue
    
    $
    
    
    
    $
    421,538
    
    
    $
    33,989
    
    
    $
    (3,533
    )
    
    $
    451,994Premium revenue
    
    
    
    
    
    
    74,207
    
    
    
    
    
    
    
    
    
    
    
    74,207Total revenue
    
    
    
    
    
    
    495,745
    
    
    
    33,989
    
    
    
    (3,533
    )
    
    
    526,201Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    172,113
    
    
    
    10,839
    
    
    
    
    
    
    
    182,952Supplies
    
    
    
    
    
    
    68,656
    
    
    
    4,795
    
    
    
    
    
    
    
    73,451Medical claims
    
    
    
    
    
    
    65,532
    
    
    
    
    
    
    
    (3,533
    )
    
    
    61,999Other operating expenses
    
    
    
    
    
    
    88,528
    
    
    
    5,176
    
    
    
    
    
    
    
    93,704Provision for bad debts
    
    
    
    
    
    
    37,085
    
    
    
    2,780
    
    
    
    
    
    
    
    39,865Interest, net
    
    
    26,166
    
    
    
    282
    
    
    
    2,517
    
    
    
    (2,517
    )
    
    
    26,448Depreciation and amortization
    
    
    1,952
    
    
    
    22,549
    
    
    
    1,032
    
    
    
    
    
    
    
    25,533Write-off of debt issue costs
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,900Management fees
    
    
    (662
    )
    
    
    
    
    
    
    662
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (47,269
    )
    
    
    
    
    
    
    
    
    
    
    47,269
    
    
    
    Total costs and expenses
    
    
    (15,913
    )
    
    
    454,745
    
    
    
    27,801
    
    
    
    41,219
    
    
    
    507,852Earnings (loss) from operations
before minority interests and
income taxes
    
    
    15,913
    
    
    
    41,000
    
    
    
    6,188
    
    
    
    (44,752
    )
    
    
    18,349Gain on sale of assets, net
    
    
    
    
    
    
    780
    
    
    
    
    
    
    
    
    
    
    
    780Minority interests
    
    
    
    
    
    
    (699
    )
    
    
    
    
    
    
    
    
    
    
    (699
    )Earnings before income taxes
    
    
    15,913
    
    
    
    41,081
    
    
    
    6,188
    
    
    
    (44,752
    )
    
    
    18,430Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net earnings (loss)
    
    $
    15,913
    
    
    $
    41,081
    
    
    $
    6,188
    
    
    $
    (44,752
    )
    
    $
    18,430
  (1)
    
    Odessa Regional. 23




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##### Table of Contents



IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare Corporation
Condensed Consolidating Statement of Cash Flows
for the Six Months Ended March 31, 2004 (unaudited)(in thousands) Subsidiary Guarantors
    
    HealthParent
    
    100%
    
    Non-100%
    
    Choice
    
    
    
    
    
    CondensedIssuer
    
    Owned
    
    Owned (1)
    
    Arizona
    
    Eliminations
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    14,864
    
    
    $
    11,245
    
    
    $
    32,373
    
    
    $
    7,104
    
    
    $
    (45,517
    )
    
    $
    20,069Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    1,776
    
    
    
    26,305
    
    
    
    5,812
    
    
    
    86
    
    
    
    
    
    
    
    33,979Minority interests
    
    
    
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,024Gain on sale of property and
equipment
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,753
    )Write-off of debt issue costs
    
    
    
    
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Equity in earnings of affiliates
    
    
    (50,722
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,722
    
    
    
    Changes in operating assets and
liabilities, net of the effect
of dispositions:Accounts receivable
    
    
    
    
    
    
    (12,201
    )
    
    
    (187
    )
    
    
    
    
    
    
    
    
    
    
    (12,388
    )Establishment of accounts
receivable
    
    
    
    
    
    
    (10,338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,338
    )Inventories, prepaid
expenses and other current
assets
    
    
    
    
    
    
    (2,282
    )
    
    
    (65
    )
    
    
    (1,298
    )
    
    
    
    
    
    
    (3,645
    )Accounts payable and other
accrued liabilities
    
    
    (1,510
    )
    
    
    11,233
    
    
    
    (949
    )
    
    
    19,665
    
    
    
    
    
    
    
    28,439Net cash provided by (used in)
operating activities
    
    
    (35,592
    )
    
    
    31,083
    
    
    
    36,984
    
    
    
    25,557
    
    
    
    5,205
    
    
    
    63,237Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (28,639
    )
    
    
    (22,712
    )
    
    
    (173
    )
    
    
    
    
    
    
    (51,524
    )Proceeds from sale of assets
    
    
    
    
    
    
    14,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,928Cash paid for acquisition
    
    
    
    
    
    
    (23,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,032
    )Change in other assets
    
    
    
    
    
    
    (2,084
    )
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    (1,761
    )Net cash used in investing
activities
    
    
    
    
    
    
    (38,827
    )
    
    
    (22,389
    )
    
    
    (173
    )
    
    
    
    
    
    
    (61,389
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    
    
    
    
    (1,522
    )
    
    
    (1,561
    )
    
    
    
    
    
    
    
    
    
    
    (3,083
    )Debt financing costs incurred
    
    
    
    
    
    
    (1,024
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,024
    )Proceeds from hospital syndication
    
    
    
    
    
    
    1,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,801Change in intercompany balances with
affiliates, net
    
    
    33,317
    
    
    
    7,126
    
    
    
    (10,140
    )
    
    
    (25,384
    )
    
    
    (4,919
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,817
    )
    
    
    
    
    
    
    
    
    
    
    (1,817
    )Net cash provided by (used in)
financing activities
    
    
    33,317
    
    
    
    6,381
    
    
    
    (13,518
    )
    
    
    (25,384
    )
    
    
    (4,919
    )
    
    
    (4,123
    )Net increase (decrease) in cash and
cash equivalents
    
    
    (2,275
    )
    
    
    (1,363
    )
    
    
    1,077
    
    
    
    
    
    
    
    286
    
    
    
    (2,275
    )Cash and cash equivalents at
beginning of period
    
    
    101,070
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    (286
    )
    
    
    101,070Cash and cash equivalents at end of
period
    
    $
    98,795
    
    
    $
    (1,363
    )
    
    $
    1,363
    
    
    $
    
    
    
    $
    
    
    
    $
    98,795
  (1)
    
    A Supplemental Condensed Statement of Cash Flows which presents
information for the individual non-100% owned subsidiary guarantors is
presented below. 24




---



##### Table of Contents



IASIS Healthcare Corporation Supplemental Condensed Consolidating Statement of Cash Flows (unaudited)
for the Six Months Ended March 31, 2004(in thousands) Total Non-100%Odessa
    
    Jordan
    
    Southeast
    
    
    
    
    
    Owned SubsidiaryRegional
    
    Valley
    
    Texas
    
    Davis
    
    GuarantorsCash flows from operating activitiesNet earnings
    
    $
    5,811
    
    
    $
    6,858
    
    
    $
    8,007
    
    
    $
    11,697
    
    
    $
    32,373Adjustments to reconcile net earnings to net cash provided
by operating activitiesDepreciation and amortization
    
    
    1,168
    
    
    
    1,220
    
    
    
    1,850
    
    
    
    1,574
    
    
    
    5,812Changes in operating assets and liabilities:Accounts receivable
    
    
    261
    
    
    
    (712
    )
    
    
    (169
    )
    
    
    433
    
    
    
    (187
    )Inventories, prepaid expenses and other current assets
    
    
    130
    
    
    
    202
    
    
    
    (524
    )
    
    
    127
    
    
    
    (65
    )Accounts payable and other accrued liabilities
    
    
    (425
    )
    
    
    276
    
    
    
    (1,612
    )
    
    
    812
    
    
    
    (949
    )Net cash provided by operating activities
    
    
    6,945
    
    
    
    7,844
    
    
    
    7,552
    
    
    
    14,643
    
    
    
    36,984Cash flows from investing activitiesPurchase of property and equipment
    
    
    (2,134
    )
    
    
    (6,914
    )
    
    
    (9,658
    )
    
    
    (4,006
    )
    
    
    (22,712
    )Change in other assets
    
    
    (39
    )
    
    
    (240
    )
    
    
    439
    
    
    
    163
    
    
    
    323Net cash used in investing activities
    
    
    (2,173
    )
    
    
    (7,154
    )
    
    
    (9,219
    )
    
    
    (3,843
    )
    
    
    (22,389
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    (561
    )
    
    
    (468
    )
    
    
    (355
    )
    
    
    (177
    )
    
    
    (1,561
    )Change in intercompany balances with affiliates, net
    
    
    (2,609
    )
    
    
    (263
    )
    
    
    3,362
    
    
    
    (10,630
    )
    
    
    (10,140
    )Distribution of minority interests
    
    
    (1,226
    )
    
    
    (148
    )
    
    
    (353
    )
    
    
    (90
    )
    
    
    (1,817
    )Net cash provided by (used in) financing activities
    
    
    (4,396
    )
    
    
    (879
    )
    
    
    2,654
    
    
    
    (10,897
    )
    
    
    (13,518
    )Net increase (decrease) in cash and cash equivalents
    
    
    376
    
    
    
    (189
    )
    
    
    987
    
    
    
    (97
    )
    
    
    1,077Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    97
    
    
    
    286Cash and cash equivalents at end of period
    
    $
    376
    
    
    $
    
    
    
    $
    987
    
    
    $
    
    
    
    $
    1,363
 25




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##### Table of Contents



IASIS Healthcare Corporation
Condensed Consolidating Statement of Cash Flows
for the Six Months Ended March 31, 2003 (unaudited)(in thousands) Subsidiary Guarantors100%
    
    Non-100%
    
    
    
    
    
    CondensedParent Issuer
    
    Owned
    
    Owned (1)
    
    Eliminations
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    15,913
    
    
    $
    41,081
    
    
    $
    6,188
    
    
    $
    (44,752
    )
    
    $
    18,430Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    1,952
    
    
    
    22,549
    
    
    
    1,032
    
    
    
    
    
    
    
    25,533Minority interests
    
    
    
    
    
    
    699
    
    
    
    
    
    
    
    
    
    
    
    699Gain on sale of property and equipment
    
    
    
    
    
    
    (780
    )
    
    
    
    
    
    
    
    
    
    
    (780
    )Write-off of debt issue costs
    
    
    
    
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    3,900Equity in earnings of affiliates
    
    
    (47,269
    )
    
    
    
    
    
    
    
    
    
    
    47,269
    
    
    
    Changes in operating assets and liabilities, net
of the effect of dispositions:Accounts receivable
    
    
    
    
    
    
    520
    
    
    
    (1,860
    )
    
    
    
    
    
    
    (1,340
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (1,466
    )
    
    
    550
    
    
    
    
    
    
    
    (916
    )Accounts payable and other accrued liabilities
    
    
    1,737
    
    
    
    4,817
    
    
    
    29
    
    
    
    
    
    
    
    6,583Net cash provided by (used in) operating activities
    
    
    (27,667
    )
    
    
    71,320
    
    
    
    5,939
    
    
    
    2,517
    
    
    
    52,109Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (36,000
    )
    
    
    (520
    )
    
    
    
    
    
    
    (36,520
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    2,863
    
    
    
    
    
    
    
    
    
    
    
    2,863Change in other assets
    
    
    
    
    
    
    (1,439
    )
    
    
    (293
    )
    
    
    
    
    
    
    (1,732
    )Net cash used in investing activities
    
    
    
    
    
    
    (34,576
    )
    
    
    (813
    )
    
    
    
    
    
    
    (35,389
    )Cash flows from financing activitiesProceeds from issuance of common stock
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Proceeds from senior bank debt borrowings
    
    
    454,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    454,100Payment of debt and capital leases
    
    
    (452,821
    )
    
    
    (593
    )
    
    
    (36
    )
    
    
    
    
    
    
    (453,450
    )Debt financing costs incurred
    
    
    (10,600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,600
    )Change in intercompany balances with affiliates, net
    
    
    43,350
    
    
    
    (36,143
    )
    
    
    (4,690
    )
    
    
    (2,517
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    (10
    )
    
    
    (400
    )
    
    
    
    
    
    
    (410
    )Net cash provided by (used in) financing activities
    
    
    34,029
    
    
    
    (36,744
    )
    
    
    (5,126
    )
    
    
    (2,517
    )
    
    
    (10,358
    )Net increase in cash and cash equivalents
    
    
    6,362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,362Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    6,362
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,362
  (1)
    
    Odessa Regional. 9. Subsequent Events As announced on May 5, 2004, the Company has entered into a definitive
Agreement and Plan of Merger in which all of the Companys stock will be
acquired through a merger by an entity formed by affiliates of Texas Pacific
Group and other investors. Immediately
prior to the closing of the merger, the Company will contribute substantially
all of its assets and liabilities to a newly-created wholly-owned limited
liability company subsidiary of the Company. After
giving effect to the merger, the Company will be a holding company which will
directly own all of the equity interest in the limited liability
company subsidiary. The transaction
is subject to regulatory approvals, financing and other customary closing
conditions. The Company has received equity and debt commitment
letters with respect to the financing necessary to complete the
transaction. In connection with the
transaction described above, the Company commenced a tender offer and consent
solicitation relating to all of its 1999 Notes and 2003 Notes. The purchase
price offered for each $1,000 principal amount of 1999 Notes and 2003 Notes
validly tendered will be based on a fixed spread of 50 basis
points over the yield on a specified date of the 1-7/8% U.S. Treasury Note due
September 30, 2004 for the 1999 Notes and the 4-5/8% U.S. Treasury Note due May
15, 2006 for the 2003 Notes, plus accrued and unpaid interest up to, but not
including, the date of payment for the 1999 Notes and 2003 Notes, in
each case less the
consent payment described below. In connection with the offer, the Company is
also soliciting consents to certain proposed amendments to eliminate
substantially all of the restrictive covenants in the indentures governing the
1999 Notes and 2003 Notes in exchange for a consent payment of $30.00 per
$1,000 principal amount of 1999 Notes and 2003 Notes. The tender
offer and consent solicitation are subject to various conditions,
including satisfaction of the conditions to the merger, the receipt
of financing and the repayment of all indebtedness under the
Companys 2003 credit facility, and receipt of consents of
holders representing a majority in principal amount of each of the
outstanding 1999 Notes and 2003 Notes. The
merger is conditioned on the satisfaction or waiver of the conditions
to the tender offer, the effectiveness of the indenture amendments
and the repayment of all indebtedness under the Companys 2003
credit facility. The
merger is expected to be completed by June 30, 2004. However, there
can be no assurance that the merger will be completed, or as to the
timing of its completion. 26




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##### Table of Contents



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 six months ended March
31, 2004 and 2003 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, 2003. 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. Executive Overview We are a leading owner and operator of acute care hospitals that develops
and operates 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 March 31, 2004, we owned or leased 15 acute care
hospitals and one behavioral health hospital,
with a total of 2,257 beds in service, located in five regions:  -
    
    Salt Lake City, Utah;-
    
    Phoenix, Arizona;-
    
    Tampa-St. Petersburg, Florida;-
    
    Las Vegas, Nevada; and-
    
    four cities in Texas, including San Antonio. We also have an ownership
interest in three ambulatory surgery centers and we own and operate a Medicaid managed health plan in Phoenix called Health
Choice Arizona, Inc., that serves over 92,000 members. 27




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##### Table of Contents



Impact of Acquisitions On January 31, 2004, and effective as of February 1, 2004, we, through a
wholly-owned subsidiary, acquired substantially all of the assets of Lake Mead
Hospital Medical Center in Las Vegas, Nevada. We acquired the 198-bed
hospital from a subsidiary of Tenet Healthcare Corporation. The purchase price
was $25.0 million. The net consideration paid, after working capital
adjustments and including direct transaction costs, was $23.0 million, which
was funded with cash on hand. The final purchase price is subject to net
working capital and other purchase price adjustments. The Tenet subsidiary
retained the accounts receivable related to the operations of the hospital.
The acquisition of Lake Mead Hospital Medical Center was accounted for using
the purchase method of accounting. The results of operations of Lake Mead
Hospital Medical Center are included in the accompanying condensed consolidated
statement of earnings for the three and six months ended March 31, 2004 from
the effective date of the acquisition. The process of integrating acquired hospitals may require a
disproportionate amount of managements time and attention, potentially
distracting management from its day-to-day responsibilities. In addition, poor
integration of acquired facilities could cause interruptions to our business
activities, including those of the acquired facilities. As a result, we may not
realize all or any of the anticipated benefits of an acquisition and we may
incur significant costs related to the acquisitions or integration of these
facilities. Sale of Rocky Mountain Medical Center Property On February 13, 2004, we closed the sale of our Rocky Mountain Medical
Center property in Salt Lake City, Utah. The approximately 23.5-acre property,
as well as certain associated equipment, fixtures and other personal property,
were acquired by the Board of Education of the Granite School District (of Salt
Lake County) for approximately $15.2 million. We recorded a
gain on sale of the property during the three months ended March 31, 2004 of
$3.6 million. Revenue/Volume Trends Net revenue is comprised of acute care and premium revenue. Net acute care
revenue is comprised of net patient service revenue and other revenue. Our
acute care facilities have experienced net revenue growth due to changes in
patient acuity and favorable pricing trends. Net patient service revenue is
reported net of contractual adjustments. The adjustments principally result
from differences between the hospitals established charges and payment rates
under Medicare, Medicaid and various managed care plans. 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. Premium revenue consists
of revenue from Health Choice, while other revenue includes medical office
building rental income and other miscellaneous revenue. Health Choice, our
Medicaid managed health plan, has experienced significant revenue growth as a
result of additional covered lives obtained as part of a new three-year
contract between Health Choice and Arizona Health Care Cost Containment System
effective October 1, 2003 and the resulting expansion of coverage in five new
counties. 28




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##### Table of Contents



The following table provides the sources of our net patient revenue by
payer for the three months ended March 31, 2004 compared to the period ended
March 31, 2003. Three months ended March 31,2004
    
    2003Medicare
    
    
    28.5
    %
    
    
    28.9
    %Medicaid
    
    
    13.2
    
    
    
    11.1Managed care
    
    
    43.6
    
    
    
    45.6Self pay
    
    
    8.8
    
    
    
    7.3Other
    
    
    5.9
    
    
    
    7.1Total
    
    
    100.0
    %
    
    
    100.0
    %
 A large percentage of our hospitals net patient service revenue consists
of fixed payment, discounted sources, including Medicare, Medicaid and managed
care organizations. Reimbursement for Medicare and Medicaid services are often
fixed regardless of the cost incurred or the level of services provided. We
expect patient volumes from Medicare to increase over the long term due to the
general aging of the population. We continue to experience growth in net revenue during fiscal year 2004. For
the three and six month periods ended March 31, 2004, our consolidated net
revenue increased $84.1 million, or 31.0%, and $147.7 million, or 28.0%,
respectively, over the same prior year periods. Contributing to the growth in
net revenue is an increase in net acute care revenue from our hospital
operations of $52.0 million and $83.6 million, for the three and six month
periods ended March 31, 2004, respectively, which includes net revenue from the
recently acquired Lake Mead Hospital Medical Center of $16.0 million. In
addition, an increase in net revenue from Health Choice of $32.1 million and
$63.8 million for the three and six months periods ended
March 31, 2004,
respectively, contributed to the increase in consolidated net revenue. We have experienced an increase in patient volume at our hospital operations,
particularly inpatient volume, which is due to a combination of the acquisition
of Lake Mead Hospital Medical Center, population growth in our markets,
introduction of new and expanded services at our hospitals and the results of
our physician recruiting efforts. However, the growth in same facility net
revenue from our hospital operations has been driven primarily by increases in
price and acuity. We continue to benefit from managed care contracting
strategies and related price increases that were obtained throughout the past
year, along with an increase in acuity levels from growth in inpatient surgical
volume and other higher acuity product lines. Our same facility net patient
revenue per adjusted admission increased 15.1% and 14.1% for the three and six
month periods ended March 31, 2004 compared to the same periods last year. Health Choice, our managed Medicaid health plan, derives substantially
all of its revenue through a contract with the Arizona Health Care Cost
Containment System to provide specified health services to qualified Medicaid
enrollees through contracts with providers. The contract requires us to provide
healthcare services in exchange for fixed periodic payments and supplemental
payments from the Arizona Health Care Cost Containment System. Heath Choice
entered into a new three-year contract with the Arizona Health Care Cost
Containment System effective October 1, 2003. As a result of our new contract,
our membership at Health Choice has increased from approximately 70,000
enrollees as of September 30, 2003 to over 92,000 enrollees as of March 31,
2004. The new contract provides the Arizona Health Care Cost Containment System
with two one-year renewal options following the initial term. In the event our
contract was to be discontinued, our net revenue would be reduced and our
profitability would be adversely affected. Other Trends The following paragraphs discuss recent trends that we believe are
significant factors in our current and/or future operating results and cash
flows. Certain of these trends apply to the entire acute care hospital
industry while others may apply to us more specifically. These trends could be
short-term in nature or could require long-term attention and resources. While
these trends may involve certain factors that are outside of our control, the
extent to which these trends affect our hospitals and our ability to manage the
impact of these trends play vital roles in our current and future success. In
many cases, we are unable to predict what impact these trends, if any, will
have on us. 29




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##### Table of Contents



Growth in Bad Debts Resulting From Increased Self-Pay Volume Like others in the hospital industry, we have experienced an increase in
our provision for bad debts as a percentage of net revenue. This increase is
due in large part to a growth in self-pay volume and revenue resulting
primarily from an increase in the number of uninsured patients, along with an
increase in the amount of co-pays and deductibles passed on by employers to
employees. We continue to seek ways of improving point of service collection
efforts and implementing appropriate payment plans with our patients. However,
we anticipate that if we continue to experience growth in self-pay volume and
revenue, our provision for bad debts will continue to increase and our results
of operations could be adversely affected. Additional Charity Care and Charges to the Uninsured We currently record revenue deductions for patient accounts that meet our
guidelines for charity care. Other hospital companies have recently proposed
changes to their charity care policies to provide discounts from gross charges
to certain patients without qualifying or adequate insurance. We are currently
reviewing our charity care and self-pay discounting policies and expect to
enact similar changes to such policies later this fiscal year. We do not
expect that implementation of such a change will have a material impact on our
results of operations. Development of Sub-Acute Care Services Inpatient care is expanding to include sub-acute care when a less
intensive, lower cost level of care is appropriate. We have been proactive in
the development of a variety of sub-acute inpatient services to utilize a
portion of our available capacity. By offering cost-effective sub-acute
services in appropriate circumstances, we are able to provide a continuum of
care when the demand for such services exists. We have identified
opportunities to expand existing physical rehabilitation units and develop
other post-acute services such as long term acute care arrangements within our
facilities. The results of our product line analyses confirm that the
development and use of such units continues to be economically beneficial. Nursing Shortage The hospital industry continues to experience a shortage of nurses. This
shortage is forecasted to continue. Like other providers in the Phoenix,
Arizona region, we have experienced difficulty in retaining and recruiting
nurses in that market. We have a comprehensive recruiting and retention plan
for nurses that focuses on competitive salaries and benefits as well as
employee satisfaction, best practices, tuition assistance, effective training
programs and workplace environment. Additionally, we are actively developing
programs to recruit qualified nurses from countries outside of the United
States. However, should we be unsuccessful in our attempts to maintain nursing
coverage adequate for our present and future needs, our future operating
results could be adversely affected. Decreased State Funding for Medicaid Programs Some of the states in which we operate have experienced budget constraints
as a result of increased costs and lower than expected tax collections. Health
and human services programs, including Medicaid and similar programs, represent
a significant portion of state spending. As a response to these budgetary
concerns, some states have proposed and other states may propose decreased
funding for these programs. If such funding decreases are approved by the
states in which we operate, our operating results and cash flows could be
adversely affected. Increasing Insurance Costs Consistent with 2003, our fiscal 2004 self-insured retention for
professional and general liability coverage is $5.0 million per claim and $45.0
million in the aggregate. Additionally, the maximum coverage under our
insurance policies is unchanged at $75.0 million. The rising cost of
professional liability insurance coverage and, in some cases, the lack of
availability of such insurance coverage for physicians with privileges at our
hospitals, increases our risk of vicarious liability in cases where both our
hospital and the uninsured or underinsured physician are named as
co-defendants. The cost of insurance has negatively affected operating results
and cash flows throughout the healthcare industry due to pricing pressures on
insurers and fewer carriers willing to underwrite professional and general
liability insurance. For the three and six months period ended March 31, 2004,
our insurance expense increased $1.3 million and $2.8 million, respectively,
over the prior comparable period. Some 30




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##### Table of Contents



states, including some states in which we operate, have recently passed
tort reform legislation or are considering such legislation to place limits on
non-economic damages. We currently have no information that would lead us to
believe that this current trend is temporary in nature, and thus there is no
assurance that continued increases in insurance costs will not have a material
adverse effect on our future operating results and cash flows. Critical Accounting Policies A summary of significant accounting policies is disclosed in Note 2 to the
Consolidated Financial Statements included in the Annual Report on Form 10-K
for the year ended September 30, 2003. Our critical accounting policies are
further described under the caption Critical Accounting Policies in
Managements Discussion and Analysis of Financial Condition and Results of
Operations in the Annual Report on Form 10-K for the year ended September 30,
2003. There have been no changes in the nature of our critical accounting
policies or the application of those policies since September 30, 2003. Selected Operating Data The following table sets forth certain unaudited operating data for each
of the periods presented: Three Months
    
    Six MonthsEnded March 31,
    
    Ended March 31,2004
    
    2003
    
    2004
    
    2003Consolidated:Number of acute care hospitals at end of period
    
    
    15
    
    
    
    14
    
    
    
    15
    
    
    
    14Beds in services at end of period(1)
    
    
    2,257
    
    
    
    2,022
    
    
    
    2,257
    
    
    
    2,022Average length of stay (days)(2)
    
    
    4.52
    
    
    
    4.56
    
    
    
    4.42
    
    
    
    4.48Occupancy rates (average beds in service)
    
    
    54.1
    %
    
    
    54.2
    %
    
    
    51.5
    %
    
    
    50.8
    %Admissions (3)
    
    
    23,804
    
    
    
    21,650
    
    
    
    44,873
    
    
    
    41,684Adjusted admissions(4)
    
    
    37,117
    
    
    
    35,229
    
    
    
    71,844
    
    
    
    69,396Patient days(5)
    
    
    107,518
    
    
    
    98,677
    
    
    
    198,129
    
    
    
    186,825Adjusted patient days(4)
    
    
    162,221
    
    
    
    154,458
    
    
    
    305,813
    
    
    
    297,760Outpatient revenue as a % of gross patient
revenue
    
    
    32.3
    %
    
    
    35.8
    %
    
    
    33.9
    %
    
    
    36.9
    %Same Facility(6):Number of acute care hospitals at end of period
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Beds in service at end of period
    
    
    2,081
    
    
    
    2,022
    
    
    
    2,081
    
    
    
    2,022Net acute care revenue
    
    $
    272.5
    
    
    $
    235.8
    
    
    $
    524.9
    
    
    $
    455.5Average length of stay (days)(2)
    
    
    4.50
    
    
    
    4.56
    
    
    
    4.40
    
    
    
    4.48Occupancy rates (average beds in service)
    
    
    53.7
    %
    
    
    54.2
    %
    
    
    51.2
    %
    
    
    50.8
    %Admissions(3)
    
    
    22,438
    
    
    
    21,650
    
    
    
    43,507
    
    
    
    41,684Adjusted admissions(4)
    
    
    35,405
    
    
    
    35,299
    
    
    
    70,133
    
    
    
    69,396Patient days (5)
    
    
    100,919
    
    
    
    98,677
    
    
    
    191,530
    
    
    
    186,825Adjusted patient days (2)
    
    
    153,953
    
    
    
    154,458
    
    
    
    297,545
    
    
    
    297,760Outpatient revenue as a % of gross patient
revenue
    
    
    33.4
    %
    
    
    35.8
    %
    
    
    34.5
    %
    
    
    36.9
    %
   (1)
    
    Includes 85 beds at St. Lukes Behavioral Hospital.(2)
    
    Represents the average number of days that a patient stayed in our
hospitals.(3)
    
    Represents the total number of patients admitted to our hospitals
inpatient units. Management and investors use this number as a general
measure of inpatient volume.(4)
    
    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.(5)
    
    Represents the number of days our beds were occupied over the period.(6)
    
    Excludes Lake Mead Hospital Medical Center acquired on February 1, 2004
with 176 beds in service. 31




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##### Table of Contents



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. The
results of operations include Health Choice (as well as Lake Mead Hospital
Medical Center from February 1, 2004, the effective date of acquisition). See
Note 7 to our unaudited condensed and consolidated financial statements for
disclosure of our results of operations by segment. Three Months Ended March 31,
    
    Six Months Ended March 31,2004
    
    2003
    
    2004
    
    2003Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    31.1
    
    
    
    34.7
    
    
    
    31.2
    
    
    
    34.8Supplies
    
    
    13.0
    
    
    
    13.9
    
    
    
    12.9
    
    
    
    14.0Medical claims
    
    
    16.3
    
    
    
    11.5
    
    
    
    17.2
    
    
    
    11.8Other operating expenses
    
    
    16.4
    
    
    
    17.4
    
    
    
    17.0
    
    
    
    17.8Provision for bad debts
    
    
    9.1
    
    
    
    7.4
    
    
    
    8.5
    
    
    
    7.6Depreciation and amortization
    
    
    4.8
    
    
    
    4.7
    
    
    
    5.0
    
    
    
    4.8Interest, net
    
    
    3.9
    
    
    
    4.8
    
    
    
    4.1
    
    
    
    5.0Write-off of debt issue costs
    
    
    2.5
    
    
    
    1.5
    
    
    
    1.3
    
    
    
    0.7Gain on sale of assets, net
    
    
    1.0
    
    
    
    
    
    
    
    0.6
    
    
    
    0.1Minority interests
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.1
    )Earnings before income taxes
    
    
    3.6
    
    
    
    4.0
    
    
    
    3.1
    
    
    
    3.5Income tax expense
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    Net earnings
    
    
    3.3
    %
    
    
    4.0
    %
    
    
    3.0
    %
    
    
    3.5
    %
 Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 Net Revenue Net revenue for the three months ended March 31, 2004 was
$355.5 million, an increase of $84.1 million, or 31.0%, from $271.4 million for
the same period in 2003. The increase in net revenue was due to a combination
of an increase of $52.0 million in net revenue from hospital operations, which
we refer to as our acute care service segment in our financial statements (of
which $16.0 million was contributed by Lake Mead Hospital Medical Center), and
an increase of $32.1 million in net revenue from Health Choice. Before eliminations, net revenue from our hospital operations for the
three months ended March 31, 2004 was $288.5 million, an increase of $52.7
million, or 22.3%, from $235.8 million for the same period in 2003. For the
three months ended March 31, 2004 and 2003, approximately $2.3 million and $1.6
million, respectively, of net revenue received from Health Choice by hospitals
and other healthcare entities owned by us in the Phoenix, Arizona market was
eliminated in consolidation. On a same facility basis, excluding the results of
Lake Mead Hospital Medical Center, net revenue from our hospital operations
increased $36.7 million, or 15.6%, which was primarily driven by
an increase in net patient revenue per adjusted
admission of 15.1%. The increase in net patient revenue per adjusted
admission resulted from a combination of
increased acuity and price increases in our hospital operations. Net revenue from Health Choice was $69.3 million for the three months
ended March 31, 2004, an increase of $32.1 million, or 85.8%, from $37.2
million for the same period in 2003. Covered lives under this prepaid Medicaid
plan have increased 52.0% to 92,598 at March 31, 2004 from 60,933 at March 31,
2003. The increase in covered lives has positively impacted Health Choices
net revenue for the three months ended March 31, 2004 compared to the same
period in 2003. Our growth in covered lives is due primarily to a new
three-year contract between Health Choice and Arizona Health Care Cost
Containment System effective October 1, 2003 and the resulting expansion of
coverage in five new counties. Salaries
and benefits -Salaries and benefits expense from our hospital
operations for the quarter ended March 31, 2004 was $108.1 million or 38.0%, of
acute care net revenue, compared to $92.5 million, or 39.2%, for the quarter
ended March 31, 2003. On a same facility basis, excluding the results of Lake
Mead Hospital Medical 32




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##### Table of Contents



Center, salaries and benefits expense was 37.5% of acute care net revenue
for the quarter ended March 31, 2004. The 1.7% decrease as a
percentage of acute care net revenue on a same facility basis resulted from
improved labor productivity through daily monitoring of staffing
levels and leveraging of growth in volume and net revenue
during the current period, as well as a reduction in contract labor
utilization. Contract labor, a component of salaries and benefits expense,
decreased 1.2% on a same facility basis as a percentage of acute care net
revenue, for the quarter ended March 31, 2004 compared to the quarter ended
March 31, 2003 as a result of our operational focus on managing the utilization
of contract nursing services. Nevertheless, we continue to experience a high
level of contract labor utilization in our Arizona market as a result of
continued volume growth and increases in acuity levels. Benefits expense from
our same facility operations increased by approximately $3.4 million. As a
percentage of acute care net revenue, benefits expense was comparable to the
prior year period. We implemented changes to our employee healthcare benefit
program effective January 1, 2004 in response to the increase in the cost of
healthcare benefits in fiscal 2003. Supplies Supplies expense from our hospital operations for the quarter
ended March 31, 2004 was $46.3 million, or 16.0% of acute care net revenue,
compared to $37.7 million, or 16.0%, for the quarter ended March 31, 2003. On
a same facility basis, supplies expense was 15.9% of acute care net revenue for
the quarter ended March 31, 2004. Medical claims Medical claims before eliminations for Health Choice
increased $27.5 million to $60.2 million for the quarter ended March 31, 2004
compared to $32.7 million for the quarter ended March 31, 2003. Medical claims
as a percentage of premium revenue were 86.9% for the three months ended March
31, 2003 and 87.8% for the same period last year. The increase in medical
claims expense is the result of an increase in enrollment from 60,933 members
at March 31, 2003 to 92,598 members at March 31, 2004. For the quarters ended
March 31, 2004 and 2003, approximately $2.3 million and $1.6 million,
respectively, of medical claims paid to our hospitals was eliminated in
consolidation. Medical claims represents the amounts paid by Health Choice for
healthcare services provided to its members. Other operating expenses Other operating expenses from our hospital
operations for the quarter ended March 31, 2004 was $55.9 million, or 19.4% of
acute care net revenue, compared to $46.5 million, or 19.7%, for the quarter
ended March 31, 2003. On a same facility basis, other operating expenses were
19.7% of acute care net revenue for the quarter ended March 31, 2004.
Insurance expense increased by approximately $1.1 million on a same facility
basis for the quarter ended March 31, 2004, compared to the prior quarter ended
March 31, 2003. 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 continued cost pressures on the professional liability insurance
market. Additionally, same facility physician recruiting expense and marketing
expense increased by $655,000 and $895,000, respectively, for the quarter ended
March 31, 2004, compared to the prior fiscal quarter. Other
operating expenses for our Health Choice segment increased $1.9
million from $700,000 at
March 31, 2003 to $2.6 million at March 31, 2004
primarily as the result of a
new premium tax which was implemented by the Arizona Health Care Cost
Containment System effective October 1, 2003. The premium tax for the current
quarter equaled $1.4 million and is offset by a corresponding increase in the
premium revenue paid by the Arizona Health Care Cost Containment System to
Health Choice. Provision for bad debts Provision for bad debts for our hospital
operations for the quarter ended March 31, 2004 was $32.2 million, or 11.2% of
acute care net revenue, compared to $20.2 million, or 8.6%, for the quarter
ended March 31, 2003. On a same facility basis, the provision for bad debts was
$27.9 million, or 10.2% of acute care net revenue for the quarter ended March
31, 2004. The 1.6% increase as a percentage of acute care net revenue on a
same facility basis was due primarily to growth in self-pay revenue resulting
from an increase in the number of uninsured and underinsured patients.
Additionally, the provision for bad debts has been negatively affected by an
increase in the amount of co-pays and deductibles passed on by employers to
employees. Depreciation and amortization- The $4.5 million increase in depreciation
and amortization expense from $12.7 million for the quarter ended March 31,
2003 to $17.2 million for the same period in 2004 was primarily the result of
the acceleration of depreciation on two of our facilities in anticipation of
consolidating these hospitals operations into a new hospital in the Port
Arthur, Texas area by mid-2005. This resulted in $3.2 million of additional
depreciation in the quarter ended March 31, 2004 as compared to same quarter in
the prior year. The remaining change in depreciation expense for the 2004
quarter is the result of incremental depreciation expense on Lake Mead and
other additions to property and equipment during fiscal years 2003 and 2004.
These additions are the result of the implementation of our operating strategy,
to make substantial investments in our existing facilities. 33




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Interest, net- The $800,000 increase in interest expense, net of interest
income, from $13.1 million for the quarter ended March 31, 2003 to $13.9
million for the same period in 2004 was due to additional interest expense
incurred on our 81/2% senior subordinated notes issued in June 2003, offset
by a decline in interest rates. Borrowings under our bank credit facility bear
interest at variable rates. The weighted average interest rate of outstanding
borrowings under the bank credit facility was approximately 4.8% for the
quarter ended March 31, 2004 compared to 5.6% for the quarter ended March 31,
2003. Minority interests Minority interests increased $612,000 to $1.0 million
for the three months ended March 31, 2004 compared to $421,000 for the quarter
ended March 31, 2003. Minority interests represent the third party portion of
earnings of our non-wholly owned subsidiaries included in our consolidated
statements of operations. The increase in minority interests relates primarily
to our syndication of four of our hospital subsidiaries during
fiscal 2003 and the first quarter of fiscal 2004, pursuant to which each
subsidiary sold limited partnership units to third party investors. Income tax expense- We recorded a provision for state income taxes for
the quarter ended March 31, 2004 of $953,000. We recorded no provision for
federal income taxes for the quarter ended March 31, 2003, and no provision for
federal or state income taxes for the same period in 2002 due to the use of
deferred tax assets that were previously reserved with a valuation allowance. Net earnings Net earnings increased from $10.9 million for the quarter
ended March 31, 2003 to $11.9 million for the quarter ended
March 31, 2004. Net earnings for the three months ended March
31, 2004 includes a $3.6 million gain on sale of our Rocky Mountain
Medical Center property and $8.9 million in write-off of deferred
financing costs. Six Months Ended March 31, 2004 compared to Six Months Ended March 31, 2003 Net Revenue Net revenue for the six months ended March 31, 2004 was
$673.6 million, an increase of $147.7 million, or 28.0%, from $526.2 million
for same period in 2003. The increase in net revenue was due to a combination
of an increase of $83.6 million in net revenue from hospital operations, which
we refer to as our acute care service segment in our financial statements (of
which $16.0 million was contributed by Lake Mead Hospital Medical Center, which
we acquired effective February 1, 2004), and an increase of $63.8 million in
net revenue from Health Choice. Before eliminations, net revenue from our hospital operations for the six
months ended March 31, 2004 was $540.9 million, up $85.4 million, or 18.7%,
from $455.5 million for the same period in 2003. For the six months ended
March 31, 2004 and 2003, approximately $5.3 million and $3.5 million,
respectively, of net revenue received from Health Choice by hospitals and other
healthcare entities owned by us was eliminated in consolidation. On a same
facility basis, net revenue from our hospital operations increased $69.4
million, or 15.2%, which was primarily driven by an increase in
patient revenue per adjusted admission of 14.1% due to a combination of increased acuity and price increases in our
hospital operations. Net revenue from Health Choice was $138.0 million for the six months ended
March 31, 2004, an increase of $63.8 million, or 86.0%, from $74.2 million for
the same period in 2003. Covered lives under this prepaid Medicaid plan have
increased 52.0% to 92,598 at March 31, 2004 from 60,933 at March 31, 2003. The
increase in covered lives has positively impacted Health Choices net revenue
for the six months ended March 31, 2004 compared to the same period in 2003.
Our growth in covered lives is due primarily to a new three-year contract
between Health Choice and Arizona Health Care Cost Containment System effective
October 1, 2003 and the resulting expansion of coverage in five new counties. Salaries and benefits Salaries and benefits expense from our hospital
operations for the six months ended March 31, 2004 was $205.4 million or 38.0%,
of acute care net revenue, compared to $179.7 million, or 39.5%, for the six
months ended March 31, 2003. On a same facility basis, salaries and benefits
expense as a percentage of acute care net revenue was also 38.0% for the six
months ended March 31, 2004. The 1.5% decrease as a percentage of acute care
net revenue on a same facility basis resulted from improved labor productivity
through daily monitoring of staffing levels and leveraging of growth in volume and net revenue during the current
period, as well as a reduction in contract labor utilization. Contract labor,
a component of salaries and benefits expense, decreased 0.7% on a same facility
basis as a percentage of acute care net revenue, for the six months ended March
31, 2004 compared to the six months ended March 31, 2003 as a result of our
operational focus on managing the utilization of contract nursing services.
Nevertheless, we continue to experience a high level of contract labor
utilization in our Arizona market as a result of 34




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continued volume growth and increases in acuity levels. Benefits expense
from our same facility hospital operations increased by approximately $5.9
million, or 0.1% as a percentage of acute care net revenue, for the six months
ended March 31, 2004 compared to the same period in 2003 due primarily to the
increased cost and utilization of healthcare benefits for employees. We
implemented changes to our employee healthcare benefit program effective
January 1, 2004 in response to the increase in the cost of healthcare benefits
in fiscal 2003. Supplies Supplies expense from our hospital operations for the six
months ended March 31, 2004 was $86.5 million, or 16.0% of acute care net
revenue, compared to $73.2 million, or 16.1%, for the six months ended March
31, 2003. On a same facility basis, supplies expenses was 15.9% of acute care
net revenue for the six months ended March 31, 2004. Medical claims Medical claims before eliminations for Health Choice
increased $55.5 million to $121.0 million for the six months ended March 31,
2004 compared to $65.5 million for the six months ended March 31, 2003.
Medical claims as a percentage of premium revenue were 87.6% for the six months
ended March 31, 2004 and 88.3% for the same period last year. The increase in
medical claims expense is the result of an increase in enrollment from 60,933
members at March 31, 2003 to 92,598 members at March 31, 2004. For the six
months ended March 31, 2004 and 2003, approximately $5.3 million and $3.5
million, respectively, of medical claims paid to our hospitals was eliminated
in consolidation. Medical claims represents the amounts paid by Health Choice
for healthcare services provided to its members. Other operating expenses Other operating expenses from our hospital
operations for the six months ended March 31, 2004 was $109.0 million, or 20.2%
of acute care net revenue, compared to $92.4 million, or 20.3%, for the six
months ended March 31, 2003. On a same facility basis, other operating
expenses were 20.4% of acute care net revenue for the six months ended March
31, 2004. The 0.1% increase as a percentage of acute care net revenue on a
same facility basis was primarily a result of increases in insurance expense,
marketing, physician recruiting costs and repairs and maintenance
expense, offset in part by a $1.0 million reduction in lease expense
at one of our leased hospitals.
Insurance expense increased by approximately $2.5 million on a same facility
basis for the six months ended March 31, 2004 compared to the six month period
ended March 31, 2003. 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 continued cost pressures on the professional liability insurance
market. Additionally, same facility physician recruiting expense, repairs and
maintenance expense, and marketing expense increased by $1.7 million, $1.8
million and $1.5 million, respectively, for the six months ended March 31, 2004
compared to the six months ended March 31, 2003. The $3.4 million increase in
other operating expenses for our Health Choice segment from $1.9 million at
March 31, 2003 to $5.3 million at March 31, 2004 was primarily the result of a
new premium tax which was implemented by the Arizona Health Care Cost
Containment System effective October 1, 2003. The premium tax for the six
months ended March 31, 2004 equaled $2.8 million and is offset by a
corresponding increase in the premium revenue paid by the Arizona Health Care
Cost Containment System to Health Choice. Provision for bad debts- Provision for bad debts for our hospital
operations for the six months ended March 31, 2004 was $57.3 million, or 10.6%
of acute care net revenue, compared to $39.9 million, or 8.8%, for the six
months ended March 31, 2004. On a same facility basis, the provision for bad
debts was $53.0 million, or 10.1% of acute care net revenue for the six months
ended March 31, 2004. The 1.3% increase on a same facility basis as a
percentage of acute care net revenue was due primarily to growth in self-pay
revenue resulting from an increase in the number of uninsured and underinsured
patients. Additionally, the provision for bad debts has been negatively
affected by an increase in the amount of co-pays and deductibles passed on by
employers to employees. Depreciation and amortization- The $8.5 million increase in depreciation
and amortization expense from $25.5 million for the six months ended March 31,
2003 to $34.0 million for the same period in 2004 was primarily the result of
the acceleration of depreciation on two of our facilities in anticipation of
consolidating these hospitals operations into a new hospital in the Port
Arthur, Texas area by mid-2005. This resulted in $6.4 million of additional
depreciation in the six months ended March 31, 2004 as compared to same six
months in the prior year. The remaining change in depreciation expense for the
six months ended March 31, 2004 is the result of incremental depreciation
expense on Lake Mead and other additions to property and equipment during
fiscal years 2003 and 2004. These additions are the result of the
implementation of our operating strategy, pursuant to which we have made
substantial investments in our existing facilities. 35




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##### Table of Contents



Interest, net- The $1.4 million increase in interest expense, net of
interest income, from $26.4 million for the six months ended March 31, 2003 to
$27.8 million for the same period in 2004 was due to additional interest
expense incurred on our 81/2% senior subordinated notes issued in June 2003,
offset by a decline in interest rates. Borrowings under our bank credit
facility bear interest at variable rates. The weighted average interest rate of
outstanding borrowings under the bank credit facility was approximately 5.1%
for the six months ended March 31, 2004 compared to 5.8% for the six months
ended March 31, 2003. Minority interests Minority interests increased $1.3 million to $2.0
million in for the six months ended March 31, 2004 compared to $700,000 for the
same prior year period. Minority interests represent the third party portion
of earnings of our non-wholly owned subsidiaries included in our consolidated
statements of operations. The increase in minority interests relates primarily
to our successful syndication of four of our hospital subsidiaries during
fiscal 2003 and the first three months of fiscal 2004, pursuant to which each
subsidiary sold limited partnership units to third party investors. Income tax expense- We recorded a provision for state income taxes for
the six months ended March 31, 2004 of $985,000. We recorded no provision for
federal income taxes for the six months ended March 31, 2003, and no provision
for federal or state income taxes for the same period in 2002 due to the use of
deferred tax assets that were previously reserved with a valuation allowance. Net earnings Net earnings increased from $18.4 million for the six
months ended March 31, 2003 to $20.1 million for the six months ended March 31,
2004. Net earnings for the six months ended March 31, 2004 includes a
$3.6 million gain on sale of our Rocky Mountain Medical Center
property and $8.9 million in write-off of deferred financing costs. Liquidity and Capital Resources Our primary sources of liquidity are cash flow provided by our operations,
available cash on hand and our revolving credit facility. At March 31, 2004,
we had $131.0 million in net working capital, compared to $148.3 million at
September 30, 2003, a decrease of $17.3 million. We generated cash from
operating activities of $63.2 million during the six months ended March 31,
2004, compared to $52.1 million during the six months ended March 31, 2003.
Net accounts receivable increased $22.7 million (including $10.3 million in the
establishment of Lake Mead Hospital Medical Center accounts receivable) from
$153.2 million at September 30, 2003 to $175.9 million at March 31, 2004. We
anticipate additional cash for establishment of accounts receivable at Lake Mead Hospital Medical
Center will be $4.0 to $5.0 million. We are in the process of
integrating the operations of Lake Mead Hospital Medical Center. Our
integration procedures, which include the conversion of patient
accounting and other key information systems, could cause
interruption of the hospitals business activities resulting in
additional working capital investment and other costs over the near
term. Excluding third-party settlement
receivables, our days of net revenue outstanding at March 31, 2004 and
September 30, 2003 were 56. Investing activities used $61.4 million during the six months ended March
31, 2004. During the quarter ended March 31, 2004, we paid $23.0 million for
the acquisition of Lake Mead Hospital Medical Center , including direct
transaction costs. Capital expenditures for the six months ended March 31,
2004, were approximately $51.5 million. Additionally, we received $14.9
million in net proceeds from the sale of the Rocky Mountain Medical Center
property. Our growth strategy requires significant capital expenditures during
the year ending September 30, 2004 and future years. We expect our capital
expenditures for the remainder of fiscal 2004 to be approximately $103.5
million to $113.5 million, including $34.0 million to $39.0 million of
construction and other project-related costs for our new Port Arthur, Texas
hospital, $26.5 million for the renovation and expansion of certain of our
other existing facilities, $30.0 million to $38.0 million for new equipment at
our facilities, (including $5.0 million to $8.0 million for equipment at Lake
Mead Hospital Medical Center), and $7.5 million in information systems. We plan
to open the new facility in Port Arthur by mid-2005. The total cost to build
the new hospital is currently estimated to be approximately $90.0 million. At
March 31, 2004, we had construction and other various projects
in progress with an estimated cost to
complete and equip of approximately $126.7 million. As a part of our overall commitment to an integrated information systems
strategy and the continued importance of improving the quality of care that
we provide to our patients, we have decided to implement an advanced
clinical information system in our hospitals. In order to accomplish these
objectives, during the quarter ended March 31, 2004, we entered into a
four-year agreement with an information systems vendor to provide clinical
information technology products and services at our hospitals. These systems
will also allow us to comply with recent initiatives approved by the
American Hospital Association and the Centers for Medicare and Medicaid
Services requiring healthcare providers to measure and report quality of
care and patient outcomes. Under the terms of the first year of the
agreement, we expect to spend approximately $7.2 million in hardware and
software related costs.
 We plan to finance our
proposed capital expenditures, including the construction of the new hospital,
with net proceeds from the June 2003 issuance of our 81/2% senior
subordinated notes, cash generated from operations, borrowings under our
revolving credit facility, real estate financing and other capital sources that
become available. In the event that we consummate the merger and the related
transactions described in the Subsequent Events section below, we anticipate
that we would finance our proposed capital expenditures with net proceeds from
a new issuance of senior subordinated notes or bridge loan and borrowings under
a new credit facility, as well as with cash generated from operations, real
estate financing and other capital sources that may become available. 36




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Financing activities used net cash of $4.1 million during the six months
ended March 31, 2004. During the six months ended March 31, 2004, we repaid
$1.8 million pursuant to the terms of our bank credit facility and repaid
capital lease obligations of $1.3 million. During the next twelve months, we
are required to repay $3.5 million in principal under our bank credit facility
and $2.8 million under our capital lease obligations. Our bank credit facility was amended on February 9, 2004 to, among other
things, reduce the applicable margin on the term loans by 150 basis points and
increase the annual capital expenditure limitations beginning in fiscal year
2005. In connection with this amendment, we wrote off approximately $8.9
million of deferred financing costs and incurred $1.0 million in new debt
financing costs. As amended effective February 9, 2004, the credit facility generally
provides for the following annual capital expenditure limitations: Maximum CapitalFiscal Year Ending
    
    ExpendituresSeptember 30, 2004
    
    $
    165,000,000September 30, 2005
    
    $
    95,000,000September 30, 2006
    
    $
    90,000,000September 30, 2007
    
    $
    85,000,000September 30, 2008
    
    $
    85,000,000September 30, 2009
    
    $
    85,000,000
 The credit facility requires that we comply with various other 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. Covenants under the credit facility include the following
ratios: March 31,2004Actual Total Leverage Ratio
    
    
    3.38Maximum Total Leverage Ratio
    
    
    5.00Actual Senior Total Leverage
    
    
    1.40Maximum Senior Leverage Ratio
    
    
    3.25Actual Interest Coverage Ratio
    
    
    2.91Minimum Interest Coverage Ratio
    
    
    2.00
 Failure to comply with these ratios would constitute an event of default
under the credit facility, thereby accelerating all amounts outstanding under
the term B loan and revolving credit facility, including all accrued interest
thereon, as due and payable upon demand by the lenders. In addition, the
occurrence of an event of default under the credit facility would constitute an
event of default under the indentures governing our 13% and 81/2% senior
subordinated notes. Such an event would have material adverse effect on our
liquidity and financial condition. At March 31, 2004, our bank credit facility consisted of a $321.1 million
term B loan and a $125 million revolving credit facility. No amounts were
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 March 31, 2004, we had issued $36.7 million in letters of credit.
We also pay a commitment fee equal to 0.5% of the average daily amount
available under the new revolving credit facility. At May 10, 2004, we had no
amounts under our new revolving credit facility and had issued $36.7 million in
letters of credit, resulting in remaining availability under the revolving
credit facility of $88.3 million. On
August 18, 2000, a complaint was filed on behalf of Rocky
Mountain Medical Center, Plaintiff, against St. Marks Hospital, defendant, in
Salt Lake City, Utah, alleging exclusionary contracting practices constituting,
among other things, a group boycott under the Utah Antitrust Act. On February
26, 2004, the court held a hearing for Defendants Motion for Summary Judgment
and, on February 27, 2004, the court granted 37




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Defendants motion for summary judgment. Rocky Mountain has appealed this
decision to the Utah Court of Appeals. We expect to incur additional fees and
costs related to this civil action during the appeals process, and, if
successful on appeal, in connection with the eventual jury trial. As of March 31, 2004, we provided a performance guaranty in the form of a
letter of credit in the amount of $20.6 million for the benefit of the Arizona
Health Care Cost Containment System to support our obligations under the Health
Choice contract to provide and pay for healthcare services. Additionally,
Health Choice maintains a cash balance of $5 million and an intercompany demand
note with the Company. The amount of the performance guaranty is based upon the
membership in the plan and the related capitation revenue paid to us. Based upon our current level of operations and anticipated growth, we
believe that cash generated from operations, cash on hand and amounts available
under the revolving credit facility will be adequate to meet our anticipated
debt service requirements, capital expenditures and working capital needs for
the next 12 months. We cannot assure you, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be
available under our bank credit facility, or otherwise, to enable us to grow
our business, service our indebtedness, including the bank credit facility and
our senior subordinated exchange notes, or make anticipated capital
expenditures. One element of our business strategy is expansion through the
acquisition of hospitals in existing and new markets. The completion of
acquisitions may result in the incurrence of, or assumption by us, of
additional indebtedness. We continually assess our capital needs and may seek
additional financing; including debt or equity as considered necessary to fund
capital expenditures and potential acquisitions or for other corporate
purposes. Our future operating performance, ability to service or refinance
the 13% and 81⁄2% senior subordinated 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. Subsequent Events As announced on May 5, 2004, we have entered into a definitive Agreement
and Plan of Merger in which all of our stock will be acquired through
a merger by an entity formed by affiliates of Texas Pacific Group and
other investors. Immediately prior to the
closing of the merger, we will contribute substantially all of our assets and
liabilities to a newly-created wholly-owned limited
liability company subsidiary. After giving effect to the merger, we will be a
holding company which will directly own all of the equity interest in
the limited liability company subsidiary. The transaction is subject to regulatory approvals, financing
and other customary closing conditions. We have received equity and
debt commitment letters with respect to the financing necessary to
complete the transaction. In connection with the transaction
described above, we commenced a tender offer and consent solicitation
relating to all of our 13% senior subordinated notes due 2009 and 81⁄2%
senior subordinated notes due 2009. The purchase price offered for each
$1,000 principal amount of the 13% senior subordinated notes and 81⁄2% senior
subordinated notes validly tendered will be based on a fixed
spread of 50 basis points over the yield on a specified date of the 1-7/8% U.S.
Treasury Note due September 30, 2004 for the 13% senior subordinated notes and
the 4-5/8% U.S. Treasury Note due May 15, 2006 for the 81⁄2% senior
subordinated notes, plus accrued and unpaid interest up to, but not including,
the date of payment for the 13% senior subordinated notes and 81⁄2% senior
subordinated notes, in each case less the consent payment described below. In connection
with the offer, we are also soliciting consents to certain proposed amendments
to eliminate substantially all of the restrictive covenants in the indentures
governing the 13% senior subordinated notes and 81⁄2% senior subordinated
notes in exchange for a consent payment of $30.00 per $1,000 principal amount
of 13% senior subordinated notes and 81⁄2% senior subordinated
notes. The tender offer and consent solicitation are subject to
various conditions, including satisfaction of the conditions to the
merger, the receipt of financing and the repayment of all
indebtedness under our 2003 credit facility, and receipt of consents
of holders representing a majority in principal amount of each of the
outstanding 13% senior subordinated notes and 81⁄2% senior
subordinated notes. The
merger is conditioned on the satisfaction or waiver of the conditions
to the tender offer, the effectiveness of the indenture amendments
and the repayments of all indebtedness under our 2003 credit
facility. The
merger is expected to be completed by June 30, 2004. However, there
can be no assurance that the merger will be completed, or as to the
timing of its completion. 38




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Item 3. Quantitative and Qualitative Disclosures About Market Risk During the six months ended March 31, 2004, 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, 2003. At March 31, 2004, the fair market
value of our outstanding 13% and 81⁄2% senior subordinated notes was $362.3
million, based upon quoted market prices as of that date. 
 Item 4. Controls and Procedures Under the supervision and with the participation of our management team,
including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended, as of March 31, 2004. Based on this
evaluation, the principal executive officer and principal accounting officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
reports. There were no changes in our internal control over financial reporting
that occurred during the period covered by this report that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. 
 PART II
OTHER INFORMATION 
 Item 1. Legal Proceedings. On
August 18, 2000, a complaint was filed on behalf of Rocky
Mountain Medical Center, Plaintiff, against St. Marks Hospital, defendant, in
Salt Lake City, Utah, alleging exclusionary contracting practices constituting,
among other things, a group boycott under the Utah Antitrust Act. On February
26, 2004, the court held a hearing for Defendants Motion for Summary Judgment
and, on February 27, 2004, the court granted Defendants motion for summary
judgment. Rocky Mountain has appealed this decision to the Utah Court of
Appeals. We except to incur additional fees and costs related to this civil
action during the appeals process, and, if successful on appeal, in connection
with the eventual jury trial. 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    List of Exhibits:  2.1
    
    Agreement and Plan of Merger dated as of May 4, 2004, by and
among IASIS Investment LLC, Titan Acquisition Corporation,
and IASIS Healthcare Corporation *2.2
    
    Indemnification Agreement dated as of May 4, 2004, by and
among IASIS Investment LLC, IASIS Healthcare Corporation, and
the stockholders and option holders of IASIS Healthcare
Corporation listed on the signature pages thereof*4.1
    
    Supplemental Indenture, dated as of January 23, 2004, among
Lake Mead Hospital, Inc., as Guaranteeing Subsidiary, and The
Bank of New York, as Trustee (13% Senior Subordinated Notes)4.2
    
    Supplemental Indenture, dated as of January 23, 2004, among
Lake Mead Hospital, Inc., as Guaranteeing Subsidiary, and The
Bank of New York, as Trustee (81⁄2% Senior Subordinated
Notes)10.1
    
    Information System Agreement, dated February 23, 2000,
between McKesson Information Solutions LLC and IASIS
Healthcare Corporation, as amended**10.2
    
    Joinder Agreement, dated as of January 23, 2004, by and
between Lake Mead Hospital, Inc. and Bank of America, N.A.,
as Administrative Agent and Collateral Agent 39




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31.1
    
    Certification of Principal Executive Officer Pursuant to Rule
15d14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Principal Financial Officer pursuant to Rule
15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200299.1
    
    Odessa Regional Hospital, LP Financial Statements99.2
    
    Jordan Valley Hospital, LP Financial Statements99.3
    
    The Medical Center of Southeast Texas, LP Financial Statements99.4
    
    Davis Hospital & Medical Center, LP Financial Statements   *
    
    Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this
agreement are omitted, but will be provided supplementally to the Commission upon
request.**
    
    Portions of this exhibit have been omitted and are subject to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended.  (b)
    
    Reports on Form 8-K:On January 13, 2004, the Company filed a Current Report on Form 8-K to report
that it had issued a press release announcing the signing of a definitive
agreement to sell its Rocky Mountain Medical Center property in Sale Lake
City, Utah.On January 20, 2004, the Company filed a Current Report on Form 8-K to report
that it had issued a press release announcing the signing of a definitive
agreement to acquire the assets related to the operation of Lake Mead
Hospital Medical Center in Las Vegas, Nevada.On January 30, 2004, the Company filed a Current Report on Form 8-K to report
that it had issued a press release announcing its earnings for the first
fiscal quarter ended December 31, 2003.On February 2, 2004, the Company filed a Current Report on Form 8-K to report
that it had acquired the assets related to the operation of Lake Mead
Hospital Medical Center in Las Vegas, Nevada.On February 10, 2004, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing the amendment of its
senior bank credit facility. 40




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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 CORPORATIONDate:
May 10, 2004
    
    By:
    
    /s/ W. Carl WhitmerW. Carl Whitmer, Chief Financial Officer(Principal Financial and Accounting Officer)
 41




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EXHIBIT INDEX Exhibit No.
    
    Description2.1
    
    Agreement and Plan of Merger dated as of May 4, 2004, by and
among IASIS Investment LLC, Titan Acquisition Corporation, and
IASIS Healthcare Corporation *2.2
    
    Indemnification Agreement dated as of May 4, 2004, by and
among IASIS Investment LLC, IASIS Healthcare Corporation, and
the stockholders and option holders of IASIS Healthcare
Corporation listed on the signatures pages thereof*4.1
    
    Supplemental Indenture, dated as of January 23, 2004, among
Lake Mead Hospital, Inc., as Guaranteeing Subsidiary, and The
Bank of New York, as Trustee (13% Senior Subordinated Notes)4.2
    
    Supplemental Indenture, dated as of January 23, 2004, among
Lake Mead Hospital, Inc., as Guaranteeing Subsidiary, and The
Bank of New York, as Trustee (81⁄2% Senior Subordinated
Notes)10.1
    
    Information System Agreement, dated February 23, 2000, between
McKesson Information Solutions LLC and IASIS Healthcare
Corporation, as amended**10.2
    
    Joinder Agreement, dated as of January 23, 2004, by and
between Lake Mead Hospital, Inc. and Bank of America, N.A., as
Administrative Agent and Collateral Agent31.1
    
    Certification of Principal Executive Officer Pursuant to Rule
15d14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Principal Financial Officer pursuant to Rule
15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
200299.1
    
    Odessa Regional Hospital, LP Financial Statements99.2
    
    Jordan Valley Hospital, LP Financial Statements99.3
    
    The Medical Center of Southeast Texas, LP Financial Statements99.4
    
    Davis Hospital & Medical Center, LP Financial Statements
   *
    
    Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to
this agreement are omitted, but will be provided supplementally to the
Commission upon request.**
    
    Portions of this exhibit have been omitted and are subject to a request for
confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934, as amended.