##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    20-1150104
(I.R.S. Employer
Identification No.)DOVER CENTRE 
117 SEABOARD LANE, BUILDING E 
FRANKLIN, TENNESSEE
(Address of principal executive offices)
    
    37067
(Zip Code)
 (615) 844-2747
 Not Applicable
 þ o
  o o þ
 o þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets  June 30, 2007 (Unaudited) and September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)  Quarters and Nine Months Ended June 30, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Nine Months Ended June 30, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 4. Controls and Procedures
    
    
    48PART II. OTHER INFORMATION
    
    
    49Item 1.
Legal Proceedings
    
    
    49Item 1A.
Risk Factors
    
    
    49Item 6. Exhibits
    
    
    49Amendment No. 16 to Contract effective 10/1/2006Section 302 Certification for CEOSection 302 Certification for CFO




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PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 (Unaudited)June 30,
    
    
    September 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    476
    
    
    $
    95,415Accounts receivable, net
    
    
    228,135
    
    
    
    182,452Inventories
    
    
    40,935
    
    
    
    34,299Deferred income taxes
    
    
    25,208
    
    
    
    41,416Prepaid expenses and other current assets
    
    
    51,365
    
    
    
    41,841Total current assets
    
    
    346,119
    
    
    
    395,423Property and equipment, net
    
    
    953,815
    
    
    
    727,048Goodwill
    
    
    756,479
    
    
    
    756,479Other intangible assets, net
    
    
    36,750
    
    
    
    39,000Other assets, net
    
    
    47,367
    
    
    
    49,885Total assets
    
    $
    2,140,530
    
    
    $
    1,967,835LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    72,787
    
    
    $
    73,351Salaries and benefits payable
    
    
    40,910
    
    
    
    29,082Accrued interest payable
    
    
    7,806
    
    
    
    19,965Medical claims payable
    
    
    78,804
    
    
    
    81,822Other accrued expenses and other current liabilities
    
    
    58,705
    
    
    
    49,087Current portion of long-term debt and capital lease obligations
    
    
    8,509
    
    
    
    7,432Total current liabilities
    
    
    267,521
    
    
    
    260,739Long-term debt and capital lease obligations
    
    
    1,022,610
    
    
    
    889,513Deferred income taxes
    
    
    82,289
    
    
    
    81,179Other long-term liabilities
    
    
    48,269
    
    
    
    47,611Minority
interests
    
    
    36,085
    
    
    
    32,297Equity:Members equity
    
    
    683,756
    
    
    
    656,496Total liabilities and equity
    
    $
    2,140,530
    
    
    $
    1,967,835
  1




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedJune 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Net revenue:Acute care revenue
    
    $
    357,254
    
    
    $
    314,994
    
    
    $
    1,030,212
    
    
    $
    919,855Premium revenue
    
    
    113,371
    
    
    
    105,969
    
    
    
    329,949
    
    
    
    298,541Total net revenue
    
    
    470,625
    
    
    
    420,963
    
    
    
    1,360,161
    
    
    
    1,218,396Costs and expenses:Salaries and benefits
    
    
    148,671
    
    
    
    120,325
    
    
    
    414,020
    
    
    
    351,332Supplies
    
    
    55,503
    
    
    
    48,814
    
    
    
    158,130
    
    
    
    143,742Medical claims
    
    
    94,009
    
    
    
    90,141
    
    
    
    274,243
    
    
    
    253,570Other operating expenses
    
    
    76,324
    
    
    
    65,762
    
    
    
    214,658
    
    
    
    181,850Provision for bad debts
    
    
    33,892
    
    
    
    32,800
    
    
    
    99,757
    
    
    
    110,302Rentals and leases
    
    
    8,577
    
    
    
    8,913
    
    
    
    26,266
    
    
    
    26,256Interest expense, net
    
    
    17,834
    
    
    
    17,438
    
    
    
    52,074
    
    
    
    52,376Depreciation and amortization
    
    
    19,782
    
    
    
    16,251
    
    
    
    54,882
    
    
    
    54,667Management fees
    
    
    1,187
    
    
    
    1,047
    
    
    
    3,560
    
    
    
    3,142Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    6,229
    
    
    
    Business interruption
insurance recoveries
    
    
    (1,525
    )
    
    
    (8,320
    )
    
    
    (3,443
    )
    
    
    (8,320
    )Total costs and expenses
    
    
    460,483
    
    
    
    393,171
    
    
    
    1,300,376
    
    
    
    1,168,917Earnings before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    10,142
    
    
    
    27,792
    
    
    
    59,785
    
    
    
    49,479Gain (loss) on disposal of
assets, net
    
    
    70
    
    
    
    (710
    )
    
    
    (1,243
    )
    
    
    (840
    )Minority interests
    
    
    (800
    )
    
    
    (1,718
    )
    
    
    (3,654
    )
    
    
    (2,388
    )Earnings before income taxes
    
    
    9,412
    
    
    
    25,364
    
    
    
    54,888
    
    
    
    46,251Income tax expense
    
    
    3,104
    
    
    
    9,452
    
    
    
    21,042
    
    
    
    17,756Net earnings
    
    $
    6,308
    
    
    $
    15,912
    
    
    $
    33,846
    
    
    $
    28,495
  2




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Nine Months Ended
    
    
    Nine Months EndedJune 30, 2007
    
    
    June 30, 2006Cash flows from operating activitiesNet earnings
    
    $
    33,846
    
    
    $
    28,495Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    54,882
    
    
    
    54,667Amortization of loan costs
    
    
    2,227
    
    
    
    2,209Minority interests
    
    
    3,654
    
    
    
    2,388Deferred income taxes
    
    
    17,319
    
    
    
    16,959Loss on disposal of assets, net
    
    
    1,243
    
    
    
    840Loss on extinguishment of debt
    
    
    5,091
    
    
    
    Changes in operating assets and liabilities, net of the
effect of acquisitions:Accounts receivable
    
    
    (29,383
    )
    
    
    (17,254
    )Inventories, prepaid expenses and other current assets
    
    
    (11,061
    )
    
    
    (14,441
    )Accounts payable, other accrued expenses and other
current liabilities
    
    
    1,221
    
    
    
    30,719Net cash provided by operating activities
    
    
    79,039
    
    
    
    104,582Cash flows from investing activitiesPurchases of property and equipment
    
    
    (150,819
    )
    
    
    (93,246
    )Cash paid
for acquisitions, net
    
    
    (139,832
    )
    
    
    Proceeds from sale of assets
    
    
    986
    
    
    
    Change in other assets
    
    
    4,409
    
    
    
    (176
    )Net cash used in investing activities
    
    
    (285,256
    )
    
    
    (93,422
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (611,163
    )
    
    
    (5,989
    )Proceeds from debt borrowings
    
    
    740,300
    
    
    
    Debt financing costs incurred
    
    
    (7,890
    )
    
    
    Distribution to parent for debt financing costs
    
    
    (6,586
    )
    
    
    Distribution of minority interests
    
    
    (3,387
    )
    
    
    (1,702
    )Proceeds received from sale of partnership interests
    
    
    4
    
    
    
    4,497Net cash provided by (used in) financing activities
    
    
    111,278
    
    
    
    (3,194
    )Increase (decrease) in cash and cash equivalents
    
    
    (94,939
    )
    
    
    7,966Cash and cash equivalents at beginning of period
    
    
    95,415
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    476
    
    
    $
    97,063Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    70,140
    
    
    $
    63,756Cash paid
for income taxes, net
    
    $
    7,254
    
    
    $
    514Cash paid in
loss on extinguishment of debt
    
    $
    1,138
    
    
    $
    Supplemental
schedule of non-cash investing and financing activitiesPartnership
interests issued for acquisition
    
    $
    3,517
    
    
    $
    
  3




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IASIS HEALTHCARE LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
   
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio;
    
    Las Vegas, Nevada; and
    
    West Monroe, Louisiana.
         4




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  June 30,
    
    
    September 30,2007
    
    
    2006Senior secured credit facilities
    
    $
    547,703
    
    
    $
    415,438Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital lease and other obligations
    
    
    8,416
    
    
    
    6,5071,031,119
    
    
    
    896,945Less current maturities
    
    
    8,509
    
    
    
    7,432$
    1,022,610
    
    
    $
    889,513
 Senior Secured Credit Facilities
      5




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  8 3/4% Senior Subordinated Notes
  $300.0 Million Holdings Senior Paid-in-Kind Loans
  3. ACQUISITIONS
 Acquisition of Glenwood Regional Medical Center
   Fair value of assets acquired and liabilities assumed:Assets acquiredAccounts receivable, net
    
    $
    11,358Inventory, prepaid expenses and other current assets
    
    
    3,838Property and equipment
    
    
    68,180Other long-term assets
    
    
    934Total assets acquired
    
    $
    84,310Liabilities assumed
    
    $
    6,080
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Acquisition of Alliance Hospital
   Fair value of assets acquired and liabilities assumed:Assets acquiredAccounts receivable, net
    
    $
    4,315Inventory, prepaid expenses and other current assets
    
    
    2,227Property and equipment
    
    
    73,738Total assets acquired
    
    $
    80,280Liabilities assumed
    
    $
    15,161
  4. MINIMUM REVENUE GUARANTEES
  Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or
Its Owners
  7




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   5. STOCK BENEFIT PLANS
 Accounting for
Stock Issued to Employees Accounting for Stock Based Compensation
 Share-Based Payment Statement of Cash Flows
  2004 Stock Option Plan
  8




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  WeightedAverage Exercise# of Options
    
    
    PriceOptions outstanding at September 30, 2006
    
    
    1,595,485
    
    
    $
    22.28Granted
    
    
    7,080
    
    
    $
    35.54Exercised
    
    
    
    
    
    
    Cancelled/forfeited
    
    
    (92,020
    )
    
    $
    25.27Options outstanding at June 30, 2007
    
    
    1,510,545
    
    
    $
    22.16Options exercisable at June 30, 2007
    
    
    732,061
    
    
    $
    20.84
  Nine MonthsQuarter Ended
    
    
    EndedJune 30, 2006
    
    
    June 30, 2006Net earnings as reported
    
    $
    15,912
    
    
    $
    28,495Deduct: Total stock based employee
compensation determined under fair value
based method for all awards, net of related
tax effects
    
    
    (416
    )
    
    
    (1,096
    )Pro forma net earnings
    
    $
    15,496
    
    
    $
    27,399
  Options Granted
    
    Options GrantedOn or After
    
    Prior toOctober 1, 2006
    
    October 1, 2006Risk-free interest
    
    
    4.55
    %
    
    
    4.64
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    36.9
    %
    
    
    N/AExpected option life
    
    7.4 years
    
    9.1 years
  6. CONTINGENCIES
 Net Revenue
  9




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Professional, General and Workers Compensation Liability Risks
   Health Choice
   Capital Expenditure Commitments
  10




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Variable Interest Entities
  Acquisitions
  Other
 qui tam qui tam qui tam qui tam
 qui tam
 qui tam
  11




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Fair Value Measurements
 8. SEGMENT AND GEOGRAPHIC INFORMATION
  12




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the Quarter Ended June 30, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    357,254
    
    
    $
    
    
    
    $
    
    
    
    $
    357,254Premium revenue
    
    
    
    
    
    
    113,371
    
    
    
    
    
    
    
    113,371Revenue between segments
    
    
    2,933
    
    
    
    
    
    
    
    (2,933
    )
    
    
    Net revenue
    
    
    360,187
    
    
    
    113,371
    
    
    
    (2,933
    )
    
    
    470,625Salaries and benefits
    
    
    144,818
    
    
    
    3,853
    
    
    
    
    
    
    
    148,671Supplies
    
    
    55,444
    
    
    
    59
    
    
    
    
    
    
    
    55,503Medical claims
    
    
    
    
    
    
    96,942
    
    
    
    (2,933
    )
    
    
    94,009Other operating expenses
    
    
    72,437
    
    
    
    3,887
    
    
    
    
    
    
    
    76,324Provision for bad debts
    
    
    33,892
    
    
    
    
    
    
    
    
    
    
    
    33,892Rentals and leases
    
    
    8,237
    
    
    
    340
    
    
    
    
    
    
    
    8,577Business interruption insurance recoveries
    
    
    (1,525
    )
    
    
    
    
    
    
    
    
    
    
    (1,525
    )Adjusted EBITDA(1)
    
    
    46,884
    
    
    
    8,290
    
    
    
    
    
    
    
    55,174Interest expense, net
    
    
    17,834
    
    
    
    
    
    
    
    
    
    
    
    17,834Depreciation and amortization
    
    
    18,893
    
    
    
    889
    
    
    
    
    
    
    
    19,782Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    6,229Management fees
    
    
    1,187
    
    
    
    
    
    
    
    
    
    
    
    1,187Earnings before gain on disposal of
assets, minority interests and income
taxes
    
    
    2,741
    
    
    
    7,401
    
    
    
    
    
    
    
    10,142Gain on disposal of assets, net
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    70Minority interests
    
    
    (800
    )
    
    
    
    
    
    
    
    
    
    
    (800
    )Earnings before income taxes
    
    $
    2,011
    
    
    $
    7,401
    
    
    $
    
    
    
    $
    9,412Segment assets
    
    $
    1,993,320
    
    
    $
    147,210
    
    
    
    
    
    
    $
    2,140,530Goodwill
    
    $
    750,722
    
    
    $
    5,757
    
    
    
    
    
    
    $
    756,479
 For the Quarter Ended June 30, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    314,994
    
    
    $
    
    
    
    $
    
    
    
    $
    314,994Premium revenue
    
    
    
    
    
    
    105,969
    
    
    
    
    
    
    
    105,969Revenue between segments
    
    
    2,538
    
    
    
    
    
    
    
    (2,538
    )
    
    
    Net revenue
    
    
    317,532
    
    
    
    105,969
    
    
    
    (2,538
    )
    
    
    420,963Salaries and benefits
    
    
    117,031
    
    
    
    3,294
    
    
    
    
    
    
    
    120,325Supplies
    
    
    48,737
    
    
    
    77
    
    
    
    
    
    
    
    48,814Medical claims
    
    
    
    
    
    
    92,679
    
    
    
    (2,538
    )
    
    
    90,141Other operating expenses
    
    
    62,365
    
    
    
    3,397
    
    
    
    
    
    
    
    65,762Provision for bad debts
    
    
    32,800
    
    
    
    
    
    
    
    
    
    
    
    32,800Rentals and leases
    
    
    8,665
    
    
    
    248
    
    
    
    
    
    
    
    8,913Business interruption insurance recoveries
    
    
    (8,320
    )
    
    
    
    
    
    
    
    
    
    
    (8,320
    )Adjusted EBITDA(1)
    
    
    56,254
    
    
    
    6,274
    
    
    
    
    
    
    
    62,528Interest expense, net
    
    
    17,438
    
    
    
    
    
    
    
    
    
    
    
    17,438Depreciation and amortization
    
    
    15,400
    
    
    
    851
    
    
    
    
    
    
    
    16,251Management fees
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    1,047Earnings before loss on disposal of
assets, minority interests and income
taxes
    
    
    22,369
    
    
    
    5,423
    
    
    
    
    
    
    
    27,792Loss on disposal of assets, net
    
    
    (710
    )
    
    
    
    
    
    
    
    
    
    
    (710
    )Minority interests
    
    
    (1,718
    )
    
    
    
    
    
    
    
    
    
    
    (1,718
    )Earnings before income taxes
    
    $
    19,941
    
    
    $
    5,423
    
    
    $
    
    
    
    $
    25,364Segment assets
    
    $
    1,790,877
    
    
    $
    133,246
    
    
    
    
    
    
    $
    1,924,123Goodwill
    
    $
    749,038
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,795
 
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, loss on extinguishment of debt, management fees, gain (loss) on
disposal of assets, and minority interests. Management fees represent monitoring and
advisory fees paid to Texas Pacific Group (TPG), the Companys majority financial sponsor,
and certain other members of IASIS Investment LLC. 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 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 13




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 alternative to net earnings, 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,
differs from what is defined under the Companys senior secured credit facilities and may not be
comparable to similarly titled measures of other companies. For the Nine Months Ended June 30, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    1,030,212
    
    
    $
    
    
    
    $
    
    
    
    $
    1,030,212Premium revenue
    
    
    
    
    
    
    329,949
    
    
    
    
    
    
    
    329,949Revenue between segments
    
    
    8,703
    
    
    
    
    
    
    
    (8,703
    )
    
    
    Net revenue
    
    
    1,038,915
    
    
    
    329,949
    
    
    
    (8,703
    )
    
    
    1,360,161Salaries and benefits
    
    
    403,132
    
    
    
    10,888
    
    
    
    
    
    
    
    414,020Supplies
    
    
    157,903
    
    
    
    227
    
    
    
    
    
    
    
    158,130Medical claims
    
    
    
    
    
    
    282,946
    
    
    
    (8,703
    )
    
    
    274,243Other operating expenses
    
    
    203,174
    
    
    
    11,484
    
    
    
    
    
    
    
    214,658Provision for bad debts
    
    
    99,757
    
    
    
    
    
    
    
    
    
    
    
    99,757Rentals and leases
    
    
    25,400
    
    
    
    866
    
    
    
    
    
    
    
    26,266Business interruption insurance recoveries
    
    
    (3,443
    )
    
    
    
    
    
    
    
    
    
    
    (3,443
    )Adjusted EBITDA(1)
    
    
    152,992
    
    
    
    23,538
    
    
    
    
    
    
    
    176,530Interest expense, net
    
    
    52,074
    
    
    
    
    
    
    
    
    
    
    
    52,074Depreciation and amortization
    
    
    52,218
    
    
    
    2,664
    
    
    
    
    
    
    
    54,882Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    6,229Management fees
    
    
    3,560
    
    
    
    
    
    
    
    
    
    
    
    3,560Earnings before loss on disposal of
assets, minority interests and income
taxes
    
    
    38,911
    
    
    
    20,874
    
    
    
    
    
    
    
    59,785Loss on disposal of assets, net
    
    
    (1,243
    )
    
    
    
    
    
    
    
    
    
    
    (1,243
    )Minority interests
    
    
    (3,654
    )
    
    
    
    
    
    
    
    
    
    
    (3,654
    )Earnings before income taxes
    
    $
    34,014
    
    
    $
    20,874
    
    
    $
    
    
    
    $
    54,888Segment assets
    
    $
    1,993,320
    
    
    $
    147,210
    
    
    
    
    
    
    $
    2,140,530Capital expenditures
    
    $
    150,488
    
    
    $
    331
    
    
    
    
    
    
    $
    150,819Goodwill
    
    $
    750,722
    
    
    $
    5,757
    
    
    
    
    
    
    $
    756,479
 For the Nine Months Ended June 30, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    919,855
    
    
    $
    
    
    
    $
    
    
    
    $
    919,855Premium revenue
    
    
    
    
    
    
    298,541
    
    
    
    
    
    
    
    298,541Revenue between segments
    
    
    7,047
    
    
    
    
    
    
    
    (7,047
    )
    
    
    Net revenue
    
    
    926,902
    
    
    
    298,541
    
    
    
    (7,047
    )
    
    
    1,218,396Salaries and benefits
    
    
    341,941
    
    
    
    9,391
    
    
    
    
    
    
    
    351,332Supplies
    
    
    143,548
    
    
    
    194
    
    
    
    
    
    
    
    143,742Medical claims
    
    
    
    
    
    
    260,617
    
    
    
    (7,047
    )
    
    
    253,570Other operating expenses
    
    
    172,161
    
    
    
    9,689
    
    
    
    
    
    
    
    181,850Provision for bad debts
    
    
    110,302
    
    
    
    
    
    
    
    
    
    
    
    110,302Rentals and leases
    
    
    25,457
    
    
    
    799
    
    
    
    
    
    
    
    26,256Business interruption insurance recoveries
    
    
    (8,320
    )
    
    
    
    
    
    
    
    
    
    
    (8,320
    )Adjusted EBITDA(1)
    
    
    141,813
    
    
    
    17,851
    
    
    
    
    
    
    
    159,664Interest expense, net
    
    
    52,376
    
    
    
    
    
    
    
    
    
    
    
    52,376Depreciation and amortization
    
    
    52,130
    
    
    
    2,537
    
    
    
    
    
    
    
    54,667Management fees
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    3,142Earnings before loss on disposal of
assets, minority interests and income
taxes
    
    
    34,165
    
    
    
    15,314
    
    
    
    
    
    
    
    49,479Loss on disposal of assets, net
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    (840
    )Minority interests
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Earnings before income taxes
    
    $
    30,937
    
    
    $
    15,314
    
    
    $
    
    
    
    $
    46,251Segment assets
    
    $
    1,790,877
    
    
    $
    133,246
    
    
    
    
    
    
    $
    1,924,123Capital expenditures
    
    $
    92,968
    
    
    $
    278
    
    
    
    
    
    
    $
    93,246Goodwill
    
    $
    749,038
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,795
 
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, loss on extinguishment of debt, management fees, loss on
disposal of assets, and minority interests. Management fees represent monitoring and
advisory fees paid to TPG, the Companys majority financial sponsor, and certain other members
of IASIS Investment LLC. 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 14




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 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
GAAP, and the items excluded from adjusted EBITDA are significant components in understanding
and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as
an alternative to net earnings, cash flows generated by operating, investing, or financing
activities or other financial statement data presented in the consolidated financial
statements as an indicator of financial performance or liquidity. Adjusted EBITDA, as presented,
differs from what is defined under the Companys senior secured credit facilities and may not be
comparable to similarly titled measures of other companies. 9. HURRICANE RITA INSURANCE RECOVERIES
  10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   15




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    (5,384
    )
    
    $
    5,860
    
    
    $
    
    
    
    $
    476Accounts receivable, net
    
    
    
    
    
    
    141,702
    
    
    
    86,433
    
    
    
    
    
    
    
    228,135Inventories
    
    
    
    
    
    
    25,967
    
    
    
    14,968
    
    
    
    
    
    
    
    40,935Deferred income taxes
    
    
    25,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,208Prepaid expenses and other current assets
    
    
    
    
    
    
    21,481
    
    
    
    29,884
    
    
    
    
    
    
    
    51,365Total current assets
    
    
    25,208
    
    
    
    183,766
    
    
    
    137,145
    
    
    
    
    
    
    
    346,119Property and equipment, net
    
    
    
    
    
    
    434,029
    
    
    
    519,786
    
    
    
    
    
    
    
    953,815Intercompany
    
    
    
    
    
    
    52,916
    
    
    
    (52,916
    )
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,585,606
    
    
    
    
    
    
    
    
    
    
    
    (1,585,606
    )
    
    
    Goodwill
    
    
    22,008
    
    
    
    207,074
    
    
    
    527,397
    
    
    
    
    
    
    
    756,479Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    36,750
    
    
    
    
    
    
    
    36,750Other assets, net
    
    
    21,392
    
    
    
    21,433
    
    
    
    4,542
    
    
    
    
    
    
    
    47,367Total assets
    
    $
    1,654,214
    
    
    $
    899,218
    
    
    $
    1,172,704
    
    
    $
    (1,585,606
    )
    
    $
    2,140,530Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    39,444
    
    
    $
    33,343
    
    
    $
    
    
    
    $
    72,787Salaries and benefits payable
    
    
    
    
    
    
    27,735
    
    
    
    13,175
    
    
    
    
    
    
    
    40,910Accrued interest payable
    
    
    7,806
    
    
    
    (2,070
    )
    
    
    2,070
    
    
    
    
    
    
    
    7,806Medical claims payable
    
    
    
    
    
    
    
    
    
    
    78,804
    
    
    
    
    
    
    
    78,804Other accrued expenses and other current liabilities
    
    
    
    
    
    
    32,984
    
    
    
    25,721
    
    
    
    
    
    
    
    58,705Current portion of long-term debt and capital lease
obligations
    
    
    4,542
    
    
    
    3,967
    
    
    
    9,268
    
    
    
    (9,268
    )
    
    
    8,509Total current liabilities
    
    
    12,348
    
    
    
    102,060
    
    
    
    162,381
    
    
    
    (9,268
    )
    
    
    267,521Long-term debt and capital lease obligations
    
    
    994,513
    
    
    
    28,097
    
    
    
    240,261
    
    
    
    (240,261
    )
    
    
    1,022,610Deferred income taxes
    
    
    82,289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,289Other long-term liabilities
    
    
    
    
    
    
    48,269
    
    
    
    
    
    
    
    
    
    
    
    48,269Minority interest
    
    
    
    
    
    
    36,085
    
    
    
    
    
    
    
    
    
    
    
    36,085Total liabilities
    
    
    1,089,150
    
    
    
    214,511
    
    
    
    402,642
    
    
    
    (249,529
    )
    
    
    1,456,774Members equity
    
    
    565,064
    
    
    
    684,707
    
    
    
    770,062
    
    
    
    (1,336,077
    )
    
    
    683,756Total liabilities and equity
    
    $
    1,654,214
    
    
    $
    899,218
    
    
    $
    1,172,704
    
    
    $
    (1,585,606
    )
    
    $
    2,140,530
 16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    94,518
    
    
    $
    897
    
    
    $
    
    
    
    $
    95,415Accounts receivable, net
    
    
    
    
    
    
    110,128
    
    
    
    72,324
    
    
    
    
    
    
    
    182,452Inventories
    
    
    
    
    
    
    22,249
    
    
    
    12,050
    
    
    
    
    
    
    
    34,299Deferred income taxes
    
    
    41,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,416Prepaid expenses and other current assets
    
    
    
    
    
    
    23,767
    
    
    
    18,074
    
    
    
    
    
    
    
    41,841Total current assets
    
    
    41,416
    
    
    
    250,662
    
    
    
    103,345
    
    
    
    
    
    
    
    395,423Property and equipment, net
    
    
    
    
    
    
    376,069
    
    
    
    350,979
    
    
    
    
    
    
    
    727,048Intercompany
    
    
    
    
    
    
    (91,498
    )
    
    
    91,498
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,479,245
    
    
    
    
    
    
    
    
    
    
    
    (1,479,245
    )
    
    
    Goodwill
    
    
    22,008
    
    
    
    207,301
    
    
    
    527,170
    
    
    
    
    
    
    
    756,479Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    39,000
    
    
    
    
    
    
    
    39,000Other assets, net
    
    
    20,715
    
    
    
    22,024
    
    
    
    7,146
    
    
    
    
    
    
    
    49,885Total assets
    
    $
    1,563,384
    
    
    $
    764,558
    
    
    $
    1,119,138
    
    
    $
    (1,479,245
    )
    
    $
    1,967,835Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    51,806
    
    
    $
    21,545
    
    
    $
    
    
    
    $
    73,351Salaries and benefits payable
    
    
    
    
    
    
    19,314
    
    
    
    9,768
    
    
    
    
    
    
    
    29,082Accrued interest payable
    
    
    19,965
    
    
    
    (1,517
    )
    
    
    1,517
    
    
    
    
    
    
    
    19,965Medical claims payable
    
    
    
    
    
    
    
    
    
    
    81,822
    
    
    
    
    
    
    
    81,822Other accrued expenses and other current liabilities
    
    
    
    
    
    
    38,050
    
    
    
    11,037
    
    
    
    
    
    
    
    49,087Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    2,009
    
    
    
    7,317
    
    
    
    (6,296
    )
    
    
    7,432Total current liabilities
    
    
    24,367
    
    
    
    109,662
    
    
    
    133,006
    
    
    
    (6,296
    )
    
    
    260,739Long-term debt and capital lease obligations
    
    
    886,188
    
    
    
    2,939
    
    
    
    242,353
    
    
    
    (241,967
    )
    
    
    889,513Deferred income taxes
    
    
    81,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,179Other long-term liabilities
    
    
    
    
    
    
    47,611
    
    
    
    
    
    
    
    
    
    
    
    47,611Minority interest
    
    
    
    
    
    
    32,297
    
    
    
    
    
    
    
    
    
    
    
    32,297Total liabilities
    
    
    991,734
    
    
    
    192,509
    
    
    
    375,359
    
    
    
    (248,263
    )
    
    
    1,311,339Members equity
    
    
    571,650
    
    
    
    572,049
    
    
    
    743,779
    
    
    
    (1,230,982
    )
    
    
    656,496Total liabilities and equity
    
    $
    1,563,384
    
    
    $
    764,558
    
    
    $
    1,119,138
    
    
    $
    (1,479,245
    )
    
    $
    1,967,835
 17




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    215,716
    
    
    $
    144,471
    
    
    $
    (2,933
    )
    
    $
    357,254Premium revenue
    
    
    
    
    
    
    
    
    
    
    113,371
    
    
    
    
    
    
    
    113,371Total net revenue
    
    
    
    
    
    
    215,716
    
    
    
    257,842
    
    
    
    (2,933
    )
    
    
    470,625Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    97,416
    
    
    
    51,255
    
    
    
    
    
    
    
    148,671Supplies
    
    
    
    
    
    
    36,348
    
    
    
    19,155
    
    
    
    
    
    
    
    55,503Medical claims
    
    
    
    
    
    
    
    
    
    
    96,942
    
    
    
    (2,933
    )
    
    
    94,009Other operating expenses
    
    
    
    
    
    
    44,485
    
    
    
    31,839
    
    
    
    
    
    
    
    76,324Provision for bad debts
    
    
    
    
    
    
    22,510
    
    
    
    11,382
    
    
    
    
    
    
    
    33,892Rentals and leases
    
    
    
    
    
    
    5,493
    
    
    
    3,084
    
    
    
    
    
    
    
    8,577Interest expense, net
    
    
    17,834
    
    
    
    
    
    
    
    5,110
    
    
    
    (5,110
    )
    
    
    17,834Depreciation and amortization
    
    
    
    
    
    
    12,667
    
    
    
    7,115
    
    
    
    
    
    
    
    19,782Management fees
    
    
    1,187
    
    
    
    (3,249
    )
    
    
    3,249
    
    
    
    
    
    
    
    1,187Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,229Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (1,525
    )
    
    
    
    
    
    
    (1,525
    )Equity in earnings of affiliates
    
    
    (29,556
    )
    
    
    
    
    
    
    
    
    
    
    29,556
    
    
    
    Total costs and expenses
    
    
    (4,306
    )
    
    
    215,670
    
    
    
    227,606
    
    
    
    21,513
    
    
    
    460,483Earnings (loss) before gain (loss) on disposal
of assets, minority interests and income taxes
    
    
    4,306
    
    
    
    46
    
    
    
    30,236
    
    
    
    (24,446
    )
    
    
    10,142Gain (loss) on disposal of assets, net
    
    
    
    
    
    
    (21
    )
    
    
    91
    
    
    
    
    
    
    
    70Minority interests
    
    
    
    
    
    
    (800
    )
    
    
    
    
    
    
    
    
    
    
    (800
    )Earnings (loss) before income taxes
    
    
    4,306
    
    
    
    (775
    )
    
    
    30,327
    
    
    
    (24,446
    )
    
    
    9,412Income tax expense
    
    
    3,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,104Net earnings (loss)
    
    $
    1,202
    
    
    $
    (775
    )
    
    $
    30,327
    
    
    $
    (24,446
    )
    
    $
    6,308
 18




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    195,982
    
    
    $
    121,550
    
    
    $
    (2,538
    )
    
    $
    314,994Premium revenue
    
    
    
    
    
    
    
    
    
    
    105,969
    
    
    
    
    
    
    
    105,969Total net revenue
    
    
    
    
    
    
    195,982
    
    
    
    227,519
    
    
    
    (2,538
    )
    
    
    420,963Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    77,427
    
    
    
    42,898
    
    
    
    
    
    
    
    120,325Supplies
    
    
    
    
    
    
    33,811
    
    
    
    15,003
    
    
    
    
    
    
    
    48,814Medical claims
    
    
    
    
    
    
    
    
    
    
    92,679
    
    
    
    (2,538
    )
    
    
    90,141Other operating expenses
    
    
    
    
    
    
    42,350
    
    
    
    23,412
    
    
    
    
    
    
    
    65,762Provision for bad debts
    
    
    
    
    
    
    20,856
    
    
    
    11,944
    
    
    
    
    
    
    
    32,800Rentals and leases
    
    
    
    
    
    
    5,880
    
    
    
    3,033
    
    
    
    
    
    
    
    8,913Interest expense, net
    
    
    17,438
    
    
    
    
    
    
    
    5,280
    
    
    
    (5,280
    )
    
    
    17,438Depreciation and amortization
    
    
    
    
    
    
    9,922
    
    
    
    6,329
    
    
    
    
    
    
    
    16,251Management fees
    
    
    1,047
    
    
    
    (2,847
    )
    
    
    2,847
    
    
    
    
    
    
    
    1,047Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    
    
    
    
    (8,320
    )Equity in earnings of affiliates
    
    
    (38,569
    )
    
    
    
    
    
    
    
    
    
    
    38,569
    
    
    
    Total costs and expenses
    
    
    (20,084
    )
    
    
    187,399
    
    
    
    195,105
    
    
    
    30,751
    
    
    
    393,171Earnings (loss) before loss on disposal of
assets, minority interests and income taxes
    
    
    20,084
    
    
    
    8,583
    
    
    
    32,414
    
    
    
    (33,289
    )
    
    
    27,792Loss on disposal of assets, net
    
    
    
    
    
    
    (34
    )
    
    
    (676
    )
    
    
    
    
    
    
    (710
    )Minority interests
    
    
    
    
    
    
    (1,718
    )
    
    
    
    
    
    
    
    
    
    
    (1,718
    )Earnings (loss) before income taxes
    
    
    20,084
    
    
    
    6,831
    
    
    
    31,738
    
    
    
    (33,289
    )
    
    
    25,364Income tax expense
    
    
    9,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,452Net earnings (loss)
    
    $
    10,632
    
    
    $
    6,831
    
    
    $
    31,738
    
    
    $
    (33,289
    )
    
    $
    15,912
 19




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    618,128
    
    
    $
    420,787
    
    
    $
    (8,703
    )
    
    $
    1,030,212Premium revenue
    
    
    
    
    
    
    
    
    
    
    329,949
    
    
    
    
    
    
    
    329,949Total net revenue
    
    
    
    
    
    
    618,128
    
    
    
    750,736
    
    
    
    (8,703
    )
    
    
    1,360,161Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    268,946
    
    
    
    145,074
    
    
    
    
    
    
    
    414,020Supplies
    
    
    
    
    
    
    105,410
    
    
    
    52,720
    
    
    
    
    
    
    
    158,130Medical claims
    
    
    
    
    
    
    
    
    
    
    282,946
    
    
    
    (8,703
    )
    
    
    274,243Other operating expenses
    
    
    
    
    
    
    120,863
    
    
    
    93,795
    
    
    
    
    
    
    
    214,658Provision for bad debts
    
    
    
    
    
    
    68,236
    
    
    
    31,521
    
    
    
    
    
    
    
    99,757Rentals and leases
    
    
    
    
    
    
    16,970
    
    
    
    9,296
    
    
    
    
    
    
    
    26,266Interest expense, net
    
    
    52,074
    
    
    
    
    
    
    
    15,729
    
    
    
    (15,729
    )
    
    
    52,074Depreciation and amortization
    
    
    
    
    
    
    34,560
    
    
    
    20,322
    
    
    
    
    
    
    
    54,882Management fees
    
    
    3,560
    
    
    
    (8,867
    )
    
    
    8,867
    
    
    
    
    
    
    
    3,560Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,229Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (3,443
    )
    
    
    
    
    
    
    (3,443
    )Equity in earnings of affiliates
    
    
    (95,959
    )
    
    
    
    
    
    
    
    
    
    
    95,959
    
    
    
    Total costs and expenses
    
    
    (34,096
    )
    
    
    606,118
    
    
    
    656,827
    
    
    
    71,527
    
    
    
    1,300,376Earnings (loss) before loss on disposal of
assets, minority interests and income taxes
    
    
    34,096
    
    
    
    12,010
    
    
    
    93,909
    
    
    
    (80,230
    )
    
    
    59,785Loss on disposal of assets, net
    
    
    
    
    
    
    (1,097
    )
    
    
    (146
    )
    
    
    
    
    
    
    (1,243
    )Minority interests
    
    
    
    
    
    
    (3,654
    )
    
    
    
    
    
    
    
    
    
    
    (3,654
    )Earnings (loss) before income taxes
    
    
    34,096
    
    
    
    7,259
    
    
    
    93,763
    
    
    
    (80,230
    )
    
    
    54,888Income tax expense
    
    
    21,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,042Net earnings (loss)
    
    $
    13,054
    
    
    $
    7,259
    
    
    $
    93,763
    
    
    $
    (80,230
    )
    
    $
    33,846
 20




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    574,053
    
    
    $
    352,849
    
    
    $
    (7,047
    )
    
    $
    919,855Premium revenue
    
    
    
    
    
    
    
    
    
    
    298,541
    
    
    
    
    
    
    
    298,541Total net revenue
    
    
    
    
    
    
    574,053
    
    
    
    651,390
    
    
    
    (7,047
    )
    
    
    1,218,396Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    225,163
    
    
    
    126,169
    
    
    
    
    
    
    
    351,332Supplies
    
    
    
    
    
    
    99,970
    
    
    
    43,772
    
    
    
    
    
    
    
    143,742Medical claims
    
    
    
    
    
    
    
    
    
    
    260,617
    
    
    
    (7,047
    )
    
    
    253,570Other operating expenses
    
    
    
    
    
    
    116,061
    
    
    
    65,789
    
    
    
    
    
    
    
    181,850Provision for bad debts
    
    
    
    
    
    
    69,742
    
    
    
    40,560
    
    
    
    
    
    
    
    110,302Rentals and leases
    
    
    
    
    
    
    17,630
    
    
    
    8,626
    
    
    
    
    
    
    
    26,256Interest expense, net
    
    
    52,376
    
    
    
    
    
    
    
    15,030
    
    
    
    (15,030
    )
    
    
    52,376Depreciation and amortization
    
    
    
    
    
    
    33,472
    
    
    
    21,195
    
    
    
    
    
    
    
    54,667Management fees
    
    
    3,142
    
    
    
    (7,882
    )
    
    
    7,882
    
    
    
    
    
    
    
    3,142Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    
    
    
    
    (8,320
    )Equity in earnings of affiliates
    
    
    (86,739
    )
    
    
    
    
    
    
    
    
    
    
    86,739
    
    
    
    Total costs and expenses
    
    
    (31,221
    )
    
    
    554,156
    
    
    
    581,320
    
    
    
    64,662
    
    
    
    1,168,917Earnings (loss) before loss on disposal of
assets, minority interests and income taxes
    
    
    31,221
    
    
    
    19,897
    
    
    
    70,070
    
    
    
    (71,709
    )
    
    
    49,479Loss on disposal of assets, net
    
    
    
    
    
    
    (140
    )
    
    
    (700
    )
    
    
    
    
    
    
    (840
    )Minority interests
    
    
    
    
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Earnings (loss) before income taxes
    
    
    31,221
    
    
    
    17,369
    
    
    
    69,370
    
    
    
    (71,709
    )
    
    
    46,251Income tax expense
    
    
    17,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,756Net earnings (loss)
    
    $
    13,465
    
    
    $
    17,369
    
    
    $
    69,370
    
    
    $
    (71,709
    )
    
    $
    28,495
 21




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    13,054
    
    
    $
    7,259
    
    
    $
    93,763
    
    
    $
    (80,230
    )
    
    $
    33,846Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    34,560
    
    
    
    20,322
    
    
    
    
    
    
    
    54,882Amortization of loan costs
    
    
    2,227
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,227Minority interests
    
    
    
    
    
    
    
    
    
    
    3,654
    
    
    
    
    
    
    
    3,654Deferred income taxes
    
    
    17,319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,319Loss on disposal of assets, net
    
    
    
    
    
    
    1,097
    
    
    
    146
    
    
    
    
    
    
    
    1,243Loss on extinguishment of debt
    
    
    5,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,091Equity in earnings of affiliates
    
    
    (95,959
    )
    
    
    
    
    
    
    
    
    
    
    95,959
    
    
    
    Changes in operating assets and liabilities, net of the
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (15,544
    )
    
    
    (13,839
    )
    
    
    
    
    
    
    (29,383
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    3,533
    
    
    
    (14,594
    )
    
    
    
    
    
    
    (11,061
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    (12,158
    )
    
    
    (8,704
    )
    
    
    22,083
    
    
    
    
    
    
    
    1,221Net cash provided by (used in) operating activities
    
    
    (70,426
    )
    
    
    22,201
    
    
    
    111,535
    
    
    
    15,729
    
    
    
    79,039Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (31,778
    )
    
    
    (119,041
    )
    
    
    
    
    
    
    (150,819
    )Cash paid
for acquisitions, net
    
    
    
    
    
    
    (78,230
    )
    
    
    (61,602
    )
    
    
    
    
    
    
    (139,832
    )Proceeds from sale of assets
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Change in other assets
    
    
    
    
    
    
    2,397
    
    
    
    2,012
    
    
    
    
    
    
    
    4,409Net cash used in investing activities
    
    
    
    
    
    
    (106,625
    )
    
    
    (178,631
    )
    
    
    
    
    
    
    (285,256
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (608,149
    )
    
    
    (1,647
    )
    
    
    (1,367
    )
    
    
    
    
    
    
    (611,163
    )Proceeds from debt borrowings
    
    
    740,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    740,300Debt
financing costs incurred
    
    
    (7,890
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,890
    )Distribution
to parent for debt financing costs
    
    
    (6,586
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,586
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (3,387
    )
    
    
    
    
    
    
    (3,387
    )Proceeds received from sale of partnership interests
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Change in intercompany balances with affiliates, net
    
    
    (47,249
    )
    
    
    (13,831
    )
    
    
    76,809
    
    
    
    (15,729
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    70,426
    
    
    
    (15,478
    )
    
    
    72,059
    
    
    
    (15,729
    )
    
    
    111,278Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (99,902
    )
    
    
    4,963
    
    
    
    
    
    
    
    (94,939
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    94,518
    
    
    
    897
    
    
    
    
    
    
    
    95,415Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    (5,384
    )
    
    $
    5,860
    
    
    $
    
    
    
    $
    476
 22




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    13,465
    
    
    $
    17,369
    
    
    $
    69,370
    
    
    $
    (71,709
    )
    
    $
    28,495Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    33,472
    
    
    
    21,195
    
    
    
    
    
    
    
    54,667Amortization of loan costs
    
    
    2,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,209Minority interests
    
    
    
    
    
    
    
    
    
    
    2,388
    
    
    
    
    
    
    
    2,388Deferred income taxes
    
    
    16,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,959Loss on disposal of assets, net
    
    
    
    
    
    
    140
    
    
    
    700
    
    
    
    
    
    
    
    840Equity in earnings of affiliates
    
    
    (86,739
    )
    
    
    
    
    
    
    
    
    
    
    86,739
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (13,313
    )
    
    
    (3,941
    )
    
    
    
    
    
    
    (17,254
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (6,229
    )
    
    
    (8,212
    )
    
    
    
    
    
    
    (14,441
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    (9,209
    )
    
    
    22,823
    
    
    
    17,105
    
    
    
    
    
    
    
    30,719Net cash provided by (used in) operating activities
    
    
    (63,315
    )
    
    
    54,262
    
    
    
    98,605
    
    
    
    15,030
    
    
    
    104,582Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (40,768
    )
    
    
    (52,478
    )
    
    
    
    
    
    
    (93,246
    )Change in other assets
    
    
    
    
    
    
    (269
    )
    
    
    93
    
    
    
    
    
    
    
    (176
    )Net cash used in investing activities
    
    
    
    
    
    
    (41,037
    )
    
    
    (52,385
    )
    
    
    
    
    
    
    (93,422
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (3,302
    )
    
    
    (1,822
    )
    
    
    (865
    )
    
    
    
    
    
    
    (5,989
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,702
    )
    
    
    
    
    
    
    (1,702
    )Change in intercompany balances with affiliates, net
    
    
    66,617
    
    
    
    (3,288
    )
    
    
    (48,299
    )
    
    
    (15,030
    )
    
    
    Proceeds received from sale of partnership interests
    
    
    
    
    
    
    (125
    )
    
    
    4,622
    
    
    
    
    
    
    
    4,497Net cash provided by (used in) financing activities
    
    
    63,315
    
    
    
    (5,235
    )
    
    
    (46,244
    )
    
    
    (15,030
    )
    
    
    (3,194
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    7,990
    
    
    
    (24
    )
    
    
    
    
    
    
    7,966Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    96,587
    
    
    $
    476
    
    
    $
    
    
    
    $
    97,063
 23




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 11. SUBSEQUENT EVENTS
  24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
 qui tam
  25




---



##### Table of Contents



EXECUTIVE OVERVIEW
  
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio;
    
    Las Vegas, Nevada; and
    
    West Monroe, Louisiana.
   Impact of Acquisitions
    26




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##### Table of Contents



Hurricane Rita Insurance Recoveries
  Revenue and Volume Trends
     27




---



##### Table of Contents



Quarter
    
    
    Nine MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Medicare
    
    
    32.7
    %
    
    
    31.6
    %
    
    
    32.4
    %
    
    
    33.1
    %Medicaid
    
    
    16.3
    %
    
    
    17.5
    %
    
    
    16.6
    %
    
    
    17.5
    %Managed care
    
    
    42.6
    %
    
    
    43.3
    %
    
    
    42.9
    %
    
    
    42.0
    %Self-pay and other
    
    
    8.4
    %
    
    
    7.6
    %
    
    
    8.1
    %
    
    
    7.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
     28




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##### Table of Contents




    
    a provision allocating $250.0 million per year for federal years 2006-2008
to pay for healthcare costs of undocumented aliens;
    
    provisions generally providing hospitals with more reimbursement for
outpatient drugs;
    
    a provision increasing our reimbursement by reducing the labor share
percentage from 71% to 62% for hospitals with wage indices less than 1.0; and
    
    a provision eliminating the requirement that hospitals must obtain
secondary payment information from all Medicare beneficiaries receiving reference
laboratory services.
     29




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##### Table of Contents



Significant Industry Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   June 30,


    
    September 30,2007


    
    2006Insured receivables
    
    
    66.3
    %
    
    
    
    60.4
    %Uninsured receivables
    
    
    33.7
    %
    
    
    
    39.6
    %Total
    
    
    100.0
    %
    
    
    
    100.0
    %
 30




---



##### Table of Contents



June 30,

    
    September 30,2007

    
    20060 to 90 days
    
    
    68.0
    %
    
    
    62.7
    %91 to 180 days
    
    
    18.2
    %
    
    
    17.7
    %Over 180 days
    
    
    13.8
    %
    
    
    19.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Additional Charity Care and Charges to the Uninsured
  Sub-Acute Care Services
  Nursing Shortage
  31




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##### Table of Contents



Decreased Federal and State Funding for Medicaid Programs
  Changes in Patient Service Mix
  Volatility of Insurance Costs
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  32




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##### Table of Contents



Selected Operating Data
  Quarter
    
    Nine MonthsEnded June 30,
    
    Ended June 30,2007
    
    2006
    
    2007
    
    2006Acute Care:Number of acute care hospitals at end of period
    
    
    15
    
    
    
    14
    
    
    
    15
    
    
    
    14Beds in service at end of period (1)
    
    
    2,517
    
    
    
    2,199
    
    
    
    2,517
    
    
    
    2,199Average length of stay (days) (2)
    
    
    4.60
    
    
    
    4.57
    
    
    
    4.60
    
    
    
    4.59Occupancy rates (average beds in service)
    
    
    50.0
    %
    
    
    50.9
    %
    
    
    51.6
    %
    
    
    51.6
    %Admissions (3)
    
    
    24,527
    
    
    
    22,275
    
    
    
    72,440
    
    
    
    66,596Adjusted admissions (4)
    
    
    39,743
    
    
    
    36,692
    
    
    
    116,073
    
    
    
    108,675Patient days (5)
    
    
    112,894
    
    
    
    101,769
    
    
    
    332,884
    
    
    
    305,613Adjusted patient days (4)
    
    
    175,890
    
    
    
    161,680
    
    
    
    513,611
    
    
    
    481,835Net patient revenue per adjusted admission (6)
    
    $
    8,903
    
    
    $
    8,488
    
    
    $
    8,794
    
    
    $
    8,362Same
Facility: (7)Number of acute care hospitals at end of period
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Beds in service at end of period (1)
    
    
    2,280
    
    
    
    2,199
    
    
    
    2,280
    
    
    
    2,199Average length of stay (days) (2)
    
    
    4.57
    
    
    
    4.57
    
    
    
    4.58
    
    
    
    4.59Occupancy rates (average beds in service)
    
    
    49.9
    %
    
    
    50.9
    %
    
    
    51.9
    %
    
    
    51.6
    %Admissions (3)
    
    
    22,312
    
    
    
    22,275
    
    
    
    68,612
    
    
    
    66,596Adjusted admissions (4)
    
    
    36,588
    
    
    
    36,692
    
    
    
    110,694
    
    
    
    108,675Patient days (5)
    
    
    101,979
    
    
    
    101,769
    
    
    
    313,953
    
    
    
    305,613Adjusted patient days (4)
    
    
    160,340
    
    
    
    161,680
    
    
    
    487,009
    
    
    
    481,835Net patient revenue per adjusted admission (6)
    
    $
    8,970
    
    
    $
    8,488
    
    
    $
    8,839
    
    
    $
    8,362Health Choice:Medicaid covered lives
    
    
    115,875
    
    
    
    111,543
    
    
    
    115,875
    
    
    
    111,543Dual-eligible lives (8)
    
    
    3,613
    
    
    
    4,222
    
    
    
    3,613
    
    
    
    4,222Medical loss
ratio (9)
    
    
    85.5
    %
    
    
    87.5
    %
    
    
    85.8
    %
    
    
    87.3
    %
 
 (1)
    
    Includes 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 for stays in excess of 23
hours. 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 by inpatients over the period.(6)
    
    Includes the impact of our uninsured discount program, which became effective in the third
quarter of fiscal 2006. The uninsured discount program offers discounts to all uninsured
patients receiving healthcare services who do not qualify for assistance under state Medicaid,
other federal or state assistance plans or charity. The uninsured discount program had the
effect of reducing net revenue and the provision for bad debts by generally corresponding
amounts.(7)
    
    Includes Alliance Hospital in Odessa, Texas, which was
acquired effective May 31, 2007, and immediately merged into Odessa
Regional Hospital to form Odessa Regional Medical Center.(8)
    
    Represents members eligible for Medicare and Medicaid benefits under Health Choices contract
with CMS to provide coverage as a MAPD SNP.(9)
    
    Represents medical claims expense as a percentage of premium revenue, including claims paid
to our hospitals. 33




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##### Table of Contents



RESULTS OF OPERATIONS SUMMARY
  Consolidated ($ in
    
    Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months Endedthousands):
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    357,254
    
    
    
    75.9
    %
    
    $
    314,994
    
    
    
    74.8
    %
    
    $
    1,030,212
    
    
    
    75.7
    %
    
    $
    919,855
    
    
    
    75.5
    %Premium revenue
    
    
    113,371
    
    
    
    24.1
    %
    
    
    105,969
    
    
    
    25.2
    %
    
    
    329,949
    
    
    
    24.3
    %
    
    
    298,541
    
    
    
    24.5
    %Total net revenue
    
    
    470,625
    
    
    
    100.0
    %
    
    
    420,963
    
    
    
    100.0
    %
    
    
    1,360,161
    
    
    
    100.0
    %
    
    
    1,218,396
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    148,671
    
    
    
    31.6
    %
    
    
    120,325
    
    
    
    28.6
    %
    
    
    414,020
    
    
    
    30.4
    %
    
    
    351,332
    
    
    
    28.8
    %Supplies
    
    
    55,503
    
    
    
    11.8
    %
    
    
    48,814
    
    
    
    11.6
    %
    
    
    158,130
    
    
    
    11.6
    %
    
    
    143,742
    
    
    
    11.8
    %Medical claims
    
    
    94,009
    
    
    
    20.0
    %
    
    
    90,141
    
    
    
    21.4
    %
    
    
    274,243
    
    
    
    20.2
    %
    
    
    253,570
    
    
    
    20.8
    %Other operating
expenses
    
    
    76,324
    
    
    
    16.2
    %
    
    
    65,762
    
    
    
    15.6
    %
    
    
    214,658
    
    
    
    15.8
    %
    
    
    181,850
    
    
    
    14.9
    %Provision for bad
debts
    
    
    33,892
    
    
    
    7.2
    %
    
    
    32,800
    
    
    
    7.8
    %
    
    
    99,757
    
    
    
    7.3
    %
    
    
    110,302
    
    
    
    9.1
    %Rentals and leases
    
    
    8,577
    
    
    
    1.8
    %
    
    
    8,913
    
    
    
    2.1
    %
    
    
    26,266
    
    
    
    1.9
    %
    
    
    26,256
    
    
    
    2.2
    %Interest expense, net
    
    
    17,834
    
    
    
    3.8
    %
    
    
    17,438
    
    
    
    4.1
    %
    
    
    52,074
    
    
    
    3.8
    %
    
    
    52,376
    
    
    
    4.3
    %Depreciation and
amortization
    
    
    19,782
    
    
    
    4.2
    %
    
    
    16,251
    
    
    
    3.9
    %
    
    
    54,882
    
    
    
    4.0
    %
    
    
    54,667
    
    
    
    4.5
    %Management fees
    
    
    1,187
    
    
    
    0.2
    %
    
    
    1,047
    
    
    
    0.3
    %
    
    
    3,560
    
    
    
    0.3
    %
    
    
    3,142
    
    
    
    0.2
    %Loss on
extinguishment of
debt
    
    
    6,229
    
    
    
    1.3
    %
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    0.5
    %
    
    
    
    
    
    
    Business
interruption
insurance recoveries
    
    
    (1,525
    )
    
    
    (0.3
    )%
    
    
    (8,320
    )
    
    
    (2.0
    )%
    
    
    (3,443
    )
    
    
    (0.2
    )%
    
    
    (8,320
    )
    
    
    (0.7
    )%Total costs and
expenses
    
    
    460,483
    
    
    
    97.8
    %
    
    
    393,171
    
    
    
    93.4
    %
    
    
    1,300,376
    
    
    
    95.6
    %
    
    
    1,168,917
    
    
    
    95.9
    %Earnings before gain
(loss) on disposal of
assets, minority
interests and income
taxes
    
    
    10,142
    
    
    
    2.2
    %
    
    
    27,792
    
    
    
    6.6
    %
    
    
    59,785
    
    
    
    4.4
    %
    
    
    49,479
    
    
    
    4.1
    %Gain (loss) on
disposal of assets,
net
    
    
    70
    
    
    
    0.0
    %
    
    
    (710
    )
    
    
    (0.2
    )%
    
    
    (1,243
    )
    
    
    (0.1
    )%
    
    
    (840
    )
    
    
    (0.1
    )%Minority interests
    
    
    (800
    )
    
    
    (0.2
    )%
    
    
    (1,718
    )
    
    
    (0.4
    )%
    
    
    (3,654
    )
    
    
    (0.3
    )%
    
    
    (2,388
    )
    
    
    (0.2
    )%Earnings before
income taxes
    
    
    9,412
    
    
    
    2.0
    %
    
    
    25,364
    
    
    
    6.0
    %
    
    
    54,888
    
    
    
    4.0
    %
    
    
    46,251
    
    
    
    3.8
    %Income tax expense
    
    
    3,104
    
    
    
    0.7
    %
    
    
    9,452
    
    
    
    2.2
    %
    
    
    21,042
    
    
    
    1.5
    %
    
    
    17,756
    
    
    
    1.5
    %Net earnings
    
    $
    6,308
    
    
    
    1.3
    %
    
    $
    15,912
    
    
    
    3.8
    %
    
    $
    33,846
    
    
    
    2.5
    %
    
    $
    28,495
    
    
    
    2.3
    %
 34




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##### Table of Contents



Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedAcute Care ($ in thousands):
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    357,254
    
    
    
    99.2
    %
    
    $
    314,994
    
    
    
    99.2
    %
    
    $
    1,030,212
    
    
    
    99.2
    %
    
    $
    919,855
    
    
    
    99.2
    %Revenue between
segments (1)
    
    
    2,933
    
    
    
    0.8
    %
    
    
    2,538
    
    
    
    0.8
    %
    
    
    8,703
    
    
    
    0.8
    %
    
    
    7,047
    
    
    
    0.8
    %Total net revenue
    
    
    360,187
    
    
    
    100.0
    %
    
    
    317,532
    
    
    
    100.0
    %
    
    
    1,038,915
    
    
    
    100.0
    %
    
    
    926,902
    
    
    
    100.0
    %Costs and expenses:Salaries and
benefits
    
    
    144,818
    
    
    
    40.2
    %
    
    
    117,031
    
    
    
    36.9
    %
    
    
    403,132
    
    
    
    38.8
    %
    
    
    341,941
    
    
    
    36.9
    %Supplies
    
    
    55,444
    
    
    
    15.4
    %
    
    
    48,737
    
    
    
    15.3
    %
    
    
    157,903
    
    
    
    15.2
    %
    
    
    143,548
    
    
    
    15.5
    %Other operating
expenses
    
    
    72,437
    
    
    
    20.1
    %
    
    
    62,365
    
    
    
    19.6
    %
    
    
    203,174
    
    
    
    19.6
    %
    
    
    172,161
    
    
    
    18.6
    %Provision for bad
debts
    
    
    33,892
    
    
    
    9.4
    %
    
    
    32,800
    
    
    
    10.3
    %
    
    
    99,757
    
    
    
    9.6
    %
    
    
    110,302
    
    
    
    11.9
    %Rentals and leases
    
    
    8,237
    
    
    
    2.3
    %
    
    
    8,665
    
    
    
    2.7
    %
    
    
    25,400
    
    
    
    2.4
    %
    
    
    25,457
    
    
    
    2.7
    %Interest expense,
net
    
    
    17,834
    
    
    
    5.0
    %
    
    
    17,438
    
    
    
    5.6
    %
    
    
    52,074
    
    
    
    5.0
    %
    
    
    52,376
    
    
    
    5.7
    %Depreciation and
amortization
    
    
    18,893
    
    
    
    5.2
    %
    
    
    15,400
    
    
    
    4.9
    %
    
    
    52,218
    
    
    
    5.0
    %
    
    
    52,130
    
    
    
    5.6
    %Management fees
    
    
    1,187
    
    
    
    0.3
    %
    
    
    1,047
    
    
    
    0.3
    %
    
    
    3,560
    
    
    
    0.4
    %
    
    
    3,142
    
    
    
    0.3
    %Loss on
extinguishment of
debt
    
    
    6,229
    
    
    
    1.7
    %
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    0.6
    %
    
    
    
    
    
    
    Business
interruption
insurance
recoveries
    
    
    (1,525
    )
    
    
    (0.4
    )%
    
    
    (8,320
    )
    
    
    (2.6
    )%
    
    
    (3,443
    )
    
    
    (0.3
    )%
    
    
    (8,320
    )
    
    
    (0.9
    )%Total costs and
expenses
    
    
    357,446
    
    
    
    99.2
    %
    
    
    295,163
    
    
    
    93.0
    %
    
    
    1,000,004
    
    
    
    96.3
    %
    
    
    892,737
    
    
    
    96.3
    %Earnings before
gain (loss) on
disposal of assets
and minority
interests
    
    
    2,741
    
    
    
    0.8
    %
    
    
    22,369
    
    
    
    7.0
    %
    
    
    38,911
    
    
    
    3.7
    %
    
    
    34,165
    
    
    
    3.7
    %Gain (loss) of
disposal of assets,
net
    
    
    70
    
    
    
    0.0
    %
    
    
    (710
    )
    
    
    (0.2
    )%
    
    
    (1,243
    )
    
    
    (0.1
    )%
    
    
    (840
    )
    
    
    (0.1
    )%Minority interests
    
    
    (800
    )
    
    
    (0.2
    )%
    
    
    (1,718
    )
    
    
    (0.5
    )%
    
    
    (3,654
    )
    
    
    (0.3
    )%
    
    
    (2,388
    )
    
    
    (0.3
    )%Earnings before
income taxes
    
    $
    2,011
    
    
    
    0.6
    %
    
    $
    19,941
    
    
    
    6.3
    %
    
    $
    34,014
    
    
    
    3.3
    %
    
    $
    30,937
    
    
    
    3.3
    %
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedHealth Choice ($ in thousands):
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentagePremium revenue
    
    $
    113,371
    
    
    
    100.0
    %
    
    $
    105,969
    
    
    
    100.0
    %
    
    $
    329,949
    
    
    
    100.0
    %
    
    $
    298,541
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    3,853
    
    
    
    3.4
    %
    
    
    3,294
    
    
    
    3.1
    %
    
    
    10,888
    
    
    
    3.3
    %
    
    
    9,391
    
    
    
    3.1
    %Supplies
    
    
    59
    
    
    
    0.1
    %
    
    
    77
    
    
    
    0.1
    %
    
    
    227
    
    
    
    0.1
    %
    
    
    194
    
    
    
    0.1
    %Medical claims (1)
    
    
    96,942
    
    
    
    85.5
    %
    
    
    92,679
    
    
    
    87.5
    %
    
    
    282,946
    
    
    
    85.8
    %
    
    
    260,617
    
    
    
    87.3
    %Other operating expenses
    
    
    3,887
    
    
    
    3.4
    %
    
    
    3,397
    
    
    
    3.2
    %
    
    
    11,484
    
    
    
    3.4
    %
    
    
    9,689
    
    
    
    3.2
    %Rentals and leases
    
    
    340
    
    
    
    0.3
    %
    
    
    248
    
    
    
    0.2
    %
    
    
    866
    
    
    
    0.3
    %
    
    
    799
    
    
    
    0.3
    %Depreciation and amortization
    
    
    889
    
    
    
    0.8
    %
    
    
    851
    
    
    
    0.8
    %
    
    
    2,664
    
    
    
    0.8
    %
    
    
    2,537
    
    
    
    0.9
    %Total costs and expenses
    
    
    105,970
    
    
    
    93.5
    %
    
    
    100,546
    
    
    
    94.9
    %
    
    
    309,075
    
    
    
    93.7
    %
    
    
    283,227
    
    
    
    94.9
    %Earnings before income taxes
    
    $
    7,401
    
    
    
    6.5
    %
    
    $
    5,423
    
    
    
    5.1
    %
    
    $
    20,874
    
    
    
    6.3
    %
    
    $
    15,314
    
    
    
    5.1
    %
 
 (1)
    
    Medical claims paid to our hospitals of $2.9 million and $2.5 million for the quarters
ended June 30, 2007 and 2006, respectively, and $8.7 million and $7.0 million for the nine
months ended June 30, 2007 and 2006, respectively, is eliminated in our consolidated results. 35




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##### Table of Contents



Supplemental Non-GAAP Disclosures
  Operating Measures Adjusted for Comparative Analysis (Unaudited)(in thousands, except for statistical measures)Quarter Ended June 30, 2007Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (1)
    
    Amounts (2)
    
    of Revenue
    
    of Revenue (2)Acute Care SegmentNet revenue(3)
    
    $
    360,187
    
    
    $
    12,919
    
    
    $
    373,106
    
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    144,818
    
    
    
    
    
    
    
    144,818
    
    
    
    40.2
    
    
    
    38.8Supplies
    
    
    55,444
    
    
    
    
    
    
    
    55,444
    
    
    
    15.4
    
    
    
    14.9Other operating expenses
    
    
    72,437
    
    
    
    
    
    
    
    72,437
    
    
    
    20.1
    
    
    
    19.4Provision for bad debts
    
    
    33,892
    
    
    
    12,919
    
    
    
    46,811
    
    
    
    9.4
    
    
    
    12.5Rentals and leases
    
    
    8,237
    
    
    
    
    
    
    
    8,237
    
    
    
    2.3
    
    
    
    2.2Net patient revenue per
adjusted admission
    
    $
    8,903
    
    
    $
    325
    
    
    $
    9,228Percentage change from
prior year
    
    
    4.9
    %
    
    
    
    
    
    
    6.4
    %Same-Facility
(4)Net revenue(3)
    
    $
    333,583
    
    
    $
    12,028
    
    
    $
    345,611Net patient revenue per
adjusted admission
    
    $
    8,970
    
    
    $
    329
    
    
    $
    9,299Percentage change from
prior year
    
    
    5.7
    %
    
    
    
    
    
    
    7.2
    %Quarter Ended June 30, 2006Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (1)
    
    Amounts (2)
    
    of Revenue
    
    of Revenue (2)Acute Care SegmentNet
revenue(3)
    
    $
    317,532
    
    
    $
    6,773
    
    
    $
    324,305
    
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    117,031
    
    
    
    
    
    
    
    117,031
    
    
    
    36.9
    
    
    
    36.1Supplies
    
    
    48,737
    
    
    
    
    
    
    
    48,737
    
    
    
    15.3
    
    
    
    15.0Other operating expenses
    
    
    62,365
    
    
    
    
    
    
    
    62,365
    
    
    
    19.6
    
    
    
    19.2Provision for bad debts
    
    
    32,800
    
    
    
    6,773
    
    
    
    39,573
    
    
    
    10.3
    
    
    
    12.2Rentals and leases
    
    
    8,665
    
    
    
    
    
    
    
    8,665
    
    
    
    2.7
    
    
    
    2.7Net patient revenue per
adjusted admission
    
    $
    8,488
    
    
    $
    184
    
    
    $
    8,672Percentage change from
prior year
    
    
    4.3
    %
    
    
    
    
    
    
    6.6
    %
 
 (1)
    
    Includes the impact of discounts provided to uninsured patients for the period.
During the third quarter of fiscal 2006, we implemented an uninsured discount program offering
discounts to all uninsured patients receiving healthcare services who do not qualify for
assistance under state Medicaid, other federal or state assistance plans or charity care. In
the acute care segment, we recorded $12.9 million and $6.8 million of uninsured discounts
during the third quarter of fiscal 2007 and 2006, respectively.(2)
    
    Acute care revenue, the provision for bad debts and certain operating expense
categories as a percentage of acute care revenue have been adjusted to present certain
financial measures on a basis comparative with prior periods. Management believes these
non-GAAP financial measures are useful for the purpose of providing disclosures of our results
of operations consistent with those used by management. While management believes these
non-GAAP financial measures provide useful information for period-to-period comparisons, GAAP
measures should be used when evaluating financial performance or liquidity.(3)
    
    Acute care revenue represents total net revenue of the segment prior to the
elimination of revenue between segments.(4)
    
    Includes Alliance Hospital in Odessa, Texas, which was
acquired effective May 31, 2007, and immediately merged into Odessa
Regional Hospital to form Odessa Regional Medical Center. 36




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##### Table of Contents



Operating Measures Adjusted for Comparative Analysis (Unaudited)(in thousands, except for statistical measures)Nine Months Ended June 30, 2007Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (1)
    
    Amounts (2)
    
    of Revenue
    
    of Revenue (2)Acute Care SegmentNet revenue(3)
    
    $
    1,038,915
    
    
    $
    38,321
    
    
    $
    1,077,236
    
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    403,132
    
    
    
    
    
    
    
    403,132
    
    
    
    38.8
    
    
    
    37.4Supplies
    
    
    157,903
    
    
    
    
    
    
    
    157,903
    
    
    
    15.2
    
    
    
    14.7Other operating expenses
    
    
    203,174
    
    
    
    
    
    
    
    203,174
    
    
    
    19.6
    
    
    
    18.9Provision for bad debts
    
    
    99,757
    
    
    
    38,321
    
    
    
    138,078
    
    
    
    9.6
    
    
    
    12.8Rentals and leases
    
    
    25,400
    
    
    
    
    
    
    
    25,400
    
    
    
    2.4
    
    
    
    2.4Net patient revenue per
adjusted admission
    
    $
    8,794
    
    
    $
    331
    
    
    $
    9,125Percentage change from
prior year
    
    
    5.2
    %
    
    
    
    
    
    
    8.3
    %Same-Facility
(4)Net revenue(3)
    
    $
    994,887
    
    
    $
    37,430
    
    
    $
    1,032,317Net patient revenue per
adjusted admission
    
    $
    8,839
    
    
    $
    339
    
    
    $
    9,178Percentage change from
prior year
    
    
    5.7
    %
    
    
    
    
    
    
    8.9
    %Nine Months Ended June 30, 2006Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (1)
    
    Amounts (2)
    
    of Revenue
    

of
Revenue (2)Acute Care SegmentNet
revenue(3)
    
    $
    926,902
    
    
    $
    6,773
    
    
    $
    933,675
    
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    341,941
    
    
    
    
    
    
    
    341,941
    
    
    
    36.9
    
    
    
    36.6Supplies
    
    
    143,548
    
    
    
    
    
    
    
    143,548
    
    
    
    15.5
    
    
    
    15.4Other operating expenses
    
    
    172,161
    
    
    
    
    
    
    
    172,161
    
    
    
    18.6
    
    
    
    18.4Provision for bad debts
    
    
    110,302
    
    
    
    6,773
    
    
    
    117,075
    
    
    
    11.9
    
    
    
    12.5Rentals and leases
    
    
    25,457
    
    
    
    
    
    
    
    25,457
    
    
    
    2.7
    
    
    
    2.7Net patient revenue per
adjusted admission
    
    $
    8,362
    
    
    $
    86
    
    
    $
    8,448Percentage change from
prior year
    
    
    4.7
    %
    
    
    
    
    
    
    5.8
    %
 
 (1)
    
    Includes the impact of discounts provided to uninsured patients for the period.
During the third quarter of fiscal 2006, we implemented an uninsured discount program offering
discounts to all uninsured patients receiving healthcare services who do not qualify for
assistance under state Medicaid, other federal or state assistance plans or charity care. In
the acute care segment, we recorded $38.3 million and $6.8 million of uninsured discounts
during the nine months ended June 30, 2007 and 2006, respectively.(2)
    
    Acute care revenue, the provision for bad debts and certain operating expense
categories as a percentage of acute care revenue have been adjusted to present certain
financial measures on a basis comparative with prior periods. Management believes these
non-GAAP financial measures are useful for the purpose of providing disclosures of our results
of operations consistent with those used by management. While management believes these
non-GAAP financial measures provide useful information for period-to-period comparisons, GAAP
measures should be used when evaluating financial performance or liquidity.(3)
    
    Acute care revenue represents total net revenue of the segment prior to the
elimination of revenue between segments.(4)
    
    Includes Alliance Hospital in Odessa, Texas, which was
acquired effective May 31, 2007, and immediately merged into Odessa
Regional Hospital to form Odessa Regional Medical Center. 37




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##### Table of Contents



Quarters
Ended June 30, 2007 and 2006
 Net
revenue
     Salaries and benefits
 Supplies
 38




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##### Table of Contents



Medical claims
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 Income tax expense
 Net
earnings
 39




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##### Table of Contents



Nine Months Ended June 30, 2007 and 2006
 Net revenue
     Salaries and benefits
 40




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##### Table of Contents



Supplies
 Medical claims
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 41




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##### Table of Contents



Depreciation and amortization
 Income tax expense
 Net
earnings
 LIQUIDITY AND CAPITAL RESOURCES
   Available cash
    
    $
    0.5Available capacity under our senior secured credit facilities
    
    
    262.2Net available liquidity at June 30, 2007
    
    $
    262.7
     42




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##### Table of Contents




    
    $100.0 million to $105.5 million for the construction of
Mountain Vista Medical Center;
    
    $60.0 million to $65.0 million for other growth and new
business projects;
    
    $35.0 million to $40.0 million in replacement or maintenance
related projects at our hospitals; and
    
    $14.0 million in hardware and software related costs in
connection with the implementation of our advanced clinical information system.
       43




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##### Table of Contents



Overview of Cash Flow Activities for the Nine Months Ended June 30, 2007 and 2006
  Nine MonthsEnded June 30,2007
    
    2006Cash flow from operating activities
    
    $
    79.0
    
    
    $
    104.6Cash flow from investing activities
    
    
    (285.3
    )
    
    
    (93.4
    )Cash flow from financing activities
    
    
    111.3
    
    
    
    (3.2
    )
 Operating Activities
  Investing Activities
   
    
    $81.9 million for the construction of Mountain Vista Medical Center;
    
    $29.9 million for various expansion and renovation projects at our hospitals; and
    
    $14.7 million in hardware and software related to our advanced clinicals
and other information systems projects.
 Financing Activities
  Debt Instruments
 44




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##### Table of Contents




    
    $854.0 million in new senior secured credit facilities; and
    
    $475.0 million in 8 3/4 senior subordinated notes due 2014.
 $854.0 Million Senior Secured Credit Facilities
      $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
  45




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##### Table of Contents



$300.0 Million Holdings Senior PIK Loans
  Other
  OFF-BALANCE SHEET ARRANGEMENTS
   Seasonality
  RECENT ACCOUNTING PRONOUNCEMENTS
 , Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 46




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##### Table of Contents



Fair Value Measurements
 47




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  48




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##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
 qui tam qui tam qui tam qui tam
 qui tam
 qui tam
  
 Item 1A. Risk Factors
  If We Fail To Comply With Extensive Laws And Government Regulations, We Could Suffer
Penalties, Be Required To Alter Arrangements With Investors In Our Hospitals Or Be Required To Make
Significant Changes To Our Operations.
  
    
    billing for services;
 
    
    relationships with physicians and other referral sources;
 
    
    adequacy of medical care;
 
    
    quality of medical equipment and services;
 
    
    qualifications of medical and support personnel;
 
    
    confidentiality, maintenance and security issues associated with
health-related information and medical records;
 
    
    the screening, stabilization and transfer of patients who have emergency
medical conditions;
 
    
    licensure and certification;
 
    
    operating policies and procedures; and
 
    
    addition of facilities and services.
   
    
    criminal penalties;
    
    civil penalties, including the loss of our licenses to operate one or more of
our facilities; and
    
    exclusion of one or more of our facilities from participation in the
Medicare, Medicaid and other federal and state healthcare programs.
    IAS Is The Subject Of A Qui Tam Action And Investigation By The OIG That If Ultimately Resolved In
A Manner Unfavorable To Us Could Have A Material Adverse Effect On Our Business, Financial
Condition And Results of Operations.
 qui tam qui tam qui tam qui tam
 qui tam
 qui tam qui tam
 
 Item 6. Exhibits
  10.1
    
    
    Amendment No. 16 to Contract between
Arizona Health Care Cost Containment
System and Health Choice Arizona,
effective as of October 1, 2006.31.1
    
    
    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
2002.31.2
    
    
    Certification of Principal Financial
Officer pursuant to Rule 15d-14(a)
under the Securities Exchange Act of
1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of
2002.
 49




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SIGNATURES
  IASIS HEALTHCARE LLCDate: August 14, 2007
    By:
    /s/ John M. DoyleJohn M. DoyleChief Accounting Officer 50




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Amendment No. 16 to Contract between Arizona Health Care
Cost Containment System and Health Choice Arizona,
effective as of October 1, 2006.31.1
    
    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 2002.31.2
    
    Certification of Principal Financial Officer pursuant to
Rule 15d-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
 51