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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
  OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
    
    20-1150104(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)DOVER CENTRE117 SEABOARD LANE, BUILDING EFRANKLIN, TENNESSEE
    
    37067(Address of principal executive offices)
    
    (Zip Code)
 (615) 844-2747
 Not Applicable
 x o
  o o x
 o x




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets  March 31, 2007 (Unaudited) and
September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)  Quarters
and Six Months Ended March 31, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Six Months
Ended March 31, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 4. Controls and Procedures
    
    
    46PART II. OTHER INFORMATION
    
    
    47Item 6. Exhibits
    
    
    47EX-10.1 Commitment LetterEx-31.1 Section 302 CertificationEx-31.2 Section 302 Certification




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PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 (Unaudited)March 31,
    
    
    September 30,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    95,415Accounts receivable, net
    
    
    213,941
    
    
    
    182,452Inventories
    
    
    38,325
    
    
    
    34,299Deferred income taxes
    
    
    34,030
    
    
    
    41,416Prepaid expenses and other current assets
    
    
    52,007
    
    
    
    41,841Total current assets
    
    
    338,303
    
    
    
    395,423Property and equipment, net
    
    
    832,413
    
    
    
    727,048Goodwill
    
    
    772,654
    
    
    
    756,479Other intangible assets, net
    
    
    37,500
    
    
    
    39,000Other assets, net
    
    
    45,860
    
    
    
    49,885Total assets
    
    $
    2,026,730
    
    
    $
    1,967,835LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    86,036
    
    
    $
    73,351Salaries and benefits payable
    
    
    34,467
    
    
    
    29,082Accrued interest payable
    
    
    19,815
    
    
    
    19,965Medical claims payable
    
    
    78,073
    
    
    
    81,822Other accrued expenses and other current liabilities
    
    
    58,200
    
    
    
    49,087Current portion of long-term debt and capital lease obligations
    
    
    6,879
    
    
    
    7,432Total current liabilities
    
    
    283,470
    
    
    
    260,739Long-term debt and capital lease obligations
    
    
    889,396
    
    
    
    889,513Deferred income taxes
    
    
    90,067
    
    
    
    81,179Other long-term liabilities
    
    
    46,740
    
    
    
    47,611Minority interest
    
    
    33,023
    
    
    
    32,297Equity:Members equity
    
    
    684,034
    
    
    
    656,496Total liabilities and equity
    
    $
    2,026,730
    
    
    $
    1,967,835
  1




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Quarter Ended
    
    
    Quarter Ended
    
    
    Six Months Ended
    
    
    Six Months EndedMarch 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Net revenue:Acute care revenue
    
    $
    363,911
    
    
    $
    318,435
    
    
    $
    672,958
    
    
    $
    604,862Premium revenue
    
    
    108,791
    
    
    
    99,533
    
    
    
    216,578
    
    
    
    192,571Total net revenue
    
    
    472,702
    
    
    
    417,968
    
    
    
    889,536
    
    
    
    797,433Costs and expenses:Salaries and benefits
    
    
    139,954
    
    
    
    118,256
    
    
    
    265,349
    
    
    
    231,007Supplies
    
    
    55,382
    
    
    
    49,218
    
    
    
    102,627
    
    
    
    94,928Medical claims
    
    
    90,539
    
    
    
    84,240
    
    
    
    180,234
    
    
    
    163,429Other operating expenses
    
    
    77,475
    
    
    
    58,581
    
    
    
    138,333
    
    
    
    116,087Provision for bad debts
    
    
    34,117
    
    
    
    40,482
    
    
    
    65,865
    
    
    
    77,501Rentals and leases
    
    
    9,240
    
    
    
    8,833
    
    
    
    17,690
    
    
    
    17,343Interest expense, net
    
    
    16,955
    
    
    
    17,781
    
    
    
    34,241
    
    
    
    34,938Depreciation and amortization
    
    
    18,193
    
    
    
    19,508
    
    
    
    35,100
    
    
    
    38,417Management fees
    
    
    1,326
    
    
    
    1,045
    
    
    
    2,373
    
    
    
    2,095Business interruption insurance
recoveries
    
    
    
    
    
    
    
    
    
    
    (1,918
    )
    
    
    Total costs and expenses
    
    
    443,181
    
    
    
    397,944
    
    
    
    839,894
    
    
    
    775,745Earnings before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    29,521
    
    
    
    20,024
    
    
    
    49,642
    
    
    
    21,688Gain (loss) on disposal of assets,
net
    
    
    225
    
    
    
    (125
    )
    
    
    (1,312
    )
    
    
    (130
    )Minority interests
    
    
    (1,515
    )
    
    
    (972
    )
    
    
    (2,855
    )
    
    
    (670
    )Earnings before income taxes
    
    
    28,231
    
    
    
    18,927
    
    
    
    45,475
    
    
    
    20,888Income tax expense
    
    
    11,276
    
    
    
    7,504
    
    
    
    17,937
    
    
    
    8,304Net earnings
    
    $
    16,955
    
    
    $
    11,423
    
    
    $
    27,538
    
    
    $
    12,584
  2




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Six Months Ended
    
    
    Six Months EndedMarch 31, 2007
    
    
    March 31, 2006Cash flows from operating activitiesNet earnings
    
    $
    27,538
    
    
    $
    12,584Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    35,100
    
    
    
    38,417Amortization of loan costs
    
    
    1,517
    
    
    
    1,469Minority interests
    
    
    2,855
    
    
    
    670Deferred income taxes
    
    
    16,274
    
    
    
    7,574Loss on disposal of assets, net
    
    
    1,312
    
    
    
    130Changes in operating assets and liabilities, net of the
effect of acquisition:Accounts receivable
    
    
    (17,771
    )
    
    
    (14,427
    )Inventories, prepaid expenses and other current assets
    
    
    (9,972
    )
    
    
    (11,481
    )Accounts payable, other accrued expenses and other
current liabilities
    
    
    22,676
    
    
    
    20,987Net cash provided by operating activities
    
    
    79,529
    
    
    
    55,923Cash flows from investing activitiesPurchases of property and equipment
    
    
    (97,170
    )
    
    
    (60,232
    )Cash paid for acquisition, net
    
    
    (79,753
    )
    
    
    Proceeds from sale of assets
    
    
    986
    
    
    
    Change in other assets
    
    
    4,010
    
    
    
    (847
    )Net cash used in investing activities
    
    
    (171,927
    )
    
    
    (61,079
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (56,888
    )
    
    
    (3,881
    )Proceeds from debt borrowings
    
    
    56,000
    
    
    
    Distribution of minority interests
    
    
    (2,352
    )
    
    
    (1,196
    )Proceeds received from sale of partnership interests
    
    
    223
    
    
    
    4,521Net cash used in financing activities
    
    
    (3,017
    )
    
    
    (556
    )Decrease in cash and cash equivalents
    
    
    (95,415
    )
    
    
    (5,712
    )Cash and cash equivalents at beginning of period
    
    
    95,415
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    83,385Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    38,146
    
    
    $
    34,860Cash paid for income taxes, net
    
    $
    6,321
    
    
    $
    467
  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
  March 31,
    
    
    September 30,2007
    
    
    2006Senior secured credit facilities
    
    $
    416,313
    
    
    $
    415,438Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital lease and other obligations
    
    
    4,962
    
    
    
    6,507896,275
    
    
    
    896,945Less current maturities
    
    
    6,879
    
    
    
    7,432$
    889,396
    
    
    $
    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
    
    $
    13,091Inventory, prepaid expenses and other current assets
    
    
    3,838Property and equipment
    
    
    51,090Goodwill
    
    
    16,175Other long-term assets
    
    
    2,432Total assets acquired
    
    $
    86,626Liabilities assumed
    
    $
    6,873
 6




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  4. MINIMUM REVENUE GUARANTEES
  Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or
Its Owners
   5. STOCK BENEFIT PLANS
 Accounting for
Stock Issued to Employees Accounting for Stock Based Compensation
 Share-Based Payment Statement of Cash Flows
 7




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   2004 Stock Option Plan
   WeightedAverage Exercise# of Options
    
    
    PriceOptions outstanding at September 30, 2006
    
    
    1,595,485
    
    
    $
    22.28Granted
    
    
    6,540
    
    
    $
    35.60Exercised
    
    
    
    
    
    
    Cancelled/forfeited
    
    

    (69,090
    )
    
    $
    26.15Options outstanding at March 31, 2007
    
    
    1,532,935
    
    
    $
    22.16Options exercisable at March 31, 2007
    
    
    587,359
    
    
    $
    20.01
   Six MonthsQuarter Ended
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2006Net earnings as reported
    
    $
    11,423
    
    
    $
    12,584Deduct: Total stock based
employee compensation determined
under fair value based method
for all awards, net of related
tax effects
    
    
    (318
    )
    
    
    (669
    )Pro forma net earnings
    
    $
    11,105
    
    
    $
    11,915
 8




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Options Granted On
    
    Options GrantedOn or After
    
    Prior toOctober 1, 2006
    
    October 1, 2006Risk-free interest
    
    
    4.58
    %
    
    
    4.64
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    34.85
    %
    
    
    N/AExpected option life
    
    7.7 years
    
    9.1 years
  6. CONTINGENCIES
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   9




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Health Choice
   Capital Expenditure Commitments
  Variable Interest Entities
  Acquisitions
  10




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Other
   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
 11




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 8. SEGMENT AND GEOGRAPHIC INFORMATION
  For the Quarter Ended March 31, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    363,911
    
    
    $
    
    
    
    $
    
    
    
    $
    363,911Premium revenue
    
    
    
    
    
    
    108,791
    
    
    
    
    
    
    
    108,791Revenue between segments
    
    
    3,092
    
    
    
    
    
    
    
    (3,092
    )
    
    
    Net revenue
    
    
    367,003
    
    
    
    108,791
    
    
    
    (3,092
    )
    
    
    472,702Salaries and benefits
    
    
    136,330
    
    
    
    3,624
    
    
    
    
    
    
    
    139,954Supplies
    
    
    55,298
    
    
    
    84
    
    
    
    
    
    
    
    55,382Medical claims
    
    
    
    
    
    
    93,631
    
    
    
    (3,092
    )
    
    
    90,539Other operating expenses
    
    
    73,592
    
    
    
    3,883
    
    
    
    
    
    
    
    77,475Provision for bad debts
    
    
    34,117
    
    
    
    
    
    
    
    
    
    
    
    34,117Rentals and leases
    
    
    8,969
    
    
    
    271
    
    
    
    
    
    
    
    9,240Adjusted EBITDA(1)
    
    
    58,697
    
    
    
    7,298
    
    
    
    
    
    
    
    65,995Interest expense, net
    
    
    16,955
    
    
    
    
    
    
    
    
    
    
    
    16,955Depreciation and amortization
    
    
    17,305
    
    
    
    888
    
    
    
    
    
    
    
    18,193Management fees
    
    
    1,326
    
    
    
    
    
    
    
    
    
    
    
    1,326Earnings before gain on disposal
of assets, minority interests and
income taxes
    
    
    23,111
    
    
    
    6,410
    
    
    
    
    
    
    
    29,521Gain on disposal of assets, net
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Minority interests
    
    
    (1,515
    )
    
    
    
    
    
    
    
    
    
    
    (1,515
    )Earnings before income taxes
    
    $
    21,821
    
    
    $
    6,410
    
    
    $
    
    
    
    $
    28,231Segment assets
    
    $
    1,880,141
    
    
    $
    146,589
    
    
    
    
    
    
    $
    2,026,730Goodwill
    
    $
    766,897
    
    
    $
    5,757
    
    
    
    
    
    
    $
    772,654
 For the Quarter Ended March 31, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    318,435
    
    
    $
    
    
    
    $
    
    
    
    $
    318,435Premium revenue
    
    
    
    
    
    
    99,533
    
    
    
    
    
    
    
    99,533Revenue between segments
    
    
    2,411
    
    
    
    
    
    
    
    (2,411
    )
    
    
    Net revenue
    
    
    320,846
    
    
    
    99,533
    
    
    
    (2,411
    )
    
    
    417,968Salaries and benefits
    
    
    115,080
    
    
    
    3,176
    
    
    
    
    
    
    
    118,256Supplies
    
    
    49,160
    
    
    
    58
    
    
    
    
    
    
    
    49,218Medical claims
    
    
    
    
    
    
    86,651
    
    
    
    (2,411
    )
    
    
    84,240Other operating expenses
    
    
    55,287
    
    
    
    3,294
    
    
    
    
    
    
    
    58,581Provision for bad debts
    
    
    40,482
    
    
    
    
    
    
    
    
    
    
    
    40,482Rentals and leases
    
    
    8,560
    
    
    
    273
    
    
    
    
    
    
    
    8,833Adjusted EBITDA(1)
    
    
    52,277
    
    
    
    6,081
    
    
    
    
    
    
    
    58,358Interest expense, net
    
    
    17,781
    
    
    
    
    
    
    
    
    
    
    
    17,781Depreciation and amortization
    
    
    18,660
    
    
    
    848
    
    
    
    
    
    
    
    19,508Management fees
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    1,045Earnings before loss on disposal
of assets, minority interests and
income taxes
    
    
    14,791
    
    
    
    5,233
    
    
    
    
    
    
    
    20,024Loss on disposal of assets, net
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    (125
    )Minority interests
    
    
    (972
    )
    
    
    
    
    
    
    
    
    
    
    (972
    )Earnings before income taxes
    
    $
    13,694
    
    
    $
    5,233
    
    
    $
    
    
    
    $
    18,927Segment assets
    
    $
    1,761,309
    
    
    $
    127,140
    
    
    
    
    
    
    $
    1,888,449Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, 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
 12




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  For the Six Months Ended March 31, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    672,958
    
    
    $
    
    
    
    $
    
    
    
    $
    672,958Premium revenue
    
    
    
    
    
    
    216,578
    
    
    
    
    
    
    
    216,578Revenue between segments
    
    
    5,769
    
    
    
    
    
    
    
    (5,769
    )
    
    
    Net revenue
    
    
    678,727
    
    
    
    216,578
    
    
    
    (5,769
    )
    
    
    889,536Salaries and benefits
    
    
    258,314
    
    
    
    7,035
    
    
    
    
    
    
    
    265,349Supplies
    
    
    102,459
    
    
    
    168
    
    
    
    
    
    
    
    102,627Medical claims
    
    
    
    
    
    
    186,003
    
    
    
    (5,769
    )
    
    
    180,234Other operating expenses
    
    
    130,736
    
    
    
    7,597
    
    
    
    
    
    
    
    138,333Provision for bad debts
    
    
    65,865
    
    
    
    
    
    
    
    
    
    
    
    65,865Rentals and leases
    
    
    17,164
    
    
    
    526
    
    
    
    
    
    
    
    17,690Business interruption insurance recoveries
    
    
    (1,918
    )
    
    
    
    
    
    
    
    
    
    
    (1,918
    )Adjusted EBITDA(1)
    
    
    106,107
    
    
    
    15,249
    
    
    
    
    
    
    
    121,356Interest expense, net
    
    
    34,241
    
    
    
    
    
    
    
    
    
    
    
    34,241Depreciation and amortization
    
    
    33,325
    
    
    
    1,775
    
    
    
    
    
    
    
    35,100Management fees
    
    
    2,373
    
    
    
    
    
    
    
    
    
    
    
    2,373Earnings before loss on disposal of
assets, minority interests and income
taxes
    
    
    36,168
    
    
    
    13,474
    
    
    
    
    
    
    
    49,642Loss on disposal of assets, net
    
    
    (1,312
    )
    
    
    
    
    
    
    
    
    
    
    (1,312
    )Minority interests
    
    
    (2,855
    )
    
    
    
    
    
    
    
    
    
    
    (2,855
    )Earnings before income taxes
    
    $
    32,001
    
    
    $
    13,474
    
    
    $
    
    
    
    $
    45,475Segment assets
    
    $
    1,880,141
    
    
    $
    146,589
    
    
    
    
    
    
    $
    2,026,730Capital expenditures
    
    $
    96,945
    
    
    $
    225
    
    
    
    
    
    
    $
    97,170Goodwill
    
    $
    766,897
    
    
    $
    5,757
    
    
    
    
    
    
    $
    772,654
 For the Six Months Ended March 31, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    604,862
    
    
    $
    
    
    
    $
    
    
    
    $
    604,862Premium revenue
    
    
    
    
    
    
    192,571
    
    
    
    
    
    
    
    192,571Revenue between segments
    
    
    4,509
    
    
    
    
    
    
    
    (4,509
    )
    
    
    Net revenue
    
    
    609,371
    
    
    
    192,571
    
    
    
    (4,509
    )
    
    
    797,433Salaries and benefits
    
    
    224,911
    
    
    
    6,096
    
    
    
    
    
    
    
    231,007Supplies
    
    
    94,812
    
    
    
    116
    
    
    
    
    
    
    
    94,928Medical claims
    
    
    
    
    
    
    167,938
    
    
    
    (4,509
    )
    
    
    163,429Other operating expenses
    
    
    109,794
    
    
    
    6,293
    
    
    
    
    
    
    
    116,087Provision for bad debts
    
    
    77,501
    
    
    
    
    
    
    
    
    
    
    
    77,501Rentals and leases
    
    
    16,792
    
    
    
    551
    
    
    
    
    
    
    
    17,343Adjusted EBITDA(1)
    
    
    85,561
    
    
    
    11,577
    
    
    
    
    
    
    
    97,138Interest expense, net
    
    
    34,938
    
    
    
    
    
    
    
    
    
    
    
    34,938Depreciation and amortization
    
    
    36,731
    
    
    
    1,686
    
    
    
    
    
    
    
    38,417Management fees
    
    
    2,095
    
    
    
    
    
    
    
    
    
    
    
    2,095Earnings before loss on disposal
of assets, minority interests and
income taxes
    
    
    11,797
    
    
    
    9,891
    
    
    
    
    
    
    
    21,688Loss on disposal of assets, net
    
    
    (130
    )
    
    
    
    
    
    
    
    
    
    
    (130
    )Minority interests
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    (670
    )Earnings before income taxes
    
    $
    10,997
    
    
    $
    9,891
    
    
    $
    
    
    
    $
    20,888Segment assets
    
    $
    1,761,309
    
    
    $
    127,140
    
    
    
    
    
    
    $
    1,888,449Capital expenditures
    
    $
    60,061
    
    
    $
    171
    
    
    
    
    
    
    $
    60,232Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, 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
 13




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  9. IMPACT OF HURRICANE RITA
  10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   14




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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
    
    $
    
    
    
    $
    (4,248
    )
    
    $
    4,248
    
    
    $
    
    
    
    $
    Accounts receivable, net
    
    
    
    
    
    
    135,284
    
    
    
    78,657
    
    
    
    
    
    
    
    213,941Inventories
    
    
    
    
    
    
    25,833
    
    
    
    12,492
    
    
    
    
    
    
    
    38,325Deferred income taxes
    
    
    34,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,030Prepaid expenses and other current assets
    
    
    
    
    
    
    17,993
    
    
    
    34,014
    
    
    
    
    
    
    
    52,007Total current assets
    
    
    34,030
    
    
    
    174,862
    
    
    
    129,411
    
    
    
    
    
    
    
    338,303Property and equipment, net
    
    
    
    
    
    
    418,795
    
    
    
    413,618
    
    
    
    
    
    
    
    832,413Intercompany
    
    
    
    
    
    
    (39,069
    )
    
    
    39,069
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,494,761
    
    
    
    
    
    
    
    
    
    
    
    (1,494,761
    )
    
    
    Goodwill
    
    
    22,008
    
    
    
    223,249
    
    
    
    527,397
    
    
    
    
    
    
    
    772,654Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    
    
    
    
    37,500Other assets, net
    
    
    19,198
    
    
    
    22,267
    
    
    
    4,395
    
    
    
    
    
    
    
    45,860Total assets
    
    $
    1,569,997
    
    
    $
    800,104
    
    
    $
    1,151,390
    
    
    $
    (1,494,761
    )
    
    $
    2,026,730Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    55,841
    
    
    $
    30,195
    
    
    $
    
    
    
    $
    86,036Salaries and benefits payable
    
    
    
    
    
    
    24,326
    
    
    
    10,141
    
    
    
    
    
    
    
    34,467Accrued interest payable
    
    
    19,815
    
    
    
    (1,869
    )
    
    
    1,869
    
    
    
    
    
    
    
    19,815Medical claims payable
    
    
    
    
    
    
    
    
    
    
    78,073
    
    
    
    
    
    
    
    78,073Other accrued expenses and other current liabilities
    
    
    
    
    
    
    33,667
    
    
    
    24,533
    
    
    
    
    
    
    
    58,200Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    1,725
    
    
    
    7,342
    
    
    
    (6,590
    )
    
    
    6,879Total current liabilities
    
    
    24,217
    
    
    
    113,690
    
    
    
    152,153
    
    
    
    (6,590
    )
    
    
    283,470Long-term debt and capital lease obligations
    
    
    884,063
    
    
    
    5,271
    
    
    
    239,052
    
    
    
    (238,990
    )
    
    
    889,396Deferred income taxes
    
    
    90,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,067Other long-term liabilities
    
    
    
    
    
    
    46,740
    
    
    
    
    
    
    
    
    
    
    
    46,740Minority interest
    
    
    
    
    
    
    33,023
    
    
    
    
    
    
    
    
    
    
    
    33,023Total liabilities
    
    
    998,347
    
    
    
    198,724
    
    
    
    391,205
    
    
    
    (245,580
    )
    
    
    1,342,696Members equity
    
    
    571,650
    
    
    
    601,380
    
    
    
    760,185
    
    
    
    (1,249,181
    )
    
    
    684,034Total liabilities and equity
    
    $
    1,569,997
    
    
    $
    800,104
    
    
    $
    1,151,390
    
    
    $
    (1,494,761
    )
    
    $
    2,026,730
 15




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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
 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
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    218,394
    
    
    $
    148,609
    
    
    $
    (3,092
    )
    
    $
    363,911Premium revenue
    
    
    
    
    
    
    
    
    
    
    108,791
    
    
    
    
    
    
    
    108,791Total net revenue
    
    
    
    
    
    
    218,394
    
    
    
    257,400
    
    
    
    (3,092
    )
    
    
    472,702Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    92,162
    
    
    
    47,792
    
    
    
    
    
    
    
    139,954Supplies
    
    
    
    
    
    
    37,930
    
    
    
    17,452
    
    
    
    
    
    
    
    55,382Medical claims
    
    
    
    
    
    
    
    
    
    
    93,631
    
    
    
    (3,092
    )
    
    
    90,539Other operating expenses
    
    
    
    
    
    
    39,604
    
    
    
    37,871
    
    
    
    
    
    
    
    77,475Provision for bad debts
    
    
    
    
    
    
    23,889
    
    
    
    10,228
    
    
    
    
    
    
    
    34,117Rentals and leases
    
    
    
    
    
    
    6,246
    
    
    
    2,994
    
    
    
    
    
    
    
    9,240Interest expense, net
    
    
    16,955
    
    
    
    
    
    
    
    5,509
    
    
    
    (5,509
    )
    
    
    16,955Depreciation and amortization
    
    
    
    
    
    
    11,505
    
    
    
    6,688
    
    
    
    
    
    
    
    18,193Management fees
    
    
    1,326
    
    
    
    (2,879
    )
    
    
    2,879
    
    
    
    
    
    
    
    1,326Equity in earnings of affiliates
    
    
    (41,003
    )
    
    
    
    
    
    
    
    
    
    
    41,003
    
    
    
    Total costs and expenses
    
    
    (22,722
    )
    
    
    208,457
    
    
    
    225,044
    
    
    
    32,402
    
    
    
    443,181Earnings (loss) before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    22,722
    
    
    
    9,937
    
    
    
    32,356
    
    
    
    (35,494
    )
    
    
    29,521Gain (loss) on disposal of assets, net
    
    
    
    
    
    
    256
    
    
    
    (31
    )
    
    
    
    
    
    
    225Minority interests
    
    
    
    
    
    
    (1,515
    )
    
    
    
    
    
    
    
    
    
    
    (1,515
    )Earnings (loss) before income taxes
    
    
    22,722
    
    
    
    8,678
    
    
    
    32,325
    
    
    
    (35,494
    )
    
    
    28,231Income tax expense
    
    
    11,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,276Net earnings (loss)
    
    $
    11,446
    
    
    $
    8,678
    
    
    $
    32,325
    
    
    $
    (35,494
    )
    
    $
    16,955
 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
    
    $
    
    
    
    $
    196,657
    
    
    $
    124,189
    
    
    $
    (2,411
    )
    
    $
    318,435Premium revenue
    
    
    
    
    
    
    
    
    
    
    99,533
    
    
    
    
    
    
    
    99,533Total net revenue
    
    
    
    
    
    
    196,657
    
    
    
    223,722
    
    
    
    (2,411
    )
    
    
    417,968Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    75,470
    
    
    
    42,786
    
    
    
    
    
    
    
    118,256Supplies
    
    
    
    
    
    
    33,876
    
    
    
    15,342
    
    
    
    
    
    
    
    49,218Medical claims
    
    
    
    
    
    
    
    
    
    
    86,651
    
    
    
    (2,411
    )
    
    
    84,240Other operating expenses
    
    
    
    
    
    
    36,781
    
    
    
    21,800
    
    
    
    
    
    
    
    58,581Provision for bad debts
    
    
    
    
    
    
    26,172
    
    
    
    14,310
    
    
    
    
    
    
    
    40,482Rentals and leases
    
    
    
    
    
    
    6,552
    
    
    
    2,281
    
    
    
    
    
    
    
    8,833Interest expense, net
    
    
    17,781
    
    
    
    
    
    
    
    5,099
    
    
    
    (5,099
    )
    
    
    17,781Depreciation and amortization
    
    
    
    
    
    
    11,967
    
    
    
    7,541
    
    
    
    
    
    
    
    19,508Management fees
    
    
    1,045
    
    
    
    (2,665
    )
    
    
    2,665
    
    
    
    
    
    
    
    1,045Equity in earnings of affiliates
    
    
    (32,654
    )
    
    
    
    
    
    
    
    
    
    
    32,654
    
    
    
    Total costs and expenses
    
    
    (13,828
    )
    
    
    188,153
    
    
    
    198,475
    
    
    
    25,144
    
    
    
    397,944Earnings (loss) before loss on
disposal of assets, minority
interests and income taxes
    
    
    13,828
    
    
    
    8,504
    
    
    
    25,247
    
    
    
    (27,555
    )
    
    
    20,024Loss on disposal of assets, net
    
    
    
    
    
    
    (117
    )
    
    
    (8
    )
    
    
    
    
    
    
    (125
    )Minority interests
    
    
    
    
    
    
    (972
    )
    
    
    
    
    
    
    
    
    
    
    (972
    )Earnings (loss) before income taxes
    
    
    13,828
    
    
    
    7,415
    
    
    
    25,239
    
    
    
    (27,555
    )
    
    
    18,927Income tax expense
    
    
    7,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,504Net earnings (loss)
    
    $
    6,324
    
    
    $
    7,415
    
    
    $
    25,239
    
    
    $
    (27,555
    )
    
    $
    11,423
 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
    
    $
    
    
    
    $
    402,411
    
    
    $
    276,316
    
    
    $
    (5,769
    )
    
    $
    672,958Premium revenue
    
    
    
    
    
    
    
    
    
    
    216,578
    
    
    
    
    
    
    
    216,578Total net revenue
    
    
    
    
    
    
    402,411
    
    
    
    492,894
    
    
    
    (5,769
    )
    
    
    889,536Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    171,531
    
    
    
    93,818
    
    
    
    
    
    
    
    265,349Supplies
    
    
    
    
    
    
    69,060
    
    
    
    33,567
    
    
    
    
    
    
    
    102,627Medical claims
    
    
    
    
    
    
    
    
    
    
    186,003
    
    
    
    (5,769
    )
    
    
    180,234Other operating expenses
    
    
    
    
    
    
    76,370
    
    
    
    61,963
    
    
    
    
    
    
    
    138,333Provision for bad debts
    
    
    
    
    
    
    45,727
    
    
    
    20,138
    
    
    
    
    
    
    
    65,865Rentals and leases
    
    
    
    
    
    
    11,477
    
    
    
    6,213
    
    
    
    
    
    
    
    17,690Interest expense, net
    
    
    34,241
    
    
    
    
    
    
    
    10,618
    
    
    
    (10,618
    )
    
    
    34,241Depreciation and amortization
    
    
    
    
    
    
    21,893
    
    
    
    13,207
    
    
    
    
    
    
    
    35,100Management fees
    
    
    2,373
    
    
    
    (5,618
    )
    
    
    5,618
    
    
    
    
    
    
    
    2,373Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (1,918
    )
    
    
    
    
    
    
    (1,918
    )Equity in earnings of affiliates
    
    
    (71,471
    )
    
    
    
    
    
    
    
    
    
    
    71,471
    
    
    
    Total costs and expenses
    
    
    (34,857
    )
    
    
    390,440
    
    
    
    429,227
    
    
    
    55,084
    
    
    
    839,894Earnings (loss) before loss on disposal of
assets, minority interests and income taxes
    
    
    34,857
    
    
    
    11,971
    
    
    
    63,667
    
    
    
    (60,853
    )
    
    
    49,642Loss on disposal of assets, net
    
    
    
    
    
    
    (1,076
    )
    
    
    (236
    )
    
    
    
    
    
    
    (1,312
    )Minority interests
    
    
    
    
    
    
    (2,855
    )
    
    
    
    
    
    
    
    
    
    
    (2,855
    )Earnings (loss) before income taxes
    
    
    34,857
    
    
    
    8,040
    
    
    
    63,431
    
    
    
    (60,853
    )
    
    
    45,475Income tax expense
    
    
    17,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,937Net earnings (loss)
    
    $
    16,920
    
    
    $
    8,040
    
    
    $
    63,431
    
    
    $
    (60,853
    )
    
    $
    27,538
 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
    
    $
    
    
    
    $
    378,073
    
    
    $
    231,298
    
    
    $
    (4,509
    )
    
    $
    604,862Premium revenue
    
    
    
    
    
    
    
    
    
    
    192,571
    
    
    
    
    
    
    
    192,571Total net revenue
    
    
    
    
    
    
    378,073
    
    
    
    423,869
    
    
    
    (4,509
    )
    
    
    797,433Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    147,736
    
    
    
    83,271
    
    
    
    
    
    
    
    231,007Supplies
    
    
    
    
    
    
    66,159
    
    
    
    28,769
    
    
    
    
    
    
    
    94,928Medical claims
    
    
    
    
    
    
    
    
    
    
    167,938
    
    
    
    (4,509
    )
    
    
    163,429Other operating expenses
    
    
    
    
    
    
    73,710
    
    
    
    42,377
    
    
    
    
    
    
    
    116,087Provision for bad debts
    
    
    
    
    
    
    48,885
    
    
    
    28,616
    
    
    
    
    
    
    
    77,501Rentals and leases
    
    
    
    
    
    
    11,746
    
    
    
    5,597
    
    
    
    
    
    
    
    17,343Interest expense, net
    
    
    34,938
    
    
    
    
    
    
    
    9,750
    
    
    
    (9,750
    )
    
    
    34,938Depreciation and amortization
    
    
    
    
    
    
    23,551
    
    
    
    14,866
    
    
    
    
    
    
    
    38,417Management fees
    
    
    2,095
    
    
    
    (5,035
    )
    
    
    5,035
    
    
    
    
    
    
    
    2,095Equity in earnings of affiliates
    
    
    (48,171
    )
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    Total costs and expenses
    
    
    (11,138
    )
    
    
    366,752
    
    
    
    386,219
    
    
    
    33,912
    
    
    
    775,745Earnings (loss) before loss on
disposal of assets, minority
interests and income taxes
    
    
    11,138
    
    
    
    11,321
    
    
    
    37,650
    
    
    
    (38,421
    )
    
    
    21,688Loss on disposal of assets, net
    
    
    
    
    
    
    (106
    )
    
    
    (24
    )
    
    
    
    
    
    
    (130
    )Minority interests
    
    
    
    
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    (670
    )Earnings (loss) before income taxes
    
    
    11,138
    
    
    
    10,545
    
    
    
    37,626
    
    
    
    (38,421
    )
    
    
    20,888Income tax expense
    
    
    8,304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,304Net earnings (loss)
    
    $
    2,834
    
    
    $
    10,545
    
    
    $
    37,626
    
    
    $
    (38,421
    )
    
    $
    12,584
 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
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    16,920
    
    
    $
    8,040
    
    
    $
    63,431
    
    
    $
    (60,853
    )
    
    $
    27,538Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    21,893
    
    
    
    13,207
    
    
    
    
    
    
    
    35,100Amortization of loan costs
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,517Minority interests
    
    
    
    
    
    
    2,855
    
    
    
    
    
    
    
    
    
    
    
    2,855Deferred income taxes
    
    
    16,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,274Loss on disposal of assets, net
    
    
    
    
    
    
    1,076
    
    
    
    236
    
    
    
    
    
    
    
    1,312Equity in earnings of affiliates
    
    
    (71,471
    )
    
    
    
    
    
    
    
    
    
    
    71,471
    
    
    
    Changes in operating assets and liabilities, net of the
effect of acquisition:Accounts receivable
    
    
    
    
    
    
    (11,815
    )
    
    
    (5,956
    )
    
    
    
    
    
    
    (17,771
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    6,303
    
    
    
    (16,275
    )
    
    
    
    
    
    
    (9,972
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    (150
    )
    
    
    7,622
    
    
    
    15,204
    
    
    
    
    
    
    
    22,676Net cash provided by (used in) operating activities
    
    
    (36,910
    )
    
    
    35,974
    
    
    
    69,847
    
    
    
    10,618
    
    
    
    79,529Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (20,344
    )
    
    
    (76,826
    )
    
    
    
    
    
    
    (97,170
    )Cash paid for acquisition, net
    
    
    
    
    
    
    (79,753
    )
    
    
    
    
    
    
    
    
    
    
    (79,753
    )Proceeds from sale of assets
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Change in other assets
    
    
    
    
    
    
    2,680
    
    
    
    1,330
    
    
    
    
    
    
    
    4,010Net cash used in investing activities
    
    
    
    
    
    
    (96,431
    )
    
    
    (75,496
    )
    
    
    
    
    
    
    (171,927
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (55,201
    )
    
    
    (1,075
    )
    
    
    (612
    )
    
    
    
    
    
    
    (56,888
    )Proceeds from debt borrowings
    
    
    56,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,000Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (2,352
    )
    
    
    
    
    
    
    (2,352
    )Change in intercompany balances with affiliates, net
    
    
    36,111
    
    
    
    (37,234
    )
    
    
    11,741
    
    
    
    (10,618
    )
    
    
    Proceeds received from sale of partnership interests
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    223Net cash provided by (used in) financing activities
    
    
    36,910
    
    
    
    (38,309
    )
    
    
    9,000
    
    
    
    (10,618
    )
    
    
    (3,017
    )Increase
(decrease) in cash and cash equivalents
    
    
    
    
    
    
    (98,766
    )
    
    
    3,351
    
    
    
    
    
    
    
    (95,415
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    94,518
    
    
    
    897
    
    
    
    
    
    
    
    95,415Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    (4,248
    )
    
    $
    4,248
    
    
    $
    
    
    
    $
    
 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)
    
    $
    2,834
    
    
    $
    10,545
    
    
    $
    37,626
    
    
    $
    (38,421
    )
    
    $
    12,584Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    23,551
    
    
    
    14,866
    
    
    
    
    
    
    
    38,417Amortization of loan costs
    
    
    1,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,469Minority interests
    
    
    
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    670Deferred income taxes
    
    
    7,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,574Loss on disposal of assets, net
    
    
    
    
    
    
    106
    
    
    
    24
    
    
    
    
    
    
    
    130Equity in earnings of affiliates
    
    
    (48,171
    )
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (12,072
    )
    
    
    (2,355
    )
    
    
    
    
    
    
    (14,427
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (6,770
    )
    
    
    (4,711
    )
    
    
    
    
    
    
    (11,481
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    877
    
    
    
    235
    
    
    
    19,875
    
    
    
    
    
    
    
    20,987Net cash provided by (used in) operating activities
    
    
    (35,417
    )
    
    
    16,265
    
    
    
    65,325
    
    
    
    9,750
    
    
    
    55,923Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (24,585
    )
    
    
    (35,647
    )
    
    
    
    
    
    
    (60,232
    )Change in other assets
    
    
    
    
    
    
    (636
    )
    
    
    (211
    )
    
    
    
    
    
    
    (847
    )Net cash used in investing activities
    
    
    
    
    
    
    (25,221
    )
    
    
    (35,858
    )
    
    
    
    
    
    
    (61,079
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (2,201
    )
    
    
    (1,107
    )
    
    
    (573
    )
    
    
    
    
    
    
    (3,881
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,196
    )
    
    
    
    
    
    
    (1,196
    )Change in intercompany balances with affiliates, net
    
    
    37,618
    
    
    
    4,476
    
    
    
    (32,344
    )
    
    
    (9,750
    )
    
    
    Proceeds received from the sale of partnership interests
    
    
    
    
    
    
    (101
    )
    
    
    4,622
    
    
    
    
    
    
    
    4,521Net cash provided by (used in) financing activities
    
    
    35,417
    
    
    
    3,268
    
    
    
    (29,491
    )
    
    
    (9,750
    )
    
    
    (556
    )Decrease in cash and cash equivalents
    
    
    
    
    
    
    (5,688
    )
    
    
    (24
    )
    
    
    
    
    
    
    (5,712
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    82,909
    
    
    $
    476
    
    
    $
    
    
    
    $
    83,385
 22




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 11. SUBSEQUENT EVENTS
   23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
   24




---



##### 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
    25




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##### Table of Contents



Revenue and Volume Trends
     26




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##### Table of Contents



Quarter
    
    
    Six MonthsEnded March 31,
    
    

Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Medicare
    
    
    33.4
    %
    
    
    34.2
    %
    
    
    32.2
    %
    
    
    33.9
    %Medicaid
    
    
    16.6
    %
    
    
    17.4
    %
    
    
    16.7
    %
    
    
    17.5
    %Managed care
    
    
    42.3
    %
    
    
    41.4
    %
    
    
    43.1
    %
    
    
    41.3
    %Self-pay and other
    
    
    7.7
    %
    
    
    7.0
    %
    
    
    8.0
    %
    
    
    7.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
      27




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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.
     28




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##### Table of Contents



Significant Industry Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   March 31,
    
    
    September 30,2007
    
    
    2006Insured receivables
    
    
    65.8
    %
    
    
    60.4
    %Uninsured receivables
    
    
    34.2
    %
    
    
    39.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  29




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##### Table of Contents



March 31,
    
    
    September 30,2007
    
    
    20060 to 90 days
    
    
    70.3
    %
    
    
    62.7
    %91 to 180 days
    
    
    15.3
    %
    
    
    17.7
    %Over 180 days
    
    
    14.4
    %
    
    
    19.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Additional Charity Care and Charges to the Uninsured
  Sub-Acute Care Services
  Nursing Shortage
  Decreased Federal and State Funding for Medicaid Programs
  30




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##### Table of Contents



Changes in Patient Service Mix
  Volatility of Insurance Costs
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Selected Operating Data
  Quarter
    
    
    Six MonthsEnded March 31,
    
    

Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Acute Care:Number of acute care hospitals at end of period
    
    
    15
    
    
    
    14
    
    
    
    15
    
    
    
    14Beds in service at end of period (1)
    
    
    2,451
    
    
    
    2,199
    
    
    
    2,451
    
    
    
    2,199Average length of stay (days) (2)
    
    
    4.66
    
    
    
    4.69
    
    
    
    4.59
    
    
    
    4.60Occupancy rates (average beds in service)
    
    
    55.9
    %
    
    
    54.8
    %
    
    
    52.9
    %
    
    
    52.0
    %Admissions (3)
    
    
    25,609
    
    
    
    22,975
    
    
    
    47,913
    
    
    
    44,321Adjusted admissions (4)
    
    
    40,137
    
    
    
    37,060
    
    
    
    76,330
    
    
    
    71,983Patient days (5)
    
    
    119,222
    
    
    
    107,765
    
    
    
    219,990
    
    
    
    203,844Adjusted patient days (4)
    
    
    180,097
    
    
    
    168,334
    
    
    
    337,721
    
    
    
    320,154Net patient revenue per adjusted admission (6)
    
    $
    8,979
    
    
    $
    8,489
    
    
    $
    8,738
    
    
    $
    8,298
 31




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##### Table of Contents



Quarter
    
    
    Six MonthsEnded March 31,
    
    

Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Same Facility (7):Number of acute care hospitals at end of period
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Beds in service at end of period (1)
    
    
    2,214
    
    
    
    2,199
    
    
    
    2,214
    
    
    
    2,199Average length of stay (days) (2)
    
    
    4.63
    
    
    
    4.69
    
    
    
    4.58
    
    
    
    4.60Occupancy rates (average beds in service)
    
    
    55.8
    %
    
    
    54.8
    %
    
    
    52.7
    %
    
    
    52.0
    %Admissions (3)
    
    
    23,996
    
    
    
    22,975
    
    
    
    46,300
    
    
    
    44,321Adjusted admissions (4)
    
    
    37,913
    
    
    
    37,060
    
    
    
    74,106
    
    
    
    71,983Patient days (5)
    
    
    111,206
    
    
    
    107,765
    
    
    
    211,974
    
    
    
    203,844Adjusted patient days (4)
    
    
    169,044
    
    
    
    168,334
    
    
    
    326,668
    
    
    
    320,154Net patient revenue per adjusted admission (6)
    
    $
    9,065
    
    
    $
    8,489
    
    
    $
    8,775
    
    
    $
    8,298Health Choice:Medicaid covered lives
    
    
    113,499
    
    
    
    112,306
    
    
    
    113,499
    
    
    
    112,306Dual-eligible lives (8)
    
    
    3,755
    
    
    
    4,565
    
    
    
    3,755
    
    
    
    4,565Medical loss ratio (9)
    
    
    86.1
    
    
    
    87.1
    
    
    
    85.9
    
    
    
    87.2
 (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)
    
    Excludes Glenwood Regional Medical Center, which was acquired effective as of January 31,
2007, with 237 beds in service at March 31, 2007.(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.
 32




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##### Table of Contents



RESULTS OF OPERATIONS SUMMARY
  Consolidated ($ in
    
    Quarter Ended
    
    
    Quarter Ended
    
    
    Six Months Ended
    
    
    Six Months Endedthousands):
    
    March 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    363,911
    
    
    
    77.0
    %
    
    $
    318,435
    
    
    
    76.2
    %
    
    $
    672,958
    
    
    
    75.7
    %
    
    $
    604,862
    
    
    
    75.9
    %Premium revenue
    
    
    108,791
    
    
    
    23.0
    %
    
    
    99,533
    
    
    
    23.8
    %
    
    
    216,578
    
    
    
    24.3
    %
    
    
    192,571
    
    
    
    24.1
    %Total net revenue
    
    
    472,702
    
    
    
    100.0
    %
    
    
    417,968
    
    
    
    100.0
    %
    
    
    889,536
    
    
    
    100.0
    %
    
    
    797,433
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    139,954
    
    
    
    29.6
    %
    
    
    118,256
    
    
    
    28.3
    %
    
    
    265,349
    
    
    
    29.8
    %
    
    
    231,007
    
    
    
    29.0
    %Supplies
    
    
    55,382
    
    
    
    11.7
    %
    
    
    49,218
    
    
    
    11.8
    %
    
    
    102,627
    
    
    
    11.5
    %
    
    
    94,928
    
    
    
    11.9
    %Medical claims
    
    
    90,539
    
    
    
    19.2
    %
    
    
    84,240
    
    
    
    20.2
    %
    
    
    180,234
    
    
    
    20.3
    %
    
    
    163,429
    
    
    
    20.5
    %Other operating expenses
    
    
    77,475
    
    
    
    16.4
    %
    
    
    58,581
    
    
    
    14.0
    %
    
    
    138,333
    
    
    
    15.6
    %
    
    
    116,087
    
    
    
    14.5
    %Provision for bad debts
    
    
    34,117
    
    
    
    7.2
    %
    
    
    40,482
    
    
    
    9.7
    %
    
    
    65,865
    
    
    
    7.4
    %
    
    
    77,501
    
    
    
    9.7
    %Rentals and leases
    
    
    9,240
    
    
    
    2.0
    %
    
    
    8,833
    
    
    
    2.1
    %
    
    
    17,690
    
    
    
    2.0
    %
    
    
    17,343
    
    
    
    2.2
    %Interest expense, net
    
    
    16,955
    
    
    
    3.5
    %
    
    
    17,781
    
    
    
    4.3
    %
    
    
    34,241
    
    
    
    3.8
    %
    
    
    34,938
    
    
    
    4.4
    %Depreciation and amortization
    
    
    18,193
    
    
    
    3.8
    %
    
    
    19,508
    
    
    
    4.6
    %
    
    
    35,100
    
    
    
    3.9
    %
    
    
    38,417
    
    
    
    4.8
    %Management fees
    
    
    1,326
    
    
    
    0.3
    %
    
    
    1,045
    
    
    
    0.2
    %
    
    
    2,373
    
    
    
    0.3
    %
    
    
    2,095
    
    
    
    0.3
    %Business interruption
insurance recoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,918
    )
    
    
    (0.2
    )%
    
    
    
    
    
    
    Total costs and expenses
    
    
    443,181
    
    
    
    93.7
    %
    
    
    397,944
    
    
    
    95.2
    %
    
    
    839,894
    
    
    
    94.4
    %
    
    
    775,745
    
    
    
    97.3
    %Earnings before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    29,521
    
    
    
    6.3
    %
    
    
    20,024
    
    
    
    4.8
    %
    
    
    49,642
    
    
    
    5.6
    %
    
    
    21,688
    
    
    
    2.7
    %Gain (loss) on disposal of
assets, net
    
    
    225
    
    
    
    
    
    
    
    (125
    )
    
    
    
    
    
    
    (1,312
    )
    
    
    (0.2
    )%
    
    
    (130
    )
    
    
    Minority interests
    
    
    (1,515
    )
    
    
    (0.3
    )%
    
    
    (972
    )
    
    
    (0.3
    )%
    
    
    (2,855
    )
    
    
    (0.3
    )%
    
    
    (670
    )
    
    
    (0.1
    )%Earnings before income taxes
    
    
    28,231
    
    
    
    6.0
    %
    
    
    18,927
    
    
    
    4.5
    %
    
    
    45,475
    
    
    
    5.1
    %
    
    
    20,888
    
    
    
    2.6
    %Income tax expense
    
    
    11,276
    
    
    
    2.4
    %
    
    
    7,504
    
    
    
    1.8
    %
    
    
    17,937
    
    
    
    2.0
    %
    
    
    8,304
    
    
    
    1.0
    %Net earnings
    
    $
    16,955
    
    
    
    3.6
    %
    
    $
    11,423
    
    
    
    2.7
    %
    
    $
    27,538
    
    
    
    3.1
    %
    
    $
    12,584
    
    
    
    1.6
    %
 33




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##### Table of Contents



Quarter Ended
    
    
    Quarter Ended
    
    
    Six Months Ended
    
    
    Six Months EndedAcute Care ($ in thousands):
    
    March 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    363,911
    
    
    
    99.2
    %
    
    $
    318,435
    
    
    
    99.2
    %
    
    $
    672,958
    
    
    
    99.2
    %
    
    $
    604,862
    
    
    
    99.3
    %Revenue between segments (1)
    
    
    3,092
    
    
    
    0.8
    %
    
    
    2,411
    
    
    
    0.8
    %
    
    
    5,769
    
    
    
    0.8
    %
    
    
    4,509
    
    
    
    0.7
    %Total net revenue
    
    
    367,003
    
    
    
    100.0
    %
    
    
    320,846
    
    
    
    100.0
    %
    
    
    678,727
    
    
    
    100.0
    %
    
    
    609,371
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    136,330
    
    
    
    37.1
    %
    
    
    115,080
    
    
    
    35.9
    %
    
    
    258,314
    
    
    
    38.1
    %
    
    
    224,911
    
    
    
    36.9
    %Supplies
    
    
    55,298
    
    
    
    15.1
    %
    
    
    49,160
    
    
    
    15.3
    %
    
    
    102,459
    
    
    
    15.1
    %
    
    
    94,812
    
    
    
    15.6
    %Other operating expenses
    
    
    73,592
    
    
    
    20.1
    %
    
    
    55,287
    
    
    
    17.2
    %
    
    
    130,736
    
    
    
    19.3
    %
    
    
    109,794
    
    
    
    18.0
    %Provision for bad debts
    
    
    34,117
    
    
    
    9.3
    %
    
    
    40,482
    
    
    
    12.6
    %
    
    
    65,865
    
    
    
    9.7
    %
    
    
    77,501
    
    
    
    12.7
    %Rentals and leases
    
    
    8,969
    
    
    
    2.4
    %
    
    
    8,560
    
    
    
    2.7
    %
    
    
    17,164
    
    
    
    2.5
    %
    
    
    16,792
    
    
    
    2.8
    %Interest expense, net
    
    
    16,955
    
    
    
    4.6
    %
    
    
    17,781
    
    
    
    5.5
    %
    
    
    34,241
    
    
    
    5.1
    %
    
    
    34,938
    
    
    
    5.7
    %Depreciation and
amortization
    
    
    17,305
    
    
    
    4.7
    %
    
    
    18,660
    
    
    
    5.8
    %
    
    
    33,325
    
    
    
    4.9
    %
    
    
    36,731
    
    
    
    6.0
    %Management fees
    
    
    1,326
    
    
    
    0.4
    %
    
    
    1,045
    
    
    
    0.4
    %
    
    
    2,373
    
    
    
    0.3
    %
    
    
    2,095
    
    
    
    0.4
    %Business interruption
insurance recoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,918
    )
    
    
    (0.3
    )%
    
    
    
    
    
    
    Total costs and expenses
    
    
    343,892
    
    
    
    93.7
    %
    
    
    306,055
    
    
    
    95.4
    %
    
    
    642,559
    
    
    
    94.7
    %
    
    
    597,574
    
    
    
    98.1
    %Earnings before gain (loss)
on disposal of assets and
minority interests
    
    
    23,111
    
    
    
    6.3
    %
    
    
    14,791
    
    
    
    4.6
    %
    
    
    36,168
    
    
    
    5.3
    %
    
    
    11,797
    
    
    
    1.9
    %Gain (loss) of disposal of
assets, net
    
    
    225
    
    
    
    
    
    
    
    (125
    )
    
    
    
    
    
    
    (1,312
    )
    
    
    (0.2
    )%
    
    
    (130
    )
    
    
    Minority interests
    
    
    (1,515
    )
    
    
    (0.4
    )%
    
    
    (972
    )
    
    
    (0.3
    )%
    
    
    (2,855
    )
    
    
    (0.4
    )%
    
    
    (670
    )
    
    
    (0.1
    )%Earnings before income taxes
    
    $
    21,821
    
    
    
    5.9
    %
    
    $
    13,694
    
    
    
    4.3
    %
    
    $
    32,001
    
    
    
    4.7
    %
    
    $
    10,997
    
    
    
    1.8
    %
 (1)
    
    Revenue between segments is eliminated in our consolidated results.
 Quarter Ended
    
    
    Quarter Ended
    
    
    Six Months Ended
    
    
    Six Months EndedHealth Choice ($ in thousands):
    
    March 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentagePremium revenue
    
    $
    108,791
    
    
    
    100.0
    %
    
    $
    99,533
    
    
    
    100.0
    %
    
    $
    216,578
    
    
    
    100.0
    %
    
    $
    192,571
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    3,624
    
    
    
    3.3
    %
    
    
    3,176
    
    
    
    3.2
    %
    
    
    7,035
    
    
    
    3.3
    %
    
    
    6,096
    
    
    
    3.2
    %Supplies
    
    
    84
    
    
    
    0.1
    %
    
    
    58
    
    
    
    0.1
    %
    
    
    168
    
    
    
    0.1
    %
    
    
    116
    
    
    
    0.1
    %Medical claims (1)
    
    
    93,631
    
    
    
    86.1
    %
    
    
    86,651
    
    
    
    87.1
    %
    
    
    186,003
    
    
    
    85.9
    %
    
    
    167,938
    
    
    
    87.2
    %Other operating expenses
    
    
    3,883
    
    
    
    3.6
    %
    
    
    3,294
    
    
    
    3.3
    %
    
    
    7,597
    
    
    
    3.5
    %
    
    
    6,293
    
    
    
    3.2
    %Rentals and leases
    
    
    271
    
    
    
    0.2
    %
    
    
    273
    
    
    
    0.2
    %
    
    
    526
    
    
    
    0.2
    %
    
    
    551
    
    
    
    0.3
    %Depreciation and amortization
    
    
    888
    
    
    
    0.8
    %
    
    
    848
    
    
    
    0.8
    %
    
    
    1,775
    
    
    
    0.8
    %
    
    
    1,686
    
    
    
    0.9
    %Total costs and expenses
    
    
    102,381
    
    
    
    94.1
    %
    
    
    94,300
    
    
    
    94.7
    %
    
    
    203,104
    
    
    
    93.8
    %
    
    
    182,680
    
    
    
    94.9
    %Earnings before income taxes
    
    $
    6,410
    
    
    
    5.9
    %
    
    $
    5,233
    
    
    
    5.3
    %
    
    $
    13,474
    
    
    
    6.2
    %
    
    $
    9,891
    
    
    
    5.1
    %
 (1)
    
    Medical claims paid to our hospitals of $3.1 million and $2.4 million for the quarters
ended March 31, 2007 and 2006, respectively, and $5.8 million and $4.5 million for the six
months ended March 31, 2007 and 2006, respectively, is eliminated in our consolidated results.
 34




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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 March 31, 2007Non-GAAPUninsured
    
    
    Adjusted
    
    
    GAAP %
    
    
    Non-GAAP % ofGAAP Amounts
    
    
    Discounts (1)
    
    
    Amounts (2)
    
    
    of Revenues
    
    
    Revenues (2)2007
    
    
    2006
    
    
    2007Acute Care Segment:Net revenue(3)
    
    $
    367,003
    
    
    $
    13,061
    
    
    $
    380,064
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    136,330
    
    
    
    
    
    
    
    136,330
    
    
    
    37.1
    
    
    
    35.9
    
    
    
    35.9Supplies
    
    
    55,298
    
    
    
    
    
    
    
    55,298
    
    
    
    15.1
    
    
    
    15.3
    
    
    
    14.5Other operating expenses
    
    
    73,592
    
    
    
    
    
    
    
    73,592
    
    
    
    20.1
    
    
    
    17.2
    
    
    
    19.4Provision for bad debts
    
    
    34,117
    
    
    
    13,061
    
    
    
    47,178
    
    
    
    9.3
    
    
    
    12.6
    
    
    
    12.4Rentals and leases
    
    
    8,969
    
    
    
    
    
    
    
    8,969
    
    
    
    2.4
    
    
    
    2.7
    
    
    
    2.4Net patient revenue per
adjusted admission
    
    $
    8,979
    
    
    $
    325
    
    
    $
    9,304Percentage change from
prior year
    
    
    5.8
    %
    
    
    
    
    
    
    9.6
    %Same-Facility(4)Net revenue(3)
    
    $
    349,577
    
    
    $
    13,061
    
    
    $
    362,638Net patient revenue per
adjusted admission
    
    $
    9,065
    
    
    $
    344
    
    
    $
    9,409Percentage change from
prior year
    
    
    6.8
    %
    
    
    
    
    
    
    10.8
    %
 (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 $13.1 million of uninsured discounts during the second
quarter of fiscal 2007.(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)
    
    Excludes Glenwood Regional Medical Center, which was acquired effective as of
January 31, 2007, with 237 beds in service at March 31, 2007.
 35




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##### Table of Contents



Operating Measures Adjusted for Comparative Analysis (Unaudited)(in thousands, except for statistical measures)Six Months Ended March 31, 2007Non-GAAPUninsured
    
    
    Adjusted
    
    
    GAAP %
    
    
    Non-GAAP % ofGAAP Amounts
    
    
    Discounts (1)
    
    
    Amounts (2)
    
    
    of Revenues
    
    
    Revenues (2)2007
    
    
    2006
    
    
    2007Acute Care Segment:Net revenue(3)
    
    $
    678,727
    
    
    $
    25,402
    
    
    $
    704,129
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    258,314
    
    
    
    
    
    
    
    258,314
    
    
    
    38.1
    
    
    
    36.9
    
    
    
    36.7Supplies
    
    
    102,459
    
    
    
    
    
    
    
    102,459
    
    
    
    15.1
    
    
    
    15.6
    
    
    
    14.6Other operating expenses
    
    
    130,736
    
    
    
    
    
    
    
    130,736
    
    
    
    19.3
    
    
    
    18.0
    
    
    
    18.6Provision for bad debts
    
    
    65,865
    
    
    
    25,402
    
    
    
    91,267
    
    
    
    9.7
    
    
    
    12.7
    
    
    
    13.0Rentals and leases
    
    
    17,164
    
    
    
    
    
    
    
    17,164
    
    
    
    2.5
    
    
    
    2.8
    
    
    
    2.4Net patient revenue per
adjusted admission
    
    $
    8,738
    
    
    $
    333
    
    
    $
    9,071Percentage change from prior
year
    
    
    5.3
    %
    
    
    
    
    
    
    9.3
    %Same-Facility(4)Net revenue(3)
    
    $
    661,303
    
    
    $
    25,402
    
    
    $
    686,705Net patient revenue per
adjusted admission
    
    $
    8,775
    
    
    $
    343
    
    
    $
    9,118Percentage change from
prior year
    
    
    5.7
    %
    
    
    
    
    
    
    9.9
    %
 (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 $25.4 million of uninsured discounts during the six months
ended March 31, 2007.(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)
    
    Excludes Glenwood Regional Medical Center, which was acquired effective as of
January 31, 2007, with 237 beds in service at March 31, 2007.
 36




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##### Table of Contents



Quarters Ended March 31, 2007 and 2006
 Net revenue
     Salaries and benefits
 Supplies
 37




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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
 38




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##### Table of Contents



Six Months Ended March 31, 2007 and 2006
 Net revenue
     Salaries and benefits
 39




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##### Table of Contents



Supplies
 Medical claims
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 40




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##### Table of Contents



Income tax expense
 Net earnings
 LIQUIDITY AND CAPITAL RESOURCES
   Available cash
    
    $
    Available capacity under our senior secured credit facilities existing at
March 31, 2007
    
    
    207.3Net available liquidity at March 31, 2007
    
    $
    207.3
     
    
    approximately $100.0 million to $105.0 million for the construction of Mountain Vista Medical Center;
 41




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##### Table of Contents




    
    approximately $70.0 million to $75.0 million for other growth and new business projects;
    
    approximately $35.0 million to $40.0 million in replacement or maintenance related
projects at our hospitals; and
    
    approximately $14.0 million in hardware and software related costs in
connection with the implementation of our advanced clinical information system.
        42




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##### Table of Contents



Overview of Cash Flow Activities for the Six Months Ended March 31, 2007 and 2006
  Six MonthsEnded March 31,2007
    
    
    2006Cash flow from operating activities
    
    $
    79.5
    
    
    $
    55.9Cash flow from investing activities
    
    
    (171.9
    )
    
    
    (61.1
    )Cash flow from financing activities
    
    
    (3.0
    )
    
    
    (0.6
    )
 Operating Activities
  Investing Activities
   
    
    $53.0 million for the construction of Mountain Vista Medical Center;
    
    $17.8 million for various expansion and renovation projects at our hospitals; and
    
    $7.8 million in hardware and software related to our advanced clinicals and
other information systems projects.
 Financing Activities
  Debt Instruments and Related Covenants
  
    
    $675.0 million in senior secured credit facilities; and
    
    $475.0 million in 8 3/4% senior subordinated notes due 2014.
  $854.0 Million Senior Secured Credit Facilities
  43




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##### Table of Contents



$475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
  $300.0 Million Holdings Senior PIK Loans
  44




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##### Table of Contents



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
 Fair Value Measurements
 45




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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
  46




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 6. Exhibits
  10.1
    
    
    Commitment Letter, dated April 4,
2007, by and among IASIS Healthcare
LLC, IASIS Healthcare Corporation,
Banc of America Securities LLC,
Citigroup Global Markets Inc., Bank
of America, N.A., Banc of America
Bridge LLC and Citigroup.10.2
    
    

Amended
and Restated Credit Agreement, dated as of April 27, 2007, among
IASIS Healthcare LLC, as Borrower, IASIS Healthcare Corporation, as
Holdings, Bank of America, N.A., as administrative agent, swing line
lender, revolving L/C issuer and Synthetic L/C issuer, and each
lender from time to time party thereto (incorporated by reference to
the Companys Current Report on Form 8-K filed on May 2, 2007).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.
 47




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##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: May 15, 2007
    By:
    /s/ John M. DoyleJohn M. DoyleChief Accounting Officer 48




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Commitment Letter, dated April 4, 2007, by and among
IASIS Healthcare LLC, IASIS Healthcare Corporation, Banc
of America Securities LLC, Citigroup Global Markets Inc.,
Bank of America, N.A., Banc of America Bridge LLC and
Citigroup.10.2
    
    

Amended
and Restated Credit Agreement, dated as of April 27, 2007, among
IASIS Healthcare LLC, as Borrower, IASIS Healthcare Corporation, as
Holdings, Bank of America, N.A., as administrative agent, swing line
lender, revolving L/C issuer and Synthetic L/C issuer, and each
lender from time to time party thereto (incorporated by reference to
the Companys Current Report on Form 8-K filed on May 2, 2007).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