##### Table of Contents



UNITED
STATESSECURITIES 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 December 31, 2006
 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 EFRANKLIN, 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  December 31, 2006 (Unaudited) and
September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)  Quarters
Ended December 31, 2006 and 2005
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Quarters
Ended December 31, 2006 and 2005
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    36PART II. OTHER INFORMATION
    
    
    37Item 6.
    
    Exhibits
    
    
    37EX-10.1 SUBSTITUTE AGREEMENTEX-31.1 SECTION 302 CERTIFCATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFO




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PART I.
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 (Unaudited)December 31,
    
    
    September 30,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    70,107
    
    
    $
    95,415Accounts receivable, net
    
    
    185,812
    
    
    
    182,452Inventories
    
    
    34,485
    
    
    
    34,299Deferred income taxes
    
    
    38,976
    
    
    
    41,416Prepaid expenses and other current assets
    
    
    41,959
    
    
    
    41,841Total current assets
    
    
    371,339
    
    
    
    395,423Property and equipment, net
    
    
    748,567
    
    
    
    727,048Goodwill
    
    
    756,479
    
    
    
    756,479Other intangible assets, net
    
    
    38,250
    
    
    
    39,000Other assets, net
    
    
    47,560
    
    
    
    49,885Total assets
    
    $
    1,962,195
    
    
    $
    1,967,835LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    58,774
    
    
    $
    73,351Salaries and benefits payable
    
    
    35,054
    
    
    
    29,082Accrued interest payable
    
    
    9,819
    
    
    
    19,965Medical claims payable
    
    
    80,958
    
    
    
    81,822Other accrued expenses and other current liabilities
    
    
    50,092
    
    
    
    49,087Current portion of long-term debt and capital lease obligations
    
    
    7,188
    
    
    
    7,432Total current liabilities
    
    
    241,885
    
    
    
    260,739Long-term debt and capital lease obligations
    
    
    887,825
    
    
    
    889,513Deferred income taxes
    
    
    84,243
    
    
    
    81,179Other long-term liabilities
    
    
    48,565
    
    
    
    47,611Minority interest
    
    
    32,598
    
    
    
    32,297Equity:Members equity
    
    
    667,079
    
    
    
    656,496Total liabilities and equity
    
    $
    1,962,195
    
    
    $
    1,967,835
  1




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Quarter Ended
    
    
    Quarter EndedDecember 31, 2006
    
    
    December 31, 2005Net revenue:Acute care revenue
    
    $
    309,048
    
    
    $
    286,427Premium revenue
    
    
    107,786
    
    
    
    93,038Total net revenue
    
    
    416,834
    
    
    
    379,465Costs and expenses:Salaries and benefits
    
    
    125,394
    
    
    
    112,751Supplies
    
    
    47,245
    
    
    
    45,710Medical claims
    
    
    89,695
    
    
    
    79,189Other operating expenses
    
    
    60,858
    
    
    
    57,506Provision for bad debts
    
    
    31,748
    
    
    
    37,019Rentals and leases
    
    
    8,450
    
    
    
    8,510Interest expense, net
    
    
    17,286
    
    
    
    17,156Depreciation and amortization
    
    
    16,907
    
    
    
    18,909Management fees
    
    
    1,047
    
    
    
    1,050Business interruption insurance recoveries
    
    
    (1,918
    )
    
    
    Total costs and expenses
    
    
    396,712
    
    
    
    377,800Earnings before loss on disposal of assets,
minority interests and income taxes
    
    
    20,122
    
    
    
    1,665Loss on disposal of assets, net
    
    
    (1,537
    )
    
    
    (5
    )Minority interests
    
    
    (1,341
    )
    
    
    302Earnings before income taxes
    
    
    17,244
    
    
    
    1,962Income tax expense
    
    
    6,661
    
    
    
    800Net earnings
    
    $
    10,583
    
    
    $
    1,162
  2




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Quarter Ended
    
    
    Quarter EndedDecember 31, 2006
    
    
    December 31, 2005Cash flows from operating activitiesNet earnings
    
    $
    10,583
    
    
    $
    1,162Adjustments to reconcile net earnings to net cash provided by operating
activities:Depreciation and amortization
    
    
    16,907
    
    
    
    18,909Amortization of loan costs
    
    
    753
    
    
    
    732Minority interests
    
    
    1,341
    
    
    
    (302
    )Deferred income taxes
    
    
    5,504
    
    
    
    677Loss on disposal of assets, net
    
    
    1,537
    
    
    
    5Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,360
    )
    
    
    (11,271
    )Inventories, prepaid expenses and other current assets
    
    
    (304
    )
    
    
    (7,023
    )Accounts payable, other accrued expenses and other current liabilities
    
    
    (12,986
    )
    
    
    1,820Net cash provided by operating activities
    
    
    19,975
    
    
    
    4,709Cash flows from investing activitiesPurchases of property and equipment
    
    
    (43,800
    )
    
    
    (32,248
    )Change in other assets
    
    
    1,489
    
    
    
    (405
    )Net cash used in investing activities
    
    
    (42,311
    )
    
    
    (32,653
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (1,932
    )
    
    
    (2,040
    )Distribution of minority interests
    
    
    (1,240
    )
    
    
    (798
    )Proceeds received from (costs paid for) sale of
partnership interests
    
    
    200
    
    
    
    (102
    )Net cash used in financing activities
    
    
    (2,972
    )
    
    
    (2,940
    )Decrease in cash and cash equivalents
    
    
    (25,308
    )
    
    
    (30,884
    )Cash and cash equivalents at beginning of period
    
    
    95,415
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    70,107
    
    
    $
    58,213Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    29,326
    
    
    $
    27,455Cash paid for income taxes, net
    
    $
    316
    
    
    $
    314
  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; and
    
    Las Vegas, Nevada.
         4




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  December 31,
    
    
    September 30,2006
    
    
    2006Senior secured credit facilities
    
    $
    414,375
    
    
    $
    415,438Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital lease and other obligations
    
    
    5,638
    
    
    
    6,507895,013
    
    
    
    896,945Less current maturities
    
    
    7,188
    
    
    
    7,432$
    887,825
    
    
    $
    889,513
 Senior Secured Credit Facilities
     8 3/4% Senior Subordinated Notes
  5




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  3. MINIMUM REVENUE GUARANTEES
  Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or
Its Owners
   4. STOCK BENEFIT PLANS
 Accounting for
Stock Issued to Employees Accounting for Stock Based Compensation
 Share-Based Payment Statement of Cash Flows
 6




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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
    
    
    6,000
    
    
    $
    35.68Exercised
    
    
    
    
    
    
    Cancelled/forfeited
    
    
    (9,590
    )
    
    $
    23.11Options outstanding at December 31,
2006
    
    
    1,591,895
    
    
    $
    22.32Options exercisable at December 31,
2006
    
    
    495,233
    
    
    $
    20.00
   7




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Quarter EndedDecember
31, 2005Net earnings as reported
    
    $
    1,162Deduct: Total stock based employee compensation determined
under fair value based method for all awards, net of related
tax effects
    
    
    (347
    )Pro forma net earnings
    
    $
    815
  Options Granted
    
    Options GrantedOn or After
    
    Prior toOctober 1, 2006
    
    October 1, 2006Risk-free interest rate
    
    
    4.56
    %
    
    
    4.64
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    37.33
    %
    
    
    N/AExpected option life
    
    8.0 years
    
    9.1 years
  5. CONTINGENCIES
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   8




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Health Choice
   Capital Expenditure Commitments
  Variable Interest Entities
  Acquisitions
  9




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Other
   6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Fair Value Measurements
 10




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 7. SEGMENT AND GEOGRAPHIC INFORMATION
  For the Quarter Ended December 31, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    309,048
    
    
    $
    
    
    
    $
    
    
    
    $
    309,048Premium revenue
    
    
    
    
    
    
    107,786
    
    
    
    
    
    
    
    107,786Revenue between segments
    
    
    2,678
    
    
    
    
    
    
    
    (2,678
    )
    
    
    Net revenue
    
    
    311,726
    
    
    
    107,786
    
    
    
    (2,678
    )
    
    
    416,834Salaries and benefits
    
    
    121,983
    
    
    
    3,411
    
    
    
    
    
    
    
    125,394Supplies
    
    
    47,161
    
    
    
    84
    
    
    
    
    
    
    
    47,245Medical claims
    
    
    
    
    
    
    92,373
    
    
    
    (2,678
    )
    
    
    89,695Other operating expenses
    
    
    57,144
    
    
    
    3,714
    
    
    
    
    
    
    
    60,858Provision for bad debts
    
    
    31,748
    
    
    
    
    
    
    
    
    
    
    
    31,748Rentals and leases
    
    
    8,195
    
    
    
    255
    
    
    
    
    
    
    
    8,450Business interruption insurance recoveries
    
    
    (1,918
    )
    
    
    
    
    
    
    
    
    
    
    (1,918
    )Adjusted EBITDA(1)
    
    
    47,413
    
    
    
    7,949
    
    
    
    
    
    
    
    55,362Interest expense, net
    
    
    17,286
    
    
    
    
    
    
    
    
    
    
    
    17,286Depreciation and amortization
    
    
    16,020
    
    
    
    887
    
    
    
    
    
    
    
    16,907Management fees
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    1,047Earnings before loss on disposal of
assets, minority interests and income
taxes
    
    
    13,060
    
    
    
    7,062
    
    
    
    
    
    
    
    20,122Loss on disposal of assets, net
    
    
    (1,537
    )
    
    
    
    
    
    
    
    
    
    
    (1,537
    )Minority interests
    
    
    (1,341
    )
    
    
    
    
    
    
    
    
    
    
    (1,341
    )Earnings before income taxes
    
    $
    10,182
    
    
    $
    7,062
    
    
    $
    
    
    
    $
    17,244Segment assets
    
    $
    1,819,795
    
    
    $
    142,400
    
    
    
    
    
    
    $
    1,962,195Capital expenditures
    
    $
    43,711
    
    
    $
    89
    
    
    
    
    
    
    $
    43,800Goodwill
    
    $
    750,722
    
    
    $
    5,757
    
    
    
    
    
    
    $
    756,479
 For the Quarter Ended December 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    286,427
    
    
    $
    
    
    
    $
    
    
    
    $
    286,427Premium revenue
    
    
    
    
    
    
    93,038
    
    
    
    
    
    
    
    93,038Revenue between segments
    
    
    2,097
    
    
    
    
    
    
    
    (2,097
    )
    
    
    Net revenue
    
    
    288,524
    
    
    
    93,038
    
    
    
    (2,097
    )
    
    
    379,465Salaries and benefits
    
    
    109,831
    
    
    
    2,920
    
    
    
    
    
    
    
    112,751Supplies
    
    
    45,652
    
    
    
    58
    
    
    
    
    
    
    
    45,710Medical claims
    
    
    
    
    
    
    81,286
    
    
    
    (2,097
    )
    
    
    79,189Other operating expenses
    
    
    54,507
    
    
    
    2,999
    
    
    
    
    
    
    
    57,506Provision for bad debts
    
    
    37,019
    
    
    
    
    
    
    
    
    
    
    
    37,019Rentals and leases
    
    
    8,232
    
    
    
    278
    
    
    
    
    
    
    
    8,510Adjusted EBITDA(1)
    
    
    33,283
    
    
    
    5,497
    
    
    
    
    
    
    
    38,780Interest expense, net
    
    
    17,156
    
    
    
    
    
    
    
    
    
    
    
    17,156Depreciation and amortization
    
    
    18,071
    
    
    
    838
    
    
    
    
    
    
    
    18,909Management fees
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    1,050Earnings
(loss) before loss on disposal
of assets, minority interests and
income taxes
    
    
    (2,994
    )
    
    
    4,659
    
    
    
    
    
    
    
    1,665Loss on disposal of assets, net
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Minority interests
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Earnings
(loss) before income taxes
    
    $
    (2,697
    )
    
    $
    4,659
    
    
    $
    
    
    
    $
    1,962Segment assets
    
    $
    1,744,737
    
    
    $
    105,883
    
    
    
    
    
    
    $
    1,850,620Capital expenditures
    
    $
    32,170
    
    
    $
    78
    
    
    
    
    
    
    $
    32,248Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 (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 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 alternative to net earnings, cash flows generated by operating, investing, or financing
activities or other financial statement data presented in the condensed 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. 8. IMPACT OF HURRICANE RITA
  9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
   12




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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
    
    $
    
    
    
    $
    67,685
    
    
    $
    2,422
    
    
    $
    
    
    
    $
    70,107Accounts receivable, net
    
    
    
    
    
    
    108,543
    
    
    
    77,269
    
    
    
    
    
    
    
    185,812Inventories
    
    
    
    
    
    
    22,312
    
    
    
    12,173
    
    
    
    
    
    
    
    34,485Deferred income taxes
    
    
    38,976
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,976Prepaid expenses and other current assets
    
    
    
    
    
    
    26,591
    
    
    
    15,368
    
    
    
    
    
    
    
    41,959Total current assets
    
    
    38,976
    
    
    
    225,131
    
    
    
    107,232
    
    
    
    
    
    
    
    371,339Property and equipment, net
    
    
    
    
    
    
    369,187
    
    
    
    379,380
    
    
    
    
    
    
    
    748,567Intercompany
    
    
    
    
    
    
    (61,526
    )
    
    
    61,526
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,474,293
    
    
    
    
    
    
    
    
    
    
    
    (1,474,293
    )
    
    
    Goodwill
    
    
    22,008
    
    
    
    207,301
    
    
    
    527,170
    
    
    
    
    
    
    
    756,479Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    38,250
    
    
    
    
    
    
    
    38,250Other assets, net
    
    
    19,962
    
    
    
    21,248
    
    
    
    6,350
    
    
    
    
    
    
    
    47,560Total assets
    
    $
    1,555,239
    
    
    $
    761,341
    
    
    $
    1,119,908
    
    
    $
    (1,474,293
    )
    
    $
    1,962,195Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    36,651
    
    
    $
    22,123
    
    
    $
    
    
    
    $
    58,774Salaries and benefits payable
    
    
    
    
    
    
    23,453
    
    
    
    11,601
    
    
    
    
    
    
    
    35,054Accrued interest payable
    
    
    9,819
    
    
    
    (1,686
    )
    
    
    1,686
    
    
    
    
    
    
    
    9,819Medical claims payable
    
    
    
    
    
    
    
    
    
    
    80,958
    
    
    
    
    
    
    
    80,958Other accrued expenses and other current liabilities
    
    
    
    
    
    
    38,452
    
    
    
    11,640
    
    
    
    
    
    
    
    50,092Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    1,862
    
    
    
    7,360
    
    
    
    (6,436
    )
    
    
    7,188Total current liabilities
    
    
    14,221
    
    
    
    98,732
    
    
    
    135,368
    
    
    
    (6,436
    )
    
    
    241,885Long-term debt and capital lease obligations
    
    
    885,125
    
    
    
    2,415
    
    
    
    240,789
    
    
    
    (240,504
    )
    
    
    887,825Deferred income taxes
    
    
    84,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,243Other long-term liabilities
    
    
    
    
    
    
    48,565
    
    
    
    
    
    
    
    
    
    
    
    48,565Minority interest
    
    
    
    
    
    
    32,598
    
    
    
    
    
    
    
    
    
    
    
    32,598Total liabilities
    
    
    983,589
    
    
    
    182,310
    
    
    
    376,157
    
    
    
    (246,940
    )
    
    
    1,295,116Members equity
    
    
    571,650
    
    
    
    579,031
    
    
    
    743,751
    
    
    
    (1,227,353
    )
    
    
    667,079Total liabilities and equity
    
    $
    1,555,239
    
    
    $
    761,341
    
    
    $
    1,119,908
    
    
    $
    (1,474,293
    )
    
    $
    1,962,195
 13




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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
 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
    
    
    ConsolidatedNet
revenue:Acute care revenue
    
    $
    
    
    
    $
    184,614
    
    
    $
    127,112
    
    
    $
    (2,678
    )
    
    $
    309,048Premium revenue
    
    
    
    
    
    
    
    
    
    
    107,786
    
    
    
    
    
    
    
    107,786Total net revenue
    
    
    
    
    
    
    184,614
    
    
    
    234,898
    
    
    
    (2,678
    )
    
    
    416,834Costs and
expenses:Salaries and benefits
    
    
    
    
    
    
    79,708
    
    
    
    45,686
    
    
    
    
    
    
    
    125,394Supplies
    
    
    
    
    
    
    31,147
    
    
    
    16,098
    
    
    
    
    
    
    
    47,245Medical claims
    
    
    
    
    
    
    
    
    
    
    92,373
    
    
    
    (2,678
    )
    
    
    89,695Other operating expenses
    
    
    
    
    
    
    37,030
    
    
    
    23,828
    
    
    
    
    
    
    
    60,858Provision for bad debts
    
    
    
    
    
    
    21,840
    
    
    
    9,908
    
    
    
    
    
    
    
    31,748Rentals and leases
    
    
    
    
    
    
    5,262
    
    
    
    3,188
    
    
    
    
    
    
    
    8,450Interest expense, net
    
    
    17,286
    
    
    
    
    
    
    
    5,109
    
    
    
    (5,109
    )
    
    
    17,286Depreciation and amortization
    
    
    
    
    
    
    10,385
    
    
    
    6,522
    
    
    
    
    
    
    
    16,907Management fees
    
    
    1,047
    
    
    
    (2,740
    )
    
    
    2,740
    
    
    
    
    
    
    
    1,047Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (1,918
    )
    
    
    
    
    
    
    (1,918
    )Equity in earnings of affiliates
    
    
    (30,494
    )
    
    
    
    
    
    
    
    
    
    
    30,494
    
    
    
    Total costs and expenses
    
    
    (12,161
    )
    
    
    182,632
    
    
    
    203,534
    
    
    
    22,707
    
    
    
    396,712Earnings (loss) before loss on disposal of
assets, minority interests and income taxes
    
    
    12,161
    
    
    
    1,982
    
    
    
    31,364
    
    
    
    (25,385
    )
    
    
    20,122Loss on disposal of assets, net
    
    
    
    
    
    
    (1,332
    )
    
    
    (205
    )
    
    
    
    
    
    
    (1,537
    )Minority interests
    
    
    
    
    
    
    (1,341
    )
    
    
    
    
    
    
    
    
    
    
    (1,341
    )Earnings (loss) before income taxes
    
    
    12,161
    
    
    
    (691
    )
    
    
    31,159
    
    
    
    (25,385
    )
    
    
    17,244Income tax expense
    
    
    6,661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,661Net earnings (loss)
    
    $
    5,500
    
    
    $
    (691
    )
    
    $
    31,159
    
    
    $
    (25,385
    )
    
    $
    10,583
 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
    
    
    ConsolidatedNet
revenue:Acute care revenue
    
    $
    
    
    
    $
    181,415
    
    
    $
    107,109
    
    
    $
    (2,097
    )
    
    $
    286,427Premium revenue
    
    
    
    
    
    
    
    
    
    
    93,038
    
    
    
    
    
    
    
    93,038Total net revenue
    
    
    
    
    
    
    181,415
    
    
    
    200,147
    
    
    
    (2,097
    )
    
    
    379,465Costs and
expenses:Salaries and benefits
    
    
    
    
    
    
    72,266
    
    
    
    40,485
    
    
    
    
    
    
    
    112,751Supplies
    
    
    
    
    
    
    32,283
    
    
    
    13,427
    
    
    
    
    
    
    
    45,710Medical claims
    
    
    
    
    
    
    
    
    
    
    81,286
    
    
    
    (2,097
    )
    
    
    79,189Other operating expenses
    
    
    
    
    
    
    36,929
    
    
    
    20,577
    
    
    
    
    
    
    
    57,506Provision for bad debts
    
    
    
    
    
    
    22,714
    
    
    
    14,305
    
    
    
    
    
    
    
    37,019Rentals and leases
    
    
    
    
    
    
    5,195
    
    
    
    3,315
    
    
    
    
    
    
    
    8,510Interest expense, net
    
    
    17,156
    
    
    
    
    
    
    
    4,651
    
    
    
    (4,651
    )
    
    
    17,156Depreciation and amortization
    
    
    
    
    
    
    11,585
    
    
    
    7,324
    
    
    
    
    
    
    
    18,909Management fees
    
    
    1,050
    
    
    
    (2,369
    )
    
    
    2,369
    
    
    
    
    
    
    
    1,050Equity in earnings of affiliates
    
    
    (15,517
    )
    
    
    
    
    
    
    
    
    
    
    15,517
    
    
    
    Total costs and expenses
    
    
    2,689
    
    
    
    178,603
    
    
    
    187,739
    
    
    
    8,769
    
    
    
    377,800Earnings (loss) before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    (2,689
    )
    
    
    2,812
    
    
    
    12,408
    
    
    
    (10,866
    )
    
    
    1,665Gain (loss) on disposal of assets, net
    
    
    
    
    
    
    11
    
    
    
    (16
    )
    
    
    
    
    
    
    (5
    )Minority interests
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Earnings (loss) before income taxes
    
    
    (2,689
    )
    
    
    3,125
    
    
    
    12,392
    
    
    
    (10,866
    )
    
    
    1,962Income tax expense
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Net earnings (loss)
    
    $
    (3,489
    )
    
    $
    3,125
    
    
    $
    12,392
    
    
    $
    (10,866
    )
    
    $
    1,162
 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
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    5,500
    
    
    $
    (691
    )
    
    $
    31,159
    
    
    $
    (25,385
    )
    
    $
    10,583Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    10,385
    
    
    
    6,522
    
    
    
    
    
    
    
    16,907Amortization of loan costs
    
    
    753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    753Minority interests
    
    
    
    
    
    
    1,341
    
    
    
    
    
    
    
    
    
    
    
    1,341Deferred income taxes
    
    
    5,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,504Loss on
disposal of assets, net
    
    
    
    
    
    
    1,332
    
    
    
    205
    
    
    
    
    
    
    
    1,537Equity in earnings of affiliates
    
    
    (30,494
    )
    
    
    
    
    
    
    
    
    
    
    30,494
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    1,585
    
    
    
    (4,945
    )
    
    
    
    
    
    
    (3,360
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (2,887
    )
    
    
    2,583
    
    
    
    
    
    
    
    (304
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    (10,146
    )
    
    
    (4,806
    )
    
    
    1,966
    
    
    
    
    
    
    
    (12,986
    )Net cash provided by (used in) operating activities
    
    
    (28,883
    )
    
    
    6,259
    
    
    
    37,490
    
    
    
    5,109
    
    
    
    19,975Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (7,123
    )
    
    
    (36,677
    )
    
    
    
    
    
    
    (43,800
    )Change in other assets
    
    
    
    
    
    
    692
    
    
    
    797
    
    
    
    
    
    
    
    1,489Net cash used in investing activities
    
    
    
    
    
    
    (6,431
    )
    
    
    (35,880
    )
    
    
    
    
    
    
    (42,311
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (1,101
    )
    
    
    (528
    )
    
    
    (303
    )
    
    
    
    
    
    
    (1,932
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,240
    )
    
    
    
    
    
    
    (1,240
    )Change in intercompany balances with affiliates, net
    
    
    29,984
    
    
    
    (24,962
    )
    
    
    87
    
    
    
    (5,109
    )
    
    
    Proceeds received from sale of partnership interests
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Net cash provided by (used in) financing activities
    
    
    28,883
    
    
    
    (25,290
    )
    
    
    (1,456
    )
    
    
    (5,109
    )
    
    
    (2,972
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (25,462
    )
    
    
    154
    
    
    
    
    
    
    
    (25,308
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    93,147
    
    
    
    2,268
    
    
    
    
    
    
    
    95,415Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    67,685
    
    
    $
    2,422
    
    
    $
    
    
    
    $
    70,107
 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
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    (3,489
    )
    
    $
    3,125
    
    
    $
    12,392
    
    
    $
    (10,866
    )
    
    $
    1,162Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    11,585
    
    
    
    7,324
    
    
    
    
    
    
    
    18,909Amortization of loan costs
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    732Minority interests
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    (302
    )Deferred income taxes
    
    
    677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677(Gain) loss
on disposal of assets, net
    
    
    
    
    
    
    (11
    )
    
    
    16
    
    
    
    
    
    
    
    5Equity in earnings of affiliates
    
    
    (15,517
    )
    
    
    
    
    
    
    
    
    
    
    15,517
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (9,101
    )
    
    
    (2,170
    )
    
    
    
    
    
    
    (11,271
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (3,883
    )
    
    
    (3,140
    )
    
    
    
    
    
    
    (7,023
    )Accounts payable, other accrued expenses and other
accrued liabilities
    
    
    (9,782
    )
    
    
    5,044
    
    
    
    6,558
    
    
    
    
    
    
    
    1,820Net cash provided by (used in) operating activities
    
    
    (27,379
    )
    
    
    6,457
    
    
    
    20,980
    
    
    
    4,651
    
    
    
    4,709Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (15,968
    )
    
    
    (16,280
    )
    
    
    
    
    
    
    (32,248
    )Change in other assets
    
    
    
    
    
    
    (419
    )
    
    
    14
    
    
    
    
    
    
    
    (405
    )Net cash used in investing activities
    
    
    
    
    
    
    (16,387
    )
    
    
    (16,266
    )
    
    
    
    
    
    
    (32,653
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (1,101
    )
    
    
    (655
    )
    
    
    (284
    )
    
    
    
    
    
    
    (2,040
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (798
    )
    
    
    
    
    
    
    (798
    )Change in intercompany balances with affiliates, net
    
    
    28,480
    
    
    
    (20,197
    )
    
    
    (3,632
    )
    
    
    (4,651
    )
    
    
    Costs paid for the sale of partnership interests
    
    
    
    
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    (102
    )Net cash provided by (used in) financing activities
    
    
    27,379
    
    
    
    (20,954
    )
    
    
    (4,714
    )
    
    
    (4,651
    )
    
    
    (2,940
    )Decrease in cash and cash equivalents
    
    
    
    
    
    
    (30,884
    )
    
    
    
    
    
    
    
    
    
    
    (30,884
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    57,713
    
    
    $
    500
    
    
    $
    
    
    
    $
    58,213
 10. SUBSEQUENT EVENTS
  18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  FORWARD LOOKING STATEMENTS
   19




---



##### Table of Contents



EXECUTIVE OVERVIEW
  
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio; and
    
    Las Vegas, Nevada.
     Revenue and Volume Trends
   20




---



##### Table of Contents



QuarterEnded December 31,2006
    
    2005Medicare
    
    
    30.9
    %
    
    
    33.6
    %Medicaid
    
    
    16.9
    
    
    
    17.6Managed care
    
    
    44.0
    
    
    
    41.1Self-pay and other
    
    
    8.2
    
    
    
    7.7Total
    
    
    100.0
    %
    
    
    100.0
    %
      21




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##### Table of Contents




    
    a provision allocating $250.0 million per year for federal years 2005-2008
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.
     22




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##### Table of Contents



Significant Industry Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   December 31,
    
    September 30,2006
    
    2006Insured receivables
    
    
    61.8
    %
    
    
    60.4
    %Uninsured receivables
    
    
    38.2
    %
    
    
    39.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  23




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##### Table of Contents



December 31,
    
    September 30,2006
    
    20060 to 90 days
    
    
    64.1
    %
    
    
    62.7
    %91 to 180 days
    
    
    16.9
    %
    
    
    17.7
    %Over 180 days
    
    
    19.0
    %
    
    
    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
  24




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##### Table of Contents



Growth in Outpatient Services
  Volatility of Insurance Costs
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Selected Operating Data
  Quarter Ended December 31,2006
    
    2005Acute Care (1):Number of acute care hospitals at end of period
    
    
    14
    
    
    
    14Beds in service at end of period (2)
    
    
    2,206
    
    
    
    2,228Average length of stay (days) (3)
    
    
    4.5
    
    
    
    4.5Occupancy rates (average beds in service)
    
    
    49.7
    %
    
    
    48.0
    %Admissions (4)
    
    
    22,304
    
    
    
    21,346Adjusted admissions (5)
    
    
    36,193
    
    
    
    34,923Patient days (6)
    
    
    100,768
    
    
    
    96,079Adjusted patient days (5)
    
    
    157,624
    
    
    
    151,820Net patient revenue per adjusted admission (7)
    
    $
    8,471
    
    
    $
    8,096Health Choice (8):Medicaid covered lives
    
    
    111,679
    
    
    
    113,331Dual-eligible lives (9)
    
    
    3,980
    
    
    
    Medical loss ratio (10)
    
    
    85.7
    %
    
    
    87.4
    %
 25




---



##### Table of Contents



(1)
    
    Combined financial and operating data is presented on a same facility basis for the periods
presented.(2)
    
    Includes St. Lukes Behavioral Hospital.(3)
    
    Represents the average number of days that a patient stayed in our hospitals.(4)
    
    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.(5)
    
    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.(6)
    
    Represents the number of days our beds were occupied by inpatients over the period.(7)
    
    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.(8)
    
    Includes our MAPD SNP effective January 1, 2006.(9)
    
    Represents members eligible for Medicare and Medicaid benefits under Health Choices contract
with CMS to provide coverage as a MAPD SNP.(10)
    
    Represents medical claims expense as a percentage of premium revenue, including claims paid to
our hospitals. RESULTS OF OPERATIONS SUMMARY
  Quarter Ended
    
    Quarter EndedDecember 31, 2006
    
    December 31, 2005Consolidated ($ in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet revenue:Acute care revenue
    
    $
    309,048
    
    
    
    74.1
    %
    
    $
    286,427
    
    
    
    75.5
    %Premium revenue
    
    
    107,786
    
    
    
    25.9
    %
    
    
    93,038
    
    
    
    24.5
    %Total net revenue
    
    
    416,834
    
    
    
    100.0
    %
    
    
    379,465
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    125,394
    
    
    
    30.1
    %
    
    
    112,751
    
    
    
    29.7
    %Supplies
    
    
    47,245
    
    
    
    11.3
    %
    
    
    45,710
    
    
    
    12.0
    %Medical claims
    
    
    89,695
    
    
    
    21.5
    %
    
    
    79,189
    
    
    
    20.9
    %Other operating expenses
    
    
    60,858
    
    
    
    14.6
    %
    
    
    57,506
    
    
    
    15.2
    %Provision for bad debts
    
    
    31,748
    
    
    
    7.6
    %
    
    
    37,019
    
    
    
    9.8
    %Rentals and leases
    
    
    8,450
    
    
    
    2.0
    %
    
    
    8,510
    
    
    
    2.2
    %Interest expense, net
    
    
    17,286
    
    
    
    4.2
    %
    
    
    17,156
    
    
    
    4.5
    %Depreciation and amortization
    
    
    16,907
    
    
    
    4.1
    %
    
    
    18,909
    
    
    
    5.0
    %Management fees
    
    
    1,047
    
    
    
    0.3
    %
    
    
    1,050
    
    
    
    0.3
    %Business interruption insurance recoveries
    
    
    (1,918
    )
    
    
    (0.5
    )%
    
    
    
    
    
    
    Total costs and expenses
    
    
    396,712
    
    
    
    95.2
    %
    
    
    377,800
    
    
    
    99.6
    %Earnings before loss on disposal of assets,
minority interests and income taxes
    
    
    20,122
    
    
    
    4.8
    %
    
    
    1,665
    
    
    
    0.4
    %Loss on disposal of assets, net
    
    
    (1,537
    )
    
    
    (0.4
    )%
    
    
    (5
    )
    
    
    0.0
    %Minority interests
    
    
    (1,341
    )
    
    
    (0.3
    )%
    
    
    302
    
    
    
    0.1
    %Earnings before income taxes
    
    
    17,244
    
    
    
    4.1
    %
    
    
    1,962
    
    
    
    0.5
    %Income tax expense
    
    
    6,661
    
    
    
    1.6
    %
    
    
    800
    
    
    
    0.2
    %Net earnings
    
    $
    10,583
    
    
    
    2.5
    %
    
    $
    1,162
    
    
    
    0.3
    %
 26




---



##### Table of Contents



Quarter Ended
    
    Quarter EndedDecember 31, 2006
    
    December 31, 2005Acute Care ($ in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet revenue:Acute care revenue
    
    $
    309,048
    
    
    
    99.1
    %
    
    $
    286,427
    
    
    
    99.3
    %Revenue between segments (1)
    
    
    2,678
    
    
    
    0.9
    %
    
    
    2,097
    
    
    
    0.7
    %Total net revenue
    
    
    311,726
    
    
    
    100.0
    %
    
    
    288,524
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    121,983
    
    
    
    39.1
    %
    
    
    109,831
    
    
    
    38.1
    %Supplies
    
    
    47,161
    
    
    
    15.1
    %
    
    
    45,652
    
    
    
    15.8
    %Other operating expenses
    
    
    57,144
    
    
    
    18.3
    %
    
    
    54,507
    
    
    
    18.9
    %Provision for bad debts
    
    
    31,748
    
    
    
    10.2
    %
    
    
    37,019
    
    
    
    12.8
    %Rentals and leases
    
    
    8,195
    
    
    
    2.6
    %
    
    
    8,232
    
    
    
    2.9
    %Interest expense, net
    
    
    17,286
    
    
    
    5.6
    %
    
    
    17,156
    
    
    
    5.9
    %Depreciation and amortization
    
    
    16,020
    
    
    
    5.1
    %
    
    
    18,071
    
    
    
    6.2
    %Management fees
    
    
    1,047
    
    
    
    0.4
    %
    
    
    1,050
    
    
    
    0.4
    %Business interruption insurance
recoveries
    
    
    (1,918
    )
    
    
    (0.6
    )%
    
    
    
    
    
    
    Total costs and expenses
    
    
    298,666
    
    
    
    95.8
    %
    
    
    291,518
    
    
    
    101.0
    %Earnings (loss) before loss on disposal of
assets and minority interests
    
    
    13,060
    
    
    
    4.2
    %
    
    
    (2,994
    )
    
    
    (1.0
    )%Loss on disposal of assets, net
    
    
    (1,537
    )
    
    
    (0.5
    )%
    
    
    (5
    )
    
    
    0.0
    %Minority interests
    
    
    (1,341
    )
    
    
    (0.4
    )%
    
    
    302
    
    
    
    0.1
    %Earnings (loss) before income taxes
    
    $
    10,182
    
    
    
    3.3
    %
    
    $
    (2,697
    )
    
    
    (0.9
    )%
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. Quarter Ended
    
    Quarter EndedDecember 31, 2006
    
    December 31, 2005Health Choice ($ in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    PercentagePremium revenue
    
    $
    107,786
    
    
    
    100.0
    %
    
    $
    93,038
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    3,411
    
    
    
    3.2
    %
    
    
    2,920
    
    
    
    3.1
    %Supplies
    
    
    84
    
    
    
    0.1
    %
    
    
    58
    
    
    
    0.1
    %Medical claims (1)
    
    
    92,373
    
    
    
    85.7
    %
    
    
    81,286
    
    
    
    87.4
    %Other operating expenses
    
    
    3,714
    
    
    
    3.4
    %
    
    
    2,999
    
    
    
    3.2
    %Rentals and leases
    
    
    255
    
    
    
    0.2
    %
    
    
    278
    
    
    
    0.3
    %Depreciation and amortization
    
    
    887
    
    
    
    0.8
    %
    
    
    838
    
    
    
    0.9
    %Total costs and expenses
    
    
    100,724
    
    
    
    93.4
    %
    
    
    88,379
    
    
    
    95.0
    %Earnings before income taxes
    
    $
    7,062
    
    
    
    6.6
    %
    
    $
    4,659
    
    
    
    5.0
    %
 
 (1)
    
    Medical claims paid to our hospitals of $2.7 million and $2.1 million for the quarters
ended December 31, 2006 and 2005, respectively, is eliminated in our consolidated results. 27




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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 December 31, 2006Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (2)
    
    Amounts (3)
    
    of Revenues
    
    of Revenues (3)2006
    
    2005
    
    2006Acute Care Segment:Net revenue(1)
    
    $
    311,726
    
    
    $
    12,341
    
    
    $
    324,067
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    121,983
    
    
    
    
    
    
    
    121,983
    
    
    
    39.1
    
    
    
    38.1
    
    
    
    37.6Supplies
    
    
    47,161
    
    
    
    
    
    
    
    47,161
    
    
    
    15.1
    
    
    
    15.8
    
    
    
    14.6Other operating expenses
    
    
    57,144
    
    
    
    
    
    
    
    57,144
    
    
    
    18.3
    
    
    
    18.9
    
    
    
    17.6Provision for bad debts
    
    
    31,748
    
    
    
    12,341
    
    
    
    44,089
    
    
    
    10.2
    
    
    
    12.8
    
    
    
    13.6Rentals and leases
    
    
    8,195
    
    
    
    
    
    
    
    8,195
    
    
    
    2.6
    
    
    
    2.9
    
    
    
    2.5Net patient revenue per
adjusted admission
    
    $
    8,471
    
    
    $
    341
    
    
    $
    8,812Percent change from
prior year
    
    
    4.6
    %
    
    
    
    
    
    
    8.8
    %
 
 (1)
    
    Acute care revenue represents total net revenue of the segment prior to the
elimination of revenue between segments.(2)
    
    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 $12.3 million of uninsured discounts during the first
quarter of fiscal 2007.(3)
    
    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. 28




---



##### Table of Contents



Quarters Ended December 31, 2006 and 2005
 Net revenue
     Salaries and benefits
 Supplies
 29




---



##### Table of Contents



Medical claims
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 Income tax expense
 30




---



##### Table of Contents



Net earnings
 LIQUIDITY AND CAPITAL RESOURCES
   Available cash
    
    $
    70.1Available
capacity under our senior secured credit facilities
    
    
    212.5Net available liquidity at December 31, 2006
    
    $
    282.6
   
    
    approximately $100.0 to $105.0 million for the construction of Mountain
Vista Medical Center, our new hospital in the East Valley of Phoenix, Arizona, which we
plan to open in June 2007;
    
    approximately $70.0 to $75.0 million for other growth and new business
projects;
    
    approximately $35.0 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.
   31




---



##### Table of Contents



Overview of Cash Flow Activities For The Quarters Ended December 31, 2006 and 2005
  QuarterEnded December 31,2006
    
    2005Cash flow from operating activities
    
    $
    20.0
    
    
    $
    4.7Cash flow
from investing activities
    
    
    (42.3
    )
    
    
    (32.7
    )Cash flow
from financing activities
    
    
    (3.0
    )
    
    
    (2.9
    )
 Operating Activities
  Investing Activities
  32




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##### Table of Contents




    
    $27.6 million for the construction of Mountain Vista Medical Center;
    
    $4.0 million for various expansion and renovation projects at our hospitals; and
    
    $1.7 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 senior secured credit facilities; and
    
    $475.0 million 8 3/4% senior subordinated notes due 2014.
 $675.0 Million Senior Secured Credit Facilities
  
    
    a senior secured Tranche B term loan of $425.0 million, which we refer to
as the Term Facility; and
    
    a senior secured revolving credit facility of up to $250.0 million,
referred to as the Revolving Facility, which is available for working capital and other
general corporate purposes.
     33




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##### Table of Contents



December 31,2006Actual Total Leverage Ratio
    
    
    3.64Maximum Total Leverage Ratio
    
    
    5.50Actual Interest Coverage Ratio
    
    
    3.39Minimum Interest Coverage Ratio
    
    
    2.30
   $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
   OFF-BALANCE SHEET ARRANGEMENTS
  34




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##### Table of Contents



Seasonality
  RECENT ACCOUNTING PRONOUNCEMENTS
 , Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Fair Value Measurements
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  35




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  36




---



##### Table of Contents



PART II.
 OTHER INFORMATION
 
 Item 6. Exhibits
  10.1
    
    Substitute Agreement between the Arizona Health Care Cost
Containment System Administration and Health Choice Arizona for the
Implementation of Executive Order 2006-01.31.1
    
    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.
 37




---



##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: February 13, 2007
    By:
    /s/ John M. DoyleJohn M. DoyleChief Accounting Officer 38




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Substitute Agreement between the Arizona Health Care Cost
Containment System Administration and Health Choice Arizona
for the implementation of Executive Order 2006-01.31.1
    
    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.
 39