##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 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
    
    20-1150104(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)DOVER CENTRE 
117 SEABOARD LANE, BUILDING E 
FRANKLIN, TENNESSEE
(Address of principal executive offices)
    
    37067
(Zip Code)
 (615) 844-2747
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 YES o NO þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets  June 30, 2008 (Unaudited) and September 30, 2007
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)  Quarters and Nine Months
Ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Nine Months Ended June
30, 2008 and 2007
    
    
    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
    
    
    45Item 4T. Controls and Procedures
    
    
    45PART II. OTHER INFORMATION
    
    
    46Item 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    46Item 6. Exhibits
    
    
    48Exhibit 31.1Exhibit 31.2
   i




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##### Table of Contents



PART I.
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 June 30,
    
    
    September 30,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,334
    
    
    $
    Accounts receivable, less allowance for doubtful accounts of
$105,400 and $97,800 at June 30, 2008 and September 30, 2007,
respectively
    
    
    245,662
    
    
    
    248,281Inventories
    
    
    46,062
    
    
    
    43,697Deferred income taxes
    
    
    32,580
    
    
    
    29,629Prepaid expenses and other current assets
    
    
    77,143
    
    
    
    45,023Total current assets
    
    
    402,781
    
    
    
    366,630Property and equipment, net
    
    
    989,272
    
    
    
    980,437Goodwill
    
    
    779,445
    
    
    
    756,593Other intangible assets, net
    
    
    33,750
    
    
    
    36,000Other assets, net
    
    
    42,089
    
    
    
    46,762Total assets
    
    $
    2,247,337
    
    
    $
    2,186,422LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Accounts payable
    
    $
    70,070
    
    
    $
    98,488Salaries and benefits payable
    
    
    38,348
    
    
    
    40,124Accrued interest payable
    
    
    1,954
    
    
    
    18,865Medical claims payable
    
    
    90,432
    
    
    
    81,309Other accrued expenses and other current liabilities
    
    
    51,134
    
    
    
    44,276Current portion of long-term debt and capital lease obligations
    
    
    6,854
    
    
    
    8,036Total current liabilities
    
    
    258,792
    
    
    
    291,098Long-term debt and capital lease obligations
    
    
    1,062,214
    
    
    
    1,023,621Deferred income taxes
    
    
    94,619
    
    
    
    93,402Other long-term liabilities
    
    
    51,611
    
    
    
    50,831Minority interests
    
    
    52,851
    
    
    
    35,956Members equity
    
    
    727,250
    
    
    
    691,514Total liabilities and members equity
    
    $
    2,247,337
    
    
    $
    2,186,422
   1




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Quarter Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenue:Acute care revenue
    
    $
    390,538
    
    
    $
    337,347
    
    
    $
    1,149,295
    
    
    $
    963,872Premium revenue
    
    
    142,022
    
    
    
    113,371
    
    
    
    400,822
    
    
    
    329,949Total net revenue
    
    
    532,560
    
    
    
    450,718
    
    
    
    1,550,117
    
    
    
    1,293,821Costs and expenses:Salaries and benefits
    
    
    159,689
    
    
    
    140,583
    
    
    
    475,323
    
    
    
    388,939Supplies
    
    
    59,907
    
    
    
    50,695
    
    
    
    177,124
    
    
    
    143,107Medical claims
    
    
    119,190
    
    
    
    95,116
    
    
    
    333,652
    
    
    
    277,515Other operating expenses
    
    
    75,124
    
    
    
    71,285
    
    
    
    209,117
    
    
    
    198,413Provision for bad debts
    
    
    40,032
    
    
    
    32,267
    
    
    
    120,839
    
    
    
    94,843Rentals and leases
    
    
    9,277
    
    
    
    7,479
    
    
    
    27,198
    
    
    
    22,959Interest expense, net
    
    
    17,616
    
    
    
    17,203
    
    
    
    58,460
    
    
    
    50,153Depreciation and amortization
    
    
    24,704
    
    
    
    19,196
    
    
    
    71,143
    
    
    
    53,163Management fees
    
    
    994
    
    
    
    721
    
    
    
    2,606
    
    
    
    2,024Loss on extinguishment of debt
    
    
    
    
    
    
    6,229
    
    
    
    
    
    
    
    6,229Business interruption insurance recoveries
    
    
    
    
    
    
    (1,525
    )
    
    
    
    
    
    
    (3,443
    )Total costs and expenses
    
    
    506,533
    
    
    
    439,249
    
    
    
    1,475,462
    
    
    
    1,233,902Earnings from continuing operations before gain (loss)
on disposal of assets, minority interests and income
taxes
    
    
    26,027
    
    
    
    11,469
    
    
    
    74,655
    
    
    
    59,919Gain (loss) on disposal of assets, net
    
    
    (39
    )
    
    
    70
    
    
    
    20
    
    
    
    (1,237
    )Minority interests
    
    
    (1,239
    )
    
    
    (1,308
    )
    
    
    (3,108
    )
    
    
    (4,162
    )Earnings from continuing operations before income taxes
    
    
    24,749
    
    
    
    10,231
    
    
    
    71,567
    
    
    
    54,520Income tax expense
    
    
    9,979
    
    
    
    3,408
    
    
    
    28,731
    
    
    
    20,899Net earnings from continuing operations
    
    
    14,770
    
    
    
    6,823
    
    
    
    42,836
    
    
    
    33,621Earnings (loss) from discontinued operations, net of
income taxes
    
    
    (4,406
    )
    
    
    (515
    )
    
    
    (7,041
    )
    
    
    225Net earnings
    
    $
    10,364
    
    
    $
    6,308
    
    
    $
    35,795
    
    
    $
    33,846
   2




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Nine Months EndedJune 30,2008
    
    
    2007Cash flows from operating activitiesNet earnings
    
    $
    35,795
    
    
    $
    33,846Adjustments to reconcile net earnings to net cash provided by operating activities:Loss (earnings) from discontinued operations
    
    
    7,041
    
    
    
    (225
    )Depreciation and amortization
    
    
    71,143
    
    
    
    53,163Amortization of loan costs
    
    
    2,173
    
    
    
    2,227Minority interests
    
    
    3,108
    
    
    
    4,162Deferred income taxes
    
    
    11,588
    
    
    
    17,212Loss (gain) on disposal of assets, net
    
    
    (20
    )
    
    
    1,237Loss on extinguishment of debt
    
    
    
    
    
    
    5,091Changes in
operating assets and liabilities, net of the effect of acquisitions
and dispositions:Accounts receivable, net
    
    
    (967
    )
    
    
    (30,961
    )Inventories, prepaid expenses and other current assets
    
    
    (34,117
    )
    
    
    (11,280
    )Accounts payable, other accrued expenses and other accrued liabilities
    
    
    (36,449
    )
    
    
    1,997Net cash provided by operating activities  continuing operations
    
    
    59,295
    
    
    
    76,469Net cash provided by (used in) operating activities  discontinued operations
    
    
    (125
    )
    
    
    2,570Net cash provided by operating activities
    
    
    59,170
    
    
    
    79,039Cash flows from investing activitiesPurchases of property and equipment, net
    
    
    (87,705
    )
    
    
    (149,894
    )Cash paid for acquisitions, net
    
    
    (16,668
    )
    
    
    (139,832
    )Proceeds from sale of assets
    
    
    353
    
    
    
    986Change in other assets, net
    
    
    2,869
    
    
    
    4,085Net cash used in investing activities  continuing operations
    
    
    (101,151
    )
    
    
    (284,655
    )Net cash used in investing activities  discontinued operations
    
    
    (899
    )
    
    
    (601
    )Net cash used in investing activities
    
    
    (102,050
    )
    
    
    (285,256
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (304,587
    )
    
    
    (610,804
    )Proceeds from debt borrowings
    
    
    337,200
    
    
    
    740,300Debt financing costs incurred
    
    
    
    
    
    
    (7,890
    )Distribution to parent for debt financing costs
    
    
    
    
    
    
    (6,586
    )Distribution of minority interests
    
    
    (3,743
    )
    
    
    (3,387
    )Proceeds from sale of partnership interests
    
    
    15,648
    
    
    
    4Net cash provided by financing activities  continuing operations
    
    
    44,518
    
    
    
    111,637Net cash used in financing activities  discontinued operations
    
    
    (304
    )
    
    
    (359
    )Net cash provided by financing activities
    
    
    44,214
    
    
    
    111,278Change in cash and cash equivalents
    
    
    1,334
    
    
    
    (94,939
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    95,415Cash and cash equivalents at end of period
    
    $
    1,334
    
    
    $
    476Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    75,911
    
    
    $
    70,140Cash paid (received) for income taxes, net
    
    $
    (3,286
    )
    
    $
    7,254Cash paid in loss on extinguishment of debt
    
    $
    
    
    
    $
    1,138
   3




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




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  June 30,
    
    
    September 30,2008
    
    
    2007Senior secured credit facilities
    
    $
    583,513
    
    
    $
    547,805Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital lease and other obligations
    
    
    10,555
    
    
    
    8,8521,069,068
    
    
    
    1,031,657Less current maturities
    
    
    6,854
    
    
    
    8,036$
    1,062,214
    
    
    $
    1,023,621
 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. DISCONTINUED OPERATIONS
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Quarter Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total net revenue
    
    $
    10,802
    
    
    $
    21,013
    
    
    $
    50,419
    
    
    $
    69,613Operating expenses
    
    
    16,790
    
    
    
    21,832
    
    
    
    60,606
    
    
    
    69,245Loss on disposal of assets
    
    
    1,106
    
    
    
    
    
    
    
    1,106
    
    
    
    Income tax expense (benefit)
    
    
    (2,688
    )
    
    
    (304
    )
    
    
    (4,252
    )
    
    
    143Earnings (loss) from
discontinued operations, net
of income taxes
    
    $
    (4,406
    )
    
    $
    (515
    )
    
    $
    (7,041
    )
    
    $
    225
    6




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 4. ACQUISITIONS
  5. MINIMUM REVENUE GUARANTEES
    6. INCOME TAXES
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109
    7




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   7. CONTINGENCIES
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   Health Choice
   8




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Capital Expenditure Commitments
  Acquisitions
  Other
 qui tam qui tam
 qui tam
  9




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 9. SEGMENT AND GEOGRAPHIC INFORMATION
  For the Quarter Ended June 30, 2008Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    390,538
    
    
    $
    
    
    
    $
    
    
    
    $
    390,538Premium revenue
    
    
    
    
    
    
    142,022
    
    
    
    
    
    
    
    142,022Revenue between segments
    
    
    2,591
    
    
    
    
    
    
    
    (2,591
    )
    
    
    Net revenue
    
    
    393,129
    
    
    
    142,022
    
    
    
    (2,591
    )
    
    
    532,560Salaries and benefits
    
    
    155,221
    
    
    
    4,468
    
    
    
    
    
    
    
    159,689Supplies
    
    
    59,847
    
    
    
    60
    
    
    
    
    
    
    
    59,907Medical claims
    
    
    
    
    
    
    121,781
    
    
    
    (2,591
    )
    
    
    119,190Other operating expenses
    
    
    70,490
    
    
    
    4,634
    
    
    
    
    
    
    
    75,124Provision for bad debts
    
    
    40,032
    
    
    
    
    
    
    
    
    
    
    
    40,032Rentals and leases
    
    
    8,964
    
    
    
    313
    
    
    
    
    
    
    
    9,277Adjusted EBITDA(1)
    
    
    58,575
    
    
    
    10,766
    
    
    
    
    
    
    
    69,341Interest expense, net
    
    
    17,616
    
    
    
    
    
    
    
    
    
    
    
    17,616Depreciation and amortization
    
    
    23,780
    
    
    
    924
    
    
    
    
    
    
    
    24,704Management fees
    
    
    994
    
    
    
    
    
    
    
    
    
    
    
    994Earnings from continuing
operations before loss on
disposal of assets,
minority interests and
income taxes
    
    
    16,185
    
    
    
    9,842
    
    
    
    
    
    
    
    26,027Loss on disposal of assets, net
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    (39
    )Minority interests
    
    
    (1,239
    )
    
    
    
    
    
    
    
    
    
    
    (1,239
    )Earnings from continuing
operations before income
taxes
    
    $
    14,907
    
    
    $
    9,842
    
    
    $
    
    
    
    $
    24,749
  10




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the Quarter Ended June 30, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    337,347
    
    
    $
    
    
    
    $
    
    
    
    $
    337,347Premium revenue
    
    
    
    
    
    
    113,371
    
    
    
    
    
    
    
    113,371Revenue between segments
    
    
    1,826
    
    
    
    
    
    
    
    (1,826
    )
    
    
    Net revenue
    
    
    339,173
    
    
    
    113,371
    
    
    
    (1,826
    )
    
    
    450,718Salaries and benefits
    
    
    136,730
    
    
    
    3,853
    
    
    
    
    
    
    
    140,583Supplies
    
    
    50,636
    
    
    
    59
    
    
    
    
    
    
    
    50,695Medical claims
    
    
    
    
    
    
    96,942
    
    
    
    (1,826
    )
    
    
    95,116Other operating expenses
    
    
    67,398
    
    
    
    3,887
    
    
    
    
    
    
    
    71,285Provision for bad debts
    
    
    32,267
    
    
    
    
    
    
    
    
    
    
    
    32,267Rentals and leases
    
    
    7,139
    
    
    
    340
    
    
    
    
    
    
    
    7,479Business interruption insurance recoveries
    
    
    (1,525
    )
    
    
    
    
    
    
    
    
    
    
    (1,525
    )Adjusted EBITDA(1)
    
    
    46,528
    
    
    
    8,290
    
    
    
    
    
    
    
    54,818Interest expense, net
    
    
    17,203
    
    
    
    
    
    
    
    
    
    
    
    17,203Depreciation and amortization
    
    
    18,307
    
    
    
    889
    
    
    
    
    
    
    
    19,196Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    6,229Management fees
    
    
    721
    
    
    
    
    
    
    
    
    
    
    
    721Earnings from continuing operations
before gain on disposal of assets,
minority interests and income taxes
    
    
    4,068
    
    
    
    7,401
    
    
    
    
    
    
    
    11,469Gain on disposal of assets, net
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    70Minority interests
    
    
    (1,308
    )
    
    
    
    
    
    
    
    
    
    
    (1,308
    )Earnings from continuing operations
before income taxes
    
    $
    2,830
    
    
    $
    7,401
    
    
    $
    
    
    
    $
    10,231
 (1)
    
    Adjusted EBITDA represents net earnings from continuing operations before interest expense,
income tax expense, depreciation and amortization, gain (loss) on disposal of assets, loss on
extinguishment of debt, minority interests and management fees. Management fees represent
monitoring and advisory fees paid to TPG, the Companys majority financial sponsor, and
certain other members of IASIS Investment LLC, sole shareholder of IAS. 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 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.  11




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the Nine Months Ended June 30, 2008Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    1,149,295
    
    
    $
    
    
    
    $
    
    
    
    $
    1,149,295Premium revenue
    
    
    
    
    
    
    400,822
    
    
    
    
    
    
    
    400,822Revenue between segments
    
    
    7,270
    
    
    
    
    
    
    
    (7,270
    )
    
    
    Net revenue
    
    
    1,156,565
    
    
    
    400,822
    
    
    
    (7,270
    )
    
    
    1,550,117Salaries and benefits
    
    
    462,479
    
    
    
    12,844
    
    
    
    
    
    
    
    475,323Supplies
    
    
    176,943
    
    
    
    181
    
    
    
    
    
    
    
    177,124Medical claims
    
    
    
    
    
    
    340,922
    
    
    
    (7,270
    )
    
    
    333,652Other operating expenses
    
    
    195,672
    
    
    
    13,445
    
    
    
    
    
    
    
    209,117Provision for bad debts
    
    
    120,839
    
    
    
    
    
    
    
    
    
    
    
    120,839Rentals and leases
    
    
    26,311
    
    
    
    887
    
    
    
    
    
    
    
    27,198Adjusted EBITDA(1)
    
    
    174,321
    
    
    
    32,543
    
    
    
    
    
    
    
    206,864Interest expense, net
    
    
    58,460
    
    
    
    
    
    
    
    
    
    
    
    58,460Depreciation and amortization
    
    
    68,425
    
    
    
    2,718
    
    
    
    
    
    
    
    71,143Management fees
    
    
    2,606
    
    
    
    
    
    
    
    
    
    
    
    2,606Earnings from continuing operations before gain on
disposal of assets, minority interests and income
taxes
    
    
    44,830
    
    
    
    29,825
    
    
    
    
    
    
    
    74,655Gain on disposal of assets, net
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Minority interests
    
    
    (3,108
    )
    
    
    
    
    
    
    
    
    
    
    (3,108
    )Earnings from continuing operations before income taxes
    
    $
    41,742
    
    
    $
    29,825
    
    
    $
    
    
    
    $
    71,567Segment assets
    
    $
    2,068,423
    
    
    $
    178,914
    
    
    
    
    
    
    $
    2,247,337Capital expenditures  continuing operations
    
    $
    87,425
    
    
    $
    280
    
    
    
    
    
    
    $
    87,705Goodwill
    
    $
    773,688
    
    
    $
    5,757
    
    
    
    
    
    
    $
    779,445
 For the Nine Months Ended June 30, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    963,872
    
    
    $
    
    
    
    $
    
    
    
    $
    963,872Premium revenue
    
    
    
    
    
    
    329,949
    
    
    
    
    
    
    
    329,949Revenue between segments
    
    
    5,431
    
    
    
    
    
    
    
    (5,431
    )
    
    
    Net revenue
    
    
    969,303
    
    
    
    329,949
    
    
    
    (5,431
    )
    
    
    1,293,821Salaries and benefits
    
    
    378,051
    
    
    
    10,888
    
    
    
    
    
    
    
    388,939Supplies
    
    
    142,880
    
    
    
    227
    
    
    
    
    
    
    
    143,107Medical claims
    
    
    
    
    
    
    282,946
    
    
    
    (5,431
    )
    
    
    277,515Other operating expenses
    
    
    186,929
    
    
    
    11,484
    
    
    
    
    
    
    
    198,413Provision for bad debts
    
    
    94,843
    
    
    
    
    
    
    
    
    
    
    
    94,843Rentals and leases
    
    
    22,093
    
    
    
    866
    
    
    
    
    
    
    
    22,959Business interruption insurance recoveries
    
    
    (3,443
    )
    
    
    
    
    
    
    
    
    
    
    (3,443
    )Adjusted EBITDA(1)
    
    
    147,950
    
    
    
    23,538
    
    
    
    
    
    
    
    171,488Interest expense, net
    
    
    50,153
    
    
    
    
    
    
    
    
    
    
    
    50,153Depreciation and amortization
    
    
    50,499
    
    
    
    2,664
    
    
    
    
    
    
    
    53,163Loss on extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    6,229Management fees
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    2,024Earnings from continuing operations before loss on
disposal of assets, minority interests and income
taxes
    
    
    39,045
    
    
    
    20,874
    
    
    
    
    
    
    
    59,919
  12




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the Nine Months Ended June 30, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedLoss on disposal of assets, net
    
    
    (1,237
    )
    
    
    
    
    
    
    
    
    
    
    (1,237
    )Minority interests
    
    
    (4,162
    )
    
    
    
    
    
    
    
    
    
    
    (4,162
    )Earnings from continuing operations before income taxes
    
    $
    33,646
    
    
    $
    20,874
    
    
    $
    
    
    
    $
    54,520Segment assets
    
    $
    1,993,320
    
    
    $
    147,210
    
    
    
    
    
    
    $
    2,140,530Capital expenditures  continuing operations
    
    $
    149,563
    
    
    $
    331
    
    
    
    
    
    
    $
    149,894Goodwill
    
    $
    750,722
    
    
    $
    5,757
    
    
    
    
    
    
    $
    756,479
 (1)
    
    Adjusted EBITDA represents net earnings from continuing operations before interest expense,
income tax expense, depreciation and amortization, gain (loss) on disposal of assets, loss on
extinguishment of debt, minority interests and management fees. Management fees represent
monitoring and advisory fees paid to TPG, the Companys majority financial sponsor, and
certain other members of IASIS Investment LLC, sole shareholder of IAS. 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 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. 10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
     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
    
    $
    
    
    
    $
    1,046
    
    
    $
    288
    
    
    $
    
    
    
    $
    1,334Accounts receivable, net
    
    
    
    
    
    
    113,149
    
    
    
    132,513
    
    
    
    
    
    
    
    245,662Inventories
    
    
    
    
    
    
    20,356
    
    
    
    25,706
    
    
    
    
    
    
    
    46,062Deferred income taxes
    
    
    32,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,580Prepaid expenses and other
current assets
    
    
    
    
    
    
    24,247
    
    
    
    52,896
    
    
    
    
    
    
    
    77,143Total current assets
    
    
    32,580
    
    
    
    158,798
    
    
    
    211,403
    
    
    
    
    
    
    
    402,781Property and equipment, net
    
    
    
    
    
    
    364,789
    
    
    
    624,483
    
    
    
    
    
    
    
    989,272Intercompany
    
    
    
    
    
    
    (184,568
    )
    
    
    184,568
    
    
    
    
    
    
    
    Net investment in and advances
to subsidiaries
    
    
    1,650,768
    
    
    
    
    
    
    
    
    
    
    
    (1,650,768
    )
    
    
    Goodwill
    
    
    18,004
    
    
    
    128,581
    
    
    
    632,860
    
    
    
    
    
    
    
    779,445Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    33,750
    
    
    
    
    
    
    
    33,750Other assets, net
    
    
    18,950
    
    
    
    18,328
    
    
    
    4,811
    
    
    
    
    
    
    
    42,089Total assets
    
    $
    1,720,302
    
    
    $
    485,928
    
    
    $
    1,691,875
    
    
    $
    (1,650,768
    )
    
    $
    2,247,337Liabilities and Members
EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    30,478
    
    
    $
    39,592
    
    
    $
    
    
    
    $
    70,070Salaries and benefits
payable
    
    
    
    
    
    
    19,447
    
    
    
    18,901
    
    
    
    
    
    
    
    38,348Accrued interest payable
    
    
    1,954
    
    
    
    (2,977
    )
    
    
    2,977
    
    
    
    
    
    
    
    1,954Medical claims
payable
    
    
    
    
    
    
    
    
    
    
    90,432
    
    
    
    
    
    
    
    90,432Other accrued expenses and
other current liabilities
    
    
    
    
    
    
    42,997
    
    
    
    8,137
    
    
    
    
    
    
    
    51,134Current portion of long-term
debt and capital lease
obligations
    
    
    4,542
    
    
    
    2,312
    
    
    
    15,343
    
    
    
    (15,343
    )
    
    
    6,854Total current liabilities
    
    
    6,496
    
    
    
    92,257
    
    
    
    175,382
    
    
    
    (15,343
    )
    
    
    258,792Long-term debt and capital
lease obligations
    
    
    1,054,123
    
    
    
    8,091
    
    
    
    591,713
    
    
    
    (591,713
    )
    
    
    1,062,214Deferred income taxes
    
    
    94,619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,619Other long-term liabilities
    
    
    
    
    
    
    50,952
    
    
    
    659
    
    
    
    
    
    
    
    51,611Minority interests
    
    
    
    
    
    
    52,851
    
    
    
    
    
    
    
    
    
    
    
    52,851Total liabilities
    
    
    1,155,238
    
    
    
    204,151
    
    
    
    767,754
    
    
    
    (607,056
    )
    
    
    1,520,087Members equity
    
    
    565,064
    
    
    
    281,777
    
    
    
    924,121
    
    
    
    (1,043,712
    )
    
    
    727,250Total liabilities and
members equity
    
    $
    1,720,302
    
    
    $
    485,928
    
    
    $
    1,691,875
    
    
    $
    (1,650,768
    )
    
    $
    2,247,337
  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
    
    $
    
    
    
    $
    (4,052
    )
    
    $
    4,052
    
    
    $
    
    
    
    $
    Accounts receivable, net
    
    
    
    
    
    
    131,180
    
    
    
    117,101
    
    
    
    
    
    
    
    248,281Inventories
    
    
    
    
    
    
    19,961
    
    
    
    23,736
    
    
    
    
    
    
    
    43,697Deferred income taxes
    
    
    29,629
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,629Prepaid expenses and other
current assets
    
    
    
    
    
    
    23,509
    
    
    
    21,514
    
    
    
    
    
    
    
    45,023Total current assets
    
    
    29,629
    
    
    
    170,598
    
    
    
    166,403
    
    
    
    
    
    
    
    366,630Property and equipment, net
    
    
    
    
    
    
    363,295
    
    
    
    617,142
    
    
    
    
    
    
    
    980,437Intercompany
    
    
    
    
    
    
    42,981
    
    
    
    (42,981
    )
    
    
    
    
    
    
    Net investment in and advances
to subsidiaries
    
    
    1,627,879
    
    
    
    
    
    
    
    
    
    
    
    (1,627,879
    )
    
    
    Goodwill
    
    
    21,774
    
    
    
    111,593
    
    
    
    623,226
    
    
    
    
    
    
    
    756,593Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    36,000
    
    
    
    
    
    
    
    36,000Other assets, net
    
    
    21,006
    
    
    
    19,668
    
    
    
    6,088
    
    
    
    
    
    
    
    46,762Total assets
    
    $
    1,700,288
    
    
    $
    708,135
    
    
    $
    1,405,878
    
    
    $
    (1,627,879
    )
    
    $
    2,186,422Liabilities and Members
EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    55,980
    
    
    $
    42,508
    
    
    $
    
    
    
    $
    98,488Salaries and benefits
payable
    
    
    
    
    
    
    24,338
    
    
    
    15,786
    
    
    
    
    
    
    
    40,124Accrued interest payable
    
    
    18,865
    
    
    
    (2,301
    )
    
    
    2,301
    
    
    
    
    
    
    
    18,865Medical claims payable
    
    
    
    
    
    
    
    
    
    
    81,309
    
    
    
    
    
    
    
    81,309Other accrued expenses and
other current liabilities
    
    
    
    
    
    
    24,567
    
    
    
    19,709
    
    
    
    
    
    
    
    44,276Current portion of long-term
debt and capital lease
obligations
    
    
    4,542
    
    
    
    3,494
    
    
    
    11,054
    
    
    
    (11,054
    )
    
    
    8,036Total current liabilities
    
    
    23,407
    
    
    
    106,078
    
    
    
    172,667
    
    
    
    (11,054
    )
    
    
    291,098Long-term debt and capital
lease obligations
    
    
    1,018,415
    
    
    
    5,206
    
    
    
    470,615
    
    
    
    (470,615
    )
    
    
    1,023,621Deferred income taxes
    
    
    93,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,402Other long-term liabilities
    
    
    
    
    
    
    49,809
    
    
    
    1,022
    
    
    
    
    
    
    
    50,831Minority interests
    
    
    
    
    
    
    35,956
    
    
    
    
    
    
    
    
    
    
    
    35,956Total liabilities
    
    
    1,135,224
    
    
    
    197,049
    
    
    
    644,304
    
    
    
    (481,669
    )
    
    
    1,494,908Members equity
    
    
    565,064
    
    
    
    511,086
    
    
    
    761,574
    
    
    
    (1,146,210
    )
    
    
    691,514Total liabilities and
members equity
    
    $
    1,700,288
    
    
    $
    708,135
    
    
    $
    1,405,878
    
    
    $
    (1,627,879
    )
    
    $
    2,186,422
  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
    
    $
    
    
    
    $
    162,987
    
    
    $
    230,142
    
    
    $
    (2,591
    )
    
    $
    390,538Premium revenue
    
    
    
    
    
    
    
    
    
    
    142,022
    
    
    
    
    
    
    
    142,022Total net revenue
    
    
    
    
    
    
    162,987
    
    
    
    372,164
    
    
    
    (2,591
    )
    
    
    532,560Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    81,659
    
    
    
    78,030
    
    
    
    
    
    
    
    159,689Supplies
    
    
    
    
    
    
    26,724
    
    
    
    33,183
    
    
    
    
    
    
    
    59,907Medical claims
    
    
    
    
    
    
    
    
    
    
    121,781
    
    
    
    (2,591
    )
    
    
    119,190Other operating expenses
    
    
    
    
    
    
    28,833
    
    
    
    46,291
    
    
    
    
    
    
    
    75,124Provision for bad debts
    
    
    
    
    
    
    18,749
    
    
    
    21,283
    
    
    
    
    
    
    
    40,032Rentals and leases
    
    
    
    
    
    
    3,750
    
    
    
    5,527
    
    
    
    
    
    
    
    9,277Interest expense, net
    
    
    17,616
    
    
    
    
    
    
    
    13,786
    
    
    
    (13,786
    )
    
    
    17,616Depreciation and
amortization
    
    
    
    
    
    
    10,829
    
    
    
    13,875
    
    
    
    
    
    
    
    24,704Management fees
    
    
    994
    
    
    
    (5,056
    )
    
    
    5,056
    
    
    
    
    
    
    
    994Equity in earnings of
affiliates
    
    
    (23,337
    )
    
    
    
    
    
    
    
    
    
    
    23,337
    
    
    
    Total costs and
expenses
    
    
    (4,727
    )
    
    
    165,488
    
    
    
    338,812
    
    
    
    6,960
    
    
    
    506,533Earnings (loss) from
continuing operations
before gain (loss) on
disposal of assets,
minority interests and
income taxes
    
    
    4,727
    
    
    
    (2,501
    )
    
    
    33,352
    
    
    
    (9,551
    )
    
    
    26,027Gain (loss) on disposal of
assets, net
    
    
    
    
    
    
    (49
    )
    
    
    10
    
    
    
    
    
    
    
    (39
    )Minority interests
    
    
    
    
    
    
    (1,239
    )
    
    
    
    
    
    
    
    
    
    
    (1,239
    )Earnings (loss) from
continuing operations
before income taxes
    
    
    4,727
    
    
    
    (3,789
    )
    
    
    33,362
    
    
    
    (9,551
    )
    
    
    24,749Income tax expense
    
    
    9,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,979Net earnings (loss) from
continuing operations
    
    
    (5,252
    )
    
    
    (3,789
    )
    
    
    33,362
    
    
    
    (9,551
    )
    
    
    14,770Earnings (loss) from
discontinued operations,
net of income taxes
    
    
    1,830
    
    
    
    (5,134
    )
    
    
    (1,102
    )
    
    
    
    
    
    
    (4,406
    )Net earnings (loss)
    
    $
    (3,422
    )
    
    $
    (8,923
    )
    
    $
    32,260
    
    
    $
    (9,551
    )
    
    $
    10,364
  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
    
    $
    
    
    
    $
    151,816
    
    
    $
    187,357
    
    
    $
    (1,826
    )
    
    $
    337,347Premium revenue
    
    
    
    
    
    
    
    
    
    
    113,371
    
    
    
    
    
    
    
    113,371Total net revenue
    
    
    
    
    
    
    151,816
    
    
    
    300,728
    
    
    
    (1,826
    )
    
    
    450,718Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    77,531
    
    
    
    63,052
    
    
    
    
    
    
    
    140,583Supplies
    
    
    
    
    
    
    25,736
    
    
    
    24,959
    
    
    
    
    
    
    
    50,695Medical claims
    
    
    
    
    
    
    
    
    
    
    96,942
    
    
    
    (1,826
    )
    
    
    95,116Other operating expenses
    
    
    
    
    
    
    31,482
    
    
    
    39,803
    
    
    
    
    
    
    
    71,285Provision for bad debts
    
    
    
    
    
    
    16,758
    
    
    
    15,509
    
    
    
    
    
    
    
    32,267Rentals and leases
    
    
    
    
    
    
    2,703
    
    
    
    4,776
    
    
    
    
    
    
    
    7,479Interest expense, net
    
    
    17,203
    
    
    
    
    
    
    
    6,688
    
    
    
    (6,688
    )
    
    
    17,203Depreciation and
amortization
    
    
    
    
    
    
    10,275
    
    
    
    8,921
    
    
    
    
    
    
    
    19,196Management fees
    
    
    721
    
    
    
    (4,224
    )
    
    
    4,224
    
    
    
    
    
    
    
    721Loss on extinguishment of
debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,229Business interruption
insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (1,525
    )
    
    
    
    
    
    
    (1,525
    )Equity in earnings of
affiliates
    
    
    (27,753
    )
    
    
    
    
    
    
    
    
    
    
    27,753
    
    
    
    Total costs and expenses
    
    
    (3,600
    )
    
    
    160,261
    
    
    
    263,349
    
    
    
    19,239
    
    
    
    439,249Earnings (loss) from
continuing operations before
gain (loss) on disposal of
assets, minority interests and
income taxes
    
    
    3,600
    
    
    
    (8,445
    )
    
    
    37,379
    
    
    
    (21,065
    )
    
    
    11,469Gain (loss) on disposal of
assets, net
    
    
    
    
    
    
    (22
    )
    
    
    92
    
    
    
    
    
    
    
    70Minority interests
    
    
    
    
    
    
    (1,308
    )
    
    
    
    
    
    
    
    
    
    
    (1,308
    )Earnings (loss) from
continuing operations before
income taxes
    
    
    3,600
    
    
    
    (9,775
    )
    
    
    37,471
    
    
    
    (21,065
    )
    
    
    10,231Income tax expense
    
    
    3,408
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,408Net earnings (loss) from
continuing operations
    
    
    192
    
    
    
    (9,775
    )
    
    
    37,471
    
    
    
    (21,065
    )
    
    
    6,823Earnings (loss) from
discontinued operations, net
of income taxes
    
    
    (572
    )
    
    
    942
    
    
    
    (885
    )
    
    
    
    
    
    
    (515
    )Net earnings (loss)
    
    $
    (380
    )
    
    $
    (8,833
    )
    
    $
    36,586
    
    
    $
    (21,065
    )
    
    $
    6,308
  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
    
    $
    
    
    
    $
    486,729
    
    
    $
    669,836
    
    
    $
    (7,270
    )
    
    $
    1,149,295Premium revenue
    
    
    
    
    
    
    
    
    
    
    400,822
    
    
    
    
    
    
    
    400,822Total net revenue
    
    
    
    
    
    
    486,729
    
    
    
    1,070,658
    
    
    
    (7,270
    )
    
    
    1,550,117Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    240,981
    
    
    
    234,342
    
    
    
    
    
    
    
    475,323Supplies
    
    
    
    
    
    
    80,404
    
    
    
    96,720
    
    
    
    
    
    
    
    177,124Medical claims
    
    
    
    
    
    
    
    
    
    
    340,922
    
    
    
    (7,270
    )
    
    
    333,652Other operating expenses
    
    
    
    
    
    
    81,244
    
    
    
    127,873
    
    
    
    
    
    
    
    209,117Provision for bad debts
    
    
    
    
    
    
    61,451
    
    
    
    59,388
    
    
    
    
    
    
    
    120,839Rentals and leases
    
    
    
    
    
    
    10,977
    
    
    
    16,221
    
    
    
    
    
    
    
    27,198Interest expense, net
    
    
    58,460
    
    
    
    
    
    
    
    40,976
    
    
    
    (40,976
    )
    
    
    58,460Depreciation and
amortization
    
    
    
    
    
    
    31,217
    
    
    
    39,926
    
    
    
    
    
    
    
    71,143Management fees
    
    
    2,606
    
    
    
    (14,578
    )
    
    
    14,578
    
    
    
    
    
    
    
    2,606Equity in earnings of
affiliates
    
    
    (82,596
    )
    
    
    
    
    
    
    
    
    
    
    82,596
    
    
    
    Total costs and
expenses
    
    
    (21,530
    )
    
    
    491,696
    
    
    
    970,946
    
    
    
    34,350
    
    
    
    1,475,462Earnings (loss) from
continuing operations before gain on disposal of assets,
minority interests and income taxes
    
    
    21,530
    
    
    
    (4,967
    )
    
    
    99,712
    
    
    
    (41,620
    )
    
    
    74,655Gain on disposal of
assets, net
    
    
    
    
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    20Minority interests
    
    
    
    
    
    
    (3,108
    )
    
    
    
    
    
    
    
    
    
    
    (3,108
    )Earnings (loss) from
continuing operations
before income taxes
    
    
    21,530
    
    
    
    (8,056
    )
    
    
    99,713
    
    
    
    (41,620
    )
    
    
    71,567Income tax expense
    
    
    28,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,731Net earnings (loss) from
continuing operations
    
    
    (7,201
    )
    
    
    (8,056
    )
    
    
    99,713
    
    
    
    (41,620
    )
    
    
    42,836Earnings (loss) from
discontinued operations,
net of income taxes
    
    
    2,020
    
    
    
    (6,006
    )
    
    
    (3,055
    )
    
    
    
    
    
    
    (7,041
    )Net earnings (loss)
    
    $
    (5,181
    )
    
    $
    (14,062
    )
    
    $
    96,658
    
    
    $
    (41,620
    )
    
    $
    35,795
  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
    
    $
    
    
    
    $
    422,972
    
    
    $
    546,331
    
    
    $
    (5,431
    )
    
    $
    963,872Premium revenue
    
    
    
    
    
    
    
    
    
    
    329,949
    
    
    
    
    
    
    
    329,949Total net revenue
    
    
    
    
    
    
    422,972
    
    
    
    876,280
    
    
    
    (5,431
    )
    
    
    1,293,821Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    208,621
    
    
    
    180,318
    
    
    
    
    
    
    
    388,939Supplies
    
    
    
    
    
    
    71,833
    
    
    
    71,274
    
    
    
    
    
    
    
    143,107Medical claims
    
    
    
    
    
    
    
    
    
    
    282,946
    
    
    
    (5,431
    )
    
    
    277,515Other operating expenses
    
    
    
    
    
    
    83,005
    
    
    
    115,408
    
    
    
    
    
    
    
    198,413Provision for bad debts
    
    
    
    
    
    
    51,400
    
    
    
    43,443
    
    
    
    
    
    
    
    94,843Rentals and leases
    
    
    
    
    
    
    8,523
    
    
    
    14,436
    
    
    
    
    
    
    
    22,959Interest expense, net
    
    
    50,153
    
    
    
    
    
    
    
    20,487
    
    
    
    (20,487
    )
    
    
    50,153Depreciation and
amortization
    
    
    
    
    
    
    27,469
    
    
    
    25,694
    
    
    
    
    
    
    
    53,163Management fees
    
    
    2,024
    
    
    
    (11,721
    )
    
    
    11,721
    
    
    
    
    
    
    
    2,024Loss on
extinguishment of debt
    
    
    6,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,229Business interruption
insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (3,443
    )
    
    
    
    
    
    
    (3,443
    )Equity in earnings of
affiliates
    
    
    (95,637
    )
    
    
    
    
    
    
    
    
    
    
    95,637
    
    
    
    Total costs and
expenses
    
    
    (37,231
    )
    
    
    439,130
    
    
    
    762,284
    
    
    
    69,719
    
    
    
    1,233,902Earnings (loss) from
continuing operations
before loss on disposal of
assets, minority interests
and income taxes
    
    
    37,231
    
    
    
    (16,158
    )
    
    
    113,996
    
    
    
    (75,150
    )
    
    
    59,919Loss on disposal of assets,
net
    
    
    
    
    
    
    (813
    )
    
    
    (424
    )
    
    
    
    
    
    
    (1,237
    )Minority interests
    
    
    
    
    
    
    (4,162
    )
    
    
    
    
    
    
    
    
    
    
    (4,162
    )Earnings (loss) from
continuing operations
before income taxes
    
    
    37,231
    
    
    
    (21,133
    )
    
    
    113,572
    
    
    
    (75,150
    )
    
    
    54,520Income tax expense
    
    
    20,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,899Net earnings (loss) from
continuing operations
    
    
    16,332
    
    
    
    (21,133
    )
    
    
    113,572
    
    
    
    (75,150
    )
    
    
    33,621Earnings (loss) from
discontinued operations,
net of income taxes
    
    
    (2,973
    )
    
    
    5,673
    
    
    
    (2,475
    )
    
    
    
    
    
    
    225Net earnings (loss)
    
    $
    13,359
    
    
    $
    (15,460
    )
    
    $
    111,097
    
    
    $
    (75,150
    )
    
    $
    33,846
  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
    
    
    ConsolidatedCash flows from operating
activitiesNet earnings (loss)
    
    $
    (5,181
    )
    
    $
    (14,062
    )
    
    $
    96,658
    
    
    $
    (41,620
    )
    
    $
    35,795Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used in) operating
activities:Loss
(earnings) from
discontinued operations
    
    
    (2,020
    )
    
    
    6,006
    
    
    
    3,055
    
    
    
    
    
    
    
    7,041Depreciation and
amortization
    
    
    
    
    
    
    31,217
    
    
    
    39,926
    
    
    
    
    
    
    
    71,143Amortization of loan
costs
    
    
    2,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,173Minority interests
    
    
    
    
    
    
    3,108
    
    
    
    
    
    
    
    
    
    
    
    3,108Deferred income taxes
    
    
    11,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,588Gain on
disposal of assets,
net
    
    
    
    
    
    
    (19
    )
    
    
    (1
    )
    
    
    
    
    
    
    (20
    )Equity in earnings
of affiliates
    
    
    (82,596
    )
    
    
    
    
    
    
    
    
    
    
    82,596
    
    
    
    Changes in operating
assets and liabilities, net of the effect of
acquisitions and dispositions:Accounts
receivable, net
    
    
    
    
    
    
    14,652
    
    
    
    (15,619
    )
    
    
    
    
    
    
    (967
    )Inventories,
prepaid expenses
and other current
assets
    
    
    
    
    
    
    (681
    )
    
    
    (33,436
    )
    
    
    
    
    
    
    (34,117
    )Accounts payable,
other accrued
expenses and
other accrued
liabilities
    
    
    (21,453
    )
    
    
    (6,096
    )
    
    
    (8,900
    )
    
    
    
    
    
    
    (36,449
    )Net cash provided by
(used in) operating activities  continuing
operations
    
    
    (97,489
    )
    
    
    34,125
    
    
    
    81,683
    
    
    
    40,976
    
    
    
    59,295Net cash provided by
(used in) operating activities  discontinued
operations
    
    
    2,020
    
    
    
    (6
    )
    
    
    (2,139
    )
    
    
    
    
    
    
    (125
    )Net cash provided by
(used in) operating
activities
    
    
    (95,469
    )
    
    
    34,119
    
    
    
    79,544
    
    
    
    40,976
    
    
    
    59,170
  20




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from investing
activitiesPurchases of property
and equipment, net
    
    
    
    
    
    
    (28,438
    )
    
    
    (59,267
    )
    
    
    
    
    
    
    (87,705
    )Cash paid for
acquisition, net
    
    
    
    
    
    
    (16,668
    )
    
    
    
    
    
    
    
    
    
    
    (16,668
    )Proceeds from sale of
assets
    
    
    
    
    
    
    87
    
    
    
    266
    
    
    
    
    
    
    
    353Change in other assets,
net
    
    
    
    
    
    
    2,340
    
    
    
    529
    
    
    
    
    
    
    
    2,869Net cash used in
investing activities
 continuing
operations
    
    
    
    
    
    
    (42,679
    )
    
    
    (58,472
    )
    
    
    
    
    
    
    (101,151
    )Net cash used in
investing activities
 discontinued
operations
    
    
    
    
    
    
    (899
    )
    
    
    
    
    
    
    
    
    
    
    (899
    )Net cash used in
investing activities
    
    
    
    
    
    
    (43,578
    )
    
    
    (58,472
    )
    
    
    
    
    
    
    (102,050
    )Cash flows from financing
activitiesPayment of debt and
capital lease
obligations
    
    
    (301,678
    )
    
    
    (674
    )
    
    
    (2,235
    )
    
    
    
    
    
    
    (304,587
    )Proceeds from debt
borrowings
    
    
    337,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337,200Distribution of minority
interests
    
    
    
    
    
    
    (72
    )
    
    
    (3,671
    )
    
    
    
    
    
    
    (3,743
    )Proceeds from sale of
partnership interests
    
    
    
    
    
    
    15,648
    
    
    
    
    
    
    
    
    
    
    
    15,648Change in intercompany
balances with
affiliates, net
    
    
    59,947
    
    
    
    (41
    )
    
    
    (18,930
    )
    
    
    (40,976
    )
    
    
    Net cash provided by
(used in) financing
activities 
continuing
operations
    
    
    95,469
    
    
    
    14,861
    
    
    
    (24,836
    )
    
    
    (40,976
    )
    
    
    44,518Net cash used in
financing activities
 discontinued
operations
    
    
    
    
    
    
    (304
    )
    
    
    
    
    
    
    
    
    
    
    (304
    )Net cash
provided by (used in) financing activities
    
    
    95,469
    
    
    
    14,557
    
    
    
    (24,836
    )
    
    
    (40,976
    )
    
    
    44,214Change in cash and cash
equivalents
    
    
    
    
    
    
    5,098
    
    
    
    (3,764
    )
    
    
    
    
    
    
    1,334Cash and cash
equivalents at beginning
of period
    
    
    
    
    
    
    (4,052
    )
    
    
    4,052
    
    
    
    
    
    
    
    Cash and cash
equivalents at end of
period
    
    $
    
    
    
    $
    1,046
    
    
    $
    288
    
    
    $
    
    
    
    $
    1,334
  21




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating
activitiesNet earnings (loss)
    
    $
    13,359
    
    
    $
    (15,460
    )
    
    $
    111,097
    
    
    $
    (75,150
    )
    
    $
    33,846Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used in) operating
activities:Loss (earnings) from
discontinued
operations
    
    
    2,973
    
    
    
    (5,673
    )
    
    
    2,475
    
    
    
    
    
    
    
    (225
    )Depreciation and
amortization
    
    
    
    
    
    
    27,469
    
    
    
    25,694
    
    
    
    
    
    
    
    53,163Amortization of loan
costs
    
    
    2,227
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,227Minority interests
    
    
    
    
    
    
    4,162
    
    
    
    
    
    
    
    
    
    
    
    4,162Deferred income taxes
    
    
    17,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,212Loss on disposal of
assets, net
    
    
    
    
    
    
    813
    
    
    
    424
    
    
    
    
    
    
    
    1,237Loss on
extinguishment of
debt
    
    
    5,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,091Equity in earnings
of affiliates
    
    
    (95,637
    )
    
    
    
    
    
    
    
    
    
    
    95,637
    
    
    
    Changes in operating
assets and
liabilities, net of
the effect of
acquisitions and dispositions:Accounts
receivable, net
    
    
    
    
    
    
    (14,047
    )
    
    
    (16,914
    )
    
    
    
    
    
    
    (30,961
    )Inventories,
prepaid expenses
and other
current assets
    
    
    
    
    
    
    1,920
    
    
    
    (13,200
    )
    
    
    
    
    
    
    (11,280
    )Accounts
payable, other
accrued expenses
and other
accrued
liabilities
    
    
    (12,158
    )
    
    
    (4,926
    )
    
    
    19,081
    
    
    
    
    
    
    
    1,997Net cash provided by
(used in) operating
activities 
continuing
operations
    
    
    (66,933
    )
    
    
    (5,742
    )
    
    
    128,657
    
    
    
    20,487
    
    
    
    76,469Net cash provided by
(used in) operating
activities 
discontinued
operations
    
    
    (2,973
    )
    
    
    7,293
    
    
    
    (1,750
    )
    
    
    
    
    
    
    2,570Net cash provided by
(used in) operating
activities
    
    
    (69,906
    )
    
    
    1,551
    
    
    
    126,907
    
    
    
    20,487
    
    
    
    79,039
  22




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from investing
activitiesPurchases of property
and equipment, net
    
    
    
    
    
    
    (27,816
    )
    
    
    (122,078
    )
    
    
    
    
    
    
    (149,894
    )Cash paid for
acquisitions, net
    
    
    
    
    
    
    (78,229
    )
    
    
    (61,603
    )
    
    
    
    
    
    
    (139,832
    )Proceeds from sale of
assets
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Change in other assets,
net
    
    
    
    
    
    
    1,011
    
    
    
    3,074
    
    
    
    
    
    
    
    4,085Net cash used in
investing activities
 continuing
operations
    
    
    
    
    
    
    (104,048
    )
    
    
    (180,607
    )
    
    
    
    
    
    
    (284,655
    )Net cash used in investing
activities  discontinued
operations
    
    
    
    
    
    
    (531
    )
    
    
    (70
    )
    
    
    
    
    
    
    (601
    )Net cash used in investing
activities
    
    
    
    
    
    
    (104,579
    )
    
    
    (180,677
    )
    
    
    
    
    
    
    (285,256
    )Cash flows from financing
activitiesPayment of debt and
capital lease
obligations
    
    
    (608,215
    )
    
    
    (1,138
    )
    
    
    (1,451
    )
    
    
    
    
    
    
    (610,804
    )Proceeds from debt
borrowings
    
    
    740,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    740,300Debt financing costs
incurred
    
    
    (7,890
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,890
    )Distribution to parent
for debt financing costs
    
    
    (6,586
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,586
    )Distribution of minority
interests
    
    
    
    
    
    
    
    
    
    
    (3,387
    )
    
    
    
    
    
    
    (3,387
    )Proceeds from sale of
partnership interests
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Change in intercompany
balances with
affiliates, net
    
    
    (47,703
    )
    
    
    4,883
    
    
    
    63,307
    
    
    
    (20,487
    )
    
    
    Net cash provided by
(used in) financing
activities 
continuing
operations
    
    
    69,906
    
    
    
    3,745
    
    
    
    58,473
    
    
    
    (20,487
    )
    
    
    111,637Net cash used in financing
activities 
discontinued
operations
    
    
    
    
    
    
    (359
    )
    
    
    
    
    
    
    
    
    
    
    (359
    )Net cash provided by
(used in) financing
activities
    
    
    69,906
    
    
    
    3,386
    
    
    
    58,473
    
    
    
    (20,487
    )
    
    
    111,278Change in cash and cash
equivalents
    
    
    
    
    
    
    (99,642
    )
    
    
    4,703
    
    
    
    
    
    
    
    (94,939
    )Cash and cash
equivalents at beginning
of period
    
    
    
    
    
    
    94,258
    
    
    
    1,157
    
    
    
    
    
    
    
    95,415Cash and cash
equivalents at end of
period
    
    $
    
    
    
    $
    (5,384
    )
    
    $
    5,860
    
    
    $
    
    
    
    $
    476
  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
 qui tam
  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.
    qui tam qui tam qui tam
  25




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##### Table of Contents



Revenue and Volume Trends
    Acute Care Revenue
   26




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##### Table of Contents



Quarter
    
    
    Nine MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Medicare
    
    
    32.3
    %
    
    
    30.5
    %
    
    
    32.8
    %
    
    
    30.8
    %Managed Medicare
    
    
    4.6
    %
    
    
    3.0
    %
    
    
    3.9
    %
    
    
    2.9
    %Medicaid
    
    
    7.3
    %
    
    
    7.2
    %
    
    
    7.2
    %
    
    
    7.2
    %Managed Medicaid
    
    
    9.7
    %
    
    
    11.5
    %
    
    
    10.0
    %
    
    
    11.2
    %Managed care
    
    
    40.6
    %
    
    
    41.4
    %
    
    
    40.5
    %
    
    
    41.8
    %Self-pay and other
    
    
    5.5
    %
    
    
    6.4
    %
    
    
    5.6
    %
    
    
    6.1
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   27




---



##### Table of Contents



Premium Revenue
   28




---



##### Table of Contents



Significant Industry Trends
  Value-Based Reimbursement
    29




---



##### Table of Contents



Implementation of Our Quality Initiatives
  
    
    Deployment of proprietary information systems to provide daily tracking of care
provided to patients in any core measures category;
 
    
    Implementation of a strategy to retain nurses, ultimately providing an improved
continuum of care through continuity;
    
    Development and implementation of a hospital medical management program;
    
    Hiring of a Chief Quality Officer;
 
    
    Ongoing training and education of medical and non-medical personnel related to quality
performance indicators;
 
    
    Monthly review of the 30 quality indicators prescribed by CMS for reporting beginning
January 1, 2008;
 
    
    Monitoring of additional quality measures above the requirement to receive the full
annual payment update;
 
    
    Rapid response teams in place at all of our hospitals to provide more timely and
efficient care;
    
    Engagement of an external group to conduct unannounced mock Joint Commission surveys;
 
    
    Alignment of hospital management incentive compensation with quality performance
indicators; and
 
    
    Additional staffing to collect and report quality information and to facilitate action
plans to address areas for improvement.
  30




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##### Table of Contents



Physician Integration
    Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   June 30,
    
    
    September 30,2008
    
    
    2007Insured receivables
    
    
    65.7
    %
    
    
    66.7
    %Uninsured receivables
    
    
    34.3
    %
    
    
    33.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   31




---



##### Table of Contents



June 30,
    
    
    September 30,2008
    
    
    20070 to 90 days
    
    
    67.8
    %
    
    
    71.8
    %91 to 180 days
    
    
    19.5
    %
    
    
    15.5
    %Over 180 days
    
    
    12.7
    %
    
    
    12.7
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Sub-Acute Care Services
  Nursing Shortage
   Decreased Federal and State Funding for Medicaid Programs
   32




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##### Table of Contents



Changes in Patient Service Mix
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Income Taxes.
 Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109 Accounting for Income Taxes
    33




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##### Table of Contents



Selected Operating Data
  Quarter
    
    
    Nine MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Acute Care(1):Number of acute care hospital facilities
at end of period
    
    
    15
    
    
    
    14
    
    
    
    15
    
    
    
    14Beds in service at end of period (2)
    
    
    2,644
    
    
    
    2,391
    
    
    
    2,644
    
    
    
    2,391Average length of stay (days) (3)
    
    
    4.69
    
    
    
    4.66
    
    
    
    4.70
    
    
    
    4.66Occupancy rates (average beds in service)
    
    
    48.8
    %
    
    
    50.2
    %
    
    
    50.1
    %
    
    
    51.5
    %Admissions (4)
    
    
    25,004
    
    
    
    23,125
    
    
    
    76,883
    
    
    
    67,557Adjusted admissions (5)
    
    
    41,371
    
    
    
    37,974
    
    
    
    124,667
    
    
    
    110,158Patient days (6)
    
    
    117,304
    
    
    
    107,683
    
    
    
    361,372
    
    
    
    314,747Adjusted patient days (5)
    
    
    186,242
    
    
    
    169,313
    
    
    
    562,959
    
    
    
    491,641Net patient revenue per adjusted admission
    
    $
    9,317
    
    
    $
    8,799
    
    
    $
    9,118
    
    
    $
    8,668Same-Facility(7):Number of acute care hospital facilities
at end of period
    
    
    14
    
    
    
    14
    
    
    
    13
    
    
    
    13Beds in service at end of period (2)
    
    
    2,466
    
    
    
    2,391
    
    
    
    2,238
    
    
    
    2,154Average length of stay (days) (3)
    
    
    4.75
    
    
    
    4.66
    
    
    
    4.69
    
    
    
    4.64Occupancy rates (average beds in service)
    
    
    49.2
    %
    
    
    50.1
    %
    
    
    50.1
    %
    
    
    51.9
    %Admissions (4)
    
    
    23,223
    
    
    
    23,125
    
    
    
    65,114
    
    
    
    63,729Adjusted admissions (5)
    
    
    38,903
    
    
    
    37,974
    
    
    
    107,792
    
    
    
    104,779Patient days (6)
    
    
    110,309
    
    
    
    107,683
    
    
    
    305,445
    
    
    
    295,816Adjusted patient days (5)
    
    
    176,528
    
    
    
    169,313
    
    
    
    482,262
    
    
    
    465,039Net patient revenue per adjusted admission
    
    $
    9,231
    
    
    $
    8,799
    
    
    $
    9,184
    
    
    $
    8,709Health Choice:Medicaid covered lives
    
    
    129,067
    
    
    
    115,875
    
    
    
    129,067
    
    
    
    115,875Dual-eligible lives (8)
    
    
    3,352
    
    
    
    3,613
    
    
    
    3,352
    
    
    
    3,613Medical loss ratio (9)
    
    
    85.7
    %
    
    
    85.5
    %
    
    
    85.1
    %
    
    
    85.8
    %
 (1)
    
    Represents continuing operations, which excludes Mesa General.(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 hospital facilities owned and operated for each period presented in
its entirety. Includes the impact of Alliance in Odessa, Texas, which was acquired effective
May 31, 2007, and immediately merged into Odessa Regional Hospital to form Odessa Regional
Medical Center.(8)
    
    Represents members eligible for Medicare and Medicaid benefits under Health Choices contract
with CMS to provide coverage as a MAPD SNP.(9)
    
    Represents medical claims expense as a percentage of premium revenue, including claims paid
to our hospitals.  34




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##### Table of Contents



RESULTS OF OPERATIONS SUMMARY
  Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Consolidated ($ in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    390,538
    
    
    
    73.3
    %
    
    $
    337,347
    
    
    
    74.8
    %
    
    $
    1,149,295
    
    
    
    74.1
    %
    
    $
    963,872
    
    
    
    74.5
    %Premium revenue
    
    
    142,022
    
    
    
    26.7
    %
    
    
    113,371
    
    
    
    25.2
    %
    
    
    400,822
    
    
    
    25.9
    %
    
    
    329,949
    
    
    
    25.5
    %Total net revenue
    
    
    532,560
    
    
    
    100.0
    %
    
    
    450,718
    
    
    
    100.0
    %
    
    
    1,550,117
    
    
    
    100.0
    %
    
    
    1,293,821
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    159,689
    
    
    
    30.0
    %
    
    
    140,583
    
    
    
    31.2
    %
    
    
    475,323
    
    
    
    30.7
    %
    
    
    388,939
    
    
    
    30.1
    %Supplies
    
    
    59,907
    
    
    
    11.3
    %
    
    
    50,695
    
    
    
    11.2
    %
    
    
    177,124
    
    
    
    11.4
    %
    
    
    143,107
    
    
    
    11.1
    %Medical claims
    
    
    119,190
    
    
    
    22.4
    %
    
    
    95,116
    
    
    
    21.1
    %
    
    
    333,652
    
    
    
    21.5
    %
    
    
    277,515
    
    
    
    21.4
    %Other operating expenses
    
    
    75,124
    
    
    
    14.1
    %
    
    
    71,285
    
    
    
    15.8
    %
    
    
    209,117
    
    
    
    13.5
    %
    
    
    198,413
    
    
    
    15.3
    %Provision for bad debts
    
    
    40,032
    
    
    
    7.5
    %
    
    
    32,267
    
    
    
    7.2
    %
    
    
    120,839
    
    
    
    7.8
    %
    
    
    94,843
    
    
    
    7.3
    %Rentals and leases
    
    
    9,277
    
    
    
    1.7
    %
    
    
    7,479
    
    
    
    1.7
    %
    
    
    27,198
    
    
    
    1.7
    %
    
    
    22,959
    
    
    
    1.8
    %Interest expense, net
    
    
    17,616
    
    
    
    3.3
    %
    
    
    17,203
    
    
    
    3.8
    %
    
    
    58,460
    
    
    
    3.8
    %
    
    
    50,153
    
    
    
    3.9
    %Depreciation and amortization
    
    
    24,704
    
    
    
    4.6
    %
    
    
    19,196
    
    
    
    4.2
    %
    
    
    71,143
    
    
    
    4.6
    %
    
    
    53,163
    
    
    
    4.1
    %Management fees
    
    
    994
    
    
    
    0.2
    %
    
    
    721
    
    
    
    0.2
    %
    
    
    2,606
    
    
    
    0.2
    %
    
    
    2,024
    
    
    
    0.2
    %Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    1.4
    %
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    0.5
    %Business interruption insurance
recoveries
    
    
    
    
    
    
    
    
    
    
    (1,525
    )
    
    
    (0.3
    )%
    
    
    
    
    
    
    
    
    
    
    (3,443
    )
    
    
    (0.3
    )%Total costs and expenses
    
    
    506,533
    
    
    
    95.1
    %
    
    
    439,249
    
    
    
    97.5
    %
    
    
    1,475,462
    
    
    
    95.2
    %
    
    
    1,233,902
    
    
    
    95.4
    %Earnings from continuing operations
before gain (loss) on disposal of
assets, minority interests and income
taxes
    
    
    26,027
    
    
    
    4.9
    %
    
    
    11,469
    
    
    
    2.5
    %
    
    
    74,655
    
    
    
    4.8
    %
    
    
    59,919
    
    
    
    4.6
    %Gain (loss) on disposal of assets, net
    
    
    (39
    )
    
    
    0.0
    %
    
    
    70
    
    
    
    0.0
    %
    
    
    20
    
    
    
    0.0
    %
    
    
    (1,237
    )
    
    
    (0.1
    )%Minority interests
    
    
    (1,239
    )
    
    
    (0.2
    )%
    
    
    (1,308
    )
    
    
    (0.2
    )%
    
    
    (3,108
    )
    
    
    0.2
    %
    
    
    (4,162
    )
    
    
    (0.3
    )%Earnings from continuing operations
before income taxes
    
    
    24,749
    
    
    
    4.7
    %
    
    
    10,231
    
    
    
    2.3
    %
    
    
    71,567
    
    
    
    4.6
    %
    
    
    54,520
    
    
    
    4.2
    %Income tax expense
    
    
    9,979
    
    
    
    1.9
    %
    
    
    3,408
    
    
    
    0.8
    %
    
    
    28,731
    
    
    
    1.9
    %
    
    
    20,899
    
    
    
    1.6
    %Net earnings from continuing operations
    
    
    14,770
    
    
    
    2.8
    %
    
    
    6,823
    
    
    
    1.5
    %
    
    
    42,836
    
    
    
    2.7
    %
    
    
    33,621
    
    
    
    2.6
    %Earnings (loss) from discontinued
operations, net of income taxes
    
    
    (4,406
    )
    
    
    (0.8
    )%
    
    
    (515
    )
    
    
    (0.1
    )%
    
    
    (7,041
    )
    
    
    (0.4
    )%
    
    
    225
    
    
    
    0.0
    %Net earnings
    
    $
    10,364
    
    
    
    2.0
    %
    
    $
    6,308
    
    
    
    1.4
    %
    
    $
    35,795
    
    
    
    2.3
    %
    
    $
    33,846
    
    
    
    2.6
    %Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Acute Care ($ in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    390,538
    
    
    
    99.3
    %
    
    $
    337,347
    
    
    
    99.5
    %
    
    $
    1,149,295
    
    
    
    99.4
    %
    
    $
    963,872
    
    
    
    99.4
    %Revenue between segments (1)
    
    
    2,591
    
    
    
    0.7
    %
    
    
    1,826
    
    
    
    0.5
    %
    
    
    7,270
    
    
    
    0.6
    %
    
    
    5,431
    
    
    
    0.6
    %Total net revenue
    
    
    393,129
    
    
    
    100.0
    %
    
    
    339,173
    
    
    
    100.0
    %
    
    
    1,156,565
    
    
    
    100.0
    %
    
    
    969,303
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    155,221
    
    
    
    39.5
    %
    
    
    136,730
    
    
    
    40.3
    %
    
    
    462,479
    
    
    
    40.0
    %
    
    
    378,051
    
    
    
    39.0
    %Supplies
    
    
    59,847
    
    
    
    15.2
    %
    
    
    50,636
    
    
    
    14.9
    %
    
    
    176,943
    
    
    
    15.3
    %
    
    
    142,880
    
    
    
    14.7
    %Other operating expenses
    
    
    70,490
    
    
    
    17.9
    %
    
    
    67,398
    
    
    
    19.9
    %
    
    
    195,672
    
    
    
    16.9
    %
    
    
    186,929
    
    
    
    19.3
    %Provision for bad debts
    
    
    40,032
    
    
    
    10.2
    %
    
    
    32,267
    
    
    
    9.5
    %
    
    
    120,839
    
    
    
    10.4
    %
    
    
    94,843
    
    
    
    9.8
    %Rentals and leases
    
    
    8,964
    
    
    
    2.3
    %
    
    
    7,139
    
    
    
    2.1
    %
    
    
    26,311
    
    
    
    2.3
    %
    
    
    22,093
    
    
    
    2.3
    %Interest expense, net
    
    
    17,616
    
    
    
    4.5
    %
    
    
    17,203
    
    
    
    5.1
    %
    
    
    58,460
    
    
    
    5.1
    %
    
    
    50,153
    
    
    
    5.2
    %Depreciation and amortization
    
    
    23,780
    
    
    
    6.0
    %
    
    
    18,307
    
    
    
    5.4
    %
    
    
    68,425
    
    
    
    5.9
    %
    
    
    50,499
    
    
    
    5.2
    %Management fees
    
    
    994
    
    
    
    0.3
    %
    
    
    721
    
    
    
    0.2
    %
    
    
    2,606
    
    
    
    0.2
    %
    
    
    2,024
    
    
    
    0.2
    %Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    1.8
    %
    
    
    
    
    
    
    
    
    
    
    6,229
    
    
    
    0.7
    %Business interruption insurance
recoveries
    
    
    
    
    
    
    
    
    
    
    (1,525
    )
    
    
    (0.4
    )%
    
    
    
    
    
    
    
    
    
    
    (3,443
    )
    
    
    (0.4
    )%Total costs and expenses
    
    
    376,944
    
    
    
    95.9
    %
    
    
    335,105
    
    
    
    98.8
    %
    
    
    1,111,735
    
    
    
    96.1
    %
    
    
    930,258
    
    
    
    96.0
    %Earnings from continuing operations
before gain (loss) on disposal of
assets, minority interests and income
taxes
    
    
    16,185
    
    
    
    4.1
    %
    
    
    4,068
    
    
    
    1.2
    %
    
    
    44,830
    
    
    
    3.9
    %
    
    
    39,045
    
    
    
    4.0
    %Gain (loss) on disposal of assets, net
    
    
    (39
    )
    
    
    0.0
    %
    
    
    70
    
    
    
    0.0
    %
    
    
    20
    
    
    
    0.0
    %
    
    
    (1,237
    )
    
    
    (0.1
    )%Minority interests
    
    
    (1,239
    )
    
    
    (0.3
    )%
    
    
    (1,308
    )
    
    
    (0.4
    )%
    
    
    (3,108
    )
    
    
    (0.3
    )%
    
    
    (4,162
    )
    
    
    (0.4
    )%Earnings from continuing operations
before income taxes
    
    $
    14,907
    
    
    
    3.8
    %
    
    $
    2,830
    
    
    
    0.8
    %
    
    $
    41,742
    
    
    
    3.6
    %
    
    $
    33,646
    
    
    
    3.5
    %
 (1)
    
    Revenue between segments is eliminated in our consolidated results.  35




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##### Table of Contents



Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Health Choice ($ in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentagePremium revenue
    
    $
    142,022
    
    
    
    100.0
    %
    
    $
    113,371
    
    
    
    100.0
    %
    
    $
    400,822
    
    
    
    100.0
    %
    
    $
    329,949
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    4,468
    
    
    
    3.2
    %
    
    
    3,853
    
    
    
    3.4
    %
    
    
    12,844
    
    
    
    3.2
    %
    
    
    10,888
    
    
    
    3.3
    %Supplies
    
    
    60
    
    
    
    0.0
    %
    
    
    59
    
    
    
    0.1
    %
    
    
    181
    
    
    
    0.0
    %
    
    
    227
    
    
    
    0.0
    %Medical claims (1)
    
    
    121,781
    
    
    
    85.7
    %
    
    
    96,942
    
    
    
    85.5
    %
    
    
    340,922
    
    
    
    85.1
    %
    
    
    282,946
    
    
    
    85.8
    %Other operating expenses
    
    
    4,634
    
    
    
    3.3
    %
    
    
    3,887
    
    
    
    3.4
    %
    
    
    13,445
    
    
    
    3.4
    %
    
    
    11,484
    
    
    
    3.5
    %Rentals and leases
    
    
    313
    
    
    
    0.2
    %
    
    
    340
    
    
    
    0.3
    %
    
    
    887
    
    
    
    0.2
    %
    
    
    866
    
    
    
    0.3
    %Depreciation and amortization
    
    
    924
    
    
    
    0.7
    %
    
    
    889
    
    
    
    0.8
    %
    
    
    2,718
    
    
    
    0.7
    %
    
    
    2,664
    
    
    
    0.8
    %Total costs and expenses
    
    
    132,180
    
    
    
    93.1
    %
    
    
    105,970
    
    
    
    93.5
    %
    
    
    370,997
    
    
    
    92.6
    %
    
    
    309,075
    
    
    
    93.7
    %Earnings before income taxes
    
    $
    9,842
    
    
    
    6.9
    %
    
    $
    7,401
    
    
    
    6.5
    %
    
    $
    29,825
    
    
    
    7.4
    %
    
    $
    20,874
    
    
    
    6.3
    %
 (1)
    
    Medical claims paid to our hospitals of $2.6 million and $1.8 million for the quarters ended
June 30, 2008 and 2007, respectively, and $7.3 million and $5.4 million for the nine months
ended June 30, 2008 and 2007, respectively, are eliminated in our consolidated results.
 Quarters Ended June 30, 2008 and 2007
 Net revenue
   Salaries
and benefits
  36




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##### Table of Contents



Supplies
 Medical claims
 Other operating expenses qui tam qui
tam
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 Income tax
expense
 Net
earnings from continuing operations
  37




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##### Table of Contents



Nine Months Ended June 30, 2008 and 2007
 Net revenue
      Salaries and benefits
  38




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##### Table of Contents



Supplies
 Medical claims
 Other operating expenses qui tam qui tam
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
  39




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##### Table of Contents



Income tax expense
 Net
earnings from continuing operations
 LIQUIDITY AND CAPITAL RESOURCES
     Available cash and cash equivalents
    
    $
    1.3Available capacity under our senior secured revolving credit facility
    
    
    222.6Net available liquidity at June 30, 2008
    
    $
    223.9
   
    
    $50.0 million to $55.0 million for the two patient tower expansions in Utah;
 
    
    $40.0 million to $45.0 million for other growth and new business projects; and
 
    
    $40.0 million to $45.0 million in replacement or maintenance related projects at our
hospitals, including information systems projects.
   40




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##### Table of Contents



Overview of Cash Flow Activities for the Nine Months Ended June 30, 2008 and 2007
  Nine MonthsEnded June 30,2008
    
    
    2007Cash flows from operating activities  continuing operations
    
    $
    59.3
    
    
    $
    76.5Cash flows from investing activities  continuing operations
    
    
    (101.2
    )
    
    
    (284.7
    )Cash flows from financing activities  continuing operations
    
    
    44.5
    
    
    
    111.6
  41




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##### Table of Contents



Operating Activities
   Investing Activities
  
    
    $12.9 million related to the construction of the two patient towers in our Utah market;
 
    
    $1.2 million for various expansion and renovation projects, including equipment, at our
San Antonio hospital;
 
    
    $6.7 million in hardware and software related to our advanced clinicals and other
information systems projects, including systems integration at Glenwood and Alliance; and
 
    
    $1.8 million for imaging and other diagnostic equipment, including 64-slice CT scanners
and cardiac catheterization labs.
  Financing Activities
   Debt Instruments
  
    
    $854.0 million in senior secured credit facilities; and
    
    $475.0 million in 8 3/4% senior subordinated notes due 2014.
  42




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##### Table of Contents



$854.0 Million Senior Secured Credit Facilities
      $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
  $300.0 Million Holdings Senior PIK Loans
   43




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##### Table of Contents



Other
  OFF-BALANCE SHEET ARRANGEMENTS
   Seasonality
  RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations Business Combinations adopting SFAS
141(R).
 Noncontrolling Interests in Consolidated
Financial Statements
  44




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4T. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
 Rule 13a-15(e)
 Changes in Internal Control Over Financial Reporting
   45




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##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
 qui tam qui tam qui tam
 
 Item 1A. Risk Factors
  Changes In Laws And Regulations May Significantly Reduce Government Healthcare Spending
And Our Revenue And May Require Us To Make Changes To Our Operations.
    46




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##### Table of Contents



Congress Is Considering And May Enact Legislation That Would Impose Significant Restrictions
On Hospitals That Have Physician Owners, Including Our Hospitals That Have Physician Owners.
  We May Incur Material Fees, Costs and Expenses In Connection With An Appeal of the Court Order
Dismissing With Prejudice the Qui Tam Action And Investigation of IAS.
 qui tam qui tam qui tam qui tam qui tam
  47




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##### Table of Contents



Item 6. Exhibits
  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.
  48




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##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: August 13, 2008
    By:
    /s/ John M. DoyleJohn M. DoyleChief Accounting Officer  49




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    
    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.
  50