##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    20-1150104
(I.R.S. Employer
Identification No.)DOVER CENTRE
117 SEABOARD LANE, BUILDING EFRANKLIN, TENNESSEE
(Address of principal executive offices)
    
    37067
(Zip Code)
 (615) 844-2747
 Not Applicable
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets  June 30, 2006 (Unaudited) and
September 30, 2005
    
    
    1Consolidated Statements of Operations (Unaudited)  Three and Nine Months
Ended June 30, 2006 and 2005
    
    
    2Consolidated Statements of Cash Flows (Unaudited)  Nine Months
Ended June 30, 2006 and 2005
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44PART II. OTHER INFORMATION
    
    
    45Item 6. Exhibits
    
    
    45Ex-31.1  Section 302 Certification of the CEOEx-31.2  Section 302 Certification of the CFO




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##### Table of Contents



PART 1
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 June 30,
    
    
    September 30,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    97,063
    
    
    $
    89,097Accounts receivable, net
    
    
    183,710
    
    
    
    166,456Inventories
    
    
    32,572
    
    
    
    29,866Deferred income taxes
    
    
    44,691
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    36,973
    
    
    
    25,236Total current assets
    
    
    395,009
    
    
    
    366,658Property and equipment, net
    
    
    686,267
    
    
    
    647,596Goodwill
    
    
    754,795
    
    
    
    754,375Other intangible assets, net
    
    
    39,750
    
    
    
    42,000Other assets, net
    
    
    48,302
    
    
    
    42,095Total assets
    
    $
    1,924,123
    
    
    $
    1,852,724LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    61,052
    
    
    $
    58,684Salaries and benefits payable
    
    
    29,504
    
    
    
    24,887Accrued interest payable
    
    
    9,280
    
    
    
    18,489Medical claims payable
    
    
    77,989
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    48,050
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    7,598
    
    
    
    7,757Total current liabilities
    
    
    233,473
    
    
    
    200,568Long-term debt and capital lease obligations
    
    
    891,221
    
    
    
    897,051Deferred income taxes
    
    
    80,950
    
    
    
    74,883Other long-term liabilities
    
    
    41,381
    
    
    
    36,801Minority interest
    
    
    31,656
    
    
    
    26,474Equity:Members equity
    
    
    645,442
    
    
    
    616,947Total liabilities and equity
    
    $
    1,924,123
    
    
    $
    1,852,724
  1




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30, 2006
    
    June 30, 2005
    
    June 30, 2006
    
    June 30, 2005Net revenue:Acute care revenue
    
    $
    314,994
    
    
    $
    299,891
    
    
    $
    919,855
    
    
    $
    886,384Premium revenue
    
    
    105,969
    
    
    
    90,088
    
    
    
    298,541
    
    
    
    263,827Total net revenue
    
    
    420,963
    
    
    
    389,979
    
    
    
    1,218,396
    
    
    
    1,150,211Costs and expenses:Salaries and benefits
    
    
    120,325
    
    
    
    113,452
    
    
    
    351,332
    
    
    
    332,685Supplies
    
    
    48,814
    
    
    
    46,208
    
    
    
    143,742
    
    
    
    140,863Medical claims
    
    
    90,141
    
    
    
    77,409
    
    
    
    253,570
    
    
    
    226,177Other operating expenses
    
    
    65,762
    
    
    
    55,315
    
    
    
    181,850
    
    
    
    162,556Provision for bad debts
    
    
    32,800
    
    
    
    33,792
    
    
    
    110,302
    
    
    
    96,762Rentals and leases
    
    
    8,913
    
    
    
    8,385
    
    
    
    26,256
    
    
    
    24,236Interest expense, net
    
    
    17,438
    
    
    
    17,332
    
    
    
    52,376
    
    
    
    49,405Depreciation and amortization
    
    
    16,251
    
    
    
    18,922
    
    
    
    54,667
    
    
    
    51,409Management fees
    
    
    1,047
    
    
    
    963
    
    
    
    3,142
    
    
    
    2,884Business interruption
insurance recoveries
    
    
    (8,320
    )
    
    
    
    
    
    
    (8,320
    )
    
    
    393,171
    
    
    
    371,778
    
    
    
    1,168,917
    
    
    
    1,086,977Earnings before gain (loss) on
sale of assets, minority interests
and income taxes
    
    
    27,792
    
    
    
    18,201
    
    
    
    49,479
    
    
    
    63,234Gain (loss) on sale of assets, net
    
    
    (710
    )
    
    
    2
    
    
    
    (840
    )
    
    
    (80
    )Minority interests
    
    
    (1,718
    )
    
    
    (779
    )
    
    
    (2,388
    )
    
    
    (3,052
    )Earnings before income taxes
    
    
    25,364
    
    
    
    17,424
    
    
    
    46,251
    
    
    
    60,102Income tax expense
    
    
    9,452
    
    
    
    6,958
    
    
    
    17,756
    
    
    
    23,879Net earnings
    
    $
    15,912
    
    
    $
    10,466
    
    
    $
    28,495
    
    
    $
    36,223
  2




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedJune 30, 2006
    
    
    June 30, 2005Cash flows from operating activities:Net earnings
    
    $
    28,495
    
    
    $
    36,223Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    54,667
    
    
    
    51,409Amortization of loan costs
    
    
    2,209
    
    
    
    5,064Minority interests
    
    
    2,388
    
    
    
    3,052Deferred income taxes
    
    
    16,959
    
    
    
    22,742Loss on sale of assets, net
    
    
    840
    
    
    
    80Changes in operating assets and liabilities:Accounts receivable
    
    
    (17,254
    )
    
    
    (16,776
    )Inventories, prepaid expenses and other
current
assets
    
    
    (14,441
    )
    
    
    (8,575
    )Accounts payable and other accrued liabilities
    
    
    30,719
    
    
    
    (4,449
    )Net cash provided by operating activities
    
    
    104,582
    
    
    
    88,770Cash flows from investing activities:Purchases of property and equipment
    
    
    (93,246
    )
    
    
    (113,541
    )Cash paid for acquisition
    
    
    
    
    
    
    (617
    )Change in other assets
    
    
    (176
    )
    
    
    977Net cash used in investing activities
    
    
    (93,422
    )
    
    
    (113,181
    )Cash flows from financing activities:Payment of debt and capital leases
    
    
    (5,989
    )
    
    
    (8,993
    )Proceeds from borrowings
    
    
    
    
    
    
    2,274Debt financing costs incurred
    
    
    
    
    
    
    (487
    )Distribution of minority interests
    
    
    (1,702
    )
    
    
    (3,129
    )Proceeds from sale of hospital interests
    
    
    4,497
    
    
    
    3,897Net cash used in financing activities
    
    
    (3,194
    )
    
    
    (6,438
    )Increase (decrease) in cash and cash equivalents
    
    
    7,966
    
    
    
    (30,849
    )Cash and cash equivalents at beginning of period
    
    
    89,097
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    97,063
    
    
    $
    67,956Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    63,756
    
    
    $
    54,671Cash paid for income taxes, net
    
    $
    514
    
    
    $
    2,420
  3




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IASIS HEALTHCARE LLC
 
 NOTES TO UNAUDITED CONSOLIDATED
 FINANCIAL STATEMENTS
 1. Organization and Basis of Presentation
   
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio; and
    
    Las Vegas, Nevada.
        4




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 2. Recently Issued Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for
Stock Issued to Employees Statement of Cash Flows
  Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 3. Long-Term Debt and Capital Lease Obligations
  June 30,
    
    
    September 30,2006
    
    
    2005Senior secured credit facilities
    
    $
    416,500
    
    
    $
    419,688Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital leases and other obligations
    
    
    7,319
    
    
    
    10,120898,819
    
    
    
    904,808Less current maturities
    
    
    7,598
    
    
    
    7,757$
    891,221
    
    
    $
    897,051
 5




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 Senior Secured Credit Facilities
     8 3/4% Senior Subordinated Notes
  4. Stock Benefit Plans
  6




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005Net earnings as reported
    
    $
    15,912
    
    
    $
    10,466
    
    
    $
    28,495
    
    
    $
    36,223Deduct: Total stock
based employee
compensation determined
under fair value based
method for all awards,
net of related tax
effects
    
    
    (416
    )
    
    
    (364
    )
    
    
    (1,096
    )
    
    
    (847
    )Pro forma net earnings
    
    $
    15,496
    
    
    $
    10,102
    
    
    $
    27,399
    
    
    $
    35,376
  5. Contingencies
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   7




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 Health Choice
   Capital Expenditure Commitments
  Minimum Revenue Guarantees
  Application of FASB
Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners
 8




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
   Variable Interest Entities
  Acquisitions
  Other
  9




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
  6. Segment and Geographic Information
  10




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended June 30, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    314,994
    
    
    $
    
    
    
    $
    
    
    
    $
    314,994Premium revenue
    
    
    
    
    
    
    105,969
    
    
    
    
    
    
    
    105,969Revenue between segments
    
    
    2,538
    
    
    
    
    
    
    
    (2,538
    )
    
    
    Net revenue
    
    
    317,532
    
    
    
    105,969
    
    
    
    (2,538
    )
    
    
    420,963Salaries and benefits
    
    
    117,031
    
    
    
    3,294
    
    
    
    
    
    
    
    120,325Supplies
    
    
    48,737
    
    
    
    77
    
    
    
    
    
    
    
    48,814Medical claims
    
    
    
    
    
    
    92,679
    
    
    
    (2,538
    )
    
    
    90,141Other operating expenses
    
    
    62,365
    
    
    
    3,397
    
    
    
    
    
    
    
    65,762Provision for bad debts
    
    
    32,800
    
    
    
    
    
    
    
    
    
    
    
    32,800Rentals and leases
    
    
    8,665
    
    
    
    248
    
    
    
    
    
    
    
    8,913Business interruption insurance recoveries
    
    
    (8,320
    )
    
    
    
    
    
    
    
    
    
    
    (8,320
    )Adjusted EBITDA(1)
    
    
    56,254
    
    
    
    6,274
    
    
    
    
    
    
    
    62,528Interest expense, net
    
    
    17,438
    
    
    
    
    
    
    
    
    
    
    
    17,438Depreciation and amortization
    
    
    15,400
    
    
    
    851
    
    
    
    
    
    
    
    16,251Management fees
    
    
    1,047
    
    
    
    
    
    
    
    
    
    
    
    1,047Earnings before loss on sale of assets,
minority interests and income taxes
    
    
    22,369
    
    
    
    5,423
    
    
    
    
    
    
    
    27,792Loss on sale of assets, net
    
    
    (710
    )
    
    
    
    
    
    
    
    
    
    
    (710
    )Minority interests
    
    
    (1,718
    )
    
    
    
    
    
    
    
    
    
    
    (1,718
    )Earnings before income taxes
    
    $
    19,941
    
    
    $
    5,423
    
    
    $
    
    
    
    $
    25,364Segment assets
    
    $
    1,790,877
    
    
    $
    133,246
    
    
    
    
    
    
    $
    1,924,123Capital expenditures
    
    $
    32,907
    
    
    $
    107
    
    
    
    
    
    
    $
    33,014Goodwill
    
    $
    749,038
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,795
 11




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended June 30, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    299,891
    
    
    $
    
    
    
    $
    
    
    
    $
    299,891Premium revenue
    
    
    
    
    
    
    90,088
    
    
    
    
    
    
    
    90,088Revenue between segments
    
    
    2,100
    
    
    
    
    
    
    
    (2,100
    )
    
    
    Net revenue
    
    
    301,991
    
    
    
    90,088
    
    
    
    (2,100
    )
    
    
    389,979Salaries and benefits
    
    
    110,612
    
    
    
    2,840
    
    
    
    
    
    
    
    113,452Supplies
    
    
    46,160
    
    
    
    48
    
    
    
    
    
    
    
    46,208Medical claims
    
    
    
    
    
    
    79,509
    
    
    
    (2,100
    )
    
    
    77,409Other operating expenses
    
    
    52,567
    
    
    
    2,748
    
    
    
    
    
    
    
    55,315Provision for bad debts
    
    
    33,792
    
    
    
    
    
    
    
    
    
    
    
    33,792Rentals and leases
    
    
    8,167
    
    
    
    218
    
    
    
    
    
    
    
    8,385Adjusted EBITDA(1)
    
    
    50,693
    
    
    
    4,725
    
    
    
    
    
    
    
    55,418Interest expense, net
    
    
    17,332
    
    
    
    
    
    
    
    
    
    
    
    17,332Depreciation and amortization
    
    
    18,124
    
    
    
    798
    
    
    
    
    
    
    
    18,922Management fees
    
    
    963
    
    
    
    
    
    
    
    
    
    
    
    963Earnings before gain on sale of
assets, minority interests and
income taxes
    
    
    14,274
    
    
    
    3,927
    
    
    
    
    
    
    
    18,201Gain on sale of assets, net
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Minority interests
    
    
    (779
    )
    
    
    
    
    
    
    
    
    
    
    (779
    )Earnings before income taxes
    
    $
    13,497
    
    
    $
    3,927
    
    
    $
    
    
    
    $
    17,424Segment assets
    
    $
    1,708,573
    
    
    $
    89,856
    
    
    
    
    
    
    $
    1,798,429Capital expenditures
    
    $
    37,520
    
    
    $
    410
    
    
    
    
    
    
    $
    37,930Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, management fees, gain (loss) on sale of assets, and minority
interests. Management fees represent monitoring and advisory fees paid to Texas Pacific Group
(TPG), the Companys majority financial sponsor, and certain other members of IASIS
Investment LLC. Management routinely calculates and communicates adjusted EBITDA and believes
that it is useful to investors because it is commonly used as an analytical indicator within
the healthcare industry to evaluate hospital performance, allocate resources and measure
leverage capacity and debt service ability. In addition, the Company uses adjusted EBITDA as a
measure of performance for its business segments and for incentive compensation purposes.
Adjusted EBITDA should not be considered as a measure of financial performance under generally
accepted accounting principles (GAAP), and the items excluded from adjusted EBITDA are
significant components in understanding and assessing financial performance. Adjusted EBITDA
should not be considered in isolation or as an alternative to net 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, may not be comparable to similarly titled measures
of other companies. 12




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Nine Months Ended June 30, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    919,855
    
    
    $
    
    
    
    $
    
    
    
    $
    919,855Premium revenue
    
    
    
    
    
    
    298,541
    
    
    
    
    
    
    
    298,541Revenue between segments
    
    
    7,047
    
    
    
    
    
    
    
    (7,047
    )
    
    
    Net revenue
    
    
    926,902
    
    
    
    298,541
    
    
    
    (7,047
    )
    
    
    1,218,396Salaries and benefits
    
    
    341,941
    
    
    
    9,391
    
    
    
    
    
    
    
    351,332Supplies
    
    
    143,548
    
    
    
    194
    
    
    
    
    
    
    
    143,742Medical claims
    
    
    
    
    
    
    260,617
    
    
    
    (7,047
    )
    
    
    253,570Other operating expenses
    
    
    172,161
    
    
    
    9,689
    
    
    
    
    
    
    
    181,850Provision for bad debts
    
    
    110,302
    
    
    
    
    
    
    
    
    
    
    
    110,302Rentals and leases
    
    
    25,457
    
    
    
    799
    
    
    
    
    
    
    
    26,256Business interruption insurance recoveries
    
    
    (8,320
    )
    
    
    
    
    
    
    
    
    
    
    (8,320
    )Adjusted EBITDA(1)
    
    
    141,813
    
    
    
    17,851
    
    
    
    
    
    
    
    159,664Interest expense, net
    
    
    52,376
    
    
    
    
    
    
    
    
    
    
    
    52,376Depreciation and amortization
    
    
    52,130
    
    
    
    2,537
    
    
    
    
    
    
    
    54,667Management fees
    
    
    3,142
    
    
    
    
    
    
    
    
    
    
    
    3,142Earnings before loss on sale of assets,
minority interests and income taxes
    
    
    34,165
    
    
    
    15,314
    
    
    
    
    
    
    
    49,479Loss on sale of assets, net
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    (840
    )Minority interests
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Earnings before income taxes
    
    $
    30,937
    
    
    $
    15,314
    
    
    $
    
    
    
    $
    46,251Segment assets
    
    $
    1,790,877
    
    
    $
    133,246
    
    
    
    
    
    
    $
    1,924,123Capital expenditures
    
    $
    92,968
    
    
    $
    278
    
    
    
    
    
    
    $
    93,246Goodwill
    
    $
    749,038
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,795
 13




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Nine Months Ended June 30, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    886,384
    
    
    $
    
    
    
    $
    
    
    
    $
    886,384Premium revenue
    
    
    
    
    
    
    263,827
    
    
    
    
    
    
    
    263,827Revenue between segments
    
    
    6,597
    
    
    
    
    
    
    
    (6,597
    )
    
    
    Net revenue
    
    
    892,981
    
    
    
    263,827
    
    
    
    (6,597
    )
    
    
    1,150,211Salaries and benefits
    
    
    324,328
    
    
    
    8,357
    
    
    
    
    
    
    
    332,685Supplies
    
    
    140,718
    
    
    
    145
    
    
    
    
    
    
    
    140,863Medical claims
    
    
    
    
    
    
    232,774
    
    
    
    (6,597
    )
    
    
    226,177Other operating expenses
    
    
    154,277
    
    
    
    8,279
    
    
    
    
    
    
    
    162,556Provision for bad debts
    
    
    96,762
    
    
    
    
    
    
    
    
    
    
    
    96,762Rentals and leases
    
    
    23,584
    
    
    
    652
    
    
    
    
    
    
    
    24,236Adjusted EBITDA(1)
    
    
    153,312
    
    
    
    13,620
    
    
    
    
    
    
    
    166,932Interest expense, net
    
    
    49,405
    
    
    
    
    
    
    
    
    
    
    
    49,405Depreciation and amortization
    
    
    49,010
    
    
    
    2,399
    
    
    
    
    
    
    
    51,409Management fees
    
    
    2,884
    
    
    
    
    
    
    
    
    
    
    
    2,884Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    52,013
    
    
    
    11,221
    
    
    
    
    
    
    
    63,234Loss on sale of assets, net
    
    
    (80
    )
    
    
    
    
    
    
    
    
    
    
    (80
    )Minority interests
    
    
    (3,052
    )
    
    
    
    
    
    
    
    
    
    
    (3,052
    )Earnings before income taxes
    
    $
    48,881
    
    
    $
    11,221
    
    
    $
    
    
    
    $
    60,102Segment assets
    
    $
    1,708,573
    
    
    $
    89,856
    
    
    
    
    
    
    $
    1,798,429Capital expenditures
    
    $
    112,930
    
    
    $
    611
    
    
    
    
    
    
    $
    113,541Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 
 (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income tax expense,
depreciation and amortization, management fees, loss on sale of assets and minority interests.
Management fees represent monitoring and advisory fees paid to TPG, the Companys majority
financial sponsor, and certain other members of IASIS Investment LLC. Management routinely
calculates and communicates adjusted EBITDA and believes that it is useful to investors
because it is commonly used as an analytical indicator within the healthcare industry to
evaluate hospital performance, allocate resources and measure leverage capacity and debt
service ability. In addition, the Company uses adjusted 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, may not be comparable to
similarly titled measures of other companies. 14




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 7. Impact of Hurricane Rita
   8. Supplemental Condensed Consolidating Financial Information
    15




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    96,587
    
    
    $
    476
    
    
    $
    
    
    
    $
    97,063Accounts receivable, net
    
    
    
    
    
    
    115,440
    
    
    
    68,270
    
    
    
    
    
    
    
    183,710Inventories
    
    
    
    
    
    
    21,286
    
    
    
    11,286
    
    
    
    
    
    
    
    32,572Deferred income taxes
    
    
    44,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,691Prepaid expenses and other current assets
    
    
    
    
    
    
    15,395
    
    
    
    21,578
    
    
    
    
    
    
    
    36,973Total current assets
    
    
    44,691
    
    
    
    248,708
    
    
    
    101,610
    
    
    
    
    
    
    
    395,009Property and equipment, net
    
    
    
    
    
    
    371,480
    
    
    
    314,787
    
    
    
    
    
    
    
    686,267Intercompany
    
    
    
    
    
    
    (115,811
    )
    
    
    115,811
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,464,827
    
    
    
    
    
    
    
    
    
    
    
    (1,464,827
    )
    
    
    Goodwill
    
    
    22,548
    
    
    
    205,151
    
    
    
    527,096
    
    
    
    
    
    
    
    754,795Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    39,750
    
    
    
    
    
    
    
    39,750Other assets, net
    
    
    21,466
    
    
    
    21,168
    
    
    
    5,668
    
    
    
    
    
    
    
    48,302Total assets
    
    $
    1,553,532
    
    
    $
    730,696
    
    
    $
    1,104,722
    
    
    $
    (1,464,827
    )
    
    $
    1,924,123Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    46,032
    
    
    $
    15,020
    
    
    $
    
    
    
    $
    61,052Salaries and benefits payable
    
    
    
    
    
    
    19,453
    
    
    
    10,051
    
    
    
    
    
    
    
    29,504Accrued interest payable
    
    
    9,280
    
    
    
    (1,366
    )
    
    
    1,366
    
    
    
    
    
    
    
    9,280Medical claims payable
    
    
    
    
    
    
    
    
    
    
    77,989
    
    
    
    
    
    
    
    77,989Other accrued expenses and other current liabilities
    
    
    
    
    
    
    32,842
    
    
    
    15,208
    
    
    
    
    
    
    
    48,050Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    2,054
    
    
    
    7,266
    
    
    
    (6,124
    )
    
    
    7,598Total current liabilities
    
    
    13,682
    
    
    
    99,015
    
    
    
    126,900
    
    
    
    (6,124
    )
    
    
    233,473Long-term debt and capital lease obligations
    
    
    887,250
    
    
    
    2,859
    
    
    
    244,188
    
    
    
    (243,076
    )
    
    
    891,221Deferred income taxes
    
    
    80,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,950Other long-term liabilities
    
    
    
    
    
    
    40,457
    
    
    
    924
    
    
    
    
    
    
    
    41,381Minority interest
    
    
    
    
    
    
    31,656
    
    
    
    
    
    
    
    
    
    
    
    31,656Members equity
    
    
    571,650
    
    
    
    556,709
    
    
    
    732,710
    
    
    
    (1,215,627
    )
    
    
    645,442Total liabilities and equity
    
    $
    1,553,532
    
    
    $
    730,696
    
    
    $
    1,104,722
    
    
    $
    (1,464,827
    )
    
    $
    1,924,123
 16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    88,597
    
    
    $
    500
    
    
    $
    
    
    
    $
    89,097Accounts receivable, net
    
    
    
    
    
    
    102,127
    
    
    
    64,329
    
    
    
    
    
    
    
    166,456Inventories
    
    
    
    
    
    
    19,343
    
    
    
    10,523
    
    
    
    
    
    
    
    29,866Deferred income taxes
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    
    
    
    
    11,106
    
    
    
    14,130
    
    
    
    
    
    
    
    25,236Total current assets
    
    
    56,003
    
    
    
    221,173
    
    
    
    89,482
    
    
    
    
    
    
    
    366,658Property and equipment, net
    
    
    
    
    
    
    368,821
    
    
    
    278,775
    
    
    
    
    
    
    
    647,596Intercompany
    
    
    
    
    
    
    (83,539
    )
    
    
    83,539
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,458,056
    
    
    
    
    
    
    
    
    
    
    
    (1,458,056
    )
    
    
    Goodwill
    
    
    22,128
    
    
    
    205,151
    
    
    
    527,096
    
    
    
    
    
    
    
    754,375Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    42,000
    
    
    
    
    
    
    
    42,000Other assets, net
    
    
    23,675
    
    
    
    14,338
    
    
    
    4,082
    
    
    
    
    
    
    
    42,095Total assets
    
    $
    1,559,862
    
    
    $
    725,944
    
    
    $
    1,024,974
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    39,295
    
    
    $
    19,389
    
    
    $
    
    
    
    $
    58,684Salaries and benefits payable
    
    
    
    
    
    
    17,532
    
    
    
    7,355
    
    
    
    
    
    
    
    24,887Accrued interest payable
    
    
    18,489
    
    
    
    (1,070
    )
    
    
    1,070
    
    
    
    
    
    
    
    18,489Medical claims payable
    
    
    
    
    
    
    
    
    
    
    60,201
    
    
    
    
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    
    
    
    
    25,686
    
    
    
    4,864
    
    
    
    
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    2,241
    
    
    
    5,991
    
    
    
    (4,877
    )
    
    
    7,757Total current liabilities
    
    
    22,891
    
    
    
    83,684
    
    
    
    98,870
    
    
    
    (4,877
    )
    
    
    200,568Long-term debt and capital lease obligations
    
    
    890,438
    
    
    
    5,198
    
    
    
    244,328
    
    
    
    (242,913
    )
    
    
    897,051Deferred income taxes
    
    
    74,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,883Other long-term liabilities
    
    
    
    
    
    
    36,801
    
    
    
    
    
    
    
    
    
    
    
    36,801Minority interest
    
    
    
    
    
    
    26,474
    
    
    
    
    
    
    
    
    
    
    
    26,474Members equity
    
    
    571,650
    
    
    
    573,787
    
    
    
    681,776
    
    
    
    (1,210,266
    )
    
    
    616,947Total liabilities and equity
    
    $
    1,559,862
    
    
    $
    725,944
    
    
    $
    1,024,974
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724
 17




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    195,982
    
    
    $
    121,550
    
    
    $
    (2,538
    )
    
    $
    314,994Premium revenue
    
    
    
    
    
    
    
    
    
    
    105,969
    
    
    
    
    
    
    
    105,969Total net revenue
    
    
    
    
    
    
    195,982
    
    
    
    227,519
    
    
    
    (2,538
    )
    
    
    420,963Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    77,427
    
    
    
    42,898
    
    
    
    
    
    
    
    120,325Supplies
    
    
    
    
    
    
    33,811
    
    
    
    15,003
    
    
    
    
    
    
    
    48,814Medical claims
    
    
    
    
    
    
    
    
    
    
    92,679
    
    
    
    (2,538
    )
    
    
    90,141Other operating expenses
    
    
    
    
    
    
    42,350
    
    
    
    23,412
    
    
    
    
    
    
    
    65,762Provision for bad debts
    
    
    
    
    
    
    20,856
    
    
    
    11,944
    
    
    
    
    
    
    
    32,800Rentals and leases
    
    
    
    
    
    
    5,880
    
    
    
    3,033
    
    
    
    
    
    
    
    8,913Interest expense, net
    
    
    17,438
    
    
    
    
    
    
    
    5,280
    
    
    
    (5,280
    )
    
    
    17,438Depreciation and amortization
    
    
    
    
    
    
    9,922
    
    
    
    6,329
    
    
    
    
    
    
    
    16,251Management fees
    
    
    1,047
    
    
    
    (2,847
    )
    
    
    2,847
    
    
    
    
    
    
    
    1,047Business interruption insurance recoveries
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    
    
    
    
    (8,320
    )Equity in earnings of affiliates
    
    
    (38,569
    )
    
    
    
    
    
    
    
    
    
    
    38,569
    
    
    
    (20,084
    )
    
    
    187,399
    
    
    
    195,105
    
    
    
    30,751
    
    
    
    393,171Earnings before loss on sale of assets,
minority interests and income taxes
    
    
    20,084
    
    
    
    8,583
    
    
    
    32,414
    
    
    
    (33,289
    )
    
    
    27,792Loss on sale of assets, net
    
    
    
    
    
    
    (34
    )
    
    
    (676
    )
    
    
    
    
    
    
    (710
    )Minority interests
    
    
    
    
    
    
    (1,718
    )
    
    
    
    
    
    
    
    
    
    
    (1,718
    )Earnings before income taxes
    
    
    20,084
    
    
    
    6,831
    
    
    
    31,738
    
    
    
    (33,289
    )
    
    
    25,364Income tax expense
    
    
    9,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,452Net earnings
    
    $
    10,632
    
    
    $
    6,831
    
    
    $
    31,738
    
    
    $
    (33,289
    )
    
    $
    15,912
 18




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    185,845
    
    
    $
    116,146
    
    
    $
    (2,100
    )
    
    $
    299,891Premium revenue
    
    
    
    
    
    
    
    
    
    
    90,088
    
    
    
    
    
    
    
    90,088Total net revenue
    
    
    
    
    
    
    185,845
    
    
    
    206,234
    
    
    
    (2,100
    )
    
    
    389,979Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    73,022
    
    
    
    40,430
    
    
    
    
    
    
    
    113,452Supplies
    
    
    
    
    
    
    32,857
    
    
    
    13,351
    
    
    
    
    
    
    
    46,208Medical claims
    
    
    
    
    
    
    
    
    
    
    79,509
    
    
    
    (2,100
    )
    
    
    77,409Other operating expenses
    
    
    
    
    
    
    35,695
    
    
    
    19,620
    
    
    
    
    
    
    
    55,315Provision for bad debts
    
    
    
    
    
    
    21,070
    
    
    
    12,722
    
    
    
    
    
    
    
    33,792Rentals and leases
    
    
    
    
    
    
    5,076
    
    
    
    3,309
    
    
    
    
    
    
    
    8,385Interest expense, net
    
    
    17,332
    
    
    
    
    
    
    
    6,006
    
    
    
    (6,006
    )
    
    
    17,332Depreciation and amortization
    
    
    
    
    
    
    11,981
    
    
    
    6,941
    
    
    
    
    
    
    
    18,922Management fees
    
    
    963
    
    
    
    (3,139
    )
    
    
    3,139
    
    
    
    
    
    
    
    963Equity in earnings of affiliates
    
    
    (29,003
    )
    
    
    
    
    
    
    
    
    
    
    29,003
    
    
    
    (10,708
    )
    
    
    176,562
    
    
    
    185,027
    
    
    
    20,897
    
    
    
    371,778Earnings before gain (loss) on
sale of assets, minority interests
and income taxes
    
    
    10,708
    
    
    
    9,283
    
    
    
    21,207
    
    
    
    (22,997
    )
    
    
    18,201Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (1
    )
    
    
    3
    
    
    
    
    
    
    
    2Minority interests
    
    
    
    
    
    
    (779
    )
    
    
    
    
    
    
    
    
    
    
    (779
    )Earnings before income taxes
    
    
    10,708
    
    
    
    8,503
    
    
    
    21,210
    
    
    
    (22,997
    )
    
    
    17,424Income tax expense
    
    
    6,958
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,958Net earnings
    
    $
    3,750
    
    
    $
    8,503
    
    
    $
    21,210
    
    
    $
    (22,997
    )
    
    $
    10,466
 19




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    574,053
    
    
    $
    352,849
    
    
    $
    (7,047
    )
    
    $
    919,855Premium revenue
    
    
    
    
    
    
    
    
    
    
    298,541
    
    
    
    
    
    
    
    298,541Total net revenue
    
    
    
    
    
    
    574,053
    
    
    
    651,390
    
    
    
    (7,047
    )
    
    
    1,218,396Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    225,163
    
    
    
    126,169
    
    
    
    
    
    
    
    351,332Supplies
    
    
    
    
    
    
    99,970
    
    
    
    43,772
    
    
    
    
    
    
    
    143,742Medical claims
    
    
    
    
    
    
    
    
    
    
    260,617
    
    
    
    (7,047
    )
    
    
    253,570Other operating expenses
    
    
    
    
    
    
    116,061
    
    
    
    65,789
    
    
    
    
    
    
    
    181,850Provision for bad debts
    
    
    
    
    
    
    69,742
    
    
    
    40,560
    
    
    
    
    
    
    
    110,302Rentals and leases
    
    
    
    
    
    
    17,630
    
    
    
    8,626
    
    
    
    
    
    
    
    26,256Interest expense, net
    
    
    52,376
    
    
    
    
    
    
    
    15,030
    
    
    
    (15,030
    )
    
    
    52,376Depreciation and amortization
    
    
    
    
    
    
    33,472
    
    
    
    21,195
    
    
    
    
    
    
    
    54,667Management fees
    
    
    3,142
    
    
    
    (7,882
    )
    
    
    7,882
    
    
    
    
    
    
    
    3,142Business interruption insurance
recoveries
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    
    
    
    
    (8,320
    )Equity in earnings of affiliates
    
    
    (86,739
    )
    
    
    
    
    
    
    
    
    
    
    86,739
    
    
    
    (31,221
    )
    
    
    554,156
    
    
    
    581,320
    
    
    
    64,662
    
    
    
    1,168,917Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    31,221
    
    
    
    19,897
    
    
    
    70,070
    
    
    
    (71,709
    )
    
    
    49,479Loss on sale of assets, net
    
    
    
    
    
    
    (140
    )
    
    
    (700
    )
    
    
    
    
    
    
    (840
    )Minority interests
    
    
    
    
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Earnings before income taxes
    
    
    31,221
    
    
    
    17,369
    
    
    
    69,370
    
    
    
    (71,709
    )
    
    
    46,251Income tax expense
    
    
    17,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,756Net earnings
    
    $
    13,465
    
    
    $
    17,369
    
    
    $
    69,370
    
    
    $
    (71,709
    )
    
    $
    28,495
 20




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    558,100
    
    
    $
    334,881
    
    
    $
    (6,597
    )
    
    $
    886,384Premium revenue
    
    
    
    
    
    
    
    
    
    
    263,827
    
    
    
    
    
    
    
    263,827Total net revenue
    
    
    
    
    
    
    558,100
    
    
    
    598,708
    
    
    
    (6,597
    )
    
    
    1,150,211Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    215,166
    
    
    
    117,519
    
    
    
    
    
    
    
    332,685Supplies
    
    
    
    
    
    
    100,959
    
    
    
    39,904
    
    
    
    
    
    
    
    140,863Medical claims
    
    
    
    
    
    
    
    
    
    
    232,774
    
    
    
    (6,597
    )
    
    
    226,177Other operating expenses
    
    
    
    
    
    
    105,278
    
    
    
    57,278
    
    
    
    
    
    
    
    162,556Provision for bad debts
    
    
    
    
    
    
    62,781
    
    
    
    33,981
    
    
    
    
    
    
    
    96,762Rentals and leases
    
    
    
    
    
    
    14,625
    
    
    
    9,611
    
    
    
    
    
    
    
    24,236Interest expense, net
    
    
    49,405
    
    
    
    
    
    
    
    12,674
    
    
    
    (12,674
    )
    
    
    49,405Depreciation and amortization
    
    
    
    
    
    
    33,258
    
    
    
    18,151
    
    
    
    
    
    
    
    51,409Management fees
    
    
    2,884
    
    
    
    (9,054
    )
    
    
    9,054
    
    
    
    
    
    
    
    2,884Equity in earnings of affiliates
    
    
    (99,704
    )
    
    
    
    
    
    
    
    
    
    
    99,704
    
    
    
    (47,415
    )
    
    
    523,013
    
    
    
    530,946
    
    
    
    80,433
    
    
    
    1,086,977Earnings before gain (loss) on
sale of assets, minority interests
and income taxes
    
    
    47,415
    
    
    
    35,087
    
    
    
    67,762
    
    
    
    (87,030
    )
    
    
    63,234Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (91
    )
    
    
    11
    
    
    
    
    
    
    
    (80
    )Minority interests
    
    
    
    
    
    
    (3,052
    )
    
    
    
    
    
    
    
    
    
    
    (3,052
    )Earnings before income taxes
    
    
    47,415
    
    
    
    31,944
    
    
    
    67,773
    
    
    
    (87,030
    )
    
    
    60,102Income tax expense
    
    
    23,879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,879Net earnings
    
    $
    23,536
    
    
    $
    31,944
    
    
    $
    67,773
    
    
    $
    (87,030
    )
    
    $
    36,223
 21




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    13,465
    
    
    $
    17,369
    
    
    $
    69,370
    
    
    $
    (71,709
    )
    
    $
    28,495Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    33,472
    
    
    
    21,195
    
    
    
    
    
    
    
    54,667Amortization of loan costs
    
    
    2,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,209Minority interests
    
    
    
    
    
    
    2,388
    
    
    
    
    
    
    
    
    
    
    
    2,388Deferred income taxes
    
    
    16,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,959Loss on sale of assets, net
    
    
    
    
    
    
    140
    
    
    
    700
    
    
    
    
    
    
    
    840Equity in earnings of affiliates
    
    
    (86,739
    )
    
    
    
    
    
    
    
    
    
    
    86,739
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (13,313
    )
    
    
    (3,941
    )
    
    
    
    
    
    
    (17,254
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (6,229
    )
    
    
    (8,212
    )
    
    
    
    
    
    
    (14,441
    )Accounts payable and other accrued liabilities
    
    
    (9,209
    )
    
    
    22,823
    
    
    
    17,105
    
    
    
    
    
    
    
    30,719Net cash provided by (used in) operating activities
    
    
    (63,315
    )
    
    
    56,650
    
    
    
    96,217
    
    
    
    15,030
    
    
    
    104,582Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (40,768
    )
    
    
    (52,478
    )
    
    
    
    
    
    
    (93,246
    )Change in other assets
    
    
    
    
    
    
    (269
    )
    
    
    93
    
    
    
    
    
    
    
    (176
    )Net cash used in investing activities
    
    
    
    
    
    
    (41,037
    )
    
    
    (52,385
    )
    
    
    
    
    
    
    (93,422
    )Cash flows from financing activities:Payment of debt and capital leases
    
    
    (3,302
    )
    
    
    (1,822
    )
    
    
    (865
    )
    
    
    
    
    
    
    (5,989
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,702
    )
    
    
    
    
    
    
    (1,702
    )Change in intercompany balances with affiliates, net
    
    
    66,617
    
    
    
    (5,676
    )
    
    
    (45,911
    )
    
    
    (15,030
    )
    
    
    Proceeds from sale of hospital interests
    
    
    
    
    
    
    (125
    )
    
    
    4,622
    
    
    
    
    
    
    
    4,497Net cash provided by (used in) financing activities
    
    
    63,315
    
    
    
    (7,623
    )
    
    
    (43,856
    )
    
    
    (15,030
    )
    
    
    (3,194
    )Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    7,990
    
    
    
    (24
    )
    
    
    
    
    
    
    7,966Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    96,587
    
    
    $
    476
    
    
    $
    
    
    
    $
    97,063
 22




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activities:Net earnings
    
    $
    23,536
    
    
    $
    31,944
    
    
    $
    67,773
    
    
    $
    (87,030
    )
    
    $
    36,223Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    33,258
    
    
    
    18,151
    
    
    
    
    
    
    
    51,409Amortization of loan costs
    
    
    5,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,064Minority interests
    
    
    
    
    
    
    3,052
    
    
    
    
    
    
    
    
    
    
    
    3,052Deferred income taxes
    
    
    22,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,742Loss (gain) on sale of assets, net
    
    
    
    
    
    
    91
    
    
    
    (11
    )
    
    
    
    
    
    
    80Equity in earnings of affiliates
    
    
    (99,704
    )
    
    
    
    
    
    
    
    
    
    
    99,704
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (4,445
    )
    
    
    (12,331
    )
    
    
    
    
    
    
    (16,776
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (5,517
    )
    
    
    (3,058
    )
    
    
    
    
    
    
    (8,575
    )Accounts payable and other accrued liabilities
    
    
    (6,061
    )
    
    
    2,492
    
    
    
    (880
    )
    
    
    
    
    
    
    (4,449
    )Net cash provided by (used in) operating activities
    
    
    (54,423
    )
    
    
    60,875
    
    
    
    69,644
    
    
    
    12,674
    
    
    
    88,770Cash flows from investing activities:Purchases of property and equipment
    
    
    
    
    
    
    (51,374
    )
    
    
    (62,167
    )
    
    
    
    
    
    
    (113,541
    )Cash paid for acquisition
    
    
    (617
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (617
    )Change in other assets
    
    
    
    
    
    
    839
    
    
    
    138
    
    
    
    
    
    
    
    977Net cash used in investing activities
    
    
    (617
    )
    
    
    (50,535
    )
    
    
    (62,029
    )
    
    
    
    
    
    
    (113,181
    )Cash flows from financing activities:Proceeds from borrowings
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274Payment of debt and capital leases
    
    
    (6,804
    )
    
    
    (1,265
    )
    
    
    (924
    )
    
    
    
    
    
    
    (8,993
    )Debt financing costs incurred
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Change in intercompany balances with affiliates, net
    
    
    60,057
    
    
    
    (39,332
    )
    
    
    (8,051
    )
    
    
    (12,674
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (3,129
    )
    
    
    
    
    
    
    (3,129
    )Proceeds from sale of hospital interests
    
    
    
    
    
    
    
    
    
    
    3,897
    
    
    
    
    
    
    
    3,897Net cash provided by (used in) financing activities
    
    
    55,040
    
    
    
    (40,597
    )
    
    
    (8,207
    )
    
    
    (12,674
    )
    
    
    (6,438
    )Decrease in cash and cash equivalents
    
    
    
    
    
    
    (30,257
    )
    
    
    (592
    )
    
    
    
    
    
    
    (30,849
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    97,463
    
    
    
    1,342
    
    
    
    
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    67,206
    
    
    $
    750
    
    
    $
    
    
    
    $
    67,956
 23




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 9. Subsequent Events
  24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward Looking Statements
  25




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##### Table of Contents



Executive Overview
  
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in Texas, including San Antonio; and
    
    Las Vegas, Nevada.
      26




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##### Table of Contents



Revenue and Volume Trends
   Three Months
    
    Nine MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    2006
    
    2005Medicare
    
    
    24.8
    %
    
    
    25.8
    %
    
    
    24.5
    %
    
    
    26.8
    %Medicaid
    
    
    15.0
    %
    
    
    13.7
    %
    
    
    14.6
    %
    
    
    13.0
    %Managed care
    
    
    45.7
    %
    
    
    44.3
    %
    
    
    45.4
    %
    
    
    44.6
    %Self-pay and other
    
    
    14.5
    %
    
    
    16.2
    %
    
    
    15.5
    %
    
    
    15.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   27




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##### Table of Contents



28




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##### Table of Contents



Other Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
   June 30,
    
    September 30,2006
    
    2005Insured receivables
    
    
    61.2
    %
    
    
    60.2
    %Uninsured receivables
    
    
    38.8
    %
    
    
    39.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  29




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##### Table of Contents



June 30,
    
    September 30,2006
    
    20050 to 90 days
    
    
    64.2
    %
    
    
    63.1
    %91 to 180 days
    
    
    18.3
    %
    
    
    18.4
    %Over 180 days
    
    
    17.5
    %
    
    
    18.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Nursing Shortage
  Decreased Federal and State Funding for Medicaid Programs
  Growth in Outpatient Services
  Volatility of Insurance Costs
  30




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##### Table of Contents



Critical Accounting Policies and Estimates
  Selected Operating Data
  Three Months
    
    Nine MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    2006
    
    2005Acute Care (1):Number of acute care hospitals at end of period (2)
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Beds in service at end of period
    
    
    2,199
    
    
    
    2,225
    
    
    
    2,199
    
    
    
    2,225Average length of stay (days) (3)
    
    
    4.57
    
    
    
    4.45
    
    
    
    4.59
    
    
    
    4.43Occupancy rates (average beds in service)
    
    
    50.9
    %
    
    
    48.4
    %
    
    
    51.6
    %
    
    
    49.0
    %Admissions (4)
    
    
    22,275
    
    
    
    22,005
    
    
    
    66,596
    
    
    
    67,480Adjusted admissions (5)
    
    
    36,692
    
    
    
    36,314
    
    
    
    108,675
    
    
    
    109,514Patient days (6)
    
    
    101,769
    
    
    
    98,023
    
    
    
    305,613
    
    
    
    299,032Adjusted patient days (5)
    
    
    161,680
    
    
    
    155,926
    
    
    
    481,835
    
    
    
    467,913Net patient revenue per adjusted admission
    
    $
    8,488
    
    
    $
    8,135
    
    
    $
    8,362
    
    
    $
    7,985Health Choice:Medicaid covered lives
    
    
    111,543
    
    
    
    112,510
    
    
    
    111,543
    
    
    
    112,510Dual-eligible lives (7)
    
    
    4,222
    
    
    
    
    
    
    
    4,222
    
    
    
    Medical loss ratio (8)
    
    
    87.5
    %
    
    
    88.2
    %
    
    
    87.3
    %
    
    
    88.2
    %
 
 (1)
    
    Combined financial and operating data is presented on a same facility basis for the periods
presented.(2)
    
    Excludes 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)
    
    Represents members eligible for Medicare and Medicaid benefits under Health Choices contract
with CMS to provide coverage as a MAPD SNP.(8)
    
    Represents medical claims expense as a percentage of premium revenue, including claims paid
to our hospitals. 31




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##### Table of Contents



Results of Operations Summary
  Three Months Ended
    
    Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedConsolidated (in thousands):
    
    June 30, 2006
    
    June 30, 2005
    
    June 30, 2006
    
    June 30, 2005Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet revenue:Acute care revenue
    
    $
    314,994
    
    
    
    74.8
    %
    
    $
    299,891
    
    
    
    76.9
    %
    
    $
    919,855
    
    
    
    75.5
    %
    
    $
    886,384
    
    
    
    77.1
    %Premium revenue
    
    
    105,969
    
    
    
    25.2
    %
    
    
    90,088
    
    
    
    23.1
    %
    
    
    298,541
    
    
    
    24.5
    %
    
    
    263,827
    
    
    
    22.9
    %Total net revenue
    
    
    420,963
    
    
    
    100.0
    %
    
    
    389,979
    
    
    
    100.0
    %
    
    
    1,218,396
    
    
    
    100.0
    %
    
    
    1,150,211
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    120,325
    
    
    
    28.6
    %
    
    
    113,452
    
    
    
    29.1
    %
    
    
    351,332
    
    
    
    28.8
    %
    
    
    332,685
    
    
    
    28.9
    %Supplies
    
    
    48,814
    
    
    
    11.6
    %
    
    
    46,208
    
    
    
    11.8
    %
    
    
    143,742
    
    
    
    11.8
    %
    
    
    140,863
    
    
    
    12.2
    %Medical claims
    
    
    90,141
    
    
    
    21.4
    %
    
    
    77,409
    
    
    
    19.8
    %
    
    
    253,570
    
    
    
    20.8
    %
    
    
    226,177
    
    
    
    19.7
    %Other operating expenses
    
    
    65,762
    
    
    
    15.6
    %
    
    
    55,315
    
    
    
    14.2
    %
    
    
    181,850
    
    
    
    14.9
    %
    
    
    162,556
    
    
    
    14.1
    %Provision for bad debts
    
    
    32,800
    
    
    
    7.8
    %
    
    
    33,792
    
    
    
    8.7
    %
    
    
    110,302
    
    
    
    9.1
    %
    
    
    96,762
    
    
    
    8.4
    %Rentals and leases
    
    
    8,913
    
    
    
    2.1
    %
    
    
    8,385
    
    
    
    2.2
    %
    
    
    26,256
    
    
    
    2.2
    %
    
    
    24,236
    
    
    
    2.1
    %Interest expense, net
    
    
    17,438
    
    
    
    4.1
    %
    
    
    17,332
    
    
    
    4.4
    %
    
    
    52,376
    
    
    
    4.3
    %
    
    
    49,405
    
    
    
    4.3
    %Depreciation and amortization
    
    
    16,251
    
    
    
    3.9
    %
    
    
    18,922
    
    
    
    4.9
    %
    
    
    54,667
    
    
    
    4.5
    %
    
    
    51,409
    
    
    
    4.5
    %Management fees
    
    
    1,047
    
    
    
    0.3
    %
    
    
    963
    
    
    
    0.2
    %
    
    
    3,142
    
    
    
    0.2
    %
    
    
    2,884
    
    
    
    0.3
    %Business interruption insurance
recoveries
    
    
    (8,320
    )
    
    
    (2.0
    )%
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    (0.7
    )%
    
    
    
    
    
    
    393,171
    
    
    
    93.4
    %
    
    
    371,778
    
    
    
    95.3
    %
    
    
    1,168,917
    
    
    
    95.9
    %
    
    
    1,086,977
    
    
    
    94.5
    %Earnings before gain (loss) on
sale of assets, minority
interests and income taxes
    
    
    27,792
    
    
    
    6.6
    %
    
    
    18,201
    
    
    
    4.7
    %
    
    
    49,479
    
    
    
    4.1
    %
    
    
    63,234
    
    
    
    5.5
    %Gain (loss) on sale of assets, net
    
    
    (710
    )
    
    
    (0.2
    )%
    
    
    2
    
    
    
    
    
    
    
    (840
    )
    
    
    (0.1
    )%
    
    
    (80
    )
    
    
    Minority interests
    
    
    (1,718
    )
    
    
    (0.4
    )%
    
    
    (779
    )
    
    
    (0.2
    )%
    
    
    (2,388
    )
    
    
    (0.2
    )%
    
    
    (3,052
    )
    
    
    (0.3
    )%Earnings before income taxes
    
    
    25,364
    
    
    
    6.0
    %
    
    
    17,424
    
    
    
    4.5
    %
    
    
    46,251
    
    
    
    3.8
    %
    
    
    60,102
    
    
    
    5.2
    %Income tax expense
    
    
    9,452
    
    
    
    2.2
    %
    
    
    6,958
    
    
    
    1.8
    %
    
    
    17,756
    
    
    
    1.5
    %
    
    
    23,879
    
    
    
    2.1
    %Net earnings
    
    $
    15,912
    
    
    
    3.8
    %
    
    $
    10,466
    
    
    
    2.7
    %
    
    $
    28,495
    
    
    
    2.3
    %
    
    $
    36,223
    
    
    
    3.1
    %
 32




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##### Table of Contents



Three Months Ended
    
    Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedAcute Care (in thousands):
    
    June 30, 2006
    
    June 30, 2005
    
    June 30, 2006
    
    June 30, 2005Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet revenue:Acute care revenue
    
    $
    314,994
    
    
    
    99.2
    %
    
    $
    299,891
    
    
    
    99.3
    %
    
    $
    919,855
    
    
    
    99.2
    %
    
    $
    886,384
    
    
    
    99.3
    %Revenue between segments (1)
    
    
    2,538
    
    
    
    0.8
    %
    
    
    2,100
    
    
    
    0.7
    %
    
    
    7,047
    
    
    
    0.8
    %
    
    
    6,597
    
    
    
    0.7
    %Total net revenue
    
    
    317,532
    
    
    
    100.0
    %
    
    
    301,991
    
    
    
    100.0
    %
    
    
    926,902
    
    
    
    100.0
    %
    
    
    892,981
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    117,031
    
    
    
    36.9
    %
    
    
    110,612
    
    
    
    36.6
    %
    
    
    341,941
    
    
    
    36.9
    %
    
    
    324,328
    
    
    
    36.3
    %Supplies
    
    
    48,737
    
    
    
    15.3
    %
    
    
    46,160
    
    
    
    15.3
    %
    
    
    143,548
    
    
    
    15.5
    %
    
    
    140,718
    
    
    
    15.8
    %Other operating expenses
    
    
    62,365
    
    
    
    19.6
    %
    
    
    52,567
    
    
    
    17.4
    %
    
    
    172,161
    
    
    
    18.6
    %
    
    
    154,277
    
    
    
    17.3
    %Provision for bad debts
    
    
    32,800
    
    
    
    10.3
    %
    
    
    33,792
    
    
    
    11.2
    %
    
    
    110,302
    
    
    
    11.9
    %
    
    
    96,762
    
    
    
    10.8
    %Rentals and leases
    
    
    8,665
    
    
    
    2.7
    %
    
    
    8,167
    
    
    
    2.7
    %
    
    
    25,457
    
    
    
    2.7
    %
    
    
    23,584
    
    
    
    2.6
    %Interest expense, net
    
    
    17,438
    
    
    
    5.6
    %
    
    
    17,332
    
    
    
    5.7
    %
    
    
    52,376
    
    
    
    5.7
    %
    
    
    49,405
    
    
    
    5.5
    %Depreciation and amortization
    
    
    15,400
    
    
    
    4.9
    %
    
    
    18,124
    
    
    
    6.1
    %
    
    
    52,130
    
    
    
    5.6
    %
    
    
    49,010
    
    
    
    5.6
    %Management fees
    
    
    1,047
    
    
    
    0.3
    %
    
    
    963
    
    
    
    0.3
    %
    
    
    3,142
    
    
    
    0.3
    %
    
    
    2,884
    
    
    
    0.3
    %Business interruption
insurance recoveries
    
    
    (8,320
    )
    
    
    (2.6
    )%
    
    
    
    
    
    
    
    
    
    
    (8,320
    )
    
    
    (0.9
    )%
    
    
    
    
    
    
    295,163
    
    
    
    93.0
    %
    
    
    287,717
    
    
    
    95.3
    %
    
    
    892,737
    
    
    
    96.3
    %
    
    
    840,968
    
    
    
    94.2
    %Earnings before gain (loss) on
sale of assets and minority
interests
    
    
    22,369
    
    
    
    7.0
    %
    
    
    14,274
    
    
    
    4.7
    %
    
    
    34,165
    
    
    
    3.7
    %
    
    
    52,013
    
    
    
    5.8
    %Gain (loss) on sale of assets, net
    
    
    (710
    )
    
    
    (0.2
    )%
    
    
    2
    
    
    
    
    
    
    
    (840
    )
    
    
    (0.1
    )%
    
    
    (80
    )
    
    
    Minority interests
    
    
    (1,718
    )
    
    
    (0.5
    )%
    
    
    (779
    )
    
    
    (0.2
    )%
    
    
    (2,388
    )
    
    
    (0.3
    )%
    
    
    (3,052
    )
    
    
    (0.3
    )%Earnings before income taxes
    
    $
    19,941
    
    
    
    6.3
    %
    
    $
    13,497
    
    
    
    4.5
    %
    
    $
    30,937
    
    
    
    3.3
    %
    
    $
    48,881
    
    
    
    5.5
    %
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. Three Months Ended
    
    Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedHealth Choice (in thousands):
    
    June 30, 2006
    
    June 30, 2005
    
    June 30, 2006
    
    June 30, 2005Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentagePremium revenue
    
    $
    105,969
    
    
    
    100.0
    %
    
    $
    90,088
    
    
    
    100.0
    %
    
    $
    298,541
    
    
    
    100.0
    %
    
    $
    263,827
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    3,294
    
    
    
    3.1
    %
    
    
    2,840
    
    
    
    3.1
    %
    
    
    9,391
    
    
    
    3.1
    %
    
    
    8,357
    
    
    
    3.2
    %Supplies
    
    
    77
    
    
    
    0.1
    %
    
    
    48
    
    
    
    0.1
    %
    
    
    194
    
    
    
    0.1
    %
    
    
    145
    
    
    
    0.1
    %Medical claims (1)
    
    
    92,679
    
    
    
    87.5
    %
    
    
    79,509
    
    
    
    88.2
    %
    
    
    260,617
    
    
    
    87.3
    %
    
    
    232,774
    
    
    
    88.2
    %Other operating expenses
    
    
    3,397
    
    
    
    3.2
    %
    
    
    2,748
    
    
    
    3.1
    %
    
    
    9,689
    
    
    
    3.2
    %
    
    
    8,279
    
    
    
    3.1
    %Rentals and leases
    
    
    248
    
    
    
    0.2
    %
    
    
    218
    
    
    
    0.2
    %
    
    
    799
    
    
    
    0.3
    %
    
    
    652
    
    
    
    0.2
    %Depreciation and amortization
    
    
    851
    
    
    
    0.8
    %
    
    
    798
    
    
    
    0.9
    %
    
    
    2,537
    
    
    
    0.9
    %
    
    
    2,399
    
    
    
    0.9
    %100,546
    
    
    
    94.9
    %
    
    
    86,161
    
    
    
    95.6
    %
    
    
    283,227
    
    
    
    94.9
    %
    
    
    252,606
    
    
    
    95.7
    %Earnings before income taxes
    
    $
    5,423
    
    
    
    5.1
    %
    
    $
    3,927
    
    
    
    4.4
    %
    
    $
    15,314
    
    
    
    5.1
    %
    
    $
    11,221
    
    
    
    4.3
    %
 
 (1)
    
    Medical claims paid to our hospitals of $2.5 million and $2.1 million for the three months
ended June 30, 2006 and 2005, respectively, and $7.0 million and $6.6 million for the nine
months ended June 30, 2006 and 2005, respectively, is eliminated in our consolidated results. 33




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##### Table of Contents



Supplemental Non-GAAP Disclosures
  Operating Measures Adjusted for Comparative Analysis (Unaudited)(in thousands, except for statistical measures)Three Months Ended June 30, 2006Non-GAAPGAAP
    
    Uninsured
    
    Adjusted
    
    GAAP %
    
    Non-GAAP %Amounts
    
    Discounts (2)
    
    Amounts (3)
    
    of Revenues
    

of
Revenues (3)2006
    
    2005
    
    2006Acute Care Segment:Net revenue(1)
    
    $
    317,532
    
    
    $
    6,773
    
    
    $
    324,305
    
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Salaries and benefits
    
    
    117,031
    
    
    
    
    
    
    
    117,031
    
    
    
    36.9
    
    
    
    36.6
    
    
    
    36.1Supplies
    
    
    48,737
    
    
    
    
    
    
    
    48,737
    
    
    
    15.3
    
    
    
    15.3
    
    
    
    15.0Other operating expenses
    
    
    62,365
    
    
    
    
    
    
    
    62,365
    
    
    
    19.6
    
    
    
    17.4
    
    
    
    19.2Provision for bad debts
    
    
    32,800
    
    
    
    6,773
    
    
    
    39,573
    
    
    
    10.3
    
    
    
    11.2
    
    
    
    12.2Rentals and leases
    
    
    8,665
    
    
    
    
    
    
    
    8,665
    
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.7Net patient revenue per
adjusted admission
    
    $
    8,488
    
    
    $
    184
    
    
    $
    8,672Percent change from
prior year
    
    
    4.3
    %
    
    
    
    
    
    
    6.6
    %
 
 (1)
    
    Acute care revenue represents total net revenue of the segment prior to the
elimination of revenue between segments.(2)
    
    Includes the impact of discounts provided to uninsured patients for the period.
During the third quarter of fiscal 2006, we implemented a company-wide uninsured discount
program offering discounts to all uninsured patients receiving healthcare services who do not
qualify for assistance under state Medicaid, other federal or state assistance plans or
charity care. In the acute care segment, we recorded $6.8 million of uninsured discounts
during the third quarter of 2006.(3)
    
    Acute care revenue, the provision for bad debts and certain operating expense
categories as a percentage of acute care revenue have been adjusted to present certain
financial measures on a basis comparative with prior periods (non-GAAP financial measures).
Management believes these non-GAAP financial measures are useful to investors for the purpose
of providing disclosures of our results of operations consistent with those used by
management. While management believes these non-GAAP financial measures provide useful
information for period-to-period comparisons, investors are encouraged to use GAAP measures
when evaluating financial performance or liquidity. 34




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##### Table of Contents



For the Quarters Ended June 30, 2006 and 2005
 Net revenue
     Salaries and benefits
 Supplies
 35




---



##### Table of Contents



Medical claims
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 Income tax expense
 Net earnings
 36




---



##### Table of Contents



For the Nine Months Ended June 30, 2006 and 2005
 Net revenue
     Salaries and benefits
 Supplies
 Medical claims
 37




---



##### Table of Contents



Other operating expenses
 Provision for bad debts
 Interest expense, net
 Depreciation and amortization
 Income tax expense
 Net earnings
 38




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##### Table of Contents



Liquidity and Capital Resources
   Available cash
    
    $
    97.1Available capacity under our senior credit facilities
    
    
    211.2Net available liquidity at June 30, 2006
    
    $
    308.3
   
    
    approximately $62.0 to $67.0 million for the construction of Mountain Vista Medical
Center, our new hospital in the East Valley of Phoenix, Arizona, which we plan to open
in the third quarter of fiscal 2007;
    
    approximately $50.0 to $55.0 million for other growth and new business projects;
    
    approximately $22.0 million in replacement or maintenance related projects at our hospitals; and
    
    approximately $21.0 million in hardware and software related costs in connection
with the implementation of our advanced clinical information system.
    39




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##### Table of Contents



Overview of Cash Flow Activities For The Nine Months Ended June 30, 2006 and 2005
  Nine MonthsEnded June 30,2006
    
    2005Cash flow from operating activities
    
    $
    104.6
    
    
    $
    88.8Cash flow used in investing activities
    
    
    (93.4
    )
    
    
    (113.2
    )Cash flow used in financing activities
    
    
    (3.2
    )
    
    
    (6.4
    )
 Operating Activities
  Investing Activities
  40




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##### Table of Contents




    
    $34.3 million for the construction of Mountain Vista Medical Center;
    
    $5.6 million for rebuilding efforts at The Medical Center of Southeast Texas, our
hospital that suffered damages as a result of Hurricane Rita;
    
    $21.3 million for various expansion and renovation projects at our hospitals; and
    
    $11.8 million for our advanced clinicals and other information systems projects.
 Financing Activities
  Debt Instruments and Related Covenants
  
    
    $675.0 million senior secured credit facilities; and
    
    $475.0 million 8 3/4% senior subordinated notes due 2014.
 $675.0 Million Senior Secured Credit Facilities
  
    
    a senior secured Tranche B term loan of $425.0 million (the Term Facility); and
    
    a senior secured revolving credit facility of up to $250.0 million (the Revolving
Facility), which is available for working capital and other general corporate
purposes.
     41




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##### Table of Contents



Actual Total Leverage Ratio
    
    
    3.84Maximum Total Leverage Ratio
    
    
    5.50Actual Interest Coverage Ratio
    
    
    3.16Minimum Interest Coverage Ratio
    
    
    2.30
   $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
   42




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##### Table of Contents



Off-Balance Sheet Arrangements
   Seasonality
  Recent Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock
Issued to Employees Statement of Cash Flows
  Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 43




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  44




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##### Table of Contents



PART II
OTHER INFORMATION
 
 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.
 45




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##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: August 14, 2006
    By:
    /s/ John M. DoyleJohn M. DoyleChief Accounting Officer 46




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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.
 47