##### 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 March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    20-1150104
(I.R.S. Employer
Identification No.)DOVER CENTRE
117 SEABOARD LANE, BUILDING 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
 o þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets  March 31, 2006 (Unaudited) and
September 30, 2005
    
    
    1Consolidated Statements of Operations (Unaudited)  Three and Six Months
Ended March 31, 2006 and 2005
    
    
    2Consolidated Statements of Cash Flows (Unaudited)  Six Months
Ended March 31, 2006 and 2005
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATION
    
    
    42Item 6. Exhibits
    
    
    42EX-4.1 SUPPLEMENTAL INDENTURE 08/01/05EX-10.1 JOINDER AGREEMENT 08/01/05EX-10.2 AMENDMENT NO.13 TO CONTRACTEX-10.3 AMENDMENT NO.14 TO CONTRACTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFO
  i




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PART 1
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 (Unaudited)March 31,
    
    
    September 30,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    83,385
    
    
    $
    89,097Accounts receivable, net
    
    
    180,883
    
    
    
    166,456Inventories
    
    
    31,597
    
    
    
    29,866Deferred income taxes
    
    
    50,192
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    34,986
    
    
    
    25,236Total current assets
    
    
    381,043
    
    
    
    366,658Property and equipment, net
    
    
    671,074
    
    
    
    647,596Goodwill
    
    
    754,375
    
    
    
    754,375Other intangible assets, net
    
    
    40,500
    
    
    
    42,000Other assets, net
    
    
    41,457
    
    
    
    42,095Total assets
    
    $
    1,888,449
    
    
    $
    1,852,724LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    56,869
    
    
    $
    58,684Salaries and benefits payable
    
    
    24,502
    
    
    
    24,887Accrued interest payable
    
    
    19,366
    
    
    
    18,489Medical claims payable
    
    
    73,915
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    43,111
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    7,838
    
    
    
    7,757Total current liabilities
    
    
    225,601
    
    
    
    200,568Long-term debt and capital lease obligations
    
    
    893,089
    
    
    
    897,051Deferred income taxes
    
    
    76,646
    
    
    
    74,883Other long-term liabilities
    
    
    33,114
    
    
    
    36,801Minority interest
    
    
    30,468
    
    
    
    26,474Equity:Members equity
    
    
    629,531
    
    
    
    616,947Total liabilities and equity
    
    $
    1,888,449
    
    
    $
    1,852,724
  1




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedMarch 31, 2006
    
    March 31, 2005
    
    March 31, 2006
    
    March 31, 2005Net Revenue:Acute care revenue
    
    $
    318,435
    
    
    $
    302,719
    
    
    $
    604,862
    
    
    $
    586,493Premium revenue
    
    
    99,533
    
    
    
    87,538
    
    
    
    192,571
    
    
    
    173,739Total net revenue
    
    
    417,968
    
    
    
    390,257
    
    
    
    797,433
    
    
    
    760,232Costs and expenses:Salaries and benefits
    
    
    118,256
    
    
    
    112,725
    
    
    
    231,007
    
    
    
    219,234Supplies
    
    
    49,218
    
    
    
    49,289
    
    
    
    94,928
    
    
    
    94,655Medical claims
    
    
    84,240
    
    
    
    75,433
    
    
    
    163,429
    
    
    
    148,768Rents and leases
    
    
    8,833
    
    
    
    7,991
    
    
    
    17,343
    
    
    
    15,850Other operating expenses
    
    
    58,581
    
    
    
    54,205
    
    
    
    116,087
    
    
    
    107,240Provision for bad debts
    
    
    40,482
    
    
    
    30,715
    
    
    
    77,501
    
    
    
    62,970Interest expense, net
    
    
    17,781
    
    
    
    15,685
    
    
    
    34,938
    
    
    
    32,074Depreciation and amortization
    
    
    19,508
    
    
    
    15,981
    
    
    
    38,417
    
    
    
    32,486Management fees
    
    
    1,045
    
    
    
    963
    
    
    
    2,095
    
    
    
    1,921Total costs and expenses
    
    
    397,944
    
    
    
    362,987
    
    
    
    775,745
    
    
    
    715,198Earnings before loss on sale
of assets, minority interests
and income taxes
    
    
    20,024
    
    
    
    27,270
    
    
    
    21,688
    
    
    
    45,034Loss on sale of assets, net
    
    
    (125
    )
    
    
    (9
    )
    
    
    (130
    )
    
    
    (82
    )Minority interests
    
    
    (972
    )
    
    
    (1,141
    )
    
    
    (670
    )
    
    
    (2,274
    )Earnings before income taxes
    
    
    18,927
    
    
    
    26,120
    
    
    
    20,888
    
    
    
    42,678Income tax expense
    
    
    7,504
    
    
    
    10,324
    
    
    
    8,304
    
    
    
    16,921Net earnings
    
    $
    11,423
    
    
    $
    15,796
    
    
    $
    12,584
    
    
    $
    25,757
  2




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Six Months
    
    
    Six MonthsEnded
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2005Cash flows from operating activities:Net earnings
    
    $
    12,584
    
    
    $
    25,757Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    38,417
    
    
    
    32,486Amortization of loan costs
    
    
    1,469
    
    
    
    3,397Minority interests
    
    
    670
    
    
    
    2,274Deferred income taxes
    
    
    7,574
    
    
    
    16,148Loss on sale of assets
    
    
    130
    
    
    
    82Changes in operating assets and liabilities:Accounts receivable
    
    
    (14,427
    )
    
    
    (15,489
    )Inventories, prepaid expenses and other
current assets
    
    
    (11,481
    )
    
    
    (8,283
    )Accounts payable and other accrued
liabilities
    
    
    20,987
    
    
    
    3,684Net cash provided by operating activities
    
    
    55,923
    
    
    
    60,056Cash flows from investing activities:Purchases of property and equipment
    
    
    (60,232
    )
    
    
    (75,611
    )Cash paid for acquisition
    
    
    
    
    
    
    (410
    )Change in other assets
    
    
    (847
    )
    
    
    (75
    )Net cash used in investing activities
    
    
    (61,079
    )
    
    
    (76,096
    )Cash flows from financing activities:Payment of debt and capital leases
    
    
    (3,881
    )
    
    
    (7,132
    )Proceeds from debt borrowings
    
    
    
    
    
    
    2,274Debt financing costs incurred
    
    
    
    
    
    
    (487
    )Distribution of minority interests
    
    
    (1,196
    )
    
    
    (2,354
    )Proceeds received from hospital syndications
    
    
    4,521
    
    
    
    Net cash used in financing activities
    
    
    (556
    )
    
    
    (7,699
    )Decrease in cash and cash equivalents
    
    
    (5,712
    )
    
    
    (23,739
    )Cash and cash equivalents at beginning of period
    
    
    89,097
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    83,385
    
    
    $
    75,066Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    34,860
    
    
    $
    28,032Cash paid for income taxes, net
    
    $
    467
    
    
    $
    1,881Supplemental schedule of noncash investing
activities:Property and equipment in accounts payable
    
    $
    7,726
    
    
    $
    14,904
  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.
       2. Recently Issued Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation
 4




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 Accounting for Stock Issued to Employees Statement of Cash Flows
  ccounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
 3. Long-Term Debt and Capital Lease Obligations
  5




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 March 31,
    
    
    September 30,2006
    
    
    2005Senior secured credit facilities
    
    $
    417,563
    
    
    $
    419,688Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital leases and other obligations
    
    
    8,364
    
    
    
    10,120900,927
    
    
    
    904,808Less current maturities
    
    
    7,838
    
    
    
    7,757$
    893,089
    
    
    $
    897,051
 Senior Secured Credit Facilities
     8 3/4% Senior Subordinated Notes
  6




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 4. Stock Benefit Plans
   Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2005Net earnings as reported
    
    $
    11,423
    
    
    $
    15,796
    
    
    $
    12,584
    
    
    $
    25,757Deduct: Total stock
based employee
compensation determined
under fair value based
method for all awards,
net of related tax
effects
    
    
    (318
    )
    
    
    (240
    )
    
    
    (669
    )
    
    
    (470
    )Pro forma net earnings
    
    $
    11,105
    
    
    $
    15,556
    
    
    $
    11,915
    
    
    $
    25,287
  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
  Variable Interest Entities
  8




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
  Acquisitions
  Guarantees
  Other
   6. Segment and Geographic Information
  9




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended March 31, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    318,435
    
    
    $
    
    
    
    $
    
    
    
    $
    318,435Premium revenue
    
    
    
    
    
    
    99,533
    
    
    
    
    
    
    
    99,533Revenue between segments
    
    
    2,411
    
    
    
    
    
    
    
    (2,411
    )
    
    
    Net revenue
    
    
    320,846
    
    
    
    99,533
    
    
    
    (2,411
    )
    
    
    417,968Salaries and benefits
    
    
    115,080
    
    
    
    3,176
    
    
    
    
    
    
    
    118,256Supplies
    
    
    49,160
    
    
    
    58
    
    
    
    
    
    
    
    49,218Medical claims
    
    
    
    
    
    
    86,651
    
    
    
    (2,411
    )
    
    
    84,240Rents and leases
    
    
    8,560
    
    
    
    273
    
    
    
    
    
    
    
    8,833Other operating expenses
    
    
    55,287
    
    
    
    3,294
    
    
    
    
    
    
    
    58,581Provision for bad debts
    
    
    40,482
    
    
    
    
    
    
    
    
    
    
    
    40,482Adjusted EBITDA(1)
    
    
    52,277
    
    
    
    6,081
    
    
    
    
    
    
    
    58,358Interest expense, net
    
    
    17,781
    
    
    
    
    
    
    
    
    
    
    
    17,781Depreciation and amortization
    
    
    18,660
    
    
    
    848
    
    
    
    
    
    
    
    19,508Management fees
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    1,045Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    14,791
    
    
    
    5,233
    
    
    
    
    
    
    
    20,024Loss on sale of assets, net
    
    
    (125
    )
    
    
    
    
    
    
    
    
    
    
    (125
    )Minority interests
    
    
    (972
    )
    
    
    
    
    
    
    
    
    
    
    (972
    )Earnings before income taxes
    
    $
    13,694
    
    
    $
    5,233
    
    
    $
    
    
    
    $
    18,927Segment assets
    
    $
    1,761,309
    
    
    $
    127,140
    
    
    
    
    
    
    $
    1,888,449Capital expenditures
    
    $
    31,624
    
    
    $
    93
    
    
    
    
    
    
    $
    31,717Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 10




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended March 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    302,719
    
    
    $
    
    
    
    $
    
    
    
    $
    302,719Premium revenue
    
    
    
    
    
    
    87,538
    
    
    
    
    
    
    
    87,538Revenue between segments
    
    
    2,273
    
    
    
    
    
    
    
    (2,273
    )
    
    
    Net revenue
    
    
    304,992
    
    
    
    87,538
    
    
    
    (2,273
    )
    
    
    390,257Salaries and benefits
    
    
    109,928
    
    
    
    2,797
    
    
    
    
    
    
    
    112,725Supplies
    
    
    49,243
    
    
    
    46
    
    
    
    
    
    
    
    49,289Medical claims
    
    
    
    
    
    
    77,706
    
    
    
    (2,273
    )
    
    
    75,433Rents and leases
    
    
    7,773
    
    
    
    218
    
    
    
    
    
    
    
    7,991Other operating expenses
    
    
    51,511
    
    
    
    2,694
    
    
    
    
    
    
    
    54,205Provision for bad debts
    
    
    30,715
    
    
    
    
    
    
    
    
    
    
    
    30,715Adjusted EBITDA(1)
    
    
    55,822
    
    
    
    4,077
    
    
    
    
    
    
    
    59,899Interest expense, net
    
    
    15,685
    
    
    
    
    
    
    
    
    
    
    
    15,685Depreciation and amortization
    
    
    15,120
    
    
    
    861
    
    
    
    
    
    
    
    15,981Management fees
    
    
    963
    
    
    
    
    
    
    
    
    
    
    
    963Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    24,054
    
    
    
    3,216
    
    
    
    
    
    
    
    27,270Loss on sale of assets, net
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Minority interests
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )Earnings before income taxes
    
    $
    22,904
    
    
    $
    3,216
    
    
    $
    
    
    
    $
    26,120Segment assets
    
    $
    1,705,595
    
    
    $
    86,460
    
    
    
    
    
    
    $
    1,792,055Capital expenditures
    
    $
    85,896
    
    
    $
    165
    
    
    
    
    
    
    $
    86,061Goodwill
    
    $
    739,593
    
    
    $
    5,757
    
    
    
    
    
    
    $
    745,350
 
 (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 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. 11




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Six Months Ended March 31, 2006Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    604,862
    
    
    $
    
    
    
    $
    
    
    
    $
    604,862Premium revenue
    
    
    
    
    
    
    192,571
    
    
    
    
    
    
    
    192,571Revenue between segments
    
    
    4,509
    
    
    
    
    
    
    
    (4,509
    )
    
    
    Net revenue
    
    
    609,371
    
    
    
    192,571
    
    
    
    (4,509
    )
    
    
    797,433Salaries and benefits
    
    
    224,911
    
    
    
    6,096
    
    
    
    
    
    
    
    231,007Supplies
    
    
    94,812
    
    
    
    116
    
    
    
    
    
    
    
    94,928Medical claims
    
    
    
    
    
    
    167,938
    
    
    
    (4,509
    )
    
    
    163,429Rents and leases
    
    
    16,792
    
    
    
    551
    
    
    
    
    
    
    
    17,343Other operating expenses
    
    
    109,794
    
    
    
    6,293
    
    
    
    
    
    
    
    116,087Provision for bad debts
    
    
    77,501
    
    
    
    
    
    
    
    
    
    
    
    77,501Adjusted EBITDA(1)
    
    
    85,561
    
    
    
    11,577
    
    
    
    
    
    
    
    97,138Interest expense, net
    
    
    34,938
    
    
    
    
    
    
    
    
    
    
    
    34,938Depreciation and amortization
    
    
    36,731
    
    
    
    1,686
    
    
    
    
    
    
    
    38,417Management fees
    
    
    2,095
    
    
    
    
    
    
    
    
    
    
    
    2,095Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    11,797
    
    
    
    9,891
    
    
    
    
    
    
    
    21,688Loss on sale of assets, net
    
    
    (130
    )
    
    
    
    
    
    
    
    
    
    
    (130
    )Minority interests
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    (670
    )Earnings before income taxes
    
    $
    10,997
    
    
    $
    9,891
    
    
    $
    
    
    
    $
    20,888Segment assets
    
    $
    1,761,309
    
    
    $
    127,140
    
    
    
    
    
    
    $
    1,888,449Capital Expenditures
    
    $
    60,061
    
    
    $
    171
    
    
    
    
    
    
    $
    60,232Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 12




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Six Months Ended March 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    586,493
    
    
    $
    
    
    
    $
    
    
    
    $
    586,493Premium revenue
    
    
    
    
    
    
    173,739
    
    
    
    
    
    
    
    173,739Revenue between segments
    
    
    4,497
    
    
    
    
    
    
    
    (4,497
    )
    
    
    Net revenue
    
    
    590,990
    
    
    
    173,739
    
    
    
    (4,497
    )
    
    
    760,232Salaries and benefits
    
    
    213,718
    
    
    
    5,516
    
    
    
    
    
    
    
    219,234Supplies
    
    
    94,558
    
    
    
    97
    
    
    
    
    
    
    
    94,655Medical claims
    
    
    
    
    
    
    153,265
    
    
    
    (4,497
    )
    
    
    148,768Rents and leases
    
    
    15,415
    
    
    
    435
    
    
    
    
    
    
    
    15,850Other operating expenses
    
    
    101,709
    
    
    
    5,531
    
    
    
    
    
    
    
    107,240Provision for bad debts
    
    
    62,970
    
    
    
    
    
    
    
    
    
    
    
    62,970Adjusted EBITDA(1)
    
    
    102,620
    
    
    
    8,895
    
    
    
    
    
    
    
    111,515Interest expense, net
    
    
    32,074
    
    
    
    
    
    
    
    
    
    
    
    32,074Depreciation and amortization
    
    
    30,885
    
    
    
    1,601
    
    
    
    
    
    
    
    32,486Management fees
    
    
    1,921
    
    
    
    
    
    
    
    
    
    
    
    1,921Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    37,740
    
    
    
    7,294
    
    
    
    
    
    
    
    45,034Loss on sale of assets, net
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    (82
    )Minority interests
    
    
    (2,274
    )
    
    
    
    
    
    
    
    
    
    
    (2,274
    )Earnings before income taxes
    
    $
    35,384
    
    
    $
    7,294
    
    
    $
    
    
    
    $
    42,678Segment assets
    
    $
    1,705,595
    
    
    $
    86,460
    
    
    
    
    
    
    $
    1,792,055Capital Expenditures
    
    $
    75,410
    
    
    $
    201
    
    
    
    
    
    
    $
    75,611Goodwill
    
    $
    739,593
    
    
    $
    5,757
    
    
    
    
    
    
    $
    745,350
 
 (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. 13




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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
    14




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    82,909
    
    
    $
    476
    
    
    $
    
    
    
    $
    83,385Accounts receivable, net
    
    
    
    
    
    
    114,199
    
    
    
    66,684
    
    
    
    
    
    
    
    180,883Inventories
    
    
    
    
    
    
    20,504
    
    
    
    11,093
    
    
    
    
    
    
    
    31,597Deferred income taxes
    
    
    50,192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,192Prepaid expenses and other current assets
    
    
    
    
    
    
    16,714
    
    
    
    18,272
    
    
    
    
    
    
    
    34,986Total current assets
    
    
    50,192
    
    
    
    234,326
    
    
    
    96,525
    
    
    
    
    
    
    
    381,043Property and equipment, net
    
    
    
    
    
    
    370,823
    
    
    
    300,251
    
    
    
    
    
    
    
    671,074Intercompany
    
    
    
    
    
    
    (114,593
    )
    
    
    114,593
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,465,851
    
    
    
    
    
    
    
    
    
    
    
    (1,465,851
    )
    
    
    Goodwill
    
    
    22,128
    
    
    
    205,151
    
    
    
    527,096
    
    
    
    
    
    
    
    754,375Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    40,500
    
    
    
    
    
    
    
    40,500Other assets, net
    
    
    22,206
    
    
    
    13,430
    
    
    
    5,821
    
    
    
    
    
    
    
    41,457Total assets
    
    $
    1,560,377
    
    
    $
    709,137
    
    
    $
    1,084,786
    
    
    $
    (1,465,851
    )
    
    $
    1,888,449Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    40,692
    
    
    $
    16,177
    
    
    $
    
    
    
    $
    56,869Salaries and benefits payable
    
    
    
    
    
    
    15,853
    
    
    
    8,649
    
    
    
    
    
    
    
    24,502Accrued interest payable
    
    
    19,366
    
    
    
    (1,227
    )
    
    
    1,227
    
    
    
    
    
    
    
    19,366Medical claims payable
    
    
    
    
    
    
    
    
    
    
    73,915
    
    
    
    
    
    
    
    73,915Other accrued expenses and other current liabilities
    
    
    
    
    
    
    27,050
    
    
    
    16,061
    
    
    
    
    
    
    
    43,111Current portion of long-term debt and capital lease obligations
    
    
    4,402
    
    
    
    2,294
    
    
    
    7,180
    
    
    
    (6,038
    )
    
    
    7,838Total current liabilities
    
    
    23,768
    
    
    
    84,662
    
    
    
    123,209
    
    
    
    (6,038
    )
    
    
    225,601Long-term debt and capital lease obligations
    
    
    888,313
    
    
    
    3,664
    
    
    
    246,014
    
    
    
    (244,902
    )
    
    
    893,089Deferred income taxes
    
    
    76,646
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,646Other long-term liabilities
    
    
    
    
    
    
    33,114
    
    
    
    
    
    
    
    
    
    
    
    33,114Minority interest
    
    
    
    
    
    
    30,468
    
    
    
    
    
    
    
    
    
    
    
    30,468Members equity
    
    
    571,650
    
    
    
    557,229
    
    
    
    715,563
    
    
    
    (1,214,911
    )
    
    
    629,531Total liabilities and equity
    
    $
    1,560,377
    
    
    $
    709,137
    
    
    $
    1,084,786
    
    
    $
    (1,465,851
    )
    
    $
    1,888,449
 15




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    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
 16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    196,657
    
    
    $
    124,189
    
    
    $
    (2,411
    )
    
    $
    318,435Premium revenue
    
    
    
    
    
    
    
    
    
    
    99,533
    
    
    
    
    
    
    
    99,533Total net revenue
    
    
    
    
    
    
    196,657
    
    
    
    223,722
    
    
    
    (2,411
    )
    
    
    417,968Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    75,470
    
    
    
    42,786
    
    
    
    
    
    
    
    118,256Supplies
    
    
    
    
    
    
    33,876
    
    
    
    15,342
    
    
    
    
    
    
    
    49,218Medical claims
    
    
    
    
    
    
    
    
    
    
    86,651
    
    
    
    (2,411
    )
    
    
    84,240Rents and leases
    
    
    
    
    
    
    6,552
    
    
    
    2,281
    
    
    
    
    
    
    
    8,833Other operating expenses
    
    
    
    
    
    
    36,781
    
    
    
    21,800
    
    
    
    
    
    
    
    58,581Provision for bad debts
    
    
    
    
    
    
    26,172
    
    
    
    14,310
    
    
    
    
    
    
    
    40,482Interest expense, net
    
    
    17,781
    
    
    
    
    
    
    
    5,099
    
    
    
    (5,099
    )
    
    
    17,781Depreciation and amortization
    
    
    
    
    
    
    11,967
    
    
    
    7,541
    
    
    
    
    
    
    
    19,508Management fees
    
    
    1,045
    
    
    
    (2,665
    )
    
    
    2,665
    
    
    
    
    
    
    
    1,045Equity in earnings of affiliates
    
    
    (32,654
    )
    
    
    
    
    
    
    
    
    
    
    32,654
    
    
    
    Total costs and expenses
    
    
    (13,828
    )
    
    
    188,153
    
    
    
    198,475
    
    
    
    25,144
    
    
    
    397,944Earnings before loss on sale of
assets, minority interests, and
income taxes
    
    
    13,828
    
    
    
    8,504
    
    
    
    25,247
    
    
    
    (27,555
    )
    
    
    20,024Loss on sale of assets, net
    
    
    
    
    
    
    (117
    )
    
    
    (8
    )
    
    
    
    
    
    
    (125
    )Minority interests
    
    
    
    
    
    
    (972
    )
    
    
    
    
    
    
    
    
    
    
    (972
    )Earnings before income taxes
    
    
    13,828
    
    
    
    7,415
    
    
    
    25,239
    
    
    
    (27,555
    )
    
    
    18,927Income tax expense
    
    
    7,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,504Net earnings
    
    $
    6,324
    
    
    $
    7,415
    
    
    $
    25,239
    
    
    $
    (27,555
    )
    
    $
    11,423
 17




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    192,972
    
    
    $
    112,020
    
    
    $
    (2,273
    )
    
    $
    302,719Premium revenue
    
    
    
    
    
    
    
    
    
    
    87,538
    
    
    
    
    
    
    
    87,538Total net revenue
    
    
    
    
    
    
    192,972
    
    
    
    199,558
    
    
    
    (2,273
    )
    
    
    390,257Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    73,711
    
    
    
    39,014
    
    
    
    
    
    
    
    112,725Supplies
    
    
    
    
    
    
    35,906
    
    
    
    13,383
    
    
    
    
    
    
    
    49,289Medical claims
    
    
    
    
    
    
    
    
    
    
    77,706
    
    
    
    (2,273
    )
    
    
    75,433Rents and leases
    
    
    
    
    
    
    4,781
    
    
    
    3,210
    
    
    
    
    
    
    
    7,991Other operating expenses
    
    
    
    
    
    
    35,556
    
    
    
    18,649
    
    
    
    
    
    
    
    54,205Provision for bad debts
    
    
    
    
    
    
    19,452
    
    
    
    11,263
    
    
    
    
    
    
    
    30,715Interest expense, net
    
    
    15,685
    
    
    
    
    
    
    
    3,362
    
    
    
    (3,362
    )
    
    
    15,685Depreciation and amortization
    
    
    
    
    
    
    10,230
    
    
    
    5,750
    
    
    
    
    
    
    
    15,980Management fees
    
    
    963
    
    
    
    (2,975
    )
    
    
    2,975
    
    
    
    
    
    
    
    963Equity in earnings of affiliates
    
    
    (39,407
    )
    
    
    
    
    
    
    
    
    
    
    39,407
    
    
    
    Total costs and expenses
    
    
    (22,759
    )
    
    
    176,661
    
    
    
    175,312
    
    
    
    33,772
    
    
    
    362,986Earnings before gain (loss) on
sale of assets, minority
interests, and income taxes
    
    
    22,759
    
    
    
    16,311
    
    
    
    24,246
    
    
    
    (36,045
    )
    
    
    27,271Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (17
    )
    
    
    8
    
    
    
    
    
    
    
    (9
    )Minority interests
    
    
    
    
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )Earnings before income taxes
    
    
    22,759
    
    
    
    15,153
    
    
    
    24,254
    
    
    
    (36,045
    )
    
    
    26,121Income tax expense
    
    
    10,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,324Net earnings
    
    $
    12,435
    
    
    $
    15,153
    
    
    $
    24,254
    
    
    $
    (36,045
    )
    
    $
    15,797
 18




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    378,073
    
    
    $
    231,298
    
    
    $
    (4,509
    )
    
    $
    604,862Premium revenue
    
    
    
    
    
    
    
    
    
    
    192,571
    
    
    
    
    
    
    
    192,571Total net revenue
    
    
    
    
    
    
    378,073
    
    
    
    423,869
    
    
    
    (4,509
    )
    
    
    797,433Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    147,736
    
    
    
    83,271
    
    
    
    
    
    
    
    231,007Supplies
    
    
    
    
    
    
    66,159
    
    
    
    28,769
    
    
    
    
    
    
    
    94,928Medical claims
    
    
    
    
    
    
    
    
    
    
    167,938
    
    
    
    (4,509
    )
    
    
    163,429Rents and leases
    
    
    
    
    
    
    11,746
    
    
    
    5,597
    
    
    
    
    
    
    
    17,343Other operating expenses
    
    
    
    
    
    
    73,710
    
    
    
    42,377
    
    
    
    
    
    
    
    116,087Provision for bad debts
    
    
    
    
    
    
    48,885
    
    
    
    28,616
    
    
    
    
    
    
    
    77,501Interest expense, net
    
    
    34,938
    
    
    
    
    
    
    
    9,750
    
    
    
    (9,750
    )
    
    
    34,938Depreciation and amortization
    
    
    
    
    
    
    23,551
    
    
    
    14,866
    
    
    
    
    
    
    
    38,417Management fees
    
    
    2,095
    
    
    
    (5,035
    )
    
    
    5,035
    
    
    
    
    
    
    
    2,095Equity in earnings of affiliates
    
    
    (48,171
    )
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    Total costs and expenses
    
    
    (11,138
    )
    
    
    366,752
    
    
    
    386,219
    
    
    
    33,912
    
    
    
    775,745Earnings before loss on sale of
assets, minority interests, and
income taxes
    
    
    11,138
    
    
    
    11,321
    
    
    
    37,650
    
    
    
    (38,421
    )
    
    
    21,688Loss on sale of assets, net
    
    
    
    
    
    
    (106
    )
    
    
    (24
    )
    
    
    
    
    
    
    (130
    )Minority interests
    
    
    
    
    
    
    (670
    )
    
    
    
    
    
    
    
    
    
    
    (670
    )Earnings before income taxes
    
    
    11,138
    
    
    
    10,545
    
    
    
    37,626
    
    
    
    (38,421
    )
    
    
    20,888Income tax expense
    
    
    8,304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,304Net earnings
    
    $
    2,834
    
    
    $
    10,545
    
    
    $
    37,626
    
    
    $
    (38,421
    )
    
    $
    12,584
 19




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    372,255
    
    
    $
    218,735
    
    
    $
    (4,497
    )
    
    $
    586,493Premium revenue
    
    
    
    
    
    
    
    
    
    
    173,739
    
    
    
    
    
    
    
    173,739Total net revenue
    
    
    
    
    
    
    372,255
    
    
    
    392,474
    
    
    
    (4,497
    )
    
    
    760,232Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    142,146
    
    
    
    77,088
    
    
    
    
    
    
    
    219,234Supplies
    
    
    
    
    
    
    68,103
    
    
    
    26,552
    
    
    
    
    
    
    
    94,655Medical claims
    
    
    
    
    
    
    
    
    
    
    153,265
    
    
    
    (4,497
    )
    
    
    148,768Rents and leases
    
    
    
    
    
    
    9,548
    
    
    
    6,302
    
    
    
    
    
    
    
    15,850Other operating expenses
    
    
    
    
    
    
    69,582
    
    
    
    37,658
    
    
    
    
    
    
    
    107,240Provision for bad debts
    
    
    
    
    
    
    41,711
    
    
    
    21,259
    
    
    
    
    
    
    
    62,970Interest expense, net
    
    
    32,074
    
    
    
    
    
    
    
    6,668
    
    
    
    (6,668
    )
    
    
    32,074Depreciation and amortization
    
    
    
    
    
    
    21,275
    
    
    
    11,211
    
    
    
    
    
    
    
    32,486Management fees
    
    
    1,921
    
    
    
    (5,916
    )
    
    
    5,916
    
    
    
    
    
    
    
    1,921Equity in earnings of affiliates
    
    
    (70,005
    )
    
    
    
    
    
    
    
    
    
    
    70,005
    
    
    
    Total costs and expenses
    
    
    (36,010
    )
    
    
    346,449
    
    
    
    345,919
    
    
    
    58,840
    
    
    
    715,198Earnings before loss on sale of
assets, minority interests, and
income taxes
    
    
    36,010
    
    
    
    25,806
    
    
    
    46,555
    
    
    
    (63,337
    )
    
    
    45,034Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (90
    )
    
    
    8
    
    
    
    
    
    
    
    (82
    )Minority interests
    
    
    
    
    
    
    (2,274
    )
    
    
    
    
    
    
    
    
    
    
    (2,274
    )Earnings before income taxes
    
    
    36,010
    
    
    
    23,442
    
    
    
    46,563
    
    
    
    (63,337
    )
    
    
    42,678Income tax expense
    
    
    16,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,921Net earnings
    
    $
    19,089
    
    
    $
    23,442
    
    
    $
    46,563
    
    
    $
    (63,337
    )
    
    $
    25,757
 20




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings
    
    $
    2,834
    
    
    $
    10,545
    
    
    $
    37,626
    
    
    $
    (38,421
    )
    
    $
    12,584Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    23,551
    
    
    
    14,866
    
    
    
    
    
    
    
    38,417Amortization of loan costs
    
    
    1,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,469Minority interests
    
    
    
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    670Deferred income taxes
    
    
    7,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,574Loss on sale of assets
    
    
    
    
    
    
    106
    
    
    
    24
    
    
    
    
    
    
    
    130Equity in earnings of affiliates
    
    
    (48,171
    )
    
    
    
    
    
    
    
    
    
    
    48,171
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (12,072
    )
    
    
    (2,355
    )
    
    
    
    
    
    
    (14,427
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (6,770
    )
    
    
    (4,711
    )
    
    
    
    
    
    
    (11,481
    )Accounts payable and other accrued liabilities
    
    
    877
    
    
    
    235
    
    
    
    19,875
    
    
    
    
    
    
    
    20,987Net cash provided by (used in) operating activities
    
    
    (35,417
    )
    
    
    16,265
    
    
    
    65,325
    
    
    
    9,750
    
    
    
    55,923Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (24,585
    )
    
    
    (35,647
    )
    
    
    
    
    
    
    (60,232
    )Change in other assets
    
    
    
    
    
    
    (636
    )
    
    
    (211
    )
    
    
    
    
    
    
    (847
    )Net cash used in investing activities
    
    
    
    
    
    
    (25,221
    )
    
    
    (35,858
    )
    
    
    
    
    
    
    (61,079
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    (2,201
    )
    
    
    (1,107
    )
    
    
    (573
    )
    
    
    
    
    
    
    (3,881
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,196
    )
    
    
    
    
    
    
    (1,196
    )Change in intercompany balances with affiliates, net
    
    
    37,618
    
    
    
    4,476
    
    
    
    (32,344
    )
    
    
    (9,750
    )
    
    
    Proceeds from hospital syndications
    
    
    
    
    
    
    (101
    )
    
    
    4,622
    
    
    
    
    
    
    
    4,521Net cash provided by (used in) financing activities
    
    
    35,417
    
    
    
    3,268
    
    
    
    (29,491
    )
    
    
    (9,750
    )
    
    
    (556
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (5,688
    )
    
    
    (24
    )
    
    
    (5,712
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    82,909
    
    
    $
    476
    
    
    $
    
    
    
    $
    83,385
 21




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    19,089
    
    
    $
    23,442
    
    
    $
    46,563
    
    
    $
    (63,337
    )
    
    $
    25,757Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    21,275
    
    
    
    11,211
    
    
    
    
    
    
    
    32,486Amortization of loan costs
    
    
    3,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,397Minority interests
    
    
    
    
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,274Deferred income taxes
    
    
    16,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,148(Gain) loss on sale of assets, net
    
    
    
    
    
    
    90
    
    
    
    (8
    )
    
    
    
    
    
    
    82Equity in earnings of affiliates
    
    
    (70,005
    )
    
    
    
    
    
    
    
    
    
    
    70,005
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (8,553
    )
    
    
    (6,936
    )
    
    
    
    
    
    
    (15,489
    )Inventories, prepaid expenses and other current
assets
    
    
    
    
    
    
    (6,225
    )
    
    
    (2,058
    )
    
    
    
    
    
    
    (8,283
    )Accounts payable and other accrued liabilities
    
    
    3,692
    
    
    
    (2,201
    )
    
    
    2,193
    
    
    
    
    
    
    
    3,684Net cash provided by (used in) operating activities
    
    
    (27,679
    )
    
    
    30,102
    
    
    
    50,965
    
    
    
    6,668
    
    
    
    60,056Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (36,952
    )
    
    
    (38,659
    )
    
    
    
    
    
    
    (75,611
    )Cash paid for acquisition
    
    
    (410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (410
    )Change in other assets
    
    
    
    
    
    
    108
    
    
    
    (183
    )
    
    
    
    
    
    
    (75
    )Net cash used in investing activities
    
    
    (410
    )
    
    
    (36,844
    )
    
    
    (38,842
    )
    
    
    
    
    
    
    (76,096
    )Cash flows from financing activitiesProceeds from debt borrowings
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274Payment of debt and capital leases
    
    
    (5,694
    )
    
    
    (827
    )
    
    
    (611
    )
    
    
    
    
    
    
    (7,132
    )Debt financing costs incurred
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Change in intercompany balances with affiliates, net
    
    
    31,996
    
    
    
    (14,715
    )
    
    
    (10,613
    )
    
    
    (6,668
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (2,354
    )
    
    
    
    
    
    
    (2,354
    )Net cash provided by (used in) financing activities
    
    
    28,089
    
    
    
    (15,542
    )
    
    
    (13,578
    )
    
    
    (6,668
    )
    
    
    (7,699
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (22,284
    )
    
    
    (1,455
    )
    
    
    
    
    
    
    (23,739
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    97,242
    
    
    
    1,563
    
    
    
    
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    74,958
    
    
    $
    108
    
    
    $
    
    
    
    $
    75,066
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward Looking Statements
  23




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##### Table of Contents



Executive Overview
  
    
    Salt Lake City, Utah;
    
    Phoenix, Arizona;
    
    Tampa-St. Petersburg, Florida;
    
    three cities in the State of Texas, including San Antonio; and
    
    Las Vegas, Nevada.
      24




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##### Table of Contents



Revenue and Volume Trends
   Three Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Medicare
    
    
    24.5
    %
    
    
    28.9
    %
    
    
    24.4
    %
    
    
    27.3
    %Medicaid
    
    
    14.9
    %
    
    
    13.2
    %
    
    
    14.4
    %
    
    
    12.7
    %Managed care
    
    
    45.2
    %
    
    
    44.0
    %
    
    
    45.2
    %
    
    
    44.5
    %Self-pay and other
    
    
    15.4
    %
    
    
    13.9
    %
    
    
    16.0
    %
    
    
    15.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
     25




---



##### Table of Contents



Other Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
  26




---



##### Table of Contents



March 31,
    
    
    September 30,2006
    
    
    2005Insured receivables
    
    
    61.3
    %
    
    
    60.2
    %Uninsured receivables
    
    
    38.7
    %
    
    
    39.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   March 31,
    
    
    September 30,2006
    
    
    20050 to 90 days
    
    
    65.2
    %
    
    
    63.1
    %90 to 180 days
    
    
    16.5
    %
    
    
    18.4
    %Over 180 days
    
    
    18.3
    %
    
    
    18.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Nursing Shortage
  27




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##### Table of Contents



Decreased Federal and State Funding for Medicaid Programs
  Growth in Outpatient Services
  Volatility of Insurance Costs
  Critical Accounting Policies and Estimates
  28




---



##### Table of Contents



Selected Operating Data
  Three Months
    
    Six MonthsEnded March 31,
    
    Ended March 31,2006
    
    2005
    
    2006
    
    2005Acute Care (1):Number of acute care hospitals at end of period (2)
    
    
    14
    
    
    
    15
    
    
    
    14
    
    
    
    15Beds in service at end of period
    
    
    2,199
    
    
    
    2,232
    
    
    
    2,199
    
    
    
    2,232Average length of stay (days) (3)
    
    
    4.69
    
    
    
    4.49
    
    
    
    4.60
    
    
    
    4.42Occupancy rates (average beds in service)
    
    
    54.8
    %
    
    
    52.7
    %
    
    
    52.0
    %
    
    
    49.3
    %Admissions (4)
    
    
    22,975
    
    
    
    23,569
    
    
    
    44,321
    
    
    
    45,475Adjusted admissions (5)
    
    
    37,060
    
    
    
    37,720
    
    
    
    71,983
    
    
    
    73,200Patient days (6)
    
    
    107,765
    
    
    
    105,869
    
    
    
    203,844
    
    
    
    201,009Adjusted patient days (5)
    
    
    168,334
    
    
    
    163,501
    
    
    
    320,154
    
    
    
    311,987Net patient revenue per adjusted admission
    
    $
    8,489
    
    
    $
    7,927
    
    
    $
    8,298
    
    
    $
    7,911Health Choice:Medicaid covered lives
    
    
    112,306
    
    
    
    112,510
    
    
    
    112,306
    
    
    
    112,510Dual-eligible lives (8)
    
    
    4,565
    
    
    
    
    
    
    
    4,565
    
    
    
    Medical loss ratio (7)
    
    
    87.1
    %
    
    
    88.8
    %
    
    
    87.2
    %
    
    
    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. Additionally, on April 16, 2005, the Company opened
The Medical Center, its new hospital in Port Arthur, Texas. Substantially all of the
operations of Mid-Jefferson Hospital, in Nederland, Texas, and Park Place Medical Center, in
Port Arthur, Texas, moved to the new hospital. As a result, the Company currently operates 14
acute care hospitals.(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 medical claims expense as a percentage of premium revenue, including claims paid
to our hospitals.(8)
    
    Represents members eligible for Medicare and Medicaid benefits under Health Choices contract
with the Centers for Medicare & Medicaid Services to provide coverage as a Medicare Advantage
Prescription Drug Special Needs Plan. 29




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##### Table of Contents



Results of Operations Summary
  Three Months Ended
    
    Three Months Ended
    
    Six Months Ended
    
    Six Months EndedMarch 31, 2006
    
    March 31, 2005
    
    March 31, 2006
    
    March 31, 2005Consolidated (in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet Revenue:Acute care revenue
    
    $
    318,435
    
    
    
    76.2
    %
    
    $
    302,719
    
    
    
    77.6
    %
    
    $
    604,862
    
    
    
    75.9
    %
    
    $
    586,493
    
    
    
    77.1
    %Premium revenue
    
    
    99,533
    
    
    
    23.8
    %
    
    
    87,538
    
    
    
    22.4
    %
    
    
    192,571
    
    
    
    24.1
    %
    
    
    173,739
    
    
    
    22.9
    %Total net revenue
    
    
    417,968
    
    
    
    100.0
    %
    
    
    390,257
    
    
    
    100.0
    %
    
    
    797,433
    
    
    
    100.0
    %
    
    
    760,232
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    118,256
    
    
    
    28.3
    %
    
    
    112,725
    
    
    
    28.9
    %
    
    
    231,007
    
    
    
    29.0
    %
    
    
    219,234
    
    
    
    28.8
    %Supplies
    
    
    49,218
    
    
    
    11.8
    %
    
    
    49,289
    
    
    
    12.6
    %
    
    
    94,928
    
    
    
    11.9
    %
    
    
    94,655
    
    
    
    12.4
    %Medical claims
    
    
    84,240
    
    
    
    20.2
    %
    
    
    75,433
    
    
    
    19.3
    %
    
    
    163,429
    
    
    
    20.5
    %
    
    
    148,768
    
    
    
    19.6
    %Rents and leases
    
    
    8,833
    
    
    
    2.1
    %
    
    
    7,991
    
    
    
    2.1
    %
    
    
    17,343
    
    
    
    2.2
    %
    
    
    15,850
    
    
    
    2.1
    %Other operating expenses
    
    
    58,581
    
    
    
    14.0
    %
    
    
    54,205
    
    
    
    13.9
    %
    
    
    116,087
    
    
    
    14.5
    %
    
    
    107,240
    
    
    
    14.1
    %Provision for bad debts
    
    
    40,482
    
    
    
    9.7
    %
    
    
    30,715
    
    
    
    7.9
    %
    
    
    77,501
    
    
    
    9.7
    %
    
    
    62,970
    
    
    
    8.3
    %Interest, net
    
    
    17,781
    
    
    
    4.3
    %
    
    
    15,685
    
    
    
    4.0
    %
    
    
    34,938
    
    
    
    4.4
    %
    
    
    32,074
    
    
    
    4.2
    %Depreciation and
amortization
    
    
    19,508
    
    
    
    4.6
    %
    
    
    15,981
    
    
    
    4.1
    %
    
    
    38,417
    
    
    
    4.8
    %
    
    
    32,486
    
    
    
    4.3
    %Management fees
    
    
    1,045
    
    
    
    0.2
    %
    
    
    963
    
    
    
    0.2
    %
    
    
    2,095
    
    
    
    0.3
    %
    
    
    1,921
    
    
    
    0.3
    %Total costs and
expenses
    
    
    397,944
    
    
    
    95.2
    %
    
    
    362,987
    
    
    
    93.0
    %
    
    
    775,745
    
    
    
    97.3
    %
    
    
    715,198
    
    
    
    94.1
    %Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    20,024
    
    
    
    4.8
    %
    
    
    27,270
    
    
    
    7.0
    %
    
    
    21,688
    
    
    
    2.7
    %
    
    
    45,034
    
    
    
    5.9
    %Loss on sale of assets, net
    
    
    (125
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    (82
    )
    
    
    Minority interests
    
    
    (972
    )
    
    
    (0.2
    )%
    
    
    (1,141
    )
    
    
    (0.3
    )%
    
    
    (670
    )
    
    
    (0.1
    )%
    
    
    (2,274
    )
    
    
    (0.3
    )%Earnings before income taxes
    
    
    18,927
    
    
    
    4.5
    %
    
    
    26,120
    
    
    
    6.7
    %
    
    
    20,888
    
    
    
    2.6
    %
    
    
    42,678
    
    
    
    5.6
    %Income tax expense
    
    
    7,504
    
    
    
    1.8
    %
    
    
    10,324
    
    
    
    2.7
    %
    
    
    8,304
    
    
    
    1.0
    %
    
    
    16,921
    
    
    
    2.2
    %Net earnings
    
    $
    11,423
    
    
    
    2.7
    %
    
    $
    15,796
    
    
    
    4.0
    %
    
    $
    12,584
    
    
    
    1.6
    %
    
    $
    25,757
    
    
    
    3.4
    %
 30




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##### Table of Contents



Three Months Ended
    
    Three Months Ended
    
    Six Months Ended
    
    Six Months EndedMarch 31, 2006
    
    March 31, 2005
    
    March 31, 2006
    
    March 31, 2005Acute Care (in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNet Revenue:Acute care revenue
    
    $
    318,435
    
    
    
    99.2
    %
    
    $
    302,719
    
    
    
    99.3
    %
    
    $
    604,862
    
    
    
    99.3
    %
    
    $
    586,493
    
    
    
    99.2
    %Revenue between segments
    
    
    2,411
    
    
    
    0.8
    %
    
    
    2,273
    
    
    
    0.7
    %
    
    
    4,509
    
    
    
    0.7
    %
    
    
    4,497
    
    
    
    0.8
    %Total net revenue (1)
    
    
    320,846
    
    
    
    100.0
    %
    
    
    304,992
    
    
    
    100.0
    %
    
    
    609,371
    
    
    
    100.0
    %
    
    
    590,990
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    115,080
    
    
    
    35.9
    %
    
    
    109,928
    
    
    
    36.0
    %
    
    
    224,911
    
    
    
    36.9
    %
    
    
    213,718
    
    
    
    36.1
    %Supplies
    
    
    49,160
    
    
    
    15.3
    %
    
    
    49,243
    
    
    
    16.1
    %
    
    
    94,812
    
    
    
    15.6
    %
    
    
    94,558
    
    
    
    16.0
    %Rents and leases
    
    
    8,560
    
    
    
    2.7
    %
    
    
    7,773
    
    
    
    2.6
    %
    
    
    16,792
    
    
    
    2.8
    %
    
    
    15,415
    
    
    
    2.6
    %Other operating expenses
    
    
    55,287
    
    
    
    17.2
    %
    
    
    51,511
    
    
    
    16.9
    %
    
    
    109,794
    
    
    
    18.0
    %
    
    
    101,709
    
    
    
    17.2
    %Provision for bad debts
    
    
    40,482
    
    
    
    12.6
    %
    
    
    30,715
    
    
    
    10.1
    %
    
    
    77,501
    
    
    
    12.7
    %
    
    
    62,970
    
    
    
    10.7
    %Interest, net
    
    
    17,781
    
    
    
    5.5
    %
    
    
    14,007
    
    
    
    4.6
    %
    
    
    34,938
    
    
    
    5.7
    %
    
    
    32,074
    
    
    
    5.4
    %Depreciation and
amortization
    
    
    18,660
    
    
    
    5.8
    %
    
    
    16,798
    
    
    
    5.5
    %
    
    
    36,731
    
    
    
    6.0
    %
    
    
    30,885
    
    
    
    5.3
    %Management fees
    
    
    1,045
    
    
    
    0.4
    %
    
    
    963
    
    
    
    0.3
    %
    
    
    2,095
    
    
    
    0.4
    %
    
    
    1,921
    
    
    
    0.3
    %Total costs and
expenses
    
    
    306,055
    
    
    
    95.4
    %
    
    
    280,938
    
    
    
    92.1
    %
    
    
    597,574
    
    
    
    98.1
    %
    
    
    553,250
    
    
    
    93.6
    %Earnings before loss on sale of
assets and minority interests
    
    
    14,791
    
    
    
    4.6
    %
    
    
    24,054
    
    
    
    7.9
    %
    
    
    11,797
    
    
    
    1.9
    %
    
    
    37,740
    
    
    
    6.4
    %Loss on sale of assets, net
    
    
    (125
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    (82
    )
    
    
    Minority interests
    
    
    (972
    )
    
    
    (0.3
    )%
    
    
    (1,141
    )
    
    
    (0.4
    )%
    
    
    (670
    )
    
    
    (0.1
    )%
    
    
    (2,274
    )
    
    
    (0.4
    )%Earnings before income taxes
    
    $
    13,694
    
    
    
    4.3
    %
    
    $
    22,904
    
    
    
    7.5
    %
    
    $
    10,997
    
    
    
    1.8
    %
    
    $
    35,384
    
    
    
    6.0
    %
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. Three Months Ended
    
    Three Months Ended
    
    Six Months Ended
    
    Six Months EndedMarch 31, 2006
    
    March 31, 2005
    
    March 31, 2006
    
    March 31, 2005Health Choice (in thousands):
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentagePremium revenue
    
    $
    99,533
    
    
    
    100.0
    %
    
    $
    87,538
    
    
    
    100.0
    %
    
    $
    192,571
    
    
    
    100.0
    %
    
    $
    173,739
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    3,176
    
    
    
    3.2
    %
    
    
    2,797
    
    
    
    3.2
    %
    
    
    6,096
    
    
    
    3.2
    %
    
    
    5,516
    
    
    
    3.2
    %Supplies
    
    
    58
    
    
    
    0.1
    %
    
    
    46
    
    
    
    0.1
    %
    
    
    116
    
    
    
    0.1
    %
    
    
    97
    
    
    
    0.1
    %Medical claims (1)
    
    
    86,651
    
    
    
    87.0
    %
    
    
    77,706
    
    
    
    88.8
    %
    
    
    167,938
    
    
    
    87.2
    %
    
    
    153,265
    
    
    
    88.2
    %Rents and leases
    
    
    273
    
    
    
    0.2
    %
    
    
    218
    
    
    
    0.2
    %
    
    
    551
    
    
    
    0.3
    %
    
    
    435
    
    
    
    0.2
    %Other operating expenses
    
    
    3,294
    
    
    
    3.3
    %
    
    
    2,694
    
    
    
    3.1
    %
    
    
    6,293
    
    
    
    3.2
    %
    
    
    5,531
    
    
    
    3.2
    %Interest, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and
amortization
    
    
    848
    
    
    
    0.9
    %
    
    
    861
    
    
    
    0.9
    %
    
    
    1,686
    
    
    
    0.9
    %
    
    
    1,601
    
    
    
    0.9
    %Total costs and
expenses
    
    
    94,300
    
    
    
    94.7
    %
    
    
    84,322
    
    
    
    96.3
    %
    
    
    182,680
    
    
    
    94.9
    %
    
    
    166,445
    
    
    
    95.8
    %Earnings before income taxes
    
    $
    5,233
    
    
    
    5.3
    %
    
    $
    3,216
    
    
    
    3.7
    %
    
    $
    9,891
    
    
    
    5.1
    %
    
    $
    7,294
    
    
    
    4.2
    %
 
 (1)
    
    Medical claims paid to our hospitals of $2.4 million and $2.3 million for the three months
ended March 31, 2006 and 2005, respectively, and $4.5 million for each of the six months ended
March 31, 2006 and 2005 is eliminated in our consolidated results. 31




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##### Table of Contents



Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Net revenue
   Salaries and benefits
 Medical claims
 Other operating expenses
 32




---



##### Table of Contents



Provision for bad debts
 Interest, net
 Depreciation and amortization
 Income tax expense
 Net earnings
 33




---



##### Table of Contents



Six Months Ended March 31, 2006 Compared to Six Months Ended March 31, 2005
 Net revenue
   Salaries and benefits
 Medical claims
 Other operating expenses
 34




---



##### Table of Contents



Provision for bad debts
 Interest, net
 Depreciation and amortization
 Income tax expense
 Net earnings
 35




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##### Table of Contents



Liquidity and Capital Resources
   Available cash
    
    $
    83.4Available capacity under our senior credit facilities
    
    
    211.2Net available liquidity at March 31, 2006
    
    $
    294.6
   
    
    approximately $62.0 to $67.0 million for the construction of our new hospital in the
East Valley of Phoenix, Arizona, which we plan to open in the fourth quarter of fiscal
2007;
    
    approximately $55.0 to $60.0 million for other growth and new business projects;
    
    approximately $30.0 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.
    36




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##### Table of Contents



Overview of Cash Flow Activities For The Six Months Ended March 31, 2006 Compared To The Six Months
Ended March 31, 2005
  Six MonthsEnded March 31,2006
    
    2005Cash flow from operating activities
    
    $
    55.9
    
    
    $
    60.1Cash flow used in investing activities
    
    
    (61.1
    )
    
    
    (76.1
    )Cash flow used in financing activities
    
    
    (0.6
    )
    
    
    (7.7
    )
 Operating Activities
  Investing Activities
   
    
    $21.1 million for the construction of Mountain Vista Hospital, our new hospital in
the East Valley area of Phoenix, Arizona;
    
    $5.6 million for rebuilding efforts at The Medical Center, our hospital that
suffered damages as a result of Hurricane Rita;
    
    $21.7 million for various expansion and renovation projects at our hospitals; and
    
    $11.8 million for our advanced clinicals and other information systems projects.
 37




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##### Table of Contents



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.
     38




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##### Table of Contents



March 31,2006Actual Total Leverage Ratio
    
    
    4.05Maximum Total Leverage Ratio
    
    
    6.00Actual Interest Coverage Ratio
    
    
    3.10Minimum Interest Coverage Ratio
    
    
    2.15
   $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
   Off-Balance Sheet Arrangements
  39




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##### Table of Contents



Seasonality
  Recent Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock
Issued to Employees Statement of Cash Flows
  ccounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  40




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  41




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##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 6. Exhibits
  4.1
    
    Supplemental Indenture, effective as of August 1, 2005, by and
among Cardiovascular Specialty Centers of Utah, LP, IASIS Healthcare LLC, IASIS
Capital Corporation, the existing Subsidiary Guarantors and the Bank of New
York Trust Company, N.A., as Trustee.10.1
    
    Joinder Agreement, effective as of August 1, 2005, by and among
Cardiovascular Specialty Centers of Utah, LP and Bank of America, N.A., As
Administrative Agent.10.2
    
    Amendment No. 13 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of October 1, 2005.10.3
    
    Amendment No. 14 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of October 1, 2005.31.1
    
    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.
 42




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##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate:
May 15, 2006
    
    By:
    
    /s/ W. Carl WhitmerW. Carl Whitmer, Chief Financial Officer
(Principal Financial and Accounting Officer)
 43




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description4.1
    
    Supplemental Indenture, effective as of August 1, 2005, by and
among Cardiovascular Specialty Centers of Utah, LP, IASIS
Healthcare LLC, IASIS Capital Corporation, the existing
Subsidiary Guarantors and the Bank of New York Trust Company,
N.A., as Trustee.10.1
    
    Joinder Agreement, effective as of August 1, 2005, by and
among Cardiovascular Specialty Centers of Utah, LP and Bank of
America, N.A., As Administrative Agent.10.2
    
    Amendment No. 13 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of
October 1, 2005.10.3
    
    Amendment No. 14 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of
October 1, 2005.31.1
    
    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.
 44