##### 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 December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 _____ 

to
 _____.
 COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
    
    20-1150104(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)DOVER CENTRE117 SEABOARD LANE, BUILDING EFRANKLIN, TENNESSEE
    
    37067(Address of principal executive offices)
    
    (Zip Code)
 (615) 844-2747
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 YES o NO þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Condensed Consolidated Balance Sheets  December 31, 2008 (Unaudited) and September 30, 2008
    
    
    1Condensed Consolidated Statements of Operations (Unaudited)  Quarters Ended December 31, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows (Unaudited)  Quarters Ended December 31, 2008 and 2007
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35PART II. OTHER INFORMATION
    
    
    36Item 1.
Legal Proceedings
    
    
    36Item 1A.
Risk Factors
    
    
    36Item 6. Exhibits
    
    
    36Exhibit 31.1Exhibit 31.2
   i




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##### Table of Contents



PART I.
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 December 31,
    
    
    September 30,2008
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    92,839
    
    
    $
    80,738Accounts receivable, less allowance for doubtful accounts of
$113,452 and $108,500 at December 31, 2008 and September 30,
2008, respectively
    
    
    231,371
    
    
    
    224,138Inventories
    
    
    49,720
    
    
    
    49,454Deferred income taxes
    
    
    39,511
    
    
    
    38,860Prepaid expenses and other current assets
    
    
    60,949
    
    
    
    60,053Total current assets
    
    
    474,390
    
    
    
    453,243Property and equipment, net
    
    
    1,008,411
    
    
    
    1,004,248Goodwill
    
    
    780,563
    
    
    
    780,599Other intangible assets, net
    
    
    32,250
    
    
    
    33,000Other assets, net
    
    
    34,940
    
    
    
    37,057Total assets
    
    $
    2,330,554
    
    
    $
    2,308,147LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Accounts payable
    
    $
    67,180
    
    
    $
    64,851Salaries and benefits payable
    
    
    43,352
    
    
    
    31,807Accrued interest payable
    
    
    2,261
    
    
    
    12,460Medical claims payable
    
    
    107,359
    
    
    
    97,343Other accrued expenses and other current liabilities
    
    
    51,154
    
    
    
    51,802Current portion of long-term debt and capital lease obligations
    
    
    7,318
    
    
    
    7,623Total current liabilities
    
    
    278,624
    
    
    
    265,886Long-term debt and capital lease obligations
    
    
    1,102,875
    
    
    
    1,106,999Deferred income taxes
    
    
    113,118
    
    
    
    111,092Other long-term liabilities
    
    
    45,966
    
    
    
    44,526Minority interests
    
    
    50,402
    
    
    
    51,875Members equity
    
    
    739,569
    
    
    
    727,769Total liabilities and members equity
    
    $
    2,330,554
    
    
    $
    2,308,147
   1




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Quarter EndedDecember 31,2008
    
    
    2007Net revenue:Acute care revenue
    
    $
    398,447
    
    
    $
    366,110Premium revenue
    
    
    163,177
    
    
    
    126,627Total net revenue
    
    
    561,624
    
    
    
    492,737Costs and expenses:Salaries and benefits
    
    
    162,136
    
    
    
    155,566Supplies
    
    
    59,826
    
    
    
    56,252Medical claims
    
    
    137,002
    
    
    
    103,880Other operating expenses
    
    
    79,350
    
    
    
    65,370Provision for bad debts
    
    
    47,131
    
    
    
    38,149Rentals and leases
    
    
    9,479
    
    
    
    8,627Interest expense, net
    
    
    18,978
    
    
    
    21,179Depreciation and amortization
    
    
    24,996
    
    
    
    22,581Management fees
    
    
    1,250
    
    
    
    1,187Total costs and expenses
    
    
    540,148
    
    
    
    472,791Earnings
from continuing operations before gain on disposal of assets,minority interests and income taxes
    
    
    21,476
    
    
    
    19,946Gain on disposal of assets, net
    
    
    1,293
    
    
    
    62Minority interests
    
    
    (1,597
    )
    
    
    (758
    )Earnings from continuing operations before income taxes
    
    
    21,172
    
    
    
    19,250Income tax expense
    
    
    8,811
    
    
    
    7,787Net earnings from continuing operations
    
    
    12,361
    
    
    
    11,463Loss from discontinued operations, net of income taxes
    
    
    (711
    )
    
    
    (748
    )Net earnings
    
    $
    11,650
    
    
    $
    10,715
   2




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IASIS HEALTHCARE LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Quarter EndedDecember 31,2008
    
    
    2007Cash flows from operating activitiesNet earnings
    
    $
    11,650
    
    
    $
    10,715Adjustments to reconcile net earnings to net cash provided by operating activities:Loss from discontinued operations
    
    
    711
    
    
    
    748Depreciation and amortization
    
    
    24,996
    
    
    
    22,581Amortization of loan costs
    
    
    743
    
    
    
    718Minority interests
    
    
    1,597
    
    
    
    758Deferred income taxes
    
    
    1,050
    
    
    
    6,177Gain on disposal of assets, net
    
    
    (1,293
    )
    
    
    (62
    )Stock compensation costs
    
    
    141
    
    
    
    Changes in
operating assets and liabilities, net of the effect of dispositions:Accounts receivable, net
    
    
    (8,724
    )
    
    
    2,126Inventories, prepaid expenses and other current assets
    
    
    (1,139
    )
    
    
    (1,296
    )Accounts payable, other accrued expenses and other accrued liabilities
    
    
    12,551
    
    
    
    (38,663
    )Net cash provided by operating activities  continuing operations
    
    
    42,283
    
    
    
    3,802Net cash
provided by (used in) operating activities  discontinued operations
    
    
    1,004
    
    
    
    (886
    )Net cash provided by operating activities
    
    
    43,287
    
    
    
    2,916Cash flows from investing activitiesPurchases of property and equipment, net
    
    
    (29,452
    )
    
    
    (30,600
    )Proceeds from sale of assets
    
    
    4,880
    
    
    
    349Change in other assets, net
    
    
    878
    
    
    
    1,252Net cash used in investing activities  continuing operations
    
    
    (23,694
    )
    
    
    (28,999
    )Net cash provided by (used in) investing activities  discontinued operations
    
    
    7
    
    
    
    (240
    )Net cash used in investing activities
    
    
    (23,687
    )
    
    
    (29,239
    )Cash flows from financing activitiesProceeds from debt borrowings
    
    
    
    
    
    
    131,300Payment of debt and capital lease obligations
    
    
    (4,429
    )
    
    
    (105,456
    )Distribution of minority interests
    
    
    (1,686
    )
    
    
    (1,669
    )Proceeds received from (costs paid for) sale of partnership interest, net
    
    
    (1,384
    )
    
    
    2,266Net cash provided by (used in) financing activities  continuing operations
    
    
    (7,499
    )
    
    
    26,441Net cash used in financing activities  discontinued operations
    
    
    
    
    
    
    (118
    )Net cash provided by (used in) financing activities
    
    
    (7,499
    )
    
    
    26,323Change in cash and cash equivalents
    
    
    12,101
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    80,738
    
    
    
    Cash and cash equivalents at end of period
    
    $
    92,839
    
    
    $
    Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    26,888
    
    
    $
    31,777Cash paid for income taxes, net
    
    $
    
    
    
    $
    31
   3




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




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Reclassifications
  General and Administrative
  2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  December 31,
    
    
    September 30,2008
    
    
    2008Senior secured credit facilities
    
    $
    626,123
    
    
    $
    629,818Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital leases and other obligations
    
    
    9,070
    
    
    
    9,8041,110,193
    
    
    
    1,114,622Less current maturities
    
    
    7,318
    
    
    
    7,623$
    1,102,875
    
    
    $
    1,106,999
 Senior Secured Credit Facilities
     5




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    8 3/4% Senior Subordinated Notes
 3 4 3 4 3 4 3 4 3 4 3 4
 $300.0 Million Holdings Senior Paid-in-Kind Loans
  3. DISCONTINUED OPERATIONS
 Accounting for the Impairment or Disposal of Long-Lived Asset
 Quarter ended
    
    
    Quarter endedDecember 31, 2008
    
    
    December 31, 2007Total net revenue
    
    $
    228
    
    
    $
    20,358Operating expenses
    
    
    1,363
    
    
    
    21,546Income tax benefit
    
    
    (424
    )
    
    
    (440
    )Loss from discontinued operations, net of income taxes
    
    $
    (711
    )
    
    $
    (748
    )
    6




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##### Table of Contents



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




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Health Choice
   Capital Expenditure Commitments
  Minimum Revenue Guarantees
    8




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




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 6. SEGMENT AND GEOGRAPHIC INFORMATION
  For the Quarter Ended December 31, 2008Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    398,447
    
    
    $
    
    
    
    $
    
    
    
    $
    398,447Premium revenue
    
    
    
    
    
    
    163,177
    
    
    
    
    
    
    
    163,177Revenue between segments
    
    
    1,697
    
    
    
    
    
    
    
    (1,697
    )
    
    
    Net revenue
    
    
    400,144
    
    
    
    163,177
    
    
    
    (1,697
    )
    
    
    561,624Salaries and benefits
    
    
    157,232
    
    
    
    4,904
    
    
    
    
    
    
    
    162,136Supplies
    
    
    59,741
    
    
    
    85
    
    
    
    
    
    
    
    59,826Medical claims
    
    
    
    
    
    
    138,699
    
    
    
    (1,697
    )
    
    
    137,002Other operating expenses
    
    
    73,785
    
    
    
    5,565
    
    
    
    
    
    
    
    79,350Provision for bad debts
    
    
    47,131
    
    
    
    
    
    
    
    
    
    
    
    47,131Rentals and leases
    
    
    9,101
    
    
    
    378
    
    
    
    
    
    
    
    9,479Adjusted EBITDA(1)
    
    
    53,154
    
    
    
    13,546
    
    
    
    
    
    
    
    66,700Interest expense, net
    
    
    18,978
    
    
    
    
    
    
    
    
    
    
    
    18,978Depreciation and amortization
    
    
    24,125
    
    
    
    871
    
    
    
    
    
    
    
    24,996Management fees
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    1,250Earnings from continuing operations before
gain on disposal of assets, minority
interests and income taxes
    
    
    8,801
    
    
    
    12,675
    
    
    
    
    
    
    
    21,476Gain on disposal of assets, net
    
    
    1,293
    
    
    
    
    
    
    
    
    
    
    
    1,293Minority interests
    
    
    (1,597
    )
    
    
    
    
    
    
    
    
    
    
    (1,597
    )Earnings from continuing operations
before income taxes
    
    $
    8,497
    
    
    $
    12,675
    
    
    $
    
    
    
    $
    21,172Segment assets
    
    $
    2,121,659
    
    
    $
    208,895
    
    
    
    
    
    
    $
    2,330,554Capital expenditures  continuing operations
    
    $
    28,818
    
    
    $
    634
    
    
    
    
    
    
    $
    29,452Goodwill
    
    $
    774,806
    
    
    $
    5,757
    
    
    
    
    
    
    $
    780,563
  10




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 For the Quarter Ended December 31, 2007Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedAcute care revenue
    
    $
    366,110
    
    
    $
    
    
    
    $
    
    
    
    $
    366,110Premium revenue
    
    
    
    
    
    
    126,627
    
    
    
    
    
    
    
    126,627Revenue between segments
    
    
    2,330
    
    
    
    
    
    
    
    (2,330
    )
    
    
    Net revenue
    
    
    368,440
    
    
    
    126,627
    
    
    
    (2,330
    )
    
    
    492,737Salaries and benefits
    
    
    151,523
    
    
    
    4,043
    
    
    
    
    
    
    
    155,566Supplies
    
    
    56,175
    
    
    
    77
    
    
    
    
    
    
    
    56,252Medical claims
    
    
    
    
    
    
    106,210
    
    
    
    (2,330
    )
    
    
    103,880Other operating expenses
    
    
    60,898
    
    
    
    4,472
    
    
    
    
    
    
    
    65,370Provision for bad debts
    
    
    38,149
    
    
    
    
    
    
    
    
    
    
    
    38,149Rentals and leases
    
    
    8,342
    
    
    
    285
    
    
    
    
    
    
    
    8,627Adjusted EBITDA(1)
    
    
    53,353
    
    
    
    11,540
    
    
    
    
    
    
    
    64,893Interest expense, net
    
    
    21,179
    
    
    
    
    
    
    
    
    
    
    
    21,179Depreciation and amortization
    
    
    21,686
    
    
    
    895
    
    
    
    
    
    
    
    22,581Management fees
    
    
    1,187
    
    
    
    
    
    
    
    
    
    
    
    1,187Earnings from continuing operations before
gain on disposal of assets, minority
interests and income taxes
    
    
    9,301
    
    
    
    10,645
    
    
    
    
    
    
    
    19,946Gain on disposal of assets, net
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Minority interests
    
    
    (758
    )
    
    
    
    
    
    
    
    
    
    
    (758
    )Earnings from continuing operations
before income taxes
    
    $
    8,605
    
    
    $
    10,645
    
    
    $
    
    
    
    $
    19,250Segment assets
    
    $
    2,042,785
    
    
    $
    158,379
    
    
    
    
    
    
    $
    2,201,164Capital expenditures  continuing operations
    
    $
    30,504
    
    
    $
    96
    
    
    
    
    
    
    $
    30,600Goodwill
    
    $
    750,836
    
    
    $
    5,757
    
    
    
    
    
    
    $
    756,593
 (1)
    
    Adjusted EBITDA represents net earnings from continuing operations before interest expense,
income tax expense, depreciation and amortization, gain on disposal of assets, minority
interests and management fees. Management fees represent monitoring and advisory fees paid to
TPG, the Companys majority financial sponsor, and certain other members of IASIS Investment
LLC, majority shareholder of IAS. Management routinely calculates and communicates adjusted
EBITDA and believes that it is useful to investors because it is commonly used as an
analytical indicator within the healthcare industry to evaluate hospital performance, allocate
resources and measure leverage capacity and debt service ability. In addition, the Company
uses adjusted EBITDA as a measure of performance for its business segments and for incentive
compensation purposes. Adjusted EBITDA should not be considered as a measure of financial
performance under GAAP, and the items excluded from adjusted EBITDA are significant components
in understanding and assessing financial performance. Adjusted EBITDA should not be considered
in isolation or as an alternative to net earnings, cash flows generated by operating,
investing, or financing activities or other financial statement data presented in the
condensed consolidated financial statements as an indicator of financial performance or
liquidity. Adjusted EBITDA, as presented, differs from what is defined under the Companys
senior secured credit facilities and may not be comparable to similarly titled measures of
other companies.  11




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 7. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 3 4
   12




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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    92,176
    
    
    $
    663
    
    
    $
    
    
    
    $
    92,839Accounts receivable, net
    
    
    
    
    
    
    102,623
    
    
    
    128,748
    
    
    
    
    
    
    
    231,371Inventories
    
    
    
    
    
    
    21,128
    
    
    
    28,592
    
    
    
    
    
    
    
    49,720Deferred income taxes
    
    
    39,511
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,511Prepaid expenses and other
current assets
    
    
    
    
    
    
    21,994
    
    
    
    38,955
    
    
    
    
    
    
    
    60,949Total current assets
    
    
    39,511
    
    
    
    237,921
    
    
    
    196,958
    
    
    
    
    
    
    
    474,390Property and equipment, net
    
    
    
    
    
    
    360,728
    
    
    
    647,683
    
    
    
    
    
    
    
    1,008,411Intercompany
    
    
    
    
    
    
    (181,091
    )
    
    
    181,091
    
    
    
    
    
    
    
    Net investment in and advances
to subsidiaries
    
    
    1,706,280
    
    
    
    
    
    
    
    
    
    
    
    (1,706,280
    )
    
    
    Goodwill
    
    
    18,609
    
    
    
    128,810
    
    
    
    633,144
    
    
    
    
    
    
    
    780,563Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    32,250
    
    
    
    
    
    
    
    32,250Other assets, net
    
    
    17,468
    
    
    
    12,069
    
    
    
    5,403
    
    
    
    
    
    
    
    34,940Total assets
    
    $
    1,781,868
    
    
    $
    558,437
    
    
    $
    1,696,529
    
    
    $
    (1,706,280
    )
    
    $
    2,330,554Liabilities and Members
EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    28,080
    
    
    $
    39,100
    
    
    $
    
    
    
    $
    67,180Salaries and benefits payable
    
    
    
    
    
    
    21,312
    
    
    
    22,040
    
    
    
    
    
    
    
    43,352Accrued interest payable
    
    
    2,261
    
    
    
    (3,223
    )
    
    
    3,223
    
    
    
    
    
    
    
    2,261Medical claims payable
    
    
    
    
    
    
    
    
    
    
    107,359
    
    
    
    
    
    
    
    107,359Other accrued expenses and
other current liabilities
    
    
    
    
    
    
    41,990
    
    
    
    9,164
    
    
    
    
    
    
    
    51,154Current portion of long-term
debt and capital lease
obligations
    
    
    6,042
    
    
    
    1,276
    
    
    
    15,274
    
    
    
    (15,274
    )
    
    
    7,318Total current liabilities
    
    
    8,303
    
    
    
    89,435
    
    
    
    196,160
    
    
    
    (15,274
    )
    
    
    278,624Long-term debt and capital
lease obligations
    
    
    1,095,233
    
    
    
    7,642
    
    
    
    584,236
    
    
    
    (584,236
    )
    
    
    1,102,875Deferred income taxes
    
    
    113,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113,118Other long-term liabilities
    
    
    
    
    
    
    40,437
    
    
    
    5,529
    
    
    
    
    
    
    
    45,966Minority interests
    
    
    
    
    
    
    50,402
    
    
    
    
    
    
    
    
    
    
    
    50,402Total liabilities
    
    
    1,216,654
    
    
    
    187,916
    
    
    
    785,925
    
    
    
    (599,510
    )
    
    
    1,590,985Members equity
    
    
    565,214
    
    
    
    370,521
    
    
    
    910,604
    
    
    
    (1,106,770
    )
    
    
    739,569Total liabilities and
members equity
    
    $
    1,781,868
    
    
    $
    558,437
    
    
    $
    1,696,529
    
    
    $
    (1,706,280
    )
    
    $
    2,330,554
  13




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    80,336
    
    
    $
    402
    
    
    $
    
    
    
    $
    80,738Accounts receivable, net
    
    
    
    
    
    
    101,455
    
    
    
    122,683
    
    
    
    
    
    
    
    224,138Inventories
    
    
    
    
    
    
    22,236
    
    
    
    27,218
    
    
    
    
    
    
    
    49,454Deferred income taxes
    
    
    38,860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,860Prepaid expenses and other
current assets
    
    
    
    
    
    
    19,703
    
    
    
    40,350
    
    
    
    
    
    
    
    60,053Total current assets
    
    
    38,860
    
    
    
    223,730
    
    
    
    190,653
    
    
    
    
    
    
    
    453,243Property and equipment, net
    
    
    
    
    
    
    366,193
    
    
    
    638,055
    
    
    
    
    
    
    
    1,004,248Intercompany
    
    
    
    
    
    
    (186,907
    )
    
    
    186,907
    
    
    
    
    
    
    
    Net investment in and advances
to subsidiaries
    
    
    1,717,907
    
    
    
    
    
    
    
    
    
    
    
    (1,717,907
    )
    
    
    Goodwill
    
    
    18,609
    
    
    
    128,991
    
    
    
    632,999
    
    
    
    
    
    
    
    780,599Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    33,000Other assets, net
    
    
    18,210
    
    
    
    12,944
    
    
    
    5,903
    
    
    
    
    
    
    
    37,057Total assets
    
    $
    1,793,586
    
    
    $
    544,951
    
    
    $
    1,687,517
    
    
    $
    (1,717,907
    )
    
    $
    2,308,147Liabilities and Members
EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    25,051
    
    
    $
    39,800
    
    
    $
    
    
    
    $
    64,851Salaries and benefits payable
    
    
    
    
    
    
    16,905
    
    
    
    14,902
    
    
    
    
    
    
    
    31,807Accrued interest payable
    
    
    12,460
    
    
    
    (3,242
    )
    
    
    3,242
    
    
    
    
    
    
    
    12,460Medical claims payable
    
    
    
    
    
    
    
    
    
    
    97,343
    
    
    
    
    
    
    
    97,343Other accrued expenses and
other current liabilities
    
    
    
    
    
    
    38,621
    
    
    
    13,181
    
    
    
    
    
    
    
    51,802Current portion of long-term
debt and capital lease
obligations
    
    
    6,042
    
    
    
    1,581
    
    
    
    15,255
    
    
    
    (15,255
    )
    
    
    7,623Total current liabilities
    
    
    18,502
    
    
    
    78,916
    
    
    
    183,723
    
    
    
    (15,255
    )
    
    
    265,886Long-term debt and capital
lease obligations
    
    
    1,098,928
    
    
    
    8,071
    
    
    
    588,172
    
    
    
    (588,172
    )
    
    
    1,106,999Deferred income taxes
    
    
    111,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,092Other long-term liabilities
    
    
    
    
    
    
    43,871
    
    
    
    655
    
    
    
    
    
    
    
    44,526Minority interests
    
    
    
    
    
    
    51,875
    
    
    
    
    
    
    
    
    
    
    
    51,875Total liabilities
    
    
    1,228,522
    
    
    
    182,733
    
    
    
    772,550
    
    
    
    (603,427
    )
    
    
    1,580,378Members equity
    
    
    565,064
    
    
    
    362,218
    
    
    
    914,967
    
    
    
    (1,114,480
    )
    
    
    727,769Total liabilities and
members equity
    
    $
    1,793,586
    
    
    $
    544,951
    
    
    $
    1,687,517
    
    
    $
    (1,717,907
    )
    
    $
    2,308,147
  14




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    161,758
    
    
    $
    238,386
    
    
    $
    (1,697
    )
    
    $
    398,447Premium revenue
    
    
    
    
    
    
    
    
    
    
    163,177
    
    
    
    
    
    
    
    163,177Total net revenue
    
    
    
    
    
    
    161,758
    
    
    
    401,563
    
    
    
    (1,697
    )
    
    
    561,624Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    80,594
    
    
    
    81,542
    
    
    
    
    
    
    
    162,136Supplies
    
    
    
    
    
    
    25,074
    
    
    
    34,752
    
    
    
    
    
    
    
    59,826Medical claims
    
    
    
    
    
    
    
    
    
    
    138,699
    
    
    
    (1,697
    )
    
    
    137,002Other operating expenses
    
    
    
    
    
    
    29,098
    
    
    
    50,252
    
    
    
    
    
    
    
    79,350Provision for bad debts
    
    
    
    
    
    
    24,080
    
    
    
    23,051
    
    
    
    
    
    
    
    47,131Rentals and leases
    
    
    
    
    
    
    4,047
    
    
    
    5,432
    
    
    
    
    
    
    
    9,479Interest expense, net
    
    
    18,978
    
    
    
    
    
    
    
    13,844
    
    
    
    (13,844
    )
    
    
    18,978Depreciation and amortization
    
    
    
    
    
    
    11,268
    
    
    
    13,728
    
    
    
    
    
    
    
    24,996Management fees
    
    
    1,250
    
    
    
    (5,139
    )
    
    
    5,139
    
    
    
    
    
    
    
    1,250Equity in earnings of affiliates
    
    
    (26,421
    )
    
    
    
    
    
    
    
    
    
    
    26,421
    
    
    
    Total costs and expenses
    
    
    (6,193
    )
    
    
    169,022
    
    
    
    366,439
    
    
    
    10,880
    
    
    
    540,148Earnings (loss) from continuing
operations before gain on disposal
of assets, minority interests and
income taxes
    
    
    6,193
    
    
    
    (7,264
    )
    
    
    35,124
    
    
    
    (12,577
    )
    
    
    21,476Gain on disposal of assets, net
    
    
    
    
    
    
    1,271
    
    
    
    22
    
    
    
    
    
    
    
    1,293Minority interests
    
    
    
    
    
    
    (1,597
    )
    
    
    
    
    
    
    
    
    
    
    (1,597
    )Earnings (loss) from continuing
operations before income taxes
    
    
    6,193
    
    
    
    (7,590
    )
    
    
    35,146
    
    
    
    (12,577
    )
    
    
    21,172Income tax expense
    
    
    8,811
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,811Net earnings (loss) from
continuing operations
    
    
    (2,618
    )
    
    
    (7,590
    )
    
    
    35,146
    
    
    
    (12,577
    )
    
    
    12,361Earnings (loss) from discontinued
operations, net of income taxes
    
    
    424
    
    
    
    (1,150
    )
    
    
    15
    
    
    
    
    
    
    
    (711
    )Net earnings (loss)
    
    $
    (2,194
    )
    
    $
    (8,740
    )
    
    $
    35,161
    
    
    $
    (12,577
    )
    
    $
    11,650
  15




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    159,935
    
    
    $
    208,504
    
    
    $
    (2,329
    )
    
    $
    366,110Premium revenue
    
    
    
    
    
    
    
    
    
    
    126,627
    
    
    
    
    
    
    
    126,627Total net revenue
    
    
    
    
    
    
    159,935
    
    
    
    335,131
    
    
    
    (2,329
    )
    
    
    492,737Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    79,570
    
    
    
    75,996
    
    
    
    
    
    
    
    155,566Supplies
    
    
    
    
    
    
    27,429
    
    
    
    28,823
    
    
    
    
    
    
    
    56,252Medical claims
    
    
    
    
    
    
    
    
    
    
    106,209
    
    
    
    (2,329
    )
    
    
    103,880Other operating expenses
    
    
    
    
    
    
    26,923
    
    
    
    38,447
    
    
    
    
    
    
    
    65,370Provision for bad debts
    
    
    
    
    
    
    18,975
    
    
    
    19,174
    
    
    
    
    
    
    
    38,149Rentals and leases
    
    
    
    
    
    
    3,569
    
    
    
    5,058
    
    
    
    
    
    
    
    8,627Interest expense, net
    
    
    21,179
    
    
    
    
    
    
    
    13,750
    
    
    
    (13,750
    )
    
    
    21,179Depreciation and amortization
    
    
    
    
    
    
    10,118
    
    
    
    12,463
    
    
    
    
    
    
    
    22,581Management fees
    
    
    1,187
    
    
    
    (4,525
    )
    
    
    4,525
    
    
    
    
    
    
    
    1,187Equity in earnings of affiliates
    
    
    (27,080
    )
    
    
    
    
    
    
    
    
    
    
    27,080
    
    
    
    Total costs and expenses
    
    
    (4,714
    )
    
    
    162,059
    
    
    
    304,445
    
    
    
    11,001
    
    
    
    472,791Earnings (loss) from continuing
operations before gain (loss) on
disposal of assets, minority
interests and income taxes
    
    
    4,714
    
    
    
    (2,124
    )
    
    
    30,686
    
    
    
    (13,330
    )
    
    
    19,946Gain (loss) on disposal of assets, net
    
    
    
    
    
    
    65
    
    
    
    (3
    )
    
    
    
    
    
    
    62Minority interests
    
    
    
    
    
    
    (758
    )
    
    
    
    
    
    
    
    
    
    
    (758
    )Earnings (loss) from continuing
operations before income taxes
    
    
    4,714
    
    
    
    (2,817
    )
    
    
    30,683
    
    
    
    (13,330
    )
    
    
    19,250Income tax expense
    
    
    7,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,787Net earnings (loss) from continuing
operations
    
    
    (3,073
    )
    
    
    (2,817
    )
    
    
    30,683
    
    
    
    (13,330
    )
    
    
    11,463Earnings (loss) from discontinued
operations, net of income taxes
    
    
    38
    
    
    
    89
    
    
    
    (875
    )
    
    
    
    
    
    
    (748
    )Net earnings (loss)
    
    $
    (3,035
    )
    
    $
    (2,728
    )
    
    $
    29,808
    
    
    $
    (13,330
    )
    
    $
    10,715
  16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    (2,194
    )
    
    $
    (8,740
    )
    
    $
    35,161
    
    
    $
    (12,577
    )
    
    $
    11,650Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:Loss (earnings) from discontinued operations
    
    
    (424
    )
    
    
    1,150
    
    
    
    (15
    )
    
    
    
    
    
    
    711Depreciation and amortization
    
    
    
    
    
    
    11,268
    
    
    
    13,728
    
    
    
    
    
    
    
    24,996Amortization of loan costs
    
    
    743
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    743Minority interests
    
    
    
    
    
    
    1,597
    
    
    
    
    
    
    
    
    
    
    
    1,597Deferred income taxes
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050Gain on disposal of assets, net
    
    
    
    
    
    
    (1,271
    )
    
    
    (22
    )
    
    
    
    
    
    
    (1,293
    )Stock compensation costs
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141Equity in earnings of affiliates
    
    
    (26,421
    )
    
    
    
    
    
    
    
    
    
    
    26,421
    
    
    
    Changes in
operating assets and liabilities, net of the effect of dispositions:Accounts receivable, net
    
    
    
    
    
    
    (2,670
    )
    
    
    (6,054
    )
    
    
    
    
    
    
    (8,724
    )Inventories, prepaid expenses and other
current assets
    
    
    
    
    
    
    (1,160
    )
    
    
    21
    
    
    
    
    
    
    
    (1,139
    )Accounts payable, other accrued expenses
and other accrued liabilities
    
    
    (10,199
    )
    
    
    14,973
    
    
    
    7,777
    
    
    
    
    
    
    
    12,551Net cash provided by (used in) operating
activities  continuing operations
    
    
    (37,304
    )
    
    
    15,147
    
    
    
    50,596
    
    
    
    13,844
    
    
    
    42,283Net cash provided by (used in) operating
activities  discontinued operations
    
    
    (424
    )
    
    
    1,544
    
    
    
    (116
    )
    
    
    
    
    
    
    1,004Net cash provided by (used in) operating
activities
    
    
    (37,728
    )
    
    
    16,691
    
    
    
    50,480
    
    
    
    13,844
    
    
    
    43,287Cash flows from investing activitiesPurchases of property and equipment, net
    
    
    
    
    
    
    (6,654
    )
    
    
    (22,798
    )
    
    
    
    
    
    
    (29,452
    )Proceeds from sale of assets
    
    
    
    
    
    
    2,650
    
    
    
    2,230
    
    
    
    
    
    
    
    4,880Change in other assets, net
    
    
    
    
    
    
    (597
    )
    
    
    1,475
    
    
    
    
    
    
    
    878Net cash
used in investing activities 
continuing operations
    
    
    
    
    
    
    (4,601
    )
    
    
    (19,093
    )
    
    
    
    
    
    
    (23,694
    )Net cash provided by investing activities 
discontinued operations
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Net cash used in investing activities
    
    
    
    
    
    
    (4,594
    )
    
    
    (19,093
    )
    
    
    
    
    
    
    (23,687
    )Cash flows from financing activitiesPayment of debt and capital lease obligations
    
    
    (3,734
    )
    
    
    (149
    )
    
    
    (546
    )
    
    
    
    
    
    
    (4,429
    )Distribution of minority interests
    
    
    
    
    
    
    (80
    )
    
    
    (1,606
    )
    
    
    
    
    
    
    (1,686
    )Costs paid
for partnership interests, net
    
    
    
    
    
    
    (1,384
    )
    
    
    
    
    
    
    
    
    
    
    (1,384
    )Change in intercompany balances with
affiliates, net
    
    
    41,462
    
    
    
    1,356
    
    
    
    (28,974
    )
    
    
    (13,844
    )
    
    
    Net cash provided by (used in) financing
activities  continuing operations
    
    
    37,728
    
    
    
    (257
    )
    
    
    (31,126
    )
    
    
    (13,844
    )
    
    
    (7,499
    )Net cash provided by financing activities 
discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    37,728
    
    
    
    (257
    )
    
    
    (31,126
    )
    
    
    (13,844
    )
    
    
    (7,499
    )Increase in cash and cash equivalents
    
    
    
    
    
    
    11,840
    
    
    
    261
    
    
    
    
    
    
    
    12,101Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    80,336
    
    
    
    402
    
    
    
    
    
    
    
    80,738Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    92,176
    
    
    $
    663
    
    
    $
    
    
    
    $
    92,839
  17




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings (loss)
    
    $
    (3,035
    )
    
    $
    (2,728
    )
    
    $
    29,808
    
    
    $
    (13,330
    )
    
    $
    10,715Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:Loss (earnings) from discontinued operations
    
    
    (38
    )
    
    
    (89
    )
    
    
    875
    
    
    
    
    
    
    
    748Depreciation and amortization
    
    
    
    
    
    
    10,118
    
    
    
    12,463
    
    
    
    
    
    
    
    22,581Amortization of loan costs
    
    
    718
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    718Minority interests
    
    
    
    
    
    
    758
    
    
    
    
    
    
    
    
    
    
    
    758Deferred income taxes
    
    
    6,177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,177Loss (gain) on disposal of assets, net
    
    
    
    
    
    
    (65
    )
    
    
    3
    
    
    
    
    
    
    
    (62
    )Equity in earnings of affiliates
    
    
    (27,080
    )
    
    
    
    
    
    
    
    
    
    
    27,080
    
    
    
    Changes in
operating assets and liabilities, net of the effect of dispositions:Accounts receivable, net
    
    
    
    
    
    
    9,044
    
    
    
    (6,918
    )
    
    
    
    
    
    
    2,126Inventories, prepaid expenses and other
current assets
    
    
    
    
    
    
    (2,585
    )
    
    
    1,289
    
    
    
    
    
    
    
    (1,296
    )Accounts payable, other accrued expenses
and other accrued liabilities
    
    
    (14,968
    )
    
    
    (17,684
    )
    
    
    (6,011
    )
    
    
    
    
    
    
    (38,663
    )Net cash provided by (used in) operating
activities  continuing operations
    
    
    (38,226
    )
    
    
    (3,231
    )
    
    
    31,509
    
    
    
    13,750
    
    
    
    3,802Net cash provided by (used in) operating
activities  discontinued operations
    
    
    38
    
    
    
    (351
    )
    
    
    (573
    )
    
    
    
    
    
    
    (886
    )Net cash provided by (used in) operating
activities
    
    
    (38,188
    )
    
    
    (3,582
    )
    
    
    30,936
    
    
    
    13,750
    
    
    
    2,916Cash flows from investing activitiesPurchases of property and equipment, net
    
    
    
    
    
    
    (12,614
    )
    
    
    (17,986
    )
    
    
    
    
    
    
    (30,600
    )Proceeds from the sale of assets
    
    
    
    
    
    
    83
    
    
    
    266
    
    
    
    
    
    
    
    349Change in other assets, net
    
    
    
    
    
    
    1,048
    
    
    
    204
    
    
    
    
    
    
    
    1,252Net cash used in investing activities 
continuing operations
    
    
    
    
    
    
    (11,483
    )
    
    
    (17,516
    )
    
    
    
    
    
    
    (28,999
    )Net cash used in investing activities 
discontinued operations
    
    
    
    
    
    
    (240
    )
    
    
    
    
    
    
    
    
    
    
    (240
    )Net cash used in investing activities
    
    
    
    
    
    
    (11,723
    )
    
    
    (17,516
    )
    
    
    
    
    
    
    (29,239
    )Cash flows from financing activitiesProceeds from debt borrowings
    
    
    131,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131,300Payment of debt and capital lease obligations
    
    
    (104,383
    )
    
    
    (153
    )
    
    
    (920
    )
    
    
    
    
    
    
    (105,456
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,669
    )
    
    
    
    
    
    
    (1,669
    )Proceeds received from sale of partnership
interests, net
    
    
    
    
    
    
    2,266
    
    
    
    
    
    
    
    
    
    
    
    2,266Change in intercompany balances with
affiliates, net
    
    
    11,271
    
    
    
    16,952
    
    
    
    (14,473
    )
    
    
    (13,750
    )
    
    
    Net cash provided by (used in) financing
activities  continuing operations
    
    
    38,188
    
    
    
    19,065
    
    
    
    (17,062
    )
    
    
    (13,750
    )
    
    
    26,441Net cash used in financing activities 
discontinued operations
    
    
    
    
    
    
    (118
    )
    
    
    
    
    
    
    
    
    
    
    (118
    )Net cash provided by (used in) financing
activities
    
    
    38,188
    
    
    
    18,947
    
    
    
    (17,062
    )
    
    
    (13,750
    )
    
    
    26,323Increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    3,642
    
    
    
    (3,642
    )
    
    
    
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    (4,052
    )
    
    
    4,052
    
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    (410
    )
    
    $
    410
    
    
    $
    
    
    
    $
    
  18




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##### Table of Contents



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




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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;
    
    Las Vegas, Nevada; and
    
    West Monroe, Louisiana.
  Revenue and Volume Trends
  Acute Care Revenue
    20




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##### Table of Contents



QuarterEnded December 31,2008
    
    
    2007Medicare
    
    
    32.1
    %
    
    
    32.3
    %Managed Medicare
    
    
    4.9
    %
    
    
    3.3
    %Medicaid
    
    
    8.0
    %
    
    
    6.9
    %Managed Medicaid
    
    
    10.4
    %
    
    
    10.0
    %Managed care
    
    
    38.4
    %
    
    
    41.5
    %Self-pay and other
    
    
    6.2
    %
    
    
    6.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    21




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##### Table of Contents



Premium Revenue
       22




---



##### Table of Contents



Significant Industry Trends
  General Economic Environment
  Decreased Federal and State Funding for Medicaid Programs
  Value-Based Reimbursement
    23




---



##### Table of Contents



Implementation of Our Quality Initiatives
  
    
    Deployment of proprietary information systems to provide daily tracking of care
provided to patients in any core measures category;
    
    Implementation of a strategy to retain nurses, with a goal of ultimately providing an
improved continuum of care;
    
    Development and implementation of a hospital medical management program;
    
    Hiring of a Chief Quality Officer;
    
    Ongoing training and education of medical and non-medical personnel related to quality
performance indicators;
    
    Monthly review of the quality indicators prescribed by CMS for reporting;
    
    Monitoring of quality measures in addition to those required to receive the full annual
payment update;
    
    Rapid response teams in place at all of our hospitals to provide more timely and
efficient care;
    
    Engagement of an external group to conduct unannounced mock Joint Commission surveys;
    
    Alignment of hospital management incentive compensation with quality performance
indicators; and
    
    Realignment of staffing to collect and report quality information and to facilitate
action plans to address areas for improvement.
 Physician Integration
    24




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##### Table of Contents



Growth in Uncompensated Care
   December 31,
    
    
    September 30,2008
    
    
    2008Insured receivables
    
    
    65.1
    %
    
    
    64.8
    %Uninsured receivables
    
    
    34.9
    %
    
    
    35.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   December 31,
    
    
    September 30,2008
    
    
    20080 to 90 days
    
    
    69.0
    %
    
    
    67.5
    %91 to 180 days
    
    
    17.2
    %
    
    
    17.9
    %Over 180 days
    
    
    13.8
    %
    
    
    14.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  25




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##### Table of Contents



Nursing Shortage
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  SELECTED OPERATING DATA
  QuarterEnded December 31,2008
    
    
    2007Acute Care(1):Number of acute care hospital facilities at end of period
    
    
    15
    
    
    
    15Beds in service at end of period (2)
    
    
    2,659
    
    
    
    2,611Average length of stay (days) (3)
    
    
    4.7
    
    
    
    4.6Occupancy rates (average beds in service)
    
    
    46.5
    %
    
    
    48.2
    %Admissions (4)
    
    
    24,150
    
    
    
    25,082Adjusted admissions (5)
    
    
    40,734
    
    
    
    40,839Patient days (6)
    
    
    113,697
    
    
    
    115,724Adjusted patient days (5)
    
    
    183,831
    
    
    
    180,626Net patient revenue per adjusted admission
    
    $
    9,667
    
    
    $
    8,887Health Choice:Medicaid covered lives
    
    
    161,511
    
    
    
    124,143Dual-eligible lives (7)
    
    
    3,356
    
    
    
    3,457Medical loss ratio (8)
    
    
    85.0
    %
    
    
    83.9
    %
 (1)
    
    Excludes Mesa General Hospital, which was closed during fiscal 2008.(2)
    
    Includes St. Lukes Behavioral Hospital.(3)
    
    Represents the average number of days that a patient stayed in our hospitals.(4)
    
    Represents the total number of patients admitted to our hospitals for stays in excess of 23
hours. Management and investors use this number as a general measure of inpatient volume.  26




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##### Table of Contents



(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.  27




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##### Table of Contents



RESULTS OF OPERATIONS SUMMARY
 Consolidated
  Quarter Ended
    
    
    Quarter EndedDecember 31, 2008
    
    
    December 31, 2007($ in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    398,447
    
    
    
    70.9
    %
    
    $
    366,110
    
    
    
    74.3
    %Premium revenue
    
    
    163,177
    
    
    
    29.1
    %
    
    
    126,627
    
    
    
    25.7
    %Total net revenue
    
    
    561,624
    
    
    
    100.0
    %
    
    
    492,737
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    162,136
    
    
    
    28.9
    %
    
    
    155,566
    
    
    
    31.6
    %Supplies
    
    
    59,826
    
    
    
    10.7
    %
    
    
    56,252
    
    
    
    11.4
    %Medical claims
    
    
    137,002
    
    
    
    24.4
    %
    
    
    103,880
    
    
    
    21.1
    %Other operating expenses
    
    
    79,350
    
    
    
    14.1
    %
    
    
    65,370
    
    
    
    13.3
    %Provision for bad debts
    
    
    47,131
    
    
    
    8.4
    %
    
    
    38,149
    
    
    
    7.7
    %Rentals and leases
    
    
    9,479
    
    
    
    1.7
    %
    
    
    8,627
    
    
    
    1.8
    %Interest expense, net
    
    
    18,978
    
    
    
    3.4
    %
    
    
    21,179
    
    
    
    4.3
    %Depreciation and amortization
    
    
    24,996
    
    
    
    4.4
    %
    
    
    22,581
    
    
    
    4.6
    %Management fees
    
    
    1,250
    
    
    
    0.2
    %
    
    
    1,187
    
    
    
    0.2
    %Total costs and expenses
    
    
    540,148
    
    
    
    96.2
    %
    
    
    472,791
    
    
    
    96.0
    %Earnings from continuing operations before gain on
disposal of assets, minority interests and income
taxes
    
    
    21,476
    
    
    
    3.8
    %
    
    
    19,946
    
    
    
    4.0
    %Gain on disposal of assets, net
    
    
    1,293
    
    
    
    0.2
    %
    
    
    62
    
    
    
    0.0
    %Minority interests
    
    
    (1,597
    )
    
    
    (0.2
    )%
    
    
    (758
    )
    
    
    (0.1
    )%Earnings from continuing operations before income taxes
    
    
    21,172
    
    
    
    3.8
    %
    
    
    19,250
    
    
    
    3.9
    %Income tax expense
    
    
    8,811
    
    
    
    1.6
    %
    
    
    7,787
    
    
    
    1.6
    %Net earnings from continuing operations
    
    
    12,361
    
    
    
    2.2
    %
    
    
    11,463
    
    
    
    2.3
    %Loss from discontinued operations, net of income taxes
    
    
    (711
    )
    
    
    (0.1
    )%
    
    
    (748
    )
    
    
    (0.1
    )%Net earnings
    
    $
    11,650
    
    
    
    2.1
    %
    
    $
    10,715
    
    
    
    2.2
    %
  28




---



##### Table of Contents



Acute Care
  Quarter Ended
    
    
    Quarter EndedDecember 31, 2008
    
    
    December 31, 2007($ in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet revenue:Acute care revenue
    
    $
    398,447
    
    
    
    99.6
    %
    
    $
    366,110
    
    
    
    99.4
    %Revenue between segments (1)
    
    
    1,697
    
    
    
    0.4
    %
    
    
    2,330
    
    
    
    0.6
    %Total net revenue
    
    
    400,144
    
    
    
    100.0
    %
    
    
    368,440
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    157,232
    
    
    
    39.3
    %
    
    
    151,523
    
    
    
    41.1
    %Supplies
    
    
    59,741
    
    
    
    14.9
    %
    
    
    56,175
    
    
    
    15.2
    %Other operating expenses
    
    
    73,785
    
    
    
    18.4
    %
    
    
    60,898
    
    
    
    16.5
    %Provision for bad debts
    
    
    47,131
    
    
    
    11.8
    %
    
    
    38,149
    
    
    
    10.4
    %Rentals and leases
    
    
    9,101
    
    
    
    2.3
    %
    
    
    8,342
    
    
    
    2.3
    %Interest expense, net
    
    
    18,978
    
    
    
    4.8
    %
    
    
    21,179
    
    
    
    5.8
    %Depreciation and amortization
    
    
    24,125
    
    
    
    6.0
    %
    
    
    21,686
    
    
    
    5.9
    %Management fees
    
    
    1,250
    
    
    
    0.3
    %
    
    
    1,187
    
    
    
    0.3
    %Total costs and expenses
    
    
    391,343
    
    
    
    97.8
    %
    
    
    359,139
    
    
    
    97.5
    %Earnings from continuing operations before gain on
disposal of assets, minority interests and income
taxes
    
    
    8,801
    
    
    
    2.2
    %
    
    
    9,301
    
    
    
    2.5
    %Gain on disposal of assets, net
    
    
    1,293
    
    
    
    0.3
    %
    
    
    62
    
    
    
    0.0
    %Minority interests
    
    
    (1,597
    )
    
    
    (0.4
    )%
    
    
    (758
    )
    
    
    (0.2
    )%Earnings from continuing operations before income taxes
    
    $
    8,497
    
    
    
    2.1
    %
    
    $
    8,605
    
    
    
    2.3
    %
 (1)
    
    Revenue between segments is eliminated in our consolidated results. Acute care revenue
   Salaries and benefits
  29




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##### Table of Contents



Supplies
 Other operating expenses
 Provision for bad debts
 Interest expense, net
 Health Choice
  Quarter Ended
    
    
    Quarter EndedDecember 31, 2008
    
    
    December 31, 2007($ in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageRevenue:Premium revenue
    
    $
    163,177
    
    
    
    100.0
    %
    
    $
    126,627
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    4,904
    
    
    
    3.0
    %
    
    
    4,043
    
    
    
    3.2
    %Supplies
    
    
    85
    
    
    
    0.1
    %
    
    
    77
    
    
    
    0.1
    %Medical claims (1)
    
    
    138,699
    
    
    
    85.0
    %
    
    
    106,210
    
    
    
    83.9
    %Other operating expenses
    
    
    5,565
    
    
    
    3.4
    %
    
    
    4,472
    
    
    
    3.5
    %Rentals and leases
    
    
    378
    
    
    
    0.2
    %
    
    
    285
    
    
    
    0.2
    %Depreciation and amortization
    
    
    871
    
    
    
    0.5
    %
    
    
    895
    
    
    
    0.7
    %Total costs and expenses
    
    
    150,502
    
    
    
    92.2
    %
    
    
    115,982
    
    
    
    91.6
    %Earnings before income taxes
    
    $
    12,675
    
    
    
    7.8
    %
    
    $
    10,645
    
    
    
    8.4
    %
 (1)
    
    Medical claims paid to our hospitals of $1.7 million and $2.3 million for the quarters ended
December 31, 2008 and 2007, respectively, are eliminated in our consolidated results.  30




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##### Table of Contents



Premium revenue
 Medical claims
 LIQUIDITY AND CAPITAL RESOURCES
 Overview of Cash Flow Activities for the Quarters Ended December 31, 2008 and 2007
  QuarterEnded December 31,2008
    
    
    2007Cash flow from operating activities  continuing operations
    
    $
    42,283
    
    
    $
    3,802Cash flow from investing activities  continuing operations
    
    
    (23,694
    )
    
    
    (28,999
    )Cash flow from financing activities  continuing operations
    
    
    (7,499
    )
    
    
    26,441
 Operating Activities
   Investing Activities
  Financing Activities
   31




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##### Table of Contents



Capital Resources
 $854.0 Million Senior Secured Credit Facilities
       $475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
 3 4 3 4 3 4 3 4 3 4 3 4
  32




---



##### Table of Contents



$300.0 Million Holdings Senior PIK Loans
  Capital Expenditures
   
    
    $25.0 million to $30.0 million for the two patient tower expansions in Utah;
    
    $55.0 million to $60.0 million for other growth and new business projects;
    
    $40.0 million to $45.0 million in replacement or maintenance related projects at our
hospitals; and
    
    $10.0 million in hardware and software related costs in connection with the
implementation of our advanced clinical information system, as well as other information
systems projects.
 Liquidity
   Available
cash and cash equivalents
    
    $
    92.8Available capacity under our senior secured revolving credit facility
    
    
    157.3Net available liquidity at December 31, 2008
    
    $
    250.1
   33




---



##### Table of Contents



3 4
 3 4
 OFF-BALANCE SHEET ARRANGEMENTS
   SEASONALITY
  RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
  34




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##### Table of Contents



Business
Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  3 4 3 4
  
 Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
   35




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 qui tam qui tam qui
tam
 
 Item 1A. Risk Factors
  Congress Is Considering And May Enact Legislation That Would Impose Significant Restrictions On
Hospitals That Have Physician Owners, Including Our Hospitals That Have Physician Owners.
  
 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.
  36




---



##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: February 13, 2009
    
    By:
    
    /s/ John M. Doyle

John M. DoyleChief Accounting Officer
  37




---



##### 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.
  38