##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934
 For the transition period from
  to .
 COMMISSION FILE NUMBER: 333-117362
 IASIS HEALTHCARE LLC
  DELAWARE
    
    20-1150104(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)DOVER CENTRE
117 SEABOARD LANE, BUILDING E
FRANKLIN, TENNESSEE
(Address of principal executive offices)
    
    37067
(Zip Code)
 (615) 844-2747
  Not Applicable
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ




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##### 



TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1Consolidated Balance
Sheets  December 31, 2005 (Unaudited) and
September 30, 2005
    
    
    1Consolidated
Statements of Operations (Unaudited)  Three Months
Ended December 31, 2005 and 2004
    
    
    2Consolidated
Statements of Cash Flows (Unaudited)  Three Months
Ended December 31, 2005 and 2004
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4.
    
    Controls and Procedures
    
    
    37PART II.
    
    OTHER INFORMATION
    
    
    37Item 6.
    
    Exhibits
    
    
    37EX-10.1  AMENDMENT NO. 11 TO CONTRACTEX-10.2  AMENDMENT NO. 12 TO CONTRACTEX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATION
  i




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##### Table of Contents



PART 1
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 IASIS HEALTHCARE LLC
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands)
 (Unaudited)December 31,
    
    
    September 30,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    58,213
    
    
    $
    89,097Accounts receivable, net
    
    
    177,727
    
    
    
    166,456Inventories
    
    
    30,789
    
    
    
    29,866Deferred income taxes
    
    
    56,936
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    31,338
    
    
    
    25,236Total current assets
    
    
    355,003
    
    
    
    366,658Property and equipment, net
    
    
    658,237
    
    
    
    647,596Goodwill
    
    
    754,375
    
    
    
    754,375Other intangible assets, net
    
    
    41,250
    
    
    
    42,000Other assets, net
    
    
   41,755
    
    
    
    42,095Total assets
    
    $
    1,850,620
    
    
    $
    1,852,724LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    58,470
    
    
    $
    58,684Salaries and benefits payable
    
    
    33,094
    
    
    
    24,887Accrued interest payable
    
    
    8,707
    
    
    
    18,489Medical claims payable
    
    
    62,868
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    32,237
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    7,786
    
    
    
    7,757Total current liabilities
    
    
    203,162
    
    
    
    200,568Long-term debt and capital lease obligations
    
    
    894,984
    
    
    
    897,051Deferred income taxes
    
    
    76,493
    
    
    
    74,883Other long-term liabilities
    
    
    32,601
    
    
    
    36,801Minority interest
    
    
    25,271
    
    
    
    26,474Equity:Members equity
    
    
    618,109
    
    
    
    616,947Total liabilities and equity
    
    $
    1,850,620
    
    
    $
    1,852,724
 See accompanying notes. 1




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In Thousands)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2005
    
    
    December 31, 2004Net Revenue:Acute care revenue
    
    $
    286,427
    
    
    $
    283,774Premium revenue
    
    
    93,038
    
    
    
    86,201Total net revenue
    
    
    379,465
    
    
    
    369,975Costs and expenses:Salaries and benefits
    
    
    112,751
    
    
    
    106,509Supplies
    
    
    45,710
    
    
    
    45,366Medical claims
    
    
    79,189
    
    
    
    73,335Rents and leases
    
    
    8,510
    
    
    
    7,859Other operating expenses
    
    
    57,506
    
    
    
    53,036Provision for bad debts
    
    
    37,019
    
    
    
    32,255Interest expense, net
    
    
    17,156
    
    
    
    16,388Depreciation and amortization
    
    
    18,909
    
    
    
    16,506Management fees
    
    
    1,050
    
    
    
    958Total costs and expenses
    
    
    377,800
    
    
    
    352,212Earnings before loss on sale of assets,
minority interests and income taxes
    
    
    1,665
    
    
    
    17,763Loss on sale of assets, net
    
    
    (5
    )
    
    
    (73
    )Minority interests
    
    
    302
    
    
    
    (1,133
    )Earnings before income taxes
    
    
    1,962
    
    
    
    16,557Income tax expense
    
    
    800
    
    
    
    6,597Net earnings
    
    $
    1,162
    
    
    $
    9,960
 See accompanying notes. 2




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IASIS HEALTHCARE LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Three Months
    
    
    Three MonthsEnded
    
    
    EndedDecember 31, 2005
    
    
    December 31, 2004Cash flows from operating activities:Net earnings
    
    $
    1,162
    
    
    $
    9,960Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    18,909
    
    
    
    16,506Amortization of loan costs
    
    
    732
    
    
    
    1,718Minority interests
    
    
    (302
    )
    
    
    1,133Deferred income taxes
    
    
    677
    
    
    
    6,210Loss on sale of assets
    
    
    5
    
    
    
    73Changes in operating assets and liabilities:Accounts receivable
    
    
    (11,271
    )
    
    
    (7,872
    )Inventories, prepaid expenses and other
current
assets
    
    
    (7,023
    )
    
    
    (5,450
    )Accounts payable and other accrued liabilities
    
    
    1,820
    
    
    
    (7,799
    )Net cash provided by operating activities
    
    
    4,709
    
    
    
    14,479Cash flows from investing activities:Purchases of property and equipment
    
    
    (32,248
    )
    
    
    (46,125
    )Cash paid for acquisition
    
    
    
    
    
    
    (335
    )Change in other assets
    
    
    (405
    )
    
    
    (509
    )Net cash used in investing activities
    
    
    (32,653
    )
    
    
    (46,969
    )Cash flows from financing activities:Payment of debt and capital lease
    
    
    (2,040
    )
    
    
    (5,281
    )Proceeds from debt borrowings
    
    
    
    
    
    
    2,274Debt financing costs incurred
    
    
    
    
    
    
    (440
    )Distribution of minority interests
    
    
    (798
    )
    
    
    (1,591
    )Costs paid for hospital partnerships
    
    
    (102
    )
    
    
    Net cash used in financing activities
    
    
    (2,940
    )
    
    
    (5,038
    )Decrease in cash and cash equivalents
    
    
    (30,884
    )
    
    
    (37,528
    )Cash and cash equivalents at beginning of period
    
    
    89,097
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    58,213
    
    
    $
    61,277Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    27,455
    
    
    $
    22,598Cash paid for income taxes, net
    
    $
    314
    
    
    $
    9Supplemental schedule of noncash investing activities:Property and equipment in accounts payable
    
    $
    3,994
    
    
    $
    6,160
  3




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




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
   2. Recently Issued Accounting Pronouncements
 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
  5




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 3. Long-Term Debt and Capital Lease Obligations
  December 31,
    
    
    September 30,2005
    
    
    2005Senior secured credit facilities
    
    $
    418,625
    
    
    $
    419,688Senior subordinated notes
    
    
    475,000
    
    
    
    475,000Capital lease obligations and other
    
    
    9,145
    
    
    
    10,120902,770
    
    
    
    904,808Less current maturities
    
    
    7,786
    
    
    
    7,757$
    894,984
    
    
    $
    897,051
 Senior Secured Credit Facilities
      6




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
    8 3/4% Senior Subordinated Notes
    4. Stock Benefit Plans
   7




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 Three Months EndedDecember 31,2005
    
    
    2004Net earnings as reported
    
    $
    1,162
    
    
    $
    9,960Deduct: Total stock based employee
compensation determined under fair value
based method for all awards, net of related
tax effects
    
    
    (347
    )
    
    
    (234
    )Pro forma net earnings
    
    $
    815
    
    
    $
    9,726
  5. Contingencies
 Net Revenue
  Professional, General and Workers Compensation Liability Risks
   Health Choice
  8




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
   Capital Expenditure Commitments
  Variable Interest Entities
  Acquisitions
  9




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




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended December 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    286,427
    
    
    $
    
    
    
    $
    
    
    
    $
    286,427Premium revenue
    
    
    
    
    
    
    93,038
    
    
    
    
    
    
    
    93,038Revenue between segments
    
    
    2,097
    
    
    
    
    
    
    
    (2,097
    )
    
    
    Net revenue
    
    
    288,524
    
    
    
    93,038
    
    
    
    (2,097
    )
    
    
    379,465Salaries and benefits
    
    
    109,831
    
    
    
    2,920
    
    
    
    
    
    
    
    112,751Supplies
    
    
    45,652
    
    
    
    58
    
    
    
    
    
    
    
    45,710Medical claims
    
    
    
    
    
    
    81,286
    
    
    
    (2,097
    )
    
    
    79,189Rents and leases
    
    
    8,232
    
    
    
    278
    
    
    
    
    
    
    
    8,510Other operating expenses
    
    
    54,507
    
    
    
    2,999
    
    
    
    
    
    
    
    57,506Provision for bad debts
    
    
    37,019
    
    
    
    
    
    
    
    
    
    
    
    37,019Adjusted EBITDA(1)
    
    
    33,283
    
    
    
    5,497
    
    
    
    
    
    
    
    38,780Interest expense, net
    
    
    17,156
    
    
    
    
    
    
    
    
    
    
    
    17,156Depreciation and amortization
    
    
    18,071
    
    
    
    838
    
    
    
    
    
    
    
    18,909Management fees
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    1,050Earnings before loss on sale of assets,
minority interests and income taxes
    
    
    (2,994
    )
    
    
    4,659
    
    
    
    
    
    
    
    1,665Loss on sale of assets, net
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Minority interests
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Earnings (loss) before income taxes
    
    $
    (2,697
    )
    
    $
    4,659
    
    
    $
    
    
    
    $
    1,962Segment assets
    
    $
    1,744,737
    
    
    $
    105,883
    
    
    
    
    
    
    $
    1,850,620Capital expenditures
    
    $
    32,170
    
    
    $
    78
    
    
    
    
    
    
    $
    32,248Goodwill
    
    $
    748,618
    
    
    $
    5,757
    
    
    
    
    
    
    $
    754,375
 11




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 For the Three Months Ended December 31, 2004Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    283,774
    
    
    $
    
    
    
    $
    
    
    
    $
    283,774Premium revenue
    
    
    
    
    
    
    86,201
    
    
    
    
    
    
    
    86,201Revenue between segments
    
    
    2,224
    
    
    
    
    
    
    
    (2,224
    )
    
    
    Net revenue
    
    
    285,998
    
    
    
    86,201
    
    
    
    (2,224
    )
    
    
    369,975Salaries and benefits
    
    
    103,789
    
    
    
    2,720
    
    
    
    
    
    
    
    106,509Supplies
    
    
    45,315
    
    
    
    51
    
    
    
    
    
    
    
    45,366Medical claims
    
    
    
    
    
    
    75,559
    
    
    
    (2,224
    )
    
    
    73,335Rents and leases
    
    
    7,642
    
    
    
    217
    
    
    
    
    
    
    
    7,859Other operating expenses
    
    
    50,199
    
    
    
    2,837
    
    
    
    
    
    
    
    53,036Provision for bad debts
    
    
    32,255
    
    
    
    
    
    
    
    
    
    
    
    32,255Adjusted EBITDA(1)
    
    
    46,798
    
    
    
    4,817
    
    
    
    
    
    
    
    51,615Interest expense, net
    
    
    16,388
    
    
    
    
    
    
    
    
    
    
    
    16,388Depreciation and amortization
    
    
    15,766
    
    
    
    740
    
    
    
    
    
    
    
    16,506Management fees
    
    
    958
    
    
    
    
    
    
    
    
    
    
    
    958Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    13,686
    
    
    
    4,077
    
    
    
    
    
    
    
    17,763Loss on sale of assets, net
    
    
    (73
    )
    
    
    
    
    
    
    
    
    
    
    (73
    )Minority interests
    
    
    (1,133
    )
    
    
    
    
    
    
    
    
    
    
    (1,133
    )Earnings before income taxes
    
    $
    12,480
    
    
    $
    4,077
    
    
    $
    
    
    
    $
    16,557Segment assets
    
    $
    1,631,455
    
    
    $
    86,556
    
    
    
    
    
    
    $
    1,718,011Capital Expenditures
    
    $
    46,088
    
    
    $
    37
    
    
    
    
    
    
    $
    46,125Goodwill
    
    $
    252,204
    
    
    $
    
    
    
    
    
    
    
    $
    252,204
 
 (1)
    
    Adjusted EBITDA represents net earnings (loss) 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. 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. 7.   Impact of Hurricane Rita
   12




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 8. Supplemental Condensed Consolidating Financial Information
   13




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    57,713
    
    
    $
    500
    
    
    $
    
    
    
    $
    58,213Accounts receivable, net
    
    
    
    
    
    
    130,708
    
    
    
    47,019
    
    
    
    
    
    
    
    177,727Inventories
    
    
    
    
    
    
    22,076
    
    
    
    8,713
    
    
    
    
    
    
    
    30,789Deferred income taxes
    
    
    56,936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,936Prepaid expenses and other current assets
    
    
    
    
    
    
    15,353
    
    
    
    15,985
    
    
    
    
    
    
    
    31,338Total current assets
    
    
    56,936
    
    
    
    225,850
    
    
    
    72,217
    
    
    
    
    
    
    
    355,003Property and equipment, net
    
    
    
    
    
    
    404,978
    
    
    
    253,259
    
    
    
    
    
    
    
    658,237Intercompany
    
    
    
    
    
    
    (93,360
    )
    
    
    93,360
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,448,620
    
    
    
    
    
    
    
    
    
    
    
    (1,448,620
    )
    
    
    Goodwill
    
    
    22,128
    
    
    
    230,941
    
    
    
    501,306
    
    
    
    
    
    
    
    754,375Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    41,250
    
    
    
    
    
    
    
    41,250Other assets, net
    
    
    22,943
    
    
    
    15,329
    
    
    
    3,483
    
    
    
    
    
    
    
    41,755Total assets
    
    $
    1,550,627
    
    
    $
    783,738
    
    
    $
    964,875
    
    
    $
    (1,448,620
    )
    
    $
    1,850,620Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    40,635
    
    
    $
    17,835
    
    
    $
    
    
    
    $
    58,470Salaries and benefits payable
    
    
    
    
    
    
    25,021
    
    
    
    8,073
    
    
    
    
    
    
    
    33,094Accrued interest payable
    
    
    8,707
    
    
    
    (1,138
    )
    
    
    1,138
    
    
    
    
    
    
    
    8,707Medical claims payable
    
    
    
    
    
    
    
    
    
    
    62,868
    
    
    
    
    
    
    
    62,868Other accrued expenses and other current liabilities
    
    
    
    
    
    
    26,477
    
    
    
    5,760
    
    
    
    
    
    
    
    32,237Current
portion of long-term debt and capital lease obligations
    
    
    4,402
    
    
    
    2,242
    
    
    
    5,892
    
    
    
    (4,750
    )
    
    
    7,786Total current liabilities
    
    
    13,109
    
    
    
    93,237
    
    
    
    101,566
    
    
    
    (4,750
    )
    
    
    203,162Long-term debt and capital lease obligations
    
    
    889,375
    
    
    
    4,497
    
    
    
    203,105
    
    
    
    (201,993
    )
    
    
    894,984Deferred income taxes
    
    
    76,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,493Other long-term liabilities
    
    
    
    
    
    
    32,577
    
    
    
    24
    
    
    
    
    
    
    
    32,601Minority interest
    
    
    
    
    
    
    25,271
    
    
    
    
    
    
    
    
    
    
    
    25,271Members equity
    
    
    571,650
    
    
    
    628,156
    
    
    
    660,180
    
    
    
    (1,241,877
    )
    
    
    618,109Total liabilities and equity
    
    $
    1,550,627
    
    
    $
    783,738
    
    
    $
    964,875
    
    
    $
    (1,448,620
    )
    
    $
    1,850,620
 14




---



##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    88,597
    
    
    $
    500
    
    
    $
    
    
    
    $
    89,097Accounts receivable, net
    
    
    
    
    
    
    120,853
    
    
    
    45,603
    
    
    
    
    
    
    
    166,456Inventories
    
    
    
    
    
    
    21,204
    
    
    
    8,662
    
    
    
    
    
    
    
    29,866Deferred income taxes
    
    
    56,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,003Prepaid expenses and other current assets
    
    
    
    
    
    
    11,576
    
    
    
    13,660
    
    
    
    
    
    
    
    25,236Total current assets
    
    
    56,003
    
    
    
    242,230
    
    
    
    68,425
    
    
    
    
    
    
    
    366,658Property and equipment, net
    
    
    
    
    
    
    404,137
    
    
    
    243,459
    
    
    
    
    
    
    
    647,596Intercompany
    
    
    
    
    
    
    (111,074
    )
    
    
    111,074
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,458,056
    
    
    
    
    
    
    
    
    
    
    
    (1,458,056
    )
    
    
    Goodwill
    
    
    22,128
    
    
    
    230,941
    
    
    
    501,306
    
    
    
    
    
    
    
    754,375Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    42,000
    
    
    
    
    
    
    
    42,000Other assets, net
    
    
    23,675
    
    
    
    14,834
    
    
    
    3,586
    
    
    
    
    
    
    
    42,095Total assets
    
    $
    1,559,862
    
    
    $
    781,068
    
    
    $
    969,850
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    42,415
    
    
    $
    16,269
    
    
    $
    
    
    
    $
    58,684Salaries and benefits payable
    
    
    
    
    
    
    19,151
    
    
    
    5,736
    
    
    
    
    
    
    
    24,887Accrued interest payable
    
    
    18,489
    
    
    
    (1,070
    )
    
    
    1,070
    
    
    
    
    
    
    
    18,489Medical claims payable
    
    
    
    
    
    
    
    
    
    
    60,201
    
    
    
    
    
    
    
    60,201Other accrued expenses and other current liabilities
    
    
    
    
    
    
    26,220
    
    
    
    4,330
    
    
    
    
    
    
    
    30,550Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    2,241
    
    
    
    5,992
    
    
    
    (4,878
    )
    
    
    7,757Total current liabilities
    
    
    22,891
    
    
    
    88,957
    
    
    
    93,598
    
    
    
    (4,878
    )
    
    
    200,568Long-term debt and capital lease obligations
    
    
    890,438
    
    
    
    5,198
    
    
    
    204,489
    
    
    
    (203,074
    )
    
    
    897,051Deferred income taxes
    
    
    74,883
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,883Other long-term liabilities
    
    
    
    
    
    
    36,801
    
    
    
    
    
    
    
    
    
    
    
    36,801Minority interest
    
    
    
    
    
    
    26,474
    
    
    
    
    
    
    
    
    
    
    
    26,474Members equity
    
    
    571,650
    
    
    
    623,638
    
    
    
    671,763
    
    
    
    (1,250,104
    )
    
    
    616,947Total liabilities and equity
    
    $
    1,559,862
    
    
    $
    781,068
    
    
    $
    969,850
    
    
    $
    (1,458,056
    )
    
    $
    1,852,724
 15




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    206,860
    
    
    $
    81,664
    
    
    $
    (2,097
    )
    
    $
    286,427Premium revenue
    
    
    
    
    
    
    
    
    
    
    93,038
    
    
    
    
    
    
    
    93,038Total net revenue
    
    
    
    
    
    
    206,860
    
    
    
    174,702
    
    
    
    (2,097
    )
    
    
    379,465Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    81,223
    
    
    
    31,528
    
    
    
    
    
    
    
    112,751Supplies
    
    
    
    
    
    
    35,379
    
    
    
    10,331
    
    
    
    
    
    
    
    45,710Medical claims
    
    
    
    
    
    
    
    
    
    
    81,286
    
    
    
    (2,097
    )
    
    
    79,189Rents and leases
    
    
    
    
    
    
    5,983
    
    
    
    2,527
    
    
    
    
    
    
    
    8,510Other operating expenses
    
    
    
    
    
    
    41,469
    
    
    
    16,037
    
    
    
    
    
    
    
    57,506Provision for bad debts
    
    
    
    
    
    
    27,322
    
    
    
    9,697
    
    
    
    
    
    
    
    37,019Interest expense, net
    
    
    17,156
    
    
    
    
    
    
    
    3,774
    
    
    
    (3,774
    )
    
    
    17,156Depreciation and amortization
    
    
    
    
    
    
    12,487
    
    
    
    6,422
    
    
    
    
    
    
    
    18,909Management fees
    
    
    1,050
    
    
    
    (1,774
    )
    
    
    1,774
    
    
    
    
    
    
    
    1,050Equity in earnings of affiliates
    
    
    (16,418
    )
    
    
    
    
    
    
    
    
    
    
    16,418
    
    
    
    Total costs and expenses
    
    
    1,788
    
    
    
    202,089
    
    
    
    163,376
    
    
    
    10,547
    
    
    
    377,800Earnings before gain (loss) on
sale of assets, minority
interests, and income taxes
    
    
    (1,788
    )
    
    
    4,771
    
    
    
    11,326
    
    
    
    (12,644
    )
    
    
    1,665Gain (loss) on sale of assets, net
    
    
    
    
    
    
    11
    
    
    
    (16
    )
    
    
    
    
    
    
    (5
    )Minority interests
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Earnings (loss) before income taxes
    
    
    (1,788
    )
    
    
    5,084
    
    
    
    11,310
    
    
    
    (12,644
    )
    
    
    1,962Income tax expense
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Net earnings (loss)
    
    $
    (2,588
    )
    
    $
    5,084
    
    
    $
    11,310
    
    
    $
    (12,644
    )
    
    $
    1,162
 16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
 (in thousands)
 Subsidiary
    
    
    Subsidiary
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    202,906
    
    
    $
    83,092
    
    
    $
    (2,224
    )
    
    $
    283,774Premium revenue
    
    
    
    
    
    
    
    
    
    
    86,201
    
    
    
    
    
    
    
    86,201Total net revenue
    
    
    
    
    
    
    202,906
    
    
    
    169,293
    
    
    
    (2,224
    )
    
    
    369,975Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    77,065
    
    
    
    29,444
    
    
    
    
    
    
    
    106,509Supplies
    
    
    
    
    
    
    34,949
    
    
    
    10,417
    
    
    
    
    
    
    
    45,366Medical claims
    
    
    
    
    
    
    
    
    
    
    75,559
    
    
    
    (2,224
    )
    
    
    73,335Rents and leases
    
    
    
    
    
    
    5,473
    
    
    
    2,386
    
    
    
    
    
    
    
    7,859Other operating expenses
    
    
    
    
    
    
    38,129
    
    
    
    14,907
    
    
    
    
    
    
    
    53,036Provision for bad debts
    
    
    
    
    
    
    26,296
    
    
    
    5,959
    
    
    
    
    
    
    
    32,255Interest expense, net
    
    
    16,388
    
    
    
    
    
    
    
    2,435
    
    
    
    (2,435
    )
    
    
    16,388Depreciation and amortization
    
    
    
    
    
    
    11,808
    
    
    
    4,698
    
    
    
    
    
    
    
    16,506Management fees
    
    
    958
    
    
    
    (1,729
    )
    
    
    1,729
    
    
    
    
    
    
    
    958Equity in earnings of affiliates
    
    
    (31,468
    )
    
    
    
    
    
    
    
    
    
    
    31,468
    
    
    
    Total costs and expenses
    
    
    (14,122
    )
    
    
    191,991
    
    
    
    147,534
    
    
    
    26,809
    
    
    
    352,212Earnings before loss on sale of
assets, minority interests, and
income taxes
    
    
    14,122
    
    
    
    10,915
    
    
    
    21,759
    
    
    
    (29,033
    )
    
    
    17,763Loss on sale of assets, net
    
    
    
    
    
    
    (73
    )
    
    
    
    
    
    
    
    
    
    
    (73
    )Minority interests
    
    
    
    
    
    
    (1,133
    )
    
    
    
    
    
    
    
    
    
    
    (1,133
    )Earnings before income taxes
    
    
    14,122
    
    
    
    9,709
    
    
    
    21,759
    
    
    
    (29,033
    )
    
    
    16,557Income tax expense
    
    
    6,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,597Net earnings
    
    $
    7,525
    
    
    $
    9,709
    
    
    $
    21,759
    
    
    $
    (29,033
    )
    
    $
    9,960
 17




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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)
    
    $
    (2,588
    )
    
    $
    5,084
    
    
    $
    11,310
    
    
    $
    (12,644
    )
    
    $
    1,162Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    12,487
    
    
    
    6,422
    
    
    
    
    
    
    
    18,909Amortization of loan costs
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    732Minority interests
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    (302
    )Deferred income taxes
    
    
    677
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677(Gain) loss on sale of assets
    
    
    
    
    
    
    (11
    )
    
    
    16
    
    
    
    
    
    
    
    5Equity in earnings of affiliates
    
    
    (16,418
    )
    
    
    
    
    
    
    
    
    
    
    16,418
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (9,855
    )
    
    
    (1,416
    )
    
    
    
    
    
    
    (11,271
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (4,476
    )
    
    
    (2,547
    )
    
    
    
    
    
    
    (7,023
    )Accounts payable and other accrued liabilities
    
    
    (9,782
    )
    
    
    5,116
    
    
    
    6,486
    
    
    
    
    
    
    
    1,820Net cash provided by (used in) operating activities
    
    
    (27,379
    )
    
    
    8,043
    
    
    
    20,271
    
    
    
    3,774
    
    
    
    4,709Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (16,574
    )
    
    
    (15,674
    )
    
    
    
    
    
    
    (32,248
    )Change in other assets
    
    
    
    
    
    
    (498
    )
    
    
    93
    
    
    
    
    
    
    
    (405
    )Net cash used in investing activities
    
    
    
    
    
    
    (17,072
    )
    
    
    (15,581
    )
    
    
    
    
    
    
    (32,653
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    (1,101
    )
    
    
    (655
    )
    
    
    (284
    )
    
    
    
    
    
    
    (2,040
    )Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (798
    )
    
    
    
    
    
    
    (798
    )Change in intercompany balances with affiliates, net
    
    
    28,480
    
    
    
    (21,098
    )
    
    
    (3,608
    )
    
    
    (3,774
    )
    
    
    Costs paid for hospital partnerships
    
    
    
    
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    (102
    )Net cash provided by (used in) financing activities
    
    
    27,379
    
    
    
    (21,855
    )
    
    
    (4,690
    )
    
    
    (3,774
    )
    
    
    (2,940
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (30,884
    )
    
    
    
    
    
    
    
    
    
    
    (30,884
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    88,597
    
    
    
    500
    
    
    
    
    
    
    
    89,097Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    57,713
    
    
    $
    500
    
    
    $
    
    
    
    $
    58,213
 18




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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)
    
    $
    7,525
    
    
    $
    9,709
    
    
    $
    21,759
    
    
    $
    (29,033
    )
    
    $
    9,960Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    11,808
    
    
    
    4,698
    
    
    
    
    
    
    
    16,506Amortization of loan costs
    
    
    1,718
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,718Minority interests
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    1,133Deferred income taxes
    
    
    6,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,210Loss on sale of assets, net
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73Equity in earnings of affiliates
    
    
    (31,468
    )
    
    
    
    
    
    
    
    
    
    
    31,468
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (6,458
    )
    
    
    (1,414
    )
    
    
    
    
    
    
    (7,872
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (5,643
    )
    
    
    193
    
    
    
    
    
    
    
    (5,450
    )Accounts payable and other accrued liabilities
    
    
    (6,987
    )
    
    
    (1,837
    )
    
    
    1,025
    
    
    
    
    
    
    
    (7,799
    )Net cash provided by (used in) operating activities
    
    
    (23,002
    )
    
    
    8,785
    
    
    
    26,261
    
    
    
    2,435
    
    
    
    14,479Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (26,568
    )
    
    
    (19,557
    )
    
    
    
    
    
    
    (46,125
    )Cash paid for acquisition
    
    
    (335
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (335
    )Change in other assets
    
    
    
    
    
    
    (240
    )
    
    
    (269
    )
    
    
    
    
    
    
    (509
    )Net cash used in investing activities
    
    
    (335
    )
    
    
    (26,808
    )
    
    
    (19,826
    )
    
    
    
    
    
    
    (46,969
    )Cash flows from financing activitiesProceeds from debt borrowings
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274Payment of debt and capital leases
    
    
    (4,583
    )
    
    
    (404
    )
    
    
    (294
    )
    
    
    
    
    
    
    (5,281
    )Debt financing costs incurred
    
    
    (440
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (440
    )Change in intercompany balances with affiliates, net
    
    
    26,086
    
    
    
    (17,986
    )
    
    
    (5,665
    )
    
    
    (2,435
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,591
    )
    
    
    
    
    
    
    (1,591
    )Net cash provided by (used in) financing activities
    
    
    23,337
    
    
    
    (18,390
    )
    
    
    (7,550
    )
    
    
    (2,435
    )
    
    
    (5,038
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (36,413
    )
    
    
    (1,115
    )
    
    
    
    
    
    
    (37,528
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    97,463
    
    
    
    1,342
    
    
    
    
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    61,050
    
    
    $
    227
    
    
    $
    
    
    
    $
    61,277
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward Looking Statements
   20




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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.
     Revenue and Volume Trends
  21




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##### Table of Contents



Three MonthsEnded December 31,2005
    
    
    2004Medicare
    
    
    24.3
    %
    
    
    25.6
    %Medicaid
    
    
    13.8
    
    
    
    12.2Managed care
    
    
    44.7
    
    
    
    45.2Self-pay and other
    
    
    17.2
    
    
    
    17.0Total
    
    
    100.0
    %
    
    
    100.0
    %
     22




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##### Table of Contents




    
    a provision allocating $250.0 million per year for federal years 2005-2008 to
pay for healthcare costs of undocumented aliens;
    
    provisions generally providing hospitals with more reimbursement for outpatient
drugs;
    
    a provision increasing our reimbursement by reducing the labor share percentage
from 71% to 62% for hospitals with wage indices less than 1.0; and
    
    a provision eliminating the requirement that hospitals must obtain secondary
payment information from all Medicare beneficiaries receiving reference laboratory
services.
   Other Trends
  Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue
  23




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##### Table of Contents



December 31,
    
    
    September 30,2005
    
    
    2005Insured receivables
    
    
    61.8
    %
    
    
    60.2
    %Uninsured receivables
    
    
    38.2
    %
    
    
    39.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   December 31,
    
    
    September 30,2005
    
    
    20050 to 90 days
    
    
    65.3
    %
    
    
    63.1
    %90 to 180 days
    
    
    17.3
    %
    
    
    18.4
    %Over 180 days
    
    
    17.4
    %
    
    
    18.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Additional Charity Care and Charges to the Uninsured
  Development of Sub-Acute Care Services
  24




---



##### Table of Contents



Nursing Shortage
  Decreased Federal and State Funding for Medicaid Programs
  Growth in Outpatient Services
  Volatility of Insurance Costs
  Critical Accounting Policies and Estimates
  25




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##### Table of Contents



Selected Operating Data
  Three Months EndedDecember 31,2005
    
    
    2004Acute Care (1):Number of acute care hospitals at end of period (2)
    
    
    14
    
    
    
    15Beds in service at end of period
    
    
    2,228
    
    
    
    2,246Average length of stay (days) (3)
    
    
    4.5
    
    
    
    4.3Occupancy rates (average beds in service)
    
    
    48.0
    %
    
    
    46.0
    %Admissions (4)
    
    
    21,346
    
    
    
    21,906Adjusted admissions (5)
    
    
    34,923
    
    
    
    35,480Patient days (6)
    
    
    96,079
    
    
    
    95,140Adjusted patient days (5)
    
    
    151,820
    
    
    
    148,485Net patient revenue per adjusted admission
    
    $
    8,096
    
    
    $
    7,895Health Choice:Covered lives
    
    
    113,331
    
    
    
    108,970Medical loss ratio (7)
    
    
    87.4
    
    
    
    87.7
 
 (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 of Southeast Texas, 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.
 Results of Operations Summary
  26




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedDecember 31, 2005
    
    
    December 31, 2004Consolidated (in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet Revenue:Acute care revenue
    
    $
    286,427
    
    
    
    75.5
    %
    
    $
    283,774
    
    
    
    76.7
    %Premium revenue
    
    
    93,038
    
    
    
    24.5
    %
    
    
    86,201
    
    
    
    23.3
    %Total net revenue
    
    
    379,465
    
    
    
    100.0
    %
    
    
    369,975
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    112,751
    
    
    
    29.7
    %
    
    
    106,509
    
    
    
    28.8
    %Supplies
    
    
    45,710
    
    
    
    12.0
    %
    
    
    45,366
    
    
    
    12.3
    %Medical claims
    
    
    79,189
    
    
    
    20.9
    %
    
    
    73,335
    
    
    
    19.8
    %Rents and leases
    
    
    8,510
    
    
    
    2.2
    %
    
    
    7,859
    
    
    
    2.1
    %Other operating expenses
    
    
    57,506
    
    
    
    15.2
    %
    
    
    53,036
    
    
    
    14.3
    %Provision for bad debts
    
    
    37,019
    
    
    
    9.8
    %
    
    
    32,255
    
    
    
    8.7
    %Interest, net
    
    
    17,156
    
    
    
    4.5
    %
    
    
    16,388
    
    
    
    4.4
    %Depreciation and amortization
    
    
    18,909
    
    
    
    5.0
    %
    
    
    16,506
    
    
    
    4.5
    %Management fees
    
    
    1,050
    
    
    
    0.3
    %
    
    
    958
    
    
    
    0.3
    %Total costs and expenses
    
    
    377,800
    
    
    
    99.6
    %
    
    
    352,212
    
    
    
    95.2
    %Earnings before loss on sale of
assets, minority interests and
income taxes
    
    
    1,665
    
    
    
    0.4
    %
    
    
    17,763
    
    
    
    4.8
    %Loss on sale of assets, net
    
    
    (5
    )
    
    
    
    
    
    
    (73
    )
    
    
    Minority interests
    
    
    302
    
    
    
    0.1
    %
    
    
    (1,133
    )
    
    
    (0.3
    )%Earnings before income taxes
    
    
    1,962
    
    
    
    0.5
    %
    
    
    16,557
    
    
    
    4.5
    %Income tax expense
    
    
    800
    
    
    
    0.2
    %
    
    
    6,597
    
    
    
    1.8
    %Net earnings
    
    $
    1,162
    
    
    
    0.3
    %
    
    $
    9,960
    
    
    
    2.7
    %
 27




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedDecember 31, 2005
    
    
    December 31, 2004Acute Care (in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageNet Revenue:Acute care revenue
    
    $
    286,427
    
    
    
    99.3
    %
    
    $
    283,774
    
    
    
    99.2
    %Revenue between segments
    
    
    2,097
    
    
    
    0.7
    %
    
    
    2,224
    
    
    
    0.8
    %Total net revenue (1)
    
    
    288,524
    
    
    
    100.0
    %
    
    
    285,998
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    109,831
    
    
    
    38.1
    %
    
    
    103,789
    
    
    
    36.3
    %Supplies
    
    
    45,652
    
    
    
    15.8
    %
    
    
    45,315
    
    
    
    15.8
    %Rents and leases
    
    
    8,232
    
    
    
    2.8
    %
    
    
    7,642
    
    
    
    2.7
    %Other operating expenses
    
    
    54,507
    
    
    
    18.9
    %
    
    
    50,199
    
    
    
    17.6
    %Provision for bad debts
    
    
    37,019
    
    
    
    12.8
    %
    
    
    32,255
    
    
    
    11.3
    %Interest, net
    
    
    17,156
    
    
    
    5.9
    %
    
    
    16,388
    
    
    
    5.7
    %Depreciation and amortization
    
    
    18,071
    
    
    
    6.3
    %
    
    
    15,766
    
    
    
    5.5
    %Management fees
    
    
    1,050
    
    
    
    0.4
    %
    
    
    958
    
    
    
    0.3
    %Total costs and expenses
    
    
    291,518
    
    
    
    101.0
    %
    
    
    272,312
    
    
    
    95.2
    %Earnings (loss) before loss on sale of
assets and minority interests
    
    
    (2,994
    )
    
    
    (1.0
    )%
    
    
    13,686
    
    
    
    4.8
    %Loss on sale of assets, net
    
    
    (5
    )
    
    
    
    
    
    
    (73
    )
    
    
    Minority interests
    
    
    302
    
    
    
    0.1
    %
    
    
    (1,133
    )
    
    
    (0.4
    )%Earnings (loss) before income taxes
    
    $
    (2,697
    )
    
    
    (0.9
    )%
    
    $
    12,480
    
    
    
    4.4
    %
 
 (1)
    
    Revenue between segments is eliminated in our consolidated results. 28




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedDecember 31, 2005
    
    
    December 31, 2004Health Choice (in thousands):
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentagePremium revenue
    
    $
    93,038
    
    
    
    100.0
    %
    
    $
    86,201
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    2,920
    
    
    
    3.1
    %
    
    
    2,720
    
    
    
    3.1
    %Supplies
    
    
    58
    
    
    
    0.1
    %
    
    
    51
    
    
    
    0.1
    %Medical claims (1)
    
    
    81,286
    
    
    
    87.4
    %
    
    
    75,559
    
    
    
    87.7
    %Rents and leases
    
    
    278
    
    
    
    0.3
    %
    
    
    217
    
    
    
    0.2
    %Other operating expenses
    
    
    2,999
    
    
    
    3.2
    %
    
    
    2,837
    
    
    
    3.3
    %Interest, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    838
    
    
    
    0.9
    %
    
    
    740
    
    
    
    0.9
    %Total costs and expenses
    
    
    88,379
    
    
    
    95.0
    %
    
    
    82,124
    
    
    
    95.3
    %Earnings before income taxes
    
    $
    4,659
    
    
    
    5.0
    %
    
    $
    4,077
    
    
    
    4.7
    %
 
 (1)
    
    Medical claims paid to our hospitals of $2.10 million and $2.22 million for the three months
ended December 31, 2005 and 2004, respectively, is eliminated in our consolidated results. 29




---



##### Table of Contents



Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004
 Net
revenue
   Salaries
and benefits
 Medical
claims
 Other
operating expenses
 Provision
for bad debts
 30




---



##### Table of Contents



Interest,
net
 Depreciation
and amortization
 Income
tax expense
 Net
earnings
 Liquidity and Capital Resources
   Available cash
    
    $
    58.2Available capacity under our senior credit facilities
    
    
    211.2Net available liquidity at December 31, 2005
    
    $
    269.4
  31




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##### Table of Contents




    
    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 $67.0 million for other growth and new business projects;
    
    approximately $35.0 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.
     Overview of Cash Flow Activities For The Three Months Ended December 31, 2005 Compared To The Three
Months Ended December 31, 2004
  Three MonthsEnded December 31,2005
    
    2004Cash flow from operating activities
    
    $
    4.7
    
    
    $
    14.5Cash flow used in investing activities
    
    
    (32.7
    )
    
    
    (47.0
    )Cash flow used in financing activities
    
    
    (2.9
    )
    
    
    (5.0
    )
 32




---



##### Table of Contents



Operating Activities
  Investing Activities
   
    
    $9.4 million for the construction of Mountain Vista Hospital our new hospital in the
East Valley area of Phoenix, Arizona;
    
    $3.9 million for rebuilding efforts at The Medical Center of Southeast Texas, our
hospital that suffered damages as a result of Hurricane Rita in September 2005;
    
    $6.0 million for various expansion and renovation projects at our hospitals; and
    
    $3.4 million for our Advanced Clinicals and other information systems projects.
 Financing Activities
  The Merger
 Business Combinations
 Debt Instruments and Related Covenants
  
    
    $675.0 million senior secured credit facilities; and
    
    $475.0 million 8 3/4% senior subordinated notes due 2014.
 33




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##### Table of Contents



$675.0 Million Senior Secured Credit Facilities
   
    
    a senior secured Tranche B term loan of $425.0 million, which we refer to as the
Term Facility; and
    
    a senior secured revolving credit facility of up to $250.0 million, which we refer
to as the Revolving Facility, and which is available for working capital and other
general corporate purposes.
     December 31,2005Actual Total Leverage Ratio
    
    
    4.16Maximum Total Leverage Ratio
    
    
    6.00Actual Interest Coverage Ratio
    
    
    3.28Minimum Interest Coverage Ratio
    
    
    2.15
  34




---



##### Table of Contents



$475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
    Off-Balance Sheet Arrangements
   35




---



##### Table of Contents



Seasonality
  Recent Accounting Pronouncements
 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
 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
 36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4. Controls and Procedures
 Evaluations of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II
OTHER INFORMATION
 
 Item 6. Exhibits
 (a)
    
    List of Exhibits:
 10.1
    
    Amendment No. 11 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of September 1,
2005.
 37




---



##### Table of Contents



10.2
    
    Amendment No. 12 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of January 1, 2006.31.1
    
    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.
 38




---



##### Table of Contents



SIGNATURES
  IASIS HEALTHCARE LLCDate: February 10, 2006
    
    
    
    By:
    
    /s/ W. Carl WhitmerW. Carl Whitmer, Chief Financial Officer(Principal Financial and Accounting Officer)
 39




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Amendment No. 11 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of
September 1, 2005.10.2
    
    Amendment No. 12 to Contract between Arizona Health Care Cost
Containment System and Health Choice Arizona, effective as of
January 1, 2006.31.1
    
    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.
 40