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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 10-Q (Mark One) þ
    

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 2005ORo
    

TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to . COMMISSION FILE NUMBER: 333-117362 IASIS HEALTHCARE LLC  DELAWARE
(State or Other Jurisdiction of
 Incorporation
or Organization)
    
    20-1150104
(I.R.S. Employer
Identification No.)
 DOVER CENTRE
117 SEABOARD LANE, BUILDING E
FRANKLIN, TENNESSEE 37067
(Address of Principal Executive Offices) (615) 844-2747

(Registrants Telephone Number, Including Area Code) Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report) Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days. YES þ NO o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). YES o NO þ As
of May 9, 2005, 100% of the registrants common interests outstanding (all of which are
privately owned and are not traded on any public market) were owned by IASIS Healthcare
Corporation, its sole member.




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TABLE OF CONTENTS PART I.
    
    FINANCIAL INFORMATION
    
    1Item 1.
    
    Financial Statements
    
    1Condensed
Consolidated Balance Sheets - March 31, 2005 (Unaudited) and September 30, 2004
    
    1Condensed Consolidated Statements of Operations (Unaudited) - Three Months EndedMarch 31, 2005 and
2004 (Predecessor) and Six Months Ended March 31, 2005 and 2004 (Predecessor)
    
    2Condensed
Consolidated Statements of Cash Flows (Unaudited)  - Six Months Ended March 31, 2005 and 2004 (Predecessor)
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    39Item 4.
    
    Controls and Procedures
    
    40PART II.
    
    OTHER INFORMATION
    
    40Item 6.
    
    Exhibits
    
    40EX-31.1 SECTION 302 CERTIFICATION OF THE PEOEX-31.2 SECTION 302 CERTIFICATION OF THE PFOEX-32.1 SECTION 906 CERTIFICATION OF THE PEO & PFO
  i




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PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements IASIS HEALTHCARE LLC 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands)
 (Unaudited)
    
    
    September 30,March 31, 2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    75,066
    
    
    $
    98,805Accounts receivable, net of allowance for doubtful accounts of
$102,428 and $94,139, respectively
    
    
    180,769
    
    
    
    165,280Inventories
    
    
    27,926
    
    
    
    26,253Deferred income taxes
    
    
    34,654
    
    
    
    Prepaid expenses and other current assets
    
    
    27,907
    
    
    
    21,297Total current assets
    
    
    346,322
    
    
    
    311,635Property and equipment, net
    
    
    616,887
    
    
    
    532,459Goodwill
    
    
    745,350
    
    
    
    252,204Other intangible assets, net
    
    
    43,500
    
    
    
    Unallocated purchase price
    
    
    
    
    
    
    585,013Other assets, net
    
    
    39,996
    
    
    
    42,850Total assets
    
    $
    1,792,055
    
    
    $
    1,724,161LIABILITIES AND EQUITYCurrent liabilities:Accounts payable
    
    $
    64,518
    
    
    $
    61,295Salaries and benefits payable
    
    
    33,669
    
    
    
    36,463Accrued interest payable
    
    
    17,513
    
    
    
    13,821Medical claims payable
    
    
    55,699
    
    
    
    55,421Other accrued expenses and other current liabilities
    
    
    23,740
    
    
    
    26,142Current portion of long-term debt and capital lease obligations
    
    
    7,378
    
    
    
    10,728Total current liabilities
    
    
    202,517
    
    
    
    203,870Long-term debt and capital lease obligations
    
    
    900,518
    
    
    
    902,026Deferred income taxes
    
    
    35,394
    
    
    
    Other long-term liabilities
    
    
    38,631
    
    
    
    31,596Minority interest
    
    
    12,883
    
    
    
    12,964Equity:Members equity
    
    
    602,112
    
    

    
    573,705Total liabilities and equity
    
    $
    1,792,055
    
    
    $
    1,724,161
 See accompanying notes. 1




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IASIS HEALTHCARE LLC 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (In thousands)
 Predecessor
    
    
    
    
    
    
    PredecessorThree Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMarch 31, 2005
    
    
    March 31, 2004
    
    
    March 31, 2005
    
    
    March 31, 2004Net revenue:Acute care revenue
    
    $
    302,719
    
    
    $
    286,213
    
    
    $
    586,493
    
    
    $
    535,603Premium revenue
    
    
    87,538
    
    
    
    69,302
    
    
    
    173,739
    
    
    
    138,016Total net revenue
    
    
    390,257
    
    
    
    355,515
    
    
    
    760,232
    
    
    
    673,619Costs and expenses:Salaries and benefits
    
    
    112,725
    
    
    
    110,487
    
    
    
    219,234
    
    
    
    209,903Supplies
    
    
    49,289
    
    
    
    46,301
    
    
    
    94,655
    
    
    
    86,580Medical claims
    
    
    75,433
    
    
    
    57,880
    
    
    
    148,768
    
    
    
    115,651Rents and leases
    
    
    7,991
    
    
    
    7,766
    
    
    
    15,850
    
    
    
    15,566Other operating expenses
    
    
    54,205
    
    
    
    50,701
    
    
    
    107,240
    
    
    
    98,728Provision for bad debts
    
    
    30,715
    
    
    
    32,169
    
    
    
    62,970
    
    
    
    57,268Interest expense, net
    
    
    14,007
    
    
    
    13,878
    
    
    
    28,677
    
    
    
    27,769Depreciation and amortization
    
    
    17,659
    
    
    
    17,248
    
    
    
    35,883
    
    
    
    33,979Management fees
    
    
    963
    
    
    
    
    
    
    
    1,921
    
    
    
    Write-off of debt issue costs
    
    
    
    
    
    
    8,850
    
    
    
    
    
    
    
    8,850Total costs and expenses
    
    
    362,987
    
    
    
    345,280
    
    
    
    715,198
    
    
    
    654,294Earnings before gain (loss) on
sale of assets, minority
interests and income taxes
    
    
    27,270
    
    
    
    10,235
    
    
    
    45,034
    
    
    
    19,325Gain (loss) on sale of assets, net
    
    
    (9
    )
    
    
    3,602
    
    
    
    (82
    )
    
    
    3,753Minority interests
    
    
    (1,141
    )
    
    
    (1,033
    )
    
    
    (2,274
    )
    
    
    (2,024
    )Earnings before income taxes
    
    
    26,120
    
    
    
    12,804
    
    
    
    42,678
    
    
    
    21,054Income tax expense
    
    
    10,324
    
    
    
    953
    
    
    
    16,921
    
    
    
    985Net earnings
    
    $
    15,796
    
    
    $
    11,851
    
    
    $
    25,757
    
    
    $
    20,069
 See accompanying notes. 2




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IASIS HEALTHCARE LLC 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In thousands)
 PredecessorSix Months
    
    
    Six MonthsEnded March 31,
    
    
    Ended March 31,2005
    
    
    2004Cash flows from operating activities:Net earnings
    
    $
    25,757
    
    
    $
    20,069Adjustments to reconcile net earnings to net
cash provided by operating activities:Depreciation and amortization
    
    
    35,883
    
    
    
    33,979Minority interests
    
    
    2,274
    
    
    
    2,024Deferred income taxes
    
    
    16,148
    
    
    
    Loss (gain) on sale of assets
    
    
    82
    
    
    
    (3,753
    )Write-off of debt issue costs
    
    
    
    
    
    
    8,850Changes in operating assets and liabilities:Accounts receivable
    
    
    (15,489
    )
    
    
    (12,388
    )Establishment of accounts receivable of
recent acquisition
    
    
    
    
    
    
    (10,338
    )Inventories, prepaid expenses and other
current assets
    
    
    (8,283
    )
    
    
    (3,645
    )Accounts payable and other accrued
liabilities
    
    
    3,684
    
    
    
    28,439Net cash provided by operating activities
    
    
    60,056
    
    
    
    63,237Cash flows from investing activities:Purchase of property and equipment
    
    
    (75,611
    )
    
    
    (51,524
    )Cash paid for acquisition
    
    
    (410
    )
    
    
    (23,032
    )Proceeds from sale of assets
    
    
    
    
    
    
    14,928Change in other assets
    
    
    (75
    )
    
    
    (1,761
    )Net cash used in investing activities
    
    
    (76,096
    )
    
    
    (61,389
    )Cash flows from financing activities:Proceeds from debt borrowings
    
    
    2,274
    
    
    
    Payment of debt and capital leases
    
    
    (7,132
    )
    
    
    (3,083
    )Debt financing costs incurred
    
    
    (487
    )
    
    
    (1,024
    )Distribution of minority interests
    
    
    (2,354
    )
    
    
    (1,817
    )Proceeds received from hospital syndication
    
    
    
    
    
    
    1,801Net cash used in financing activities
    
    
    (7,699
    )
    
    
    (4,123
    )Decrease in cash and cash equivalents
    
    
    (23,739
    )
    
    
    (2,275
    )Cash and cash equivalents at beginning of period
    
    
    98,805
    
    
    
    101,070Cash and cash equivalents at end of period
    
    $
    75,066
    
    
    $
    98,795Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    28,032
    
    
    $
    30,553Cash paid for income taxes, net
    
    $
    1,881
    
    
    $
    21Supplemental schedule of noncash investing
activities:Capital lease obligations incurred to acquire
equipment
    
    $
    
    
    
    $
    1,419Property and equipment in accounts payable
    
    $
    14,904
    
    
    $
    3,186
 See accompanying notes. 3




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IASIS HEALTHCARE LLC 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
 1. Organization and Basis of Presentation On June 22, 2004, an investor group led by Texas Pacific Group acquired IASIS Healthcare
Corporation (IAS or the Predecessor) through a merger (the Merger). In order to consummate
the Merger, the investor group established IASIS Investment LLC, a Delaware limited liability
company (IASIS Investment), and capitalized it with cash and shares of IASs common stock. The
initial capital contributed by the investor group was contributed by IASIS Investment to a wholly
owned subsidiary of IASIS Investment, which merged with and into IAS. In the Merger, IAS issued
shares of common and preferred stock to IASIS Investment, which became the sole stockholder of IAS
after giving effect to the Merger. Prior to the Merger, IAS contributed substantially all of its assets and liabilities to IASIS
Healthcare LLC, a newly formed Delaware limited liability company (IASIS LLC), in exchange for
all of the equity interests in IASIS LLC. As a result, IAS is a holding company and IASs
operations are conducted by IASIS LLC and its subsidiaries. References herein to the Company are
to IASIS LLC and its subsidiaries and, unless indicated otherwise or the context requires, include
the Predecessor. For a discussion of the Merger and related financing transactions, see Notes 3 and 4 to these
unaudited condensed consolidated financial statements. The Merger, the related financing
transactions and the use of the proceeds from the financing transactions are referred to herein as
the Transactions. The accompanying unaudited condensed consolidated financial statements for the three and six
months ended March 31, 2004 reflect the results of operations and cash flows of the Predecessor.
The unaudited condensed consolidated financial statements as of and for the three and six months
ended March 31, 2005 reflect the financial position, results of operations and cash flows of IASIS
LLC. The Merger has been accounted for as a purchase in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations. Because of this accounting treatment
the consolidated financial statements of IASIS LLC reflect a step-up in basis of related net assets
upon the allocation of the purchase price. IASIS LLC owns and operates medium-sized acute care hospitals in high-growth urban and
suburban markets. At March 31, 2005, the Company owned or leased 15 acute care hospitals and one
behavioral health hospital, with a total of 2,232 beds in service, located in five regions:  
    Salt Lake City, Utah;
    Phoenix, Arizona;
    Tampa-St. Petersburg, Florida;
    Las Vegas, Nevada; and
    four cities in Texas, including San Antonio. On April 16, 2005, the Company opened a 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. The Company also owns and operates a Medicaid managed health plan in Phoenix called
Health Choice Arizona, Inc. (Health Choice or the Plan), serving over 112,000 members at March
31, 2005. In addition, the Company has an ownership interest in three ambulatory surgery centers. The unaudited condensed consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by U.S. generally accepted accounting principles for complete
financial statements. The condensed consolidated balance sheet of the Company at September 30,
2004 has been derived from the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. For further information, refer to the
consolidated financial 4




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the
fiscal year ended September 30, 2004. In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all material adjustments (consisting of normal recurring items) necessary for a
fair presentation of results for the interim periods presented. The results of operations for any
interim period are not necessarily indicative of results for the full year. The preparation of the financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the amounts
reported in the accompanying unaudited condensed consolidated financial statements and notes.
Actual results could differ from those estimates. The unaudited condensed consolidated financial statements include all subsidiaries and
entities under common control of the Company. Control is generally defined by the Company as
ownership of a majority of the voting interest of an entity. Significant intercompany transactions
have been eliminated. Investments in entities that the Company does not control, but in which it
has a substantial ownership interest and can exercise significant influence, are accounted for
using the equity method. The majority of the Companys expenses are cost of revenue items. Costs that could be
classified as general and administrative by the Company include the IASIS LLC corporate office
costs, which were $9.5 million and $8.1 million for the three months ended March 31, 2005 and 2004
and $18.3 million and $16.4 million for the six months ended March 31, 2005 and 2004, respectively. 2. Recently Issued Accounting Pronouncements In
December 2004, the Financial Accounting Standards Board (the FASB) issued SFAS No.
123 (revised 2004), Share-Based Payment(SFAS 123(R)), which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation(SFAS 123). SFAS 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25), and amends SFAS No. 95, Statement of Cash
Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123.
However, SFAS 123(R) requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. Under SFAS No. 123(R) the
Company must determine the appropriate fair value model to be used
for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at the date
of adoption. The transition alternatives include prospective and
retroactive adoption methods. The Company expects to adopt SFAS 123(R) on October 1,
2006. The Company is evaluating the requirements of SFAS No. 123(R),
as well as related guidance recently issued by the SEC. Management of
the Company has not yet determined the method of adoption or the
effect of adopting the new standard. 3. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consist of the following (in thousands): March 31,
    
    
    September 30,2005
    
    
    2004Senior secured credit facilities
    
    $
    421,813
    
    
    $
    423,938Senior subordinated notes
    
    
    475,000
    
    
    
    478,500Capital lease obligations and other
    
    
    11,083
    
    
    
    10,316907,896
    
    
    
    912,754Less current maturities
    
    
    7,378
    
    
    
    10,728$
    900,518
    
    
    $
    902,026
 5




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS Senior Secured Credit Facilities As part of the Transactions, the Company entered into an amended and restated senior credit
agreement with various lenders and Bank of America, N.A., as administrative agent, and repaid all
outstanding indebtedness under IASs existing bank credit facility. The senior secured credit facilities consist of a senior secured term loan of $425.0 million
(the Term Facility) and a senior secured revolving credit facility of $250.0 million (the
Revolving Facility). The Term Facility has a maturity of seven years, with principal due in 24
consecutive equal quarterly installments in an aggregate annual amount equal to 1.0% of the
original principal amount of the Term Facility during the first six years thereof, with the balance
payable in four equal installments in year seven. Unless terminated earlier, the Revolving
Facility has a single maturity of six years. The senior secured credit facilities are also subject
to mandatory prepayment under specific circumstances, including a portion of excess cash flow, a
portion of the net proceeds from an initial public offering, asset sales, debt issuances and
specified casualty events, each subject to various exceptions. The term loans under the Term Facility bear interest at a rate equal to LIBOR plus 2.25% per
annum or, at the Companys option, the base rate plus 1.25% per annum. As of March 31, 2005, loans
under the Revolving Facility bear interest at a rate equal to LIBOR plus 2.25% per annum or, at the
Companys option, the base rate plus 1.25% per annum, and may increase or decrease by 0.25% based
on the Companys total leverage ratio. All of the obligations under the senior secured credit facilities are guaranteed by IAS and
the Companys existing and subsequently acquired or organized domestic subsidiaries (except Health
Choice and Biltmore Surgery Center Limited Partnership). The senior secured credit facilities are secured by first priority security interests in
substantially all assets of the Company and the guarantors thereunder. In addition, the senior
secured credit facilities are secured by a first priority security interest in 100% of the common
interests of the Company and 100% of the capital stock of each of the Companys present and future
domestic subsidiaries to the extent owned by the Company or a guarantor, and all intercompany debt
owed to the Company or any guarantor. The senior secured credit facilities contain a number of covenants that, among other things,
limit the Companys ability and the ability of its subsidiaries to (i) dispose of assets; (ii)
incur additional indebtedness; (iii) incur guarantee obligations; (iv) repay other indebtedness;
(v) pay certain restricted payments and dividends; (vi) create liens on assets or prohibit liens
securing the new senior secured credit facilities; (vii) make investments, loans or advances;
(viii) restrict distributions to the Company; (ix) make certain acquisitions; (x) engage in mergers
or consolidations; (xi) enter into sale and leaseback transactions; (xii) engage in certain
transactions with subsidiaries and affiliates; or (xiii) amend the terms of the 8 3/4% notes, and
otherwise restrict corporate activities. In addition, under the senior secured credit facilities,
the Company is required to comply with specified financial ratios and tests, including a minimum
interest coverage ratio, a maximum leverage ratio and maximum capital expenditures. At March 31, 2005, $421.8 million was outstanding under the Term Facility and no amounts were
outstanding under the Revolving Facility. The Term Facility includes a $75.0 million sublimit for
letters of credit that may be issued. At March 31, 2005, the Company had $38.3 million in letters
of credit outstanding. The Company pays a commitment fee equal to 0.5% of the average daily amount
available under the Revolving Facility. The weighted average interest rate of outstanding
borrowings under the Term Facility was approximately 4.8% and 4.5% for the three and six months
ended March 31, 2005, respectively. 6




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 13% Senior Subordinated Notes and 8 1/2% Senior Subordinated Notes On October 13, 1999, IAS issued $230.0 million of 13% senior subordinated notes due 2009. On
May 25, 2000, IAS exchanged all of its outstanding 13% senior subordinated notes due 2009 for 13%
senior subordinated exchange notes due 2009 registered under the Securities Act of 1933, as amended
(the 13% notes). On June 6, 2003, IAS issued $100.0 million of 8 1/2% senior subordinated notes due 2009. On
August 14, 2003, IAS exchanged all of its outstanding 8 1/2% senior subordinated notes due 2009 for
8 1/2% senior subordinated notes due 2009 registered under the Securities Act (the 8 1/2% notes). In connection with the Transactions, on May 6, 2004, IAS commenced a cash tender offer to
purchase any and all of the 13% notes and the 8 1/2% notes. IAS also commenced a solicitation of
consents to proposed amendments to the indentures governing the notes that would amend or eliminate
substantially all of the restrictive
covenants contained in the indentures. As of the consent payment deadline, holders of
approximately 98.5% of the outstanding principal amount of the 13% notes and 100% of the
outstanding principal amount of the 8 1/2% notes tendered their notes and consented to the
applicable proposed amendments. In October 2004, the remaining $3.5 million of the 13% notes were
retired. This amount is included in current liabilities on the Companys condensed consolidated
balance sheet at September 30, 2004. 8 3/4% Senior Subordinated Notes In connection with the Transactions, on June 22, 2004, the Company and IASIS Capital
Corporation, a wholly owned subsidiary of IASIS LLC formed solely for the purpose of serving as a
co-issuer (IASIS Capital) (IASIS LLC and IASIS Capital referred to collectively as the
Issuers), issued $475.0 million aggregate principal amount of 8 3/4% senior subordinated notes
due 2014. On December 15, 2004, the Issuers exchanged all of their outstanding 8 3/4% senior
subordinated notes due 2014 for 8 3/4% senior subordinated notes dues 2014 registered under the
Securities Act (the 8 3/4% notes). Terms and conditions of the exchange offer were as set forth
in the registration statement on Form S-4 filed with the Securities and Exchange Commission that
became effective on November 12, 2004. The 8 3/4% notes are general unsecured senior subordinated obligations and are subordinated in
right of payment to all existing and future senior debt of the Company. The Companys existing
domestic subsidiaries, other than non-guarantor subsidiaries which include Health Choice and the
Companys non-wholly owned subsidiaries, are guarantors of the 8 3/4% notes. The 8 3/4% notes are
effectively subordinated to all of the Issuers and the guarantors secured debt to the extent of
the value of the assets securing the debt and are structurally subordinated to all liabilities and
commitments (including trade payables and lease obligations) of the Companys subsidiaries that are
not guarantors of the 8 3/4% notes. 4. Acquisition of IASIS Healthcare Corporation As previously discussed in Note 1, an investor group led by Texas Pacific Group acquired IAS
through the Merger on June 22, 2004. The Merger has been accounted for as a purchase in accordance
with SFAS No. 141, Business Combinations. During the three months ended March 31, 2005, the
Company substantially completed the allocation of the Merger purchase price, resulting in the
recognition of $493.1 million of additional goodwill and $45.0 million of other intangible assets.
The Company intends to finalize the purchase price allocation during
the third fiscal quarter of 2005 upon final determination of the
assignment of
goodwill within our acute care business segment. The purchase price allocation is based on
estimates of the fair value of the assets acquired and liabilities assumed as determined by an
independent appraiser. The purchase price for IAS, including direct transaction costs, was $1.5
billion and has been allocated as reflected in the table below. Goodwill resulting from the
purchase price allocation did not result in additional deductible goodwill for tax purposes. 7




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS The following table summarizes the purchase price allocation to reflect the fair values of the
net assets acquired and liabilities assumed at the date of acquisition. (in millions)Current assets, net
    
    $
    123Property and equipment
    
    
    547Non-current assets, net
    
    
    6Goodwill
    
    
    764Other
intangible assets
    
    
    45Total assets acquired
    
    $
    1,485
 The $45.0 million of acquired intangible assets consists solely of Health Choices contract
with the Arizona Health Care Cost Containment System
(AHCCCS). The contract intangible is being amortized
over a period of 15 years which approximates the contracts estimated useful life, including
assumed renewal periods. Amortization of the contract intangible for the three and six months ended
March 31, 2005 was $750,000 and $1.5 million, respectively. Accumulated amortization at March 31,
2005 equaled $1.5 million. Goodwill as of March 31, 2005 was $745.0 million net of a $19.0 million cumulative reduction
to goodwill resulting from changes in deferred taxes subsequent to the Merger. In the application
of the purchase method of accounting, the Company reduces goodwill, not income tax expenses, upon
the reduction of the Companys deferred tax valuation allowance. 5. Stock Benefit Plans Although IASIS LLC has no stock option plan or outstanding stock options, the Company, through
its parent, IAS, grants stock options for a fixed number of common shares to employees. SFAS 123
encourages, but does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for employee stock option
grants in accordance with APB 25 and, accordingly, recognizes no compensation expense for the stock
option grants when the exercise price of the options equals, or is greater than, the market value
of the underlying stock on the date of grant. See Note 2  Recently Issued Accounting
Pronouncements. If the Company had measured compensation cost for the stock options granted under the fair
value based method prescribed by SFAS 123, net earnings would have been changed to the pro forma
amounts set forth below (in thousands): Three Months Ended March 31,
    
    
    Six Months Ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings as reported
    
    $
    15,796
    
    
    $
    11,851
    
    
    $
    25,757
    
    
    $
    20,069Deduct: Total stock
based employee
compensation determined
under fair value based
method for all awards,
net of related tax
effects
    
    
    (696
    )
    
    
    (373
    )
    
    
    (933
    )
    
    
    (747
    )Pro forma net earnings
    
    $
    15,100
    
    
    $
    11,478
    
    
    $
    24,824
    
    
    $
    19,322
 The effect of applying SFAS 123 for providing pro forma disclosure may not to be
representative of the effect on reported net earnings for future years. 6. Contingencies Net Revenue The calculation of appropriate payments from the Medicare and Medicaid programs as well as
terms governing agreements with other third party payors are complex and subject to interpretation.
Final determination 8




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS of amounts earned under the Medicare and Medicaid programs often occurs
subsequent to the year in which services
are rendered because of audits by the programs, rights of appeal and the application of
numerous technical provisions. As a result, there is at least a reasonable possibility that
recorded estimates will change by a material amount in the near term. In the opinion of
management, adequate provision has been made for adjustments that may result from such routine
audits and appeals. Professional, General and Workers Compensation Liability Risks The Company is subject to claims and legal actions in the ordinary course of business,
including claims relating to patient treatment and personal injuries. To cover these types of
claims, the Company maintains general liability and professional liability insurance in excess of
self-insured retentions through a commercial insurance carrier in amounts that the Company believes
to be sufficient for its operations. However, some claims may exceed the scope of coverage in
effect. Plaintiffs in these matters may request punitive or other damages that may potentially not
be covered by insurance. The Company is currently not a party to any such proceedings that, in the
Companys opinion, would have a material adverse effect on the Companys business, financial
condition or results of operations. The Company expenses an estimate of the costs it expects to
incur under the self-insured retention exposure for general and professional liability claims using
historical claims data, demographic factors, severity factors, current incident logs and other
actuarial analysis. As of March 31, 2005 and September 30, 2004, the Companys professional and
general liability accrual for asserted and unasserted claims was approximately $34.8 million and
$28.8 million, respectively, which is included within other long-term liabilities in the
accompanying condensed consolidated balance sheets. The Company is subject to claims and legal actions in the ordinary course of business relative
to workers compensation and other labor and employment matters. To cover these types of claims,
the Company maintains workers compensation insurance coverage with a self-insured retention. The
Company accrues costs of workers compensation claims based upon estimates derived from its claims
experience. Health Choice Health Choice has entered into a capitated contract whereby the Plan provides healthcare
services in exchange for fixed periodic and supplemental payments
from AHCCS. These services are provided regardless of the actual costs incurred
to provide these services. The Company receives reinsurance and other supplemental payments from
AHCCCS to cover certain costs of healthcare services that exceed certain thresholds. The Company
believes the capitated payments, together with reinsurance and other supplemental payments are
sufficient to pay for the services Health Choice is obligated to deliver. As of March 31, 2005,
the Company provided a performance guaranty in the form of a letter of credit in the amount of
$20.6 million for the benefit of AHCCCS to support its obligations under the Health Choice contract
to provide and pay for the healthcare services. Additionally, Health Choice maintains a cash
balance of $5.0 million and an intercompany demand note with the Company. The amount of the
performance guaranty is based in part upon the membership in the Plan and the related capitation
revenue paid to Health Choice. Capital Expenditure Commitments The Company completed construction of its new hospital in Port Arthur, Texas, which opened
April 16, 2005. In addition, the Company is expanding and renovating some of its existing
facilities to permit additional patient volume and provide a greater variety of services. The
Company had incurred approximately $103.2 million in uncompleted projects as of March 31, 2005,
which is included in property and equipment in the accompanying unaudited condensed consolidated
balance sheet at that date. At March 31, 2005, the Company had various construction and other
projects in progress with an estimated additional cost to complete and equip of approximately $65.2
million. Acquisitions The Company may choose to acquire businesses with prior operating histories. If acquired,
such companies may have unknown or contingent liabilities, including liabilities for failure to
comply with healthcare 9




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IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS laws and regulations, such as billing and reimbursement, fraud and abuse and
similar anti-referral laws. Although the Company has policies designed to conform business
practices to its policies following the completion of any
acquisitions, there can be no assurance that the Company will not become liable for previous
activities of prior owners that may later be asserted to be improper by private plaintiffs or
government agencies. Although the Company generally would seek to obtain indemnification from
prospective sellers covering such matters, there can be no assurance that any such matter will be
covered by indemnification, or if covered, that such indemnification will be adequate to cover
potential losses and fines. Other The Company has been advised that its hospital in San Antonio, Texas, Southwest General
Hospital, is a subject of an investigation relating to the provision of hyperbaric oxygen therapy
services. In a letter dated February 11, 2003, the U.S. Attorney for the Western District of Texas
stated that the investigation relates to certain billing practices for these services since 1998.
The Company is cooperating with the U.S. Attorneys office with respect to this investigation.
Based on information currently available, the Company believes the investigation relates primarily
to the period when Tenet Healthcare Corporation (Tenet) owned the hospital. Although the Company
is unable to predict the outcome of this investigation, management does not currently believe it
will have a material adverse effect on the Companys business, financial condition or results of
operations. Tenet and its affiliates are defendants in a civil action brought on January 9, 2003 in the
U.S. District Court for the Central District of California by the United States for the improper
assignment of diagnostic codes and submitting false claims to Medicare. The litigation stems from
an investigation by the U.S. Department of Justice, in conjunction with the Office of Inspector
General, of certain hospital billings to Medicare for inpatient stays reimbursed pursuant to
diagnosis related groups 79 (pneumonia), 415 (operating room procedure for infectious and parasitic
diseases), 416 (septicemia) and 475 (respiratory system diagnosis with mechanical ventilator).
Although hospitals that IAS acquired from Tenet are referenced in the complaint, all of the actions
complained of occurred prior to December 31, l998 and thus before the hospitals acquisition by
IAS. IAS has informed Tenet that IAS has no obligation or liability for any of the matters
described in the complaint and that IAS is entitled to indemnification if any damages or relief
were to be sought against IAS in connection with the proceeding. Tenet has accepted service of
process on behalf of these hospitals and has agreed to indemnify IAS. The Company believes it is in material compliance with all applicable laws and regulations.
Compliance with such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action, including fines, penalties and exclusion
from the Medicare and Medicaid programs. 7. Segment and Geographic Information The Companys acute care hospitals and related healthcare businesses are similar in their
activities and the economic environments in which they operate (i.e., urban and suburban markets).
Accordingly, the Companys reportable operating segments consist of (1) acute care hospitals and
related healthcare businesses, collectively, and (2) its Medicaid managed health plan, Health
Choice. The following is a financial summary by business segment for the periods indicated: 10




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##### Table of Contents



IASIS HEALTHCARE LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS For the Three Months Ended March 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    302,719
    
    
    $
    
    
    
    $
    
    
    
    $
    302,719Premium revenue
    
    
    
    
    
    
    87,538
    
    
    
    
    
    
    
    87,538Revenue between segments
    
    
    2,273
    
    
    
    
    
    
    
    (2,273
    )
    
    
    Net revenue
    
    
    304,992
    
    
    
    87,538
    
    
    
    (2,273
    )
    
    
    390,257Salaries and benefits
    
    
    109,928
    
    
    
    2,797
    
    
    
    
    
    
    
    112,725Supplies
    
    
    49,243
    
    
    
    46
    
    
    
    
    
    
    
    49,289Medical claims
    
    
    
    
    
    
    77,706
    
    
    
    (2,273
    )
    
    
    75,433Rents and Leases
    
    
    7,773
    
    
    
    218
    
    
    
    
    
    
    
    7,991Other operating expenses
    
    
    51,511
    
    
    
    2,694
    
    
    
    
    
    
    
    54,205Provision for bad debts
    
    
    30,715
    
    
    
    
    
    
    
    
    
    
    
    30,715Adjusted EBITDA(1)
    
    
    55,822
    
    
    
    4,077
    
    
    
    
    
    
    
    59,899Interest expense, net
    
    
    14,007
    
    
    
    
    
    
    
    
    
    
    
    14,007Depreciation and amortization
    
    
    16,798
    
    
    
    861
    
    
    
    
    
    
    
    17,659Management fees
    
    
    963
    
    
    
    
    
    
    
    
    
    
    
    963Earnings before loss on sale of
assets, minority interests and
income taxes
    
    $
    24,054
    
    
    $
    3,216
    
    
    $
    
    
    
    $
    27,270Loss on sale of assets, net
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Minority interests
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )Earnings before income taxes
    
    $
    22,904
    
    
    $
    3,216
    
    
    $
    
    
    
    $
    26,120Segment assets
    
    $
    1,705,595
    
    
    $
    86,460
    
    
    
    
    
    
    $
    1,792,055Capital expenditures
    
    $
    85,896
    
    
    $
    165
    
    
    
    
    
    
    $
    86,061
 For the Three Months Ended March 31, 2004Predecessor
    
    Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    286,213
    
    
    $
    
    
    
    $
    
    
    
    $
    286,213Premium revenue
    
    
    
    
    
    
    69,302
    
    
    
    
    
    
    
    69,302Revenue between segments
    
    
    2,335
    
    
    
    
    
    
    
    (2,335
    )
    
    
    Net revenue
    
    
    288,548
    
    
    
    69,302
    
    
    
    (2,335
    )
    
    
    355,515Salaries and benefits
    
    
    108,147
    
    
    
    2,340
    
    
    
    
    
    
    
    110,487Supplies
    
    
    46,251
    
    
    
    50
    
    
    
    
    
    
    
    46,301Medical claims
    
    
    
    
    
    
    60,215
    
    
    
    (2,335
    )
    
    
    57,880Rents and Leases
    
    
    7,603
    
    
    
    163
    
    
    
    
    
    
    
    7,766Other operating expenses
    
    
    48,291
    
    
    
    2,410
    
    
    
    
    
    
    
    50,701Provision for bad debts
    
    
    32,169
    
    
    
    
    
    
    
    
    
    
    
    32,169Adjusted EBITDA(1)
    
    
    46,087
    
    
    
    4,124
    
    
    
    
    
    
    
    50,211Interest expense, net
    
    
    13,878
    
    
    
    
    
    
    
    
    
    
    
    13,878Depreciation and amortization
    
    
    17,203
    
    
    
    45
    
    
    
    
    
    
    
    17,248Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    8,850Earnings before gain on sale of
assets, minority interests and
income taxes
    
    $
    6,156
    
    
    $
    4,079
    
    
    $
    
    
    
    $
    10,235Gain on sale of assets, net
    
    
    3,602
    
    
    
    
    
    
    
    
    
    
    
    3,602Minority interests
    
    
    (1,033
    )
    
    
    
    
    
    
    
    
    
    
    (1,033
    )Earnings before income taxes
    
    $
    8,725
    
    
    $
    4,079
    
    
    $
    
    
    
    $
    12,804Segment assets
    
    $
    1,019,906
    
    
    $
    63,299
    
    
    
    
    
    
    $
    1,083,205Capital expenditures
    
    $
    34,019
    
    
    $
    144
    
    
    
    
    
    
    $
    34,163
   (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income taxes, depreciation
and amortization, management fees, write-off of debt issue costs, gain (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 income, cash flows generated
by operating, investing, or financing activities or other financial statement data presented
in the consolidated financial statements as an indicator of financial performance or
liquidity. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures
of other companies. 11




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS For the Six Months Ended March 31, 2005Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    586,493
    
    
    $
    
    
    
    $
    
    
    
    $
    586,493Premium revenue
    
    
    
    
    
    
    173,739
    
    
    
    
    
    
    
    173,739Revenue between segments
    
    
    4,497
    
    
    
    
    
    
    
    (4,497
    )
    
    
    Net revenue
    
    
    590,990
    
    
    
    173,739
    
    
    
    (4,497
    )
    
    
    760,232Salaries and benefits
    
    
    213,718
    
    
    
    5,516
    
    
    
    
    
    
    
    219,234Supplies
    
    
    94,558
    
    
    
    97
    
    
    
    
    
    
    
    94,655Medical claims
    
    
    
    
    
    
    153,265
    
    
    
    (4,497
    )
    
    
    148,768Rents and Leases
    
    
    15,415
    
    
    
    435
    
    
    
    
    
    
    
    15,850Other operating expenses
    
    
    101,709
    
    
    
    5,531
    
    
    
    
    
    
    
    107,240Provision for bad debts
    
    
    62,970
    
    
    
    
    
    
    
    
    
    
    
    62,970Adjusted EBITDA(1)
    
    
    102,620
    
    
    
    8,895
    
    
    
    
    
    
    
    111,515Interest expense, net
    
    
    28,677
    
    
    
    
    
    
    
    
    
    
    
    28,677Depreciation and amortization
    
    
    34,282
    
    
    
    1,601
    
    
    
    
    
    
    
    35,883Management fees
    
    
    1,921
    
    
    
    
    
    
    
    
    
    
    
    1,921Earnings before loss on sale of
assets, minority interests and
income taxes
    
    $
    37,740
    
    
    $
    7,294
    
    
    $
    
    
    
    $
    45,034Loss on sale of assets, net
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    (82
    )Minority interests
    
    
    (2,274
    )
    
    
    
    
    
    
    
    
    
    
    (2,274
    )Earnings before income taxes
    
    $
    35,384
    
    
    $
    7,294
    
    
    $
    
    
    
    $
    42,678Segment assets
    
    $
    1,705,595
    
    
    $
    86,460
    
    
    
    
    
    
    $
    1,792,055Capital expenditures
    
    $
    75,410
    
    
    $
    201
    
    
    
    
    
    
    $
    75,611
 For the Six Months Ended March 31, 2004Predecessor
    
    Acute Care
    
    
    Health Choice
    
    
    Eliminations
    
    
    ConsolidatedNet acute care revenue
    
    $
    535,603
    
    
    $
    
    
    
    $
    
    
    
    $
    535,603Premium revenue
    
    
    
    
    
    
    138,016
    
    
    
    
    
    
    
    138,016Revenue between segments
    
    
    5,314
    
    
    
    
    
    
    
    (5,314
    )
    
    
    Net revenue
    
    
    540,917
    
    
    
    138,016
    
    
    
    (5,314
    )
    
    
    673,619Salaries and benefits
    
    
    205,390
    
    
    
    4,513
    
    
    
    
    
    
    
    209,903Supplies
    
    
    86,488
    
    
    
    92
    
    
    
    
    
    
    
    86,580Medical claims
    
    
    
    
    
    
    120,965
    
    
    
    (5,314
    )
    
    
    115,651Rents and Leases
    
    
    15,264
    
    
    
    302
    
    
    
    
    
    
    
    15,566Other operating expenses
    
    
    93,773
    
    
    
    4,955
    
    
    
    
    
    
    
    98,728Provision for bad debts
    
    
    57,268
    
    
    
    
    
    
    
    
    
    
    
    57,268Adjusted EBITDA(1)
    
    
    82,734
    
    
    
    7,189
    
    
    
    
    
    
    
    89,923Interest expense, net
    
    
    27,769
    
    
    
    
    
    
    
    
    
    
    
    27,769Depreciation and amortization
    
    
    33,893
    
    
    
    86
    
    
    
    
    
    
    
    33,979Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    8,850Earnings before gain on sale of
assets, minority interests and
income taxes
    
    $
    12,222
    
    
    $
    7,103
    
    
    $
    
    
    
    $
    19,325Gain on sale of assets, net
    
    
    3,753
    
    
    
    
    
    
    
    
    
    
    
    3,753Minority interests
    
    
    (2,024
    )
    
    
    
    
    
    
    
    
    
    
    (2,024
    )Earnings before income taxes
    
    $
    13,951
    
    
    $
    7,103
    
    
    $
    
    
    
    $
    21,054Segment assets
    
    $
    1,019,906
    
    
    $
    63,299
    
    
    
    
    
    
    $
    1,083,205Capital expenditures
    
    $
    51,351
    
    
    $
    173
    
    
    
    
    
    
    $
    51,524
   (1)
    
    Adjusted EBITDA represents net earnings before interest expense, income taxes, depreciation
and amortization, management fees, write-off of debt issue costs, gain (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 income, cash flows generated
by operating, investing, or financing activities or other financial statement data presented
in the consolidated financial statements as an indicator of financial performance or
liquidity. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures
of other companies. 12




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 8. Supplemental Condensed Consolidating Financial Information The 8 3/4% notes described in Note 3 are fully and unconditionally guaranteed on a joint and
several basis by all of the Companys existing domestic subsidiaries, other than non-guarantor
subsidiaries which include Health Choice and the Companys non-wholly owned subsidiaries. Summarized condensed consolidating balance sheets at March 31, 2005 and September 30, 2004,
condensed consolidating statements of operations for the three months and six months ended March
31, 2005 and 2004 and condensed consolidating statements of cash flows for the six months ended
March 31, 2005 and 2004 for the Company, segregating the parent company issuer, the subsidiary
guarantors, the subsidiary non-guarantors and eliminations, are found below. 13




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Balance Sheet (unaudited)
March 31, 2005(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    74,959
    
    
    $
    107
    
    
    $
    
    
    
    $
    75,066Accounts receivable, net
    
    
    
    
    
    
    132,625
    
    
    
    48,144
    
    
    
    
    
    
    
    180,769Inventories
    
    
    
    
    
    
    19,718
    
    
    
    8,208
    
    
    
    
    
    
    
    27,926Deferred income taxes
    
    
    34,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,654Prepaid expenses and other current assets
    
    
    
    
    
    
    13,945
    
    
    
    13,962
    
    
    
    
    
    
    
    27,907Total current assets
    
    
    34,654
    
    
    
    241,247
    
    
    
    70,421
    
    
    
    
    
    
    
    346,322Property and equipment, net
    
    
    
    
    
    
    397,154
    
    
    
    219,733
    
    
    
    
    
    
    
    616,887Intercompany
    
    
    
    
    
    
    2,821
    
    
    
    (2,821
    )
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    1,446,793
    
    
    
    
    
    
    
    
    
    
    
    (1,446,793
    )
    
    
    Goodwill
    
    
    14,008
    
    
    
    229,375
    
    
    
    501,967
    
    
    
    
    
    
    
    745,350Other intangible assets, net
    
    
    
    
    
    
    
    
    
    
    43,500
    
    
    
    
    
    
    
    43,500Other assets, net
    
    
    26,067
    
    
    
    10,284
    
    
    
    3,645
    
    
    
    
    
    
    
    39,996Total assets
    
    $
    1,521,522
    
    
    $
    880,881
    
    
    $
    836,445
    
    
    $
    (1,446,793
    )
    
    $
    1,792,055Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    41,792
    
    
    $
    22,726
    
    
    $
    
    
    
    $
    64,518Salaries and benefits payable
    
    
    
    
    
    
    25,322
    
    
    
    8,347
    
    
    
    
    
    
    
    33,669Accrued interest payable
    
    
    17,513
    
    
    
    (957
    )
    
    
    957
    
    
    
    
    
    
    
    17,513Medical claims payable
    
    
    
    
    
    
    
    
    
    
    55,699
    
    
    
    
    
    
    
    55,699Other accrued expenses and other current liabilities
    
    
    
    
    
    
    22,561
    
    
    
    1,179
    
    
    
    
    
    
    
    23,740Current portion of long-term debt and capital lease
obligations
    
    
    4,402
    
    
    
    1,818
    
    
    
    4,314
    
    
    
    (3,156
    )
    
    
    7,378Total current liabilities
    
    
    21,915
    
    
    
    90,536
    
    
    
    93,222
    
    
    
    (3,156
    )
    
    
    202,517Long-term debt and capital lease obligations
    
    
    892,563
    
    
    
    5,982
    
    
    
    138,578
    
    
    
    (136,605
    )
    
    
    900,518Deferred income taxes
    
    
    35,394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,394Other long-term liabilities
    
    
    
    
    
    
    38,631
    
    
    
    
    
    
    
    
    
    
    
    38,631Minority interest
    
    
    
    
    
    
    12,883
    
    
    
    
    
    
    
    
    
    
    
    12,883Members equity
    
    
    571,650
    
    
    
    732,849
    
    
    
    604,645
    
    
    
    (1,307,032
    )
    
    
    602,112Total liabilities and equity
    
    $
    1,521,522
    
    
    $
    880,881
    
    
    $
    836,445
    
    
    $
    (1,446,793
    )
    
    $
    1,792,055
 14




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Balance Sheet
September 30, 2004(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    97,463
    
    
    $
    1,342
    
    
    $
    
    
    
    $
    98,805Accounts receivable, net
    
    
    
    
    
    
    120,936
    
    
    
    44,344
    
    
    
    
    
    
    
    165,280Inventories
    
    
    
    
    
    
    18,320
    
    
    
    7,933
    
    
    
    
    
    
    
    26,253Prepaid expenses and other current assets
    
    
    
    
    
    
    9,542
    
    
    
    11,755
    
    
    
    
    
    
    
    21,297Total current assets
    
    
    
    
    
    
    246,261
    
    
    
    65,374
    
    
    
    
    
    
    
    311,635Property and equipment, net
    
    
    
    
    
    
    340,599
    
    
    
    191,860
    
    
    
    
    
    
    
    532,459Intercompany
    
    
    
    
    
    
    (60,977
    )
    
    
    60,977
    
    
    
    
    
    
    
    Net investment in and advances to subsidiaries
    
    
    871,269
    
    
    
    
    
    
    
    
    
    
    
    (871,269
    )
    
    
    Goodwill
    
    
    
    
    
    
    208,150
    
    
    
    44,054
    
    
    
    
    
    
    
    252,204Unallocated purchase price
    
    
    585,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    585,013Other assets, net
    
    
    28,977
    
    
    
    10,450
    
    
    
    3,423
    
    
    
    
    
    
    
    42,850Total assets
    
    $
    1,485,259
    
    
    $
    744,483
    
    
    $
    365,688
    
    
    $
    (871,269
    )
    
    $
    1,724,161Liabilities and EquityCurrent liabilities:Accounts payable
    
    $
    
    
    
    $
    47,950
    
    
    $
    13,345
    
    
    $
    
    
    
    $
    61,295Salaries and benefits payable
    
    
    
    
    
    
    26,984
    
    
    
    9,479
    
    
    
    
    
    
    
    36,463Accrued interest payable
    
    
    13,821
    
    
    
    (853
    )
    
    
    853
    
    
    
    
    
    
    
    13,821Medical claims payable
    
    
    
    
    
    
    
    
    
    
    55,421
    
    
    
    
    
    
    
    55,421Other accrued expenses and other current liabilities
    
    
    
    
    
    
    24,117
    
    
    
    2,025
    
    
    
    
    
    
    
    26,142Current portion of long-term debt and capital lease
obligations
    
    
    7,750
    
    
    
    1,740
    
    
    
    3,759
    
    
    
    (2,521
    )
    
    
    10,728Total current liabilities
    
    
    21,571
    
    
    
    99,938
    
    
    
    84,882
    
    
    
    (2,521
    )
    
    
    203,870Long-term debt and capital lease obligations
    
    
    894,688
    
    
    
    4,817
    
    
    
    132,862
    
    
    
    (130,341
    )
    
    
    902,026Other long-term liabilities
    
    
    
    
    
    
    31,596
    
    
    
    
    
    
    
    
    
    
    
    31,596Minority interest
    
    
    
    
    
    
    12,964
    
    
    
    
    
    
    
    
    
    
    
    12,964Members equity
    
    
    569,000
    
    
    
    595,168
    
    
    
    147,944
    
    
    
    (738,407
    )
    
    
    573,705Total liabilities and equity
    
    $
    1,485,259
    
    
    $
    744,483
    
    
    $
    365,688
    
    
    $
    (871,269
    )
    
    $
    1,724,161
 15




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2005 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    218,868
    
    
    $
    86,124
    
    
    $
    (2,273
    )
    
    $
    302,719Premium revenue
    
    
    
    
    
    
    
    
    
    
    87,538
    
    
    
    
    
    
    
    87,538Total net revenue
    
    
    
    
    
    
    218,868
    
    
    
    173,662
    
    
    
    (2,273
    )
    
    
    390,257Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    82,562
    
    
    
    30,163
    
    
    
    
    
    
    
    112,725Supplies
    
    
    
    
    
    
    38,915
    
    
    
    10,374
    
    
    
    
    
    
    
    49,289Medical claims
    
    
    
    
    
    
    
    
    
    
    77,706
    
    
    
    (2,273
    )
    
    
    75,433Rents and leases
    
    
    
    
    
    
    5,502
    
    
    
    2,489
    
    
    
    
    
    
    
    7,991Other operating expenses
    
    
    
    
    
    
    40,001
    
    
    
    14,204
    
    
    
    
    
    
    
    54,205Provision for bad debts
    
    
    
    
    
    
    24,414
    
    
    
    6,301
    
    
    
    
    
    
    
    30,715Interest expense, net
    
    
    13,890
    
    
    
    117
    
    
    
    2,489
    
    
    
    (2,489
    )
    
    
    14,007Depreciation and amortization
    
    
    1,678
    
    
    
    11,183
    
    
    
    4,798
    
    
    
    
    
    
    
    17,659Management fees
    
    
    963
    
    
    
    (1,793
    )
    
    
    1,793
    
    
    
    
    
    
    
    963Equity in earnings of affiliates
    
    
    (40,162
    )
    
    
    
    
    
    
    
    
    
    
    40,162
    
    
    
    Total costs and expenses
    
    
    (23,631
    )
    
    
    200,901
    
    
    
    150,317
    
    
    
    35,400
    
    
    
    362,987Earnings before gain (loss) on
sale of assets, minority
interests, and income taxes
    
    
    23,631
    
    
    
    17,967
    
    
    
    23,345
    
    
    
    (37,673
    )
    
    
    27,270Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (17
    )
    
    
    8
    
    
    
    
    
    
    
    (9
    )Minority interests
    
    
    
    
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )Earnings before income taxes
    
    
    23,631
    
    
    
    16,809
    
    
    
    23,353
    
    
    
    (37,673
    )
    
    
    26,120Income tax expense
    
    
    10,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,324Net earnings
    
    $
    13,307
    
    
    $
    16,809
    
    
    $
    23,353
    
    
    $
    (37,673
    )
    
    $
    15,796
 16




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2004 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    206,803
    
    
    $
    81,745
    
    
    $
    (2,335
    )
    
    $
    286,213Premium revenue
    
    
    
    
    
    
    
    
    
    
    69,302
    
    
    
    
    
    
    
    69,302Total net revenue
    
    
    
    
    
    
    206,803
    
    
    
    151,047
    
    
    
    (2,335
    )
    
    
    355,515Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    80,401
    
    
    
    30,086
    
    
    
    
    
    
    
    110,487Supplies
    
    
    
    
    
    
    36,083
    
    
    
    10,218
    
    
    
    
    
    
    
    46,301Medical claims
    
    
    
    
    
    
    
    
    
    
    60,215
    
    
    
    (2,335
    )
    
    
    57,880Rents and leases
    
    
    
    
    
    
    5,290
    
    
    
    2,476
    
    
    
    
    
    
    
    7,766Other operating expenses
    
    
    
    
    
    
    36,825
    
    
    
    13,876
    
    
    
    
    
    
    
    50,701Provision for bad debts
    
    
    
    
    
    
    24,705
    
    
    
    7,464
    
    
    
    
    
    
    
    32,169Interest expense, net
    
    
    13,754
    
    
    
    124
    
    
    
    2,342
    
    
    
    (2,342
    )
    
    
    13,878Depreciation and amortization
    
    
    792
    
    
    
    13,254
    
    
    
    3,202
    
    
    
    
    
    
    
    17,248Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Management fees
    
    
    
    
    
    
    (1,747
    )
    
    
    1,747
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (33,858
    )
    
    
    
    
    
    
    
    
    
    
    33,858
    
    
    
    Total costs and expenses
    
    
    (10,462
    )
    
    
    194,935
    
    
    
    131,626
    
    
    
    29,181
    
    
    
    345,280Earnings before gain on sale of
assets, minority interests, and
income taxes
    
    
    10,462
    
    
    
    11,868
    
    
    
    19,421
    
    
    
    (31,516
    )
    
    
    10,235Gain on sale of assets, net
    
    
    
    
    
    
    3,602
    
    
    
    
    
    
    
    
    
    
    
    3,602Minority interests
    
    
    
    
    
    
    (1,033
    )
    
    
    
    
    
    
    
    
    
    
    (1,033
    )Earnings before income taxes
    
    
    10,462
    
    
    
    14,437
    
    
    
    19,421
    
    
    
    (31,516
    )
    
    
    12,804Income tax expense
    
    
    953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    953Net earnings
    
    $
    9,509
    
    
    $
    14,437
    
    
    $
    19,421
    
    
    $
    (31,516
    )
    
    $
    11,851
 17




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Six Months Ended March 31, 2005 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    421,775
    
    
    $
    169,215
    
    
    $
    (4,497
    )
    
    $
    586,493Premium revenue
    
    
    
    
    
    
    
    
    
    
    173,739
    
    
    
    
    
    
    
    173,739Total net revenue
    
    
    
    
    
    
    421,775
    
    
    
    342,954
    
    
    
    (4,497
    )
    
    
    760,232Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    159,629
    
    
    
    59,605
    
    
    
    
    
    
    
    219,234Supplies
    
    
    
    
    
    
    73,865
    
    
    
    20,790
    
    
    
    
    
    
    
    94,655Medical claims
    
    
    
    
    
    
    
    
    
    
    153,265
    
    
    
    (4,497
    )
    
    
    148,768Rents and leases
    
    
    
    
    
    
    10,976
    
    
    
    4,874
    
    
    
    
    
    
    
    15,850Other operating expenses
    
    
    
    
    
    
    78,128
    
    
    
    29,112
    
    
    
    
    
    
    
    107,240Provision for bad debts
    
    
    
    
    
    
    50,712
    
    
    
    12,258
    
    
    
    
    
    
    
    62,970Interest expense, net
    
    
    28,458
    
    
    
    219
    
    
    
    4,923
    
    
    
    (4,923
    )
    
    
    28,677Depreciation and amortization
    
    
    3,397
    
    
    
    22,992
    
    

    
    9,494
    
    
    
    
    
    
    
    35,883Management fees
    
    
    1,921
    
    
    
    (3,520
    )
    
    
    3,520
    
    
    
    
    
    
    
    1,921Equity in earnings of affiliates
    
    
    (71,531
    )
    
    
    
    
    
    
    
    
    
    
    71,531
    
    
    
    Total costs and expenses
    
    
    (37,755
    )
    
    
    393,001
    
    
    
    297,841
    
    
    
    62,111
    
    
    
    715,198Earnings before gain (loss) on
sale of assets, minority
interests, and income taxes
    
    
    37,755
    
    
    
    28,774
    
    
    
    45,113
    
    
    
    (66,608
    )
    
    
    45,034Gain (loss) on sale of assets, net
    
    
    
    
    
    
    (90
    )
    
    
    8
    
    
    
    
    
    
    
    (82
    )Minority interests
    
    
    
    
    
    
    (2,274
    )
    
    
    
    
    
    
    
    
    
    
    (2,274
    )Earnings before income taxes
    
    
    37,755
    
    
    
    26,410
    
    
    
    45,121
    
    
    
    (66,608
    )
    
    
    42,678Income tax expense
    
    
    16,921
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,921Net earnings
    
    $
    20,834
    
    
    $
    26,410
    
    
    $
    45,121
    
    
    $
    (66,608
    )
    
    $
    25,757
 18




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Six Months Ended March 31, 2004 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedNet revenue:Acute care revenue
    
    $
    
    
    
    $
    379,179
    
    
    $
    161,738
    
    
    $
    (5,314
    )
    
    $
    535,603Premium revenue
    
    
    
    
    
    
    
    
    
    
    138,016
    
    
    
    
    
    
    
    138,016Total net revenue
    
    
    
    
    
    
    379,179
    
    
    
    299,754
    
    
    
    (5,314
    )
    
    
    673,619Costs and expenses:Salaries and benefits
    
    
    
    
    
    
    151,081
    
    
    
    58,822
    
    
    
    
    
    
    
    209,903Supplies
    
    
    
    
    
    
    66,093
    
    
    
    20,487
    
    
    
    
    
    
    
    86,580Medical claims
    
    
    
    
    
    
    
    
    
    
    120,965
    
    
    
    (5,314
    )
    
    
    115,651Rents and leases
    
    
    
    
    
    
    10,782
    
    
    
    4,784
    
    
    
    
    
    
    
    15,566Other operating expenses
    
    
    
    
    
    
    70,708
    
    
    
    28,020
    
    
    
    
    
    
    
    98,728Provision for bad debts
    
    
    
    
    
    
    43,359
    
    
    
    13,909
    
    
    
    
    
    
    
    57,268Interest expense, net
    
    
    27,537
    
    
    
    232
    
    
    
    5,293
    
    
    
    (5,293
    )
    
    
    27,769Depreciation and amortization
    
    
    1,776
    
    
    
    26,081
    
    
    
    6,122
    
    
    
    
    
    
    
    33,979Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Management fees
    
    
    
    
    
    
    (3,419
    )
    
    
    3,419
    
    
    
    
    
    
    
    Equity in earnings of affiliates
    
    
    (53,924
    )
    
    
    
    
    
    
    
    
    
    
    53,924
    
    
    
    Total costs and expenses
    
    
    (15,761
    )
    
    
    364,917
    
    
    
    261,821
    
    
    
    43,317
    
    
    
    654,294Earnings before gain on sale of
assets, minority interests, and
income taxes
    
    
    15,761
    
    
    
    14,262
    
    
    
    37,933
    
    
    
    (48,631
    )
    
    
    19,325Gain on sale of assets, net
    
    
    
    
    
    
    3,753
    
    
    
    
    
    
    
    
    
    
    
    3,753Minority interests
    
    
    
    
    
    
    (2,024
    )
    
    
    
    
    
    
    
    
    
    
    (2,024
    )Earnings before income taxes
    
    
    15,761
    
    
    
    15,991
    
    
    
    37,933
    
    
    
    (48,631
    )
    
    
    21,054Income tax expense
    
    
    985
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985Net earnings
    
    $
    14,776
    
    
    $
    15,991
    
    
    $
    37,933
    
    
    $
    (48,631
    )
    
    $
    20,069
 19




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##### Table of Contents



IASIS HEALTHCARE LLC NOTES TO UNAUDITED CONDENSED CONSOLIDATED
 FINANCIAL STATEMENTS
 IASIS Healthcare LLC
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended March 31, 2005 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedParent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings
    
    $
    20,834
    
    
    $
    26,410
    
    
    $
    45,121
    
    
    $
    (66,608
    )
    
    $
    25,757Adjustments to reconcile net earnings to net cash provided
operating activities:Depreciation and amortization
    
    
    3,397
    
    
    
    22,992
    
    
    
    9,494
    
    
    
    
    
    
    
    35,883Minority interests
    
    
    
    
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    2,274Deferred income taxes
    
    
    16,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,148Loss on sale of property and equipment
    
    
    
    
    
    
    74
    
    
    
    8
    
    
    
    
    
    
    
    82Equity in earnings of affiliates
    
    
    (71,531
    )
    
    
    
    
    
    
    
    
    
    
    71,531
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (11,689
    )
    
    
    (3,800
    )
    
    
    
    
    
    
    (15,489
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (5,633
    )
    
    
    (2,650
    )
    
    
    
    
    
    
    (8,283
    )Accounts payable and other accrued liabilities
    
    
    3,692
    
    
    
    (1,587
    )
    
    
    1,579
    
    
    
    
    
    
    
    3,684Net cash provided by (used in) operating activities
    
    
    (27,460
    )
    
    
    32,841
    
    
    
    49,752
    
    
    
    4,923
    
    
    
    60,056Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (40,186
    )
    
    
    (35,425
    )
    
    
    
    
    
    
    (75,611
    )Cash paid for acquisition
    
    
    (410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (410
    )Change in other assets
    
    
    
    
    
    
    168
    
    
    
    (243
    )
    
    
    
    
    
    
    (75
    )Net cash used in investing activities
    
    
    (410
    )
    
    
    (40,018
    )
    
    
    (35,668
    )
    
    
    
    
    
    
    (76,096
    )Cash flows from financing activitiesProceeds from debt borrowings
    
    
    2,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,274Payment of debt and capital leases
    
    
    (5,694
    )
    
    
    (827
    )
    
    
    (611
    )
    
    
    
    
    
    
    (7,132
    )Debt financing costs incurred
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Change in intercompany balances with affiliates, net
    
    
    31,777
    
    
    
    (14,500
    )
    
    
    (12,354
    )
    
    
    (4,923
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (2,354
    )
    
    
    
    
    
    
    (2,354
    )Net cash provided by (used in) financing activities
    
    
    27,870
    
    
    
    (15,327
    )
    
    
    (15,319
    )
    
    
    (4,923
    )
    
    
    (7,699
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (22,504
    )
    
    
    (1,235
    )
    
    
    
    
    
    
    (23,739
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    97,463
    
    
    
    1,342
    
    
    
    
    
    
    
    98,805Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    74,959
    
    
    $
    107
    
    
    $
    
    
    
    $
    75,066
 20




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS IASIS Healthcare LLC
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended March 31, 2004 (unaudited)(in thousands) SubsidiarySubsidiary
    
    
    Non-
    
    
    
    
    
    
    CondensedPredecessor
    
    Parent Issuer
    
    
    Guarantors
    
    
    Guarantors
    
    
    Eliminations
    
    
    ConsolidatedCash flows from operating activitiesNet earnings
    
    $
    14,776
    
    
    $
    15,991
    
    
    $
    37,933
    
    
    $
    (48,631
    )
    
    $
    20,069Adjustments to reconcile net earnings to net cash provided
operating activities:Depreciation and amortization
    
    
    1,776
    
    
    
    26,081
    
    
    
    6,122
    
    
    
    
    
    
    
    33,979Minority interests
    
    
    
    
    
    
    2,024
    
    
    
    
    
    
    
    
    
    
    
    2,024Gain on sale of property and equipment
    
    
    
    
    
    
    (3,753
    )
    
    
    
    
    
    
    
    
    
    
    (3,753
    )Write-off of debt issue costs
    
    
    8,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,850Equity in earnings of affiliates
    
    
    (53,924
    )
    
    
    
    
    
    
    
    
    
    
    53,924
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (12,416
    )
    
    
    28
    
    
    
    
    
    
    
    (12,388
    )Establishment of accounts receivable of recent acquisitions
    
    
    
    
    
    
    (10,338
    )
    
    
    
    
    
    
    
    
    
    
    (10,338
    )Inventories, prepaid expenses and other current assets
    
    
    
    
    
    
    (2,325
    )
    
    
    (1,320
    )
    
    
    
    
    
    
    (3,645
    )Accounts payable and other accrued liabilities
    
    
    (1,510
    )
    
    
    17,807
    
    
    
    12,142
    
    
    
    
    
    
    
    28,439Net cash provided by (used in) operating activities
    
    
    (30,032
    )
    
    
    33,071
    
    
    
    54,905
    
    
    
    5,293
    
    
    
    63,237Cash flows from investing activitiesPurchases of property and equipment
    
    
    
    
    
    
    (28,639
    )
    
    
    (22,885
    )
    
    
    
    
    
    
    (51,524
    )Cash paid for acquisition
    
    
    
    
    
    
    (23,032
    )
    
    
    
    
    
    
    
    
    
    
    (23,032
    )Proceeds from sale of assets
    
    
    
    
    
    
    14,928
    
    
    
    
    
    
    
    
    
    
    
    14,928Change in other assets
    
    
    
    
    
    
    (2,061
    )
    
    
    300
    
    
    
    
    
    
    
    (1,761
    )Net cash used in investing activities
    
    
    
    
    
    
    (38,804
    )
    
    
    (22,585
    )
    
    
    
    
    
    
    (61,389
    )Cash flows from financing activitiesPayment of debt and capital leases
    
    
    
    
    
    
    (2,494
    )
    
    
    (589
    )
    
    
    
    
    
    
    (3,083
    )Debt Financing costs incurred
    
    
    (1,024
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,024
    )Proceeds received from hospital syndication
    
    
    
    
    
    
    1,801
    
    
    
    
    
    
    
    
    
    
    
    1,801Change in intercompany balances with affiliates, net
    
    
    31,056
    
    
    
    3,074
    
    
    
    (28,837
    )
    
    
    (5,293
    )
    
    
    Distribution of minority interests
    
    
    
    
    
    
    
    
    
    
    (1,817
    )
    
    
    
    
    
    
    (1,817
    )Net cash provided by (used in) financing activities
    
    
    30,032
    
    
    
    2,381
    
    
    
    (31,243
    )
    
    
    (5,293
    )
    
    
    (4,123
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (3,352
    )
    
    
    1,077
    
    
    
    
    
    
    
    (2,275
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    100,784
    
    
    
    286
    
    
    
    
    
    
    
    101,070Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    97,432
    
    
    $
    1,363
    
    
    $
    
    
    
    $
    98,795
 21




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##### Table of Contents



IASIS HEALTHCARE LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 9. Subsequent Event Mountain
Vista Medical Center, LP (Mountain Vista), a subsidiary of the Company, was formed
in October 2004 to construct, manage and operate a new hospital to be located in the East Valley
area of Mesa, Arizona. In November 2004, the Company paid $8.5 million in cash for the purchase of a 47-acre parcel of
undeveloped land in the East Valley of our Phoenix, Arizona market.
The Company is currently planning for
the construction of a new hospital, to be named Mountain Vista Medical Center, on this property,
which is projected to cost $150.0 to $165.0 million. In April 2005, Mountain Vista sold limited partnership units to third party
investors, including physicians, for net proceeds of approximately $3.6 million. The net proceeds
from this transaction will be used to fund a portion of the cost to construct and equip the new
hospital. For
the remainder of fiscal 2005, the Company plans to spend $5.0 million to
$10.0 million for planning, architectural design and other costs
associated with this project. The Company currently plans to open the new hospital during fiscal
2007. 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of financial condition and results of operations should
be read in conjunction with our unaudited condensed consolidated financial statements, the notes to
our unaudited condensed consolidated financial statements and the other financial information
appearing elsewhere in this report. Data for the three and six months ended March 31, 2005 and 2004
has been derived from our unaudited condensed consolidated financial statements. Data for the three
and six months ended March 31, 2004 reflects the results of operations of IASIS Healthcare
Corporation, or IAS, as predecessor to IASIS Healthcare LLC, or IASIS LLC. References herein to
we, our and us are to IASIS LLC and its subsidiaries and, unless indicated otherwise or the
context requires, include IAS. Forward Looking Statements Some of the statements we make in this report are forward-looking within the meaning of the
federal securities laws, which are intended to be covered by the safe harbors created thereby.
Those forward-looking statements include all statements that are not historical statements of fact
and those regarding our intent, belief or expectations including, but not limited to, the
discussions of our operating and growth strategy (including possible acquisitions and
dispositions), financing needs, projections of revenue, income or loss, capital expenditures and
future operations. Forward-looking statements involve known and unknown risks and uncertainties
that may cause actual results in future periods to differ materially from those anticipated in the
forward-looking statements. Those risks and uncertainties include, among others, the risks and
uncertainties related to our ability to generate sufficient cash to service our existing
indebtedness, our substantial level of indebtedness that could adversely affect our financial
condition, our ability to retain and negotiate favorable contracts with managed care plans, changes
in legislation that may significantly reduce government healthcare spending and our revenue, our
hospitals competition for patients from other hospitals and healthcare providers, our hospitals
facing a growth in bad debts resulting from increased self-pay volume and revenue, our ability to
recruit and retain quality physicians, our hospitals competition for staffing which may increase
our labor costs and reduce profitability, our failure to comply with extensive laws and government
regulations, the possibility that we may become subject to federal and state investigations in the
future, our ability to satisfy regulatory requirements with respect to our internal controls over
financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, a failure of our
information systems that would adversely affect our ability to properly manage our operations, an
economic downturn or other material change in any one of the regions in which we operate, potential
liabilities because of claims brought against our facilities, increasing insurance costs that may
reduce our revenue, our ability to control costs at Health Choice, the possibility of Health
Choices contract with the Arizona Health Care Cost Containment
System being discontinued or experiencing materially reduced
reimbursement, significant competition from other healthcare companies and state efforts to regulate the sale of
not-for-profit hospitals that may affect our ability to acquire hospitals, difficulties with the
integration of acquisitions that may disrupt our ongoing operations, difficulties with
consolidation of operations into our new hospital, the significant capital expenditures that would
be involved in the construction of other new hospitals that could have an adverse effect on our
liquidity, state efforts to regulate the construction or expansion of hospitals that could impair
our ability to operate and expand our operations, and potential responsibilities and costs under
environmental laws that could lead to material expenditures or liability, and those risks,
uncertainties and other matters detailed in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2004, and in our subsequent filings with the Securities and Exchange
Commission. Although we believe that the assumptions underlying the forward-looking statements contained
in this report are reasonable, any of these assumptions could prove to be inaccurate and,
therefore, there can be no assurance that the forward-looking statements included in this report
will prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in this report, you should not regard the inclusion of such
information as a representation by us or any other person that our objectives and plans will be
achieved. We undertake no obligation to publicly release any revisions to any forward-looking
statements contained herein to reflect events and circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events. 23




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##### Table of Contents



Executive Overview We are a leading owner and operator of medium-sized acute care hospitals in high-growth urban
and suburban markets. We operate our hospitals with a strong community focus by offering and
developing healthcare services targeted to the needs of the markets we serve, promoting strong
relationships with physicians and working with local managed care plans. At March 31, 2005, we
owned or leased 15 acute care hospitals and one behavioral health hospital, with a total of 2,232
beds in service, located in five regions:  
    Salt Lake City, Utah;
    Phoenix, Arizona;
    Tampa-St. Petersburg, Florida;
    Las Vegas, Nevada; and
    four cities in the State of Texas, including San Antonio. On April 16, 2005, we opened our 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, we currently operate 14 acute care hospitals.
We also own and operate a Medicaid managed health plan in Phoenix called Health Choice, that served
over 112,000 members at March 31, 2005. In addition, we have ownership interests in three
ambulatory surgery centers. The Merger On June 22, 2004, an investor group led by Texas Pacific Group acquired IAS through a merger.
The total transaction value, including tender premiums, consent fees and other merger-related fees
and expenses, was approximately $1.5 billion. The merger has been accounted for as a purchase in
accordance with SFAS No. 141, Business Combinations. During the three months ended March 31, 2005,
we substantially completed the allocation of the merger purchase price. The allocation of the net
purchase price of the merger resulted in goodwill of approximately $764.0 million and $45.0 million
of other intangible assets. See the notes to the unaudited condensed consolidated financial
statements for additional information on the merger and the related financing transactions. The
merger, the related financing transactions and the use of the proceeds from the financing
transactions are referred to as the Transactions. Revenue and Volume Trends Net revenue is comprised of acute care and premium revenue. Net acute care revenue is
comprised of net patient revenue and other revenue. Our acute care facilities have experienced net
revenue growth due primarily to favorable pricing trends. Net patient revenue is reported net of
contractual adjustments. The adjustments principally result from differences between the hospitals
established charges and payment rates under Medicare, Medicaid and various managed care plans. The
calculation of appropriate payments from the Medicare and Medicaid programs as well as terms
governing agreements with other third-party payors are complex and subject to interpretation. As a
result, there is at least a reasonable possibility that recorded estimates will change by a
material amount. Premium revenue consists of revenue from Health Choice, our Medicaid managed
health plan, while other revenue includes medical office building rental income and other
miscellaneous revenue. Health Choice has experienced significant revenue growth as a result of an
increase in the Medicaid-eligible population and an increase in our marketshare in the counties
where we operate. 24




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##### Table of Contents



The following table provides the sources of our net patient revenue by payor for the three and
six months ended March 31, 2005 and 2004. Three Months
    
    
    Six MonthsEnded March 31
    
    
    Ended March 312005
    
    
    2004
    
    
    2005
    
    
    2004Medicare
    
    
    28.9
    %
    
    
    28.5
    %
    
    
    27.3
    %
    
    
    27.3
    %Medicaid
    
    
    13.2
    
    
    
    13.2
    
    
    
    12.7
    
    
    
    13.1Managed care
    
    
    44.3
    
    
    
    43.6
    
    
    
    44.7
    
    
    
    44.5Self-pay and other
    
    
    13.6
    
    
    
    14.7
    
    
    
    15.3
    
    
    
    15.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 A large percentage of our hospitals net patient revenue consists of fixed payment, discounted
sources, including Medicare, Medicaid and managed care organizations. Reimbursement for Medicare
and Medicaid services are often fixed regardless of the cost incurred or the level of services
provided. Similarly, a greater percentage of the managed care companies we contract with have
recently begun to reimburse providers on a fixed payment basis regardless of the costs incurred or
the level of services provided. We expect patient volumes from Medicare to increase over the long
term due to the general aging of the population. We continued to experience growth in net revenue during the three and six months ended March
31, 2005. Our consolidated net revenue increased 9.8% and 12.9% for the three and six months ended
March 31, 2005 over the same periods in the prior year. Contributing to the growth in net revenue
was an increase in net acute care revenue of $16.5 million and $50.1 million for the three and six
months ended March 31, 2005, respectively, which includes increases in net revenue on a same
facility basis of $7.2 million and $17.1 million for the three and six months ended March 31, 2005,
respectively. In addition, an increase in net revenue from Health Choice of $18.2 million and
$35.7 million for the three and six months ended March 31, 2005 contributed to the increase in
consolidated net revenue. We have experienced an increase in net patient revenue from our hospital operations due to the
continued expansion of services at our hospitals, the acquisition of
North Vista Hospital (formerly known as Lake Mead Hospital Medical
Center), or North Vista, and favorable
pricing trends. On a same facility basis, the growth in net revenue from our hospital operations
has been driven primarily by increases in rates paid by managed care organizations, offset in part
by an increase in charity care. Our same facility net patient revenue per adjusted admission
increased 2.2% and 5.3% for the three and six months ended March 31, 2005 compared to the three and
six months ended March 31, 2004. Admissions, on a same facility basis, decreased 2.2% and 3.2% for
the three and six months ended March 31, 2005, respectively, compared to the same prior year
periods. Although patient volumes declined recently, volume in certain profitable product lines
such as psychiatric and rehabilitation services increased during the three and six months ended
March 31, 2005 compared to the same periods in the prior year. Contributing to the decline in
patient volumes was a delay in the flu season as evidenced by a decrease in respiratory related
admissions for the six months ended March 31, 2005 compared to the same prior year period. Volumes
have also declined in part as a result of our closure of an obstetrics unit at one of our Arizona
hospitals in the fourth quarter of fiscal 2004. Additionally,
admissions have declined due to a decrease in orthopedic volume in
one of our Florida hospitals, disruptions caused from on-going emergency room expansion and renovation projects at two of
our hospitals and the continued shift of certain procedures from an inpatient to outpatient basis
as a result of new technologies. Health Choice derives its revenue through a contract with the Arizona Health Care Cost
Containment System to provide specified health services to qualified Medicaid enrollees through
contracts with providers. The contract requires us to provide healthcare services in exchange for
fixed periodic payments and supplemental payments from the Arizona Health Care Cost Containment
System. Our membership at Health Choice has increased from approximately 93,000 enrollees as of
March 31, 2004 to over 112,000 enrollees as of March 31, 2005. Health Choices current contract
expires September 30, 2006 and provides the Arizona Health Care Cost Containment System with two
one-year renewal options following the initial term. Should our contract be discontinued, our net
revenue would be reduced and our cash flows would be adversely affected. 25




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##### Table of Contents



The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare
Modernization Act, which was signed into law on December 8, 2003, made a number of significant
changes to the Medicare program. The Medicare Modernization Act provides a number of potential
benefits to our hospitals including, but not limited to:  
    a provision allocating $250.0 million per year for federal years 2005-2008 to pay
for healthcare costs of undocumented aliens;
    provisions basically 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. In addition, for federal fiscal years 2005, 2006 and 2007, hospitals receive full market
basket updates for these years, but such update amounts are conditioned upon a hospital providing
the Centers for Medicare and Medicaid Services, or CMS, with specific quality data relating to the
quality of services provided. Those hospitals failing to provide CMS with the required data
specified under the National Voluntary Hospital Reporting Initiative will receive an update equal
to the market basket minus 0.4%. Our hospitals are complying with this reporting requirement. The
Medicare Modernization Act also decreases hospital reimbursement in a few areas, including, but not
limited to, a provision denying updates to hospitals with high-cost direct medical education
programs. We are unable to predict the impact the Medicare Modernization Act will have on our
results of operations and financial condition, and no assurance can be given that it will not have
an adverse effect on our business. Other Trends The following paragraphs discuss recent trends that we believe are significant factors in our
current and future operating results and cash flows. Certain of these trends apply to the entire
acute care hospital industry while others may apply to us more specifically. These trends could be
short-term in nature or could require long-term attention and resources. While these trends may
involve certain factors that are outside of our control, the extent to which these trends affect
our hospitals and our ability to manage the impact of these trends plays a vital role in our
current and future success. In many cases, we are unable to predict what impact, if any, these
trends will have on us. Growth in Bad Debts Resulting From Increased Self-Pay Volume and Revenue Like others in the hospital industry, we experienced an increase in our provision for bad
debts as a percentage of net revenue during fiscal 2004. This increase was due to a growth in

self-pay volume and revenue resulting in large part from an increase in the number of uninsured
patients, along with an increase in the amount of co-payments and deductibles passed on by
employers to employees. However, growth in uninsured patient volume has moderated over the first
and second quarters of fiscal 2005. In our efforts to control exposure to bad debts, we continue to
focus on our emergency rooms through facilities redesign, Medicaid eligibility automation and
process-flow improvements. As a result of our focus, point-of-service collections increased 17.0%
and 18.0% for the three and six months ended March 31, 2005, respectively, compared to the
comparable periods ended March 31, 2004. However, we anticipate that if we experience future growth
in self-pay volume and revenue, our provision for bad debts will increase and our results of
operations could be adversely affected. Additional Charity Care and Charges to the Uninsured We currently record revenue deductions for patient accounts that meet our guidelines for
charity care. We have traditionally provided charity care to patients with income levels below 200%
of the federal property level and will continue this practice. Effective October 1, 2004, we
expanded our charity care policy to cover uninsured patients with income above 200% of the federal
poverty level. Under the new program, a sliding scale of significantly reduced rates are offered to
uninsured patients with income between 200% and 400% of the federal poverty level at all of our
hospitals. Charity care deductions increased $1.9 million and $2.3 million for the three and 26




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##### Table of Contents



six months ended March 31, 2005, respectively, as compared to the comparable periods in the
prior year. We believe the increase was due in part to the change in policy. Currently, we do not
expect that implementation of such a change will have a material impact on our results of
operations. Development of Sub-Acute Care Services Inpatient care is expanding to include sub-acute care when a less intensive, lower cost level
of care is appropriate. We have been proactive in the development of a variety of sub-acute
inpatient services to utilize a portion of our available capacity. By offering cost-effective
sub-acute services in appropriate circumstances, we are able to provide a continuum of care when
the demand for such services exists. We have identified opportunities to expand existing physical
rehabilitation units and develop other post-acute services within our facilities. The results of
our product line analyses confirm that the development and use of such units continues to be
economically beneficial. Nursing Shortage The hospital industry continues to experience a shortage of nurses. This shortage is
forecasted to continue. Like other providers in the Phoenix, Arizona region, we have experienced
difficulty in retaining and recruiting nurses in that market. We have a comprehensive recruiting
and retention plan for nurses that focuses on competitive salaries and benefits as well as employee
satisfaction, best practices, tuition assistance, effective training programs and workplace
environment. Additionally, we are attempting to recruit qualified nurses from countries outside of
the United States. Contract labor for nursing services on a same facility basis decreased 0.3% as a
percent of net revenue for both the three and six months ended March 31, 2005 as compared to the
same periods in the prior year. Should we be unsuccessful in our attempts to maintain nursing
coverage adequate for our present and future needs, our future operating results could be adversely
affected. Decreased State Funding for Medicaid Programs Some of the states in which we operate have experienced budget constraints as a result of
increased costs and lower than expected tax collections. Health and human services programs,
including Medicaid and similar programs, represent a significant portion of state spending. As a
response to these budgetary concerns, some states have proposed and other states may propose
decreased funding for these programs. If such funding decreases are approved by the states in which
we operate, our operating results and cash flows could be adversely affected. Increasing Insurance Costs Consistent with 2004, our fiscal 2005 self-insured retention for professional and general
liability coverage is $5.0 million per claim and $45.0 million in the aggregate. Additionally, the
maximum coverage under our insurance policies is unchanged at $75.0 million. The rising cost of
professional liability insurance coverage and, in some cases, the lack of availability of such
insurance coverage for physicians with privileges at our hospitals, increases our risk of vicarious
liability in cases in which both our hospital and the uninsured or underinsured physician are named
as co-defendants. The cost of insurance has negatively affected operating results and cash flows
throughout the healthcare industry due to pricing pressures on insurers and fewer carriers willing
to underwrite professional and general liability insurance. For the three and six months ended
March 31, 2005, our insurance expense on a same facility basis increased 34% and 20%, respectively,
compared to the comparable periods ended March 31, 2004. Insurance expense for the three months
ended March 31, 2005 was negatively affected by negotiated settlements of certain claims. Some
states, including some states in which we operate, have recently passed tort reform legislation or
are considering such legislation to place limits on non-economic damages. There is no assurance
that continued increases in insurance costs will not have a material adverse effect on our future
operating results and cash flows. Critical Accounting Policies A summary of significant accounting policies is disclosed in Note 2 to the consolidated
financial statements included in our Annual Report on Form 10-K for the year ended September 30,
2004. Our critical accounting 27




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##### Table of Contents



policies are further described under the caption Critical Accounting Policies in
Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the year ended September 30, 2004. There have been no changes in the nature
of our critical accounting policies or the application of those policies since September 30, 2004. Selected Operating Data The following table sets forth certain unaudited operating data for each of the periods
presented. Three Months Ended
    
    
    Six Months EndedMarch 31
    
    
    March 312005
    
    
    2004
    
    
    2005
    
    
    2004Acute Care (1):Number of acute care hospitals at end of period (2)
    
    
    15
    
    
    
    15
    
    
    
    15
    
    
    
    15Beds in service at end of period
    
    
    2,232
    
    
    
    2,257
    
    
    
    2,232
    
    
    
    2,257Average length of stay (days) (3)
    
    
    4.49
    
    
    
    4.52
    
    
    
    4.42
    
    
    
    4.42Occupancy rates (average beds in service)
    
    
    52.7
    %
    
    
    54.1
    %
    
    
    49.3
    %
    
    
    51.5
    %Admissions (4)
    
    
    23,569
    
    
    
    23,804
    
    
    
    45,475
    
    
    
    44,873Adjusted admissions (5)
    
    
    37,720
    
    
    
    37,117
    
    
    
    73,200
    
    
    
    71,844Patient days (6)
    
    
    105,869
    
    
    
    107,518
    
    
    
    201,009
    
    
    
    198,129Adjusted patient days (5)
    
    
    163,501
    
    
    
    162,221
    
    
    
    311,987
    
    
    
    305,813Net patient revenue per adjusted admission
    
    $
    7,927
    
    
    $
    7,608
    
    
    $
    7,911
    
    
    $
    7,360Acute Care (Same-Facility) (7)Number of acute care hospitals at end of period (2)
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14Beds in service at end of period
    
    
    2,046
    
    
    
    2,081
    
    
    
    2,046
    
    
    
    2,081Average length of stay (days) (3)
    
    
    4.41
    
    
    
    4.50
    
    
    
    4.35
    
    
    
    4.40Occupancy rates (average beds in service)
    
    
    52.6
    %
    
    
    53.7
    %
    
    
    49.0
    %
    
    
    51.2
    %Admissions (4)
    
    
    21,934
    
    
    
    22,438
    
    
    
    42,135
    
    
    
    43,507Adjusted admissions (5)
    
    
    35,611
    
    
    
    35,405
    
    
    
    68,899
    
    
    
    70,133Patient days (6)
    
    
    96,795
    
    
    
    100,919
    
    
    
    183,261
    
    
    
    191,530Adjusted patient days (5)
    
    
    151,797
    
    
    
    153,953
    
    
    
    289,135
    
    
    
    297,545Net patient revenue per adjusted admission
    
    $
    7,689
    
    
    $
    7,524
    
    
    $
    7,698
    
    
    $
    7,311Health Choice:Covered lives
    
    
    112,510
    
    
    
    92,598
    
    
    
    112,510
    
    
    
    92,598Medical loss ratio (8)
    
    
    88.8
    %
    
    
    86.9
    %
    
    
    88.2
    %
    
    
    87.7
    %
   (1)
    
    Includes North Vista, which we acquired effective February 1, 2004.(2)
    
    Excludes St. Lukes Behavioral Hospital. Additionally, on April 16, 2005, the Company opened
its new hospital in Port Arthur, Texas. 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)
    
    Excludes North Vista, which we acquired effective February 1, 2004.(8)
    
    Represents medical claims expense as a percentage of premium revenue, including claims paid
to our hospitals. 28




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##### Table of Contents



Results of Operations Summary The following table sets forth, for the periods indicated results of operations
data expressed in dollar terms and as a percentage of net revenue. The table includes
information both on a consolidated basis and by reportable business segment. Three
    
    
    Three
    
    
    Six
    
    
    SixMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedMarch 31, 2005
    
    March 31, 2004
    
    March 31, 2005
    
    March 31, 2004($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)Consolidated (in thousands):Net Revenue:Acute care revenue
    
    $
    302,719
    
    
    
    77.6
    %
    
    $
    286,213
    
    
    
    80.5
    %
    
    $
    586,493
    
    
    
    77.1
    %
    
    $
    535,603
    
    
    
    79.5
    %Premium revenue
    
    
    87,538
    
    
    
    22.4
    %
    
    
    69,302
    
    
    
    19.5
    %
    
    
    173,739
    
    
    
    22.9
    %
    
    
    138,016
    
    
    
    20.5
    %Total net revenue
    
    
    390,257
    
    
    
    100.0
    %
    
    
    355,515
    
    
    
    100.0
    %
    
    
    760,232
    
    
    
    100.0
    %
    
    
    673,619
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    112,725
    
    
    
    28.9
    %
    
    
    110,487
    
    
    
    31.1
    %
    
    
    219,234
    
    
    
    28.8
    %
    
    
    209,903
    
    
    
    31.2
    %Supplies
    
    
    49,289
    
    
    
    12.6
    %
    
    
    46,301
    
    
    
    13.0
    %
    
    
    94,655
    
    
    
    12.4
    %
    
    
    86,580
    
    
    
    12.8
    %Medical claims
    
    
    75,433
    
    
    
    19.3
    %
    
    
    57,880
    
    
    
    16.3
    %
    
    
    148,768
    
    
    
    19.6
    %
    
    
    115,651
    
    
    
    17.2
    %Rents and leases
    
    
    7,991
    
    
    
    2.1
    %
    
    
    7,766
    
    
    
    2.2
    %
    
    
    15,850
    
    
    
    2.1
    %
    
    
    15,566
    
    
    
    2.3
    %Other operating expenses
    
    
    54,205
    
    
    
    13.9
    %
    
    
    50,701
    
    
    
    14.2
    %
    
    
    107,240
    
    
    
    14.1
    %
    
    
    98,728
    
    
    
    14.7
    %Provision for bad debts
    
    
    30,715
    
    
    
    7.9
    %
    
    
    32,169
    
    
    
    9.0
    %
    
    
    62,970
    
    
    
    8.3
    %
    
    
    57,268
    
    
    
    8.5
    %Interest, net
    
    
    14,007
    
    
    
    3.6
    %
    
    
    13,878
    
    
    
    3.9
    %
    
    
    28,677
    
    
    
    3.8
    %
    
    
    27,769
    
    
    
    4.1
    %Depreciation and amortization
    
    
    17,659
    
    
    
    4.5
    %
    
    
    17,248
    
    
    
    4.9
    %
    
    
    35,883
    
    
    
    4.7
    %
    
    
    33,979
    
    
    
    5.0
    %Management fees
    
    
    963
    
    
    
    0.2
    %
    
    
    
    
    
    
    
    
    
    
    1,921
    
    
    
    0.3
    %
    
    
    
    
    
    
    Write-off of debt issue costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    2.5
    %
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    1.3
    %Total costs and expenses
    
    
    362,987
    
    
    
    93.0
    %
    
    
    345,280
    
    
    
    97.1
    %
    
    
    715,198
    
    
    
    94.1
    %
    
    
    654,294
    
    
    
    97.1
    %Earnings before gain (loss) on sale
of assets, minority interests and
income taxes
    
    
    27,270
    
    
    
    7.0
    %
    
    
    10,235
    
    
    
    2.9
    %
    
    
    45,034
    
    
    
    5.9
    %
    
    
    19,325
    
    
    
    2.9
    %Gain (loss) on sale of assets, net
    
    
    (9
    )
    
    
    
    
    
    
    3,602
    
    
    
    1.0
    %
    
    
    (82
    )
    
    
    
    
    
    
    3,753
    
    
    
    0.5
    %Minority interests
    
    
    (1,141
    )
    
    
    (0.3
    )%
    
    
    (1,033
    )
    
    
    (0.3
    )%
    
    
    (2,274
    )
    
    
    (0.3
    )%
    
    
    (2,024
    )
    
    
    (0.3
    )%Earnings before income taxes
    
    
    26,120
    
    
    
    6.7
    %
    
    
    12,804
    
    
    
    3.6
    %
    
    
    42,678
    
    
    
    5.6
    %
    
    
    21,054
    
    
    
    3.1
    %Income tax expense
    
    
    10,324
    
    
    
    2.7
    %
    
    
    953
    
    
    
    0.3
    %
    
    
    16,921
    
    
    
    2.2
    %
    
    
    985
    
    
    
    0.1
    %Net earnings
    
    $
    15,796
    
    
    
    4.0
    %
    
    $
    11,851
    
    
    
    3.3
    %
    
    $
    25,757
    
    
    
    3.4
    %
    
    $
    20,069
    
    
    
    3.0
    %
 29




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##### Table of Contents



Three
    
    
    Three
    
    
    Six
    
    
    SixMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedMarch 31, 2005
    
    March 31, 2004
    
    March 31, 2005
    
    March 31, 2004($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)Acute Care (in thousands):Net Revenue:Acute care revenue
    
    $
    302,719
    
    
    
    99.3
    %
    
    $
    286,213
    
    
    
    99.2
    %
    
    $
    586,493
    
    
    
    99.2
    %
    
    $
    535,603
    
    
    
    99.0
    %Revenue between segments
    
    
    2,273
    
    
    
    0.7
    %
    
    
    2,335
    
    
    
    0.8
    %
    
    
    4,497
    
    
    
    0.8
    %
    
    
    5,314
    
    
    
    1.0
    %Total net revenue (1)
    
    
    304,992
    
    
    
    100.0
    %
    
    
    288,548
    
    
    
    100.0
    %
    
    
    590,990
    
    
    
    100.0
    %
    
    
    540,917
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    109,928
    
    
    
    36.0
    %
    
    
    108,147
    
    
    
    37.5
    %
    
    
    213,718
    
    
    
    36.1
    %
    
    
    205,390
    
    
    
    38.0
    %Supplies
    
    
    49,243
    
    
    
    16.1
    %
    
    
    46,251
    
    
    
    16.0
    %
    
    
    94,558
    
    
    
    16.0
    %
    
    
    86,488
    
    
    
    16.0
    %Rents and leases
    
    
    7,773
    
    
    
    2.6
    %
    
    
    7,603
    
    
    
    2.6
    %
    
    
    15,415
    
    
    
    2.6
    %
    
    
    15,264
    
    
    
    2.8
    %Other operating expenses
    
    
    51,511
    
    
    
    16.9
    %
    
    
    48,291
    
    
    
    16.7
    %
    
    
    101,709
    
    
    
    17.2
    %
    
    
    93,773
    
    
    
    17.3
    %Provision for bad debts
    
    
    30,715
    
    
    
    10.1
    %
    
    
    32,169
    
    
    
    11.1
    %
    
    
    62,970
    
    
    
    10.7
    %
    
    
    57,268
    
    
    
    10.6
    %Interest, net
    
    
    14,007
    
    
    
    4.6
    %
    
    
    13,878
    
    
    
    4.8
    %
    
    
    28,677
    
    
    
    4.9
    %
    
    
    27,769
    
    
    
    5.1
    %Depreciation and
amortization
    
    
    16,798
    
    
    
    5.5
    %
    
    
    17,203
    
    
    
    6.0
    %
    
    
    34,282
    
    
    
    5.8
    %
    
    
    33,893
    
    
    
    6.3
    %Management fees
    
    
    963
    
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    1,921
    
    
    
    0.3
    %
    
    
    
    
    
    
    Write-off of debt issue
costs
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    3.1
    %
    
    
    
    
    
    
    
    
    
    
    8,850
    
    
    
    1.6
    %Total costs and
expenses
    
    
    280,938
    
    
    
    92.1
    %
    
    
    282,392
    
    
    
    97.8
    %
    
    
    553,250
    
    
    
    93.6
    %
    
    
    528,695
    
    
    
    97.7
    %Earnings before gain (loss) on
sale of assets and minority
interests
    
    
    24,054
    
    
    
    7.9
    %
    
    
    6,156
    
    
    
    2.2
    %
    
    
    37,740
    
    
    
    6.4
    %
    
    
    12,222
    
    
    
    2.3
    %Gain (loss) on sale of assets,
net
    
    
    (9
    )
    
    
    0.0
    %
    
    
    3,602
    
    
    
    1.2
    %
    
    
    (82
    )
    
    
    0.0
    %
    
    
    3,753
    
    
    
    0.7
    %Minority interests
    
    
    (1,141
    )
    
    
    (0.4
    )%
    
    
    (1,033
    )
    
    
    (0.4
    )%
    
    
    (2,274
    )
    
    
    (0.4
    )%
    
    
    (2,024
    )
    
    
    (0.4
    )%Earnings before income taxes
    
    $
    22,904
    
    
    
    7.5
    %
    
    $
    8,725
    
    
    
    3.0
    %
    
    $
    35,384
    
    
    
    6.0
    %
    
    $
    13,951
    
    
    
    2.6
    %
   (1)
    
    Revenue between segments is eliminated in our consolidated results. 30




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##### Table of Contents



Three
    
    
    Three
    
    
    Six
    
    
    SixMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months EndedMarch 31, 2005
    
    March 31, 2004
    
    March 31, 2005
    
    March 31, 2004($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)
    
    
    ($)
    
    
    (%)Health Choice (in
thousands):Premium revenue
    
    $
    87,538
    
    
    
    100.0
    %
    
    $
    69,302
    
    
    
    100.0
    %
    
    $
    173,739
    
    
    
    100.0
    %
    
    $
    138,016
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    2,797
    
    
    
    3.2
    %
    
    
    2,340
    
    
    
    3.4
    %
    
    
    5,516
    
    
    
    3.2
    %
    
    
    4,513
    
    
    
    3.3
    %Supplies
    
    
    46
    
    
    
    0.1
    %
    
    
    50
    
    
    
    0.1
    %
    
    
    97
    
    
    
    0.1
    %
    
    
    92
    
    
    
    0.1
    %Medical claims (1)
    
    
    77,706
    
    
    
    88.8
    %
    
    
    60,215
    
    
    
    86.9
    %
    
    
    153,265
    
    
    
    88.2
    %
    
    
    120,965
    
    
    
    87.6
    %Rents and leases
    
    
    218
    
    
    
    0.2
    %
    
    
    163
    
    
    
    0.2
    %
    
    
    435
    
    
    
    0.2
    %
    
    
    302
    
    
    
    0.2
    %Other operating
expenses
    
    
    2,694
    
    
    
    3.1
    %
    
    
    2,410
    
    
    
    3.4
    %
    
    
    5,531
    
    
    
    3.2
    %
    
    
    4,955
    
    
    
    3.6
    %Interest, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and
amortization
    
    
    861
    
    
    
    0.9
    %
    
    
    45
    
    
    
    0.1
    %
    
    
    1,601
    
    
    
    0.9
    %
    
    
    86
    
    
    
    0.1
    %Total costs and
expenses
    
    
    84,322
    
    
    
    96.3
    %
    
    
    65,223
    
    
    
    94.1
    %
    
    
    166,445
    
    
    
    95.8
    %
    
    
    130,913
    
    
    
    94.9
    %Earnings before income
taxes
    
    $
    3,216
    
    
    
    3.7
    %
    
    $
    4,079
    
    
    
    5.9
    %
    
    $
    7,294
    
    
    
    4.2
    %
    
    $
    7,103
    
    
    
    5.1
    %
   (1)
    
    Medical claims paid to our hospitals of $2.3 million for the three months ended March 31,
2005 and 2004 and $4.5 million and $5.3 million for the six months ended March 31, 2005 and
2004, respectively, is eliminated in our consolidated results. 31




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##### Table of Contents



Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Net revenue- Net revenue for the three months ended March 31, 2005 was $390.2 million, an
increase of $34.7 million, or 9.8%, from $355.5 million for same period in fiscal 2004. The
increase in net revenue was due to a combination of an increase of $16.5 million in net revenue
from hospital operations, which we refer to as our acute care service segment in our financial
statements, and an increase of $18.2 million in net revenue from Health Choice. Before eliminations, net revenue from our hospital operations for the three months ended March
31, 2005 was $305.0 million, up $16.5 million, or 5.7%, from $288.5 million for the same period in
fiscal 2004. For each of the three months ended March 31, 2005 and 2004, approximately $2.3 million
of net revenue received from Health Choice by hospitals and other healthcare entities owned by us
was eliminated in consolidation. On a same facility basis, which excludes the results of North
Vista, net revenue from our hospital operations increased $7.2 million, or 2.6%, which was
primarily driven by a 2.2% increase in net patient revenue per adjusted admission and a 0.6%
increase in adjusted admissions. Net patient revenue per adjusted admission on a consolidated basis
increased 4.2% for the three months ended March 31, 2005, compared to the same period in fiscal
2004, due primarily to increases in managed care and Medicare rates. Net revenue from Health Choice was $87.5 million for the three months ended March 31, 2005, an
increase of $18.2 million, or 26.3%, from $69.3 million for the same period in fiscal 2004. Covered
lives under this prepaid Medicaid plan have increased 19,000 to approximately 112,000 at March 31,
2005 from 93,000 at March 31, 2004. The increase in covered lives has positively impacted Health
Choices net revenue for the three months ended March 31, 2005 compared to the same period in
fiscal 2004. The growth in covered lives is due primarily to an increase in the Medicaid-eligible
population and an increase in our marketshare in the counties where we operate. We expect the rate
of growth in enrollment to moderate over the remainder of fiscal 2005. Salaries and benefits- Salaries and benefits expense from our hospital operations for the
quarter ended March 31, 2005 was $109.9 million, or 36.0% of acute care revenue, compared to $108.1
million, or 37.5%, for the quarter ended March 31, 2004. On a same facility basis, which excludes
North Vista, salaries and benefits expense was 36.1% of acute care revenue for the quarter ended
March 31, 2005, compared to 37.6%, for the three months ended March 31, 2004. The 1.5% decrease as
a percentage of acute care revenue on a same facility basis resulted from the leveraging of growth
in net revenue achieved through rate increases during the current period, declining volumes in
certain markets requiring less labor utilization and a decrease in benefits expense. Benefits
expense from our same facility hospital operations decreased 1.0% as a percentage of acute care
revenue, for the quarter ended March 31, 2005 compared to the same period in fiscal 2004 due
primarily to changes to our employee healthcare benefit program implemented effective January 1,
2004. Additionally, contract labor, a component of salaries and benefits expense, decreased 0.2% as
a percentage of acute care revenue, for the quarter ended March 31, 2005 compared to the prior year
period as a result of decreases in patient volume and our operational focus on managing the
utilization of contract nursing services. Nevertheless, we continue to experience a high level of
contract labor utilization in our Arizona market as a result of a shortage of nurses. Supplies- Supplies expense from our hospital operations for the quarter ended March 31, 2005
was $49.2 million, or 16.1% of acute care revenue, compared to $46.3 million, or 16.0%, for the
quarter ended March 31, 2004. On a same facility basis, supplies expense was 16.3% of acute care
revenue for the quarter ended March 31, 2005, compared to 15.9%, for the three months ended March
31, 2004. We continue to experience significant increases ahead of the rate of inflation in the
costs of pharmaceuticals, medical devices and implants. Medical claims- Medical claims expense before eliminations for Health Choice increased $17.5
million to $77.7 million for the quarter ended March 31, 2005 compared to $60.2 million for the
quarter ended March 31, 2004. Medical claims expense as a percentage of premium revenue was 88.8%
for the three months ended March 31, 2005 and 86.9% for the same period last year. The increase in
medical claims expense was the result of an increase in enrollment from 92,598 members at March 31,
2004 to 112,510 members at March 31, 2005. The 1.9% increase as a percentage of premium revenue
resulted primarily from higher inpatient and pharmacy costs, coupled with higher utilization for
physician specialty services. Additionally, the increase resulted from Health Choice experiencing
lower inpatient utilization in the quarter ended March 31, 2004. Medical claims expense represents
the amounts paid by Health Choice for healthcare services provided to its members. 32




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##### Table of Contents



Other operating expenses- Other operating expenses from our hospital operations for the
quarter ended March 31, 2005 were $51.5 million, or 16.9% of acute care revenue, compared to $48.2
million, or 16.7%, for the quarter ended March 31, 2004. On a same facility basis, other operating
expenses were 17.3% of acute care revenue for the quarter ended March 31, 2005, compared to 17.0%,
for the three months ended March 31, 2004. During the current quarter, we experienced an increase
in insurance expense offset by decreases in legal expenses as a percentage of acute care revenue on
a same facility basis. Provision for bad debts- Provision for bad debts for our hospital operations for the quarter
ended March 31, 2005 was $30.8 million, or 10.1% of acute care revenue, compared to $32.2 million,
or 11.1%, for the quarter ended March 31, 2004. On a same facility basis, the provision for bad
debts was $23.8 million, or 8.5% of acute care revenue for the quarter ended March 31, 2005,
compared to $27.9 million, or 10.2%, for the three months ended March 31, 2004. The 1.7% decrease
as a percentage of acute care revenue on a same facility basis was due in part to the moderation of
self-pay and uninsured volume through our emergency rooms over the past two quarters. Self-pay or
uninsured revenue as a percentage of total acute care revenue decreased to 7.5% for the quarter
ended March 31, 2005 as compared to 8.0% for the quarter ended March 31, 2004. We believe our
expanded charity care policy effective October 1, 2004 contributed to the decline in self-pay
revenue and the provision for bad debts in the current quarter. Our operating results continue to
benefit from our focus on point-of-service collections (which increased 18.0% on a same facility
basis for the quarter ended March 31, 2005 compared to the same prior year period), along with our
focus on process improvements in our emergency rooms and in determining Medicaid eligibility for
certain patients. Interest, net- The $0.1 million increase in interest expense, net of interest income, from
$13.9 million for the quarter ended March 31, 2004 to $14.0 million for the same period in 2005 was
due to an increase in average debt outstanding. Borrowings under both our current and former senior
secured credit facilities were subject to interest at variable rates. The weighted average interest
rate of outstanding borrowings under our current senior secured credit facilities was approximately
4.8% and was unchanged for the quarter ended March 31, 2005 compared to the weighted average
interest rate of outstanding borrowings under our former senior secured credit facilities for the
quarter ended March 31, 2004. Depreciation and amortization- The $0.5 million increase in depreciation and amortization
expense from $17.2 million for the quarter ended March 31, 2004 to $17.7 million for the same
period in 2005 was primarily the result of incremental depreciation expense on additions to
property and equipment during fiscal 2005. These additions are the result of the implementation of
our operating strategy, pursuant to which we have made substantial investments in our existing
facilities. Depreciation expense for the quarter ended March 31, 2004 included $3.2 million of
additional depreciation as a result of accelerating the depreciation on two of our facilities in
anticipation of consolidating these hospitals operations into our new hospital in Port Arthur,
Texas. Beginning October 1, 2004, depreciation expense reflects a change in the value and the
estimated useful lives of our property and equipment. This change in estimate is the result of
applying the purchase method of accounting to account for the acquisition of IAS. Income tax expense- We recorded a provision for income taxes of $10.3 million, resulting in
an effective tax rate of 39.5% for the quarter ended March 31, 2005 and a provision for income
taxes of $953,000, resulting in an effective rate of 7.4% for the quarter ended March 31, 2004. As
a result of the Transactions, in the application of the purchase method of accounting, we reduce
goodwill, not income tax expense, upon the reduction of the deferred tax valuation allowance. For
the periods prior to the Transactions, the deferred portion of the provision for income taxes was
offset by the use of deferred tax assets that were previously reserved with a valuation allowance. Net earnings- Net earnings increased from $11.9 million for the quarter ended March 31, 2004
to $15.8 million for the quarter ended March 31, 2005. Net earnings for the three months ended
March 31, 2004 includes an $8.9 million write-off of debt issue costs and a $3.6 million net gain
on the sale of assets. 33




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##### Table of Contents



Six Months Ended March 31, 2005 Compared to Six Months Ended March 31, 2004 Net revenue- Net revenue for the six months ended March 31, 2005 was $760.2 million, an
increase of $86.6 million, or 12.9%, from $673.6 million for same period in fiscal 2004. The
increase in net revenue was due to a combination of an increase of $50.9 million in net revenue
from hospital operations, which we refer to as our acute care service segment in our financial
statements, and an increase of $35.7 million in net revenue from Health Choice. Before eliminations, net revenue from our hospital operations for the six months ended March
31, 2005 was $591.0 million, up $50.1 million, or 9.3%, from $540.9 million for the same period in
fiscal 2004. For the six months ended March 31, 2005 and 2004, approximately $4.5 million and $5.3
million, respectively, of net revenue received from Health Choice by hospitals and other healthcare
entities owned by us was eliminated in consolidation. On a same facility basis, which excludes the
results of North Vista, net revenue from our hospital operations increased $17.1 million, or 3.3%,
which was primarily driven by a 5.3% increase in net patient revenue per adjusted admission, offset
by a 1.8% decrease in adjusted admissions. Net patient revenue per adjusted admission on a
consolidated basis increased 7.5% for the six months ended March 31, 2005, compared to the same
period in fiscal 2004, due primarily to increases in managed care and Medicare rates. Net revenue from Health Choice was $173.7 million for the six months ended March 31, 2005, an
increase of $35.7 million, or 25.9%, from $138.0 million for the same period in fiscal 2004.
Covered lives under this prepaid Medicaid plan have increased 19,000 to approximately 112,000 at
March 31, 2005 from 93,000 at March 31, 2004. The increase in covered lives has positively impacted
Health Choices net revenue for the six months ended March 31, 2005 compared to the same period in
fiscal 2004. The growth in covered lives is due primarily to an increase in the Medicaid-eligible
population and an increase in our marketshare in the counties where we operate. We expect the rate
of growth in enrollment to moderate over the remainder of fiscal 2005. Salaries and benefits- Salaries and benefits expense from our hospital operations for the six
months ended March 31, 2005 was $213.7 million, or 36.2% of acute care revenue, compared to $205.4
million, or 38.0%, for the six months ended March 31, 2004. On a same facility basis, which
excludes North Vista, salaries and benefits expense was 36.2% of acute care revenue for the six
months ended March 31, 2005, compared to 38.0%, for the six months ended March 31, 2004. The 1.8%
decrease as a percentage of acute care revenue on a same facility basis resulted from the
leveraging of growth in net revenue achieved through rate increases during the current period,
declining volumes in certain markets requiring less labor utilization and a decrease in benefits
expense. Benefits expense from our same facility hospital operations decreased 1.0% as a percentage
of acute care revenue, for the six months ended March 31, 2005 compared to the same period in
fiscal 2004 due primarily to changes to our employee healthcare benefit program implemented
effective January 1, 2004. Additionally, contract labor, a component of salaries and benefits
expense, decreased 0.3% as a percentage of acute care revenue, for the six months ended March 31,
2005 compared to the prior year period as a result of decreases in patient volume and our
operational focus on managing the utilization of contract nursing services. Nevertheless, we
continue to experience a high level of contract labor utilization in our Arizona market as a result
of a shortage of nurses. Supplies- Supplies expense from our hospital operations for the six months ended March 31,
2005 was $94.6 million, or 16.0% of acute care revenue, compared to $86.5 million, or 16.0%, for
the six months ended March 31, 2004. On a same facility basis, supplies expense was 16.1% of acute
care revenue for the six months ended March 31, 2005, compared to 15.9%, for the six months ended
March 31, 2004. We continue to experience significant increases well ahead of the rate of inflation
in the costs of medical devices and implants. Medical claims- Medical claims expense before eliminations for Health Choice increased $32.3
million to $153.3 million for the six months ended March 31, 2005 compared to $121.0 million for
the six months ended March 31, 2004. Medical claims expense as a percentage of premium revenue was
88.2% for the six months ended March 31, 2005 and 87.6% for the same period in the prior year. The
increase in medical claims expense was the result of an increase in enrollment from 92,598 members
at March 31, 2004 to 112,510 members at March 31, 2005. The 0.6% increase as a percentage of
premium revenue resulted primarily from higher inpatient and pharmacy costs, coupled with higher
utilization for physician specialty services. For the six months ended March 31, 2005 and 2004,
approximately $4.5 million and $5.3 million, respectively, of medical claims paid to our hospitals
was eliminated in 34




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##### Table of Contents



consolidation. Medical claims expense represents the amounts paid by Health Choice for
healthcare services provided to its members. Other operating expenses- Other operating expenses from our hospital operations for the six
months ended March 31, 2005 were $101.5 million, or 17.2% of acute care revenue, compared to $93.7
million, or 17.3%, for the six months ended March 31, 2004. On a same facility basis, other
operating expenses were 17.6% of acute care revenue for the six months ended March 31, 2004,
compared to 17.5%, for the six months ended March 31, 2004. During the six months ended March 31,
2005, we experienced increases in insurance expense offset by decreases in legal expenses as a
percentage of acute care revenue on a same facility basis. During the six months ended March 31,
2004, we incurred $2.8 million in legal expenses associated with the Rocky Mountain Medical Center
lawsuit, which we settled in June 2004. Provision for bad debts- Provision for bad debts for our hospital operations for the six
months ended March 31, 2005 was $63.2 million, or 10.7% of acute care revenue, compared to $57.3
million, or 10.6% for the six months ended March 31, 2004. On a same facility basis, the provision
for bad debts was $49.6 million, or 9.2% of acute care revenue for the six months ended March 31,
2005, compared to $53.0 million, or 10.1%, for the six months ended March 31, 2004. The 0.9%
decrease as a percentage of acute care revenue on a same facility basis was due primarily to a
decline in self-pay and uninsured volume through our emergency rooms. Our operating results also
benefited from our focus on point-of-service collections (which increased 17% on a same facility
basis), along with our focus on process improvements in our emergency rooms and in determining
Medicaid eligibility for certain patients. Interest, net- The $0.9 million increase in interest expense, net of interest income, from
$27.8 million for the six months ended March 31, 2004 to $28.7 million for the same period in 2005
was due to an increase in average debt outstanding offset by a decline in interest rates.
Borrowings under both our current and former senior secured credit facilities were subject to
interest at variable rates. The weighted average interest rate of outstanding borrowings under our
current senior secured credit facilities was approximately 4.5% and was unchanged for the six
months ended March 31, 2005 compared to a weighted average interest rate of outstanding borrowings
under our former senior secured credit facilities for the six months ended March 31, 2004. Depreciation and amortization- The $1.9 million increase in depreciation and amortization
expense from $34.0 million for the six months ended March 31, 2004 to $35.9 million for the same
period in 2005 was primarily the result of incremental depreciation expense on additions to
property and equipment during fiscal 2004. These additions are the result of the implementation of
our operating strategy, pursuant to which we have made substantial investments in our existing
facilities. Depreciation expense for the six months ended March 31, 2004 included $6.4 million of
additional depreciation as a result of accelerating the depreciation on two of our facilities in
anticipation of consolidating these hospitals operations into a new hospital in Port Arthur,
Texas. Beginning October 1, 2004, depreciation expense reflects a change in the value and the
estimated useful lives of our property and equipment. This change in estimate is the result of
applying the purchase method of accounting to account for the acquisition of IAS. Income tax expense- We recorded a provision for income taxes of $16.9 million, resulting in
an effective tax rate of 39.7% for the six months ended March 31, 2005 and a provision for income
taxes of $985,000, resulting in an effective rate of 4.7% for the six months ended March 31, 2004.
As a result of the Transactions, in the application of the purchase method of accounting, we reduce
goodwill, not income tax expense, upon the reduction of the deferred tax valuation allowance. For
the periods prior to the Transactions, the deferred portion of the provision for income taxes was
reduced by the use of deferred tax assets that were previously reserved with a valuation allowance. Net earnings- Net earnings increased from $20.1 million for the six months ended March 31,
2004 to $25.8 million for the six months ended March 31, 2005. Net earnings for the six months
ended March 31, 2004 includes an $8.9 million write-off of debt issue costs and a $3.8 million net
gain on the sale of assets. 35




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##### Table of Contents



Liquidity and Capital Resources Operating Activities Our primary sources of liquidity are cash flow provided by our operations, available cash on
hand and our revolving credit facility. At March 31, 2005, we had $143.8 million in net working
capital, compared to $107.8 million at September 30, 2004. We generated cash from operating
activities of $60.1 million during the six months ended March 31, 2005, compared to $63.2 million
during the six months ended March 31, 2004. Net accounts receivable increased $15.5 million from
$165.3 million at September 30, 2004 to $180.8 million at March 31, 2005. Excluding third-party
settlement receivables, our days of net revenue outstanding at March 31, 2005 were 54 as compared
to 50 at September 30, 2004. On a same facility basis, our days of net revenue outstanding
excluding third-party settlement receivables were 51 at March 31, 2005 as compared to 49 at
September 30, 2004. Investing Activities Investing activities used $76.1 million during the six months ended March 31, 2005. Capital
expenditures, including $14.9 million of amounts accrued in accounts payable for the six months
ended March 31, 2005, were approximately $90.5 million. Our growth strategy requires significant
capital expenditures during the year ended September 30, 2005 and future years. We currently expect
our capital expenditures for fiscal 2005 to be approximately $140.0 million to $148.0 million,
including a total of approximately $42 million in fiscal 2005 for the construction of The Medical
Center of Southeast Texas, our new hospital in Port Arthur, Texas. During the six months ended
March 31, 2005, we had capital expenditures for the construction and equipping of the new hospital
totaling $31 million. We opened the new facility in Port Arthur on April 16, 2005. Additionally,
during fiscal 2005, we plan to spend $45.0 to $55.0 million for growth and new business projects
and $30.0 million for replacement or maintenance related projects at our hospitals. Our plan for
fiscal 2005 includes $12.4 million of capital expenditures for North Vista, which we acquired on
February 1, 2004. Our plan for fiscal 2005 also includes $10.2 million in
hardware and software related costs towards our total commitment of approximately $30.0 million in
connection with the implementation of our new advanced clinical system. Capital expenditures for
this system were $2.0 million for the six months ended March 31, 2005. At March 31, 2005, we had
construction and other various projects in progress with an estimated cost to complete and equip
over the next three years of approximately $65.2 million. In November 2004, we paid $8.5 million in cash for the purchase of a 47-acre parcel of
undeveloped land in the East Valley of our Phoenix, Arizona market. We are currently planning for
the construction of a new hospital, to be named Mountain Vista Medical Center, on this property,
which is projected to cost $150.0 to $165.0 million. For the
remainder of fiscal 2005, we plan to spend $5.0 million to
$10.0 million for planning, architectural design and other costs
associated with this project. We currently plan to open the new hospital during fiscal
2007. We plan to finance our proposed capital expenditures with available revolver borrowings under
our senior secured credit facilities, as well as with cash generated from operations, cash on hand
and other capital sources that may become available. Financing Activities Financing activities used $7.7 million during the six months ended March 31, 2005. During the
six months ended March 31, 2005, we paid $3.5 million to retire our remaining 13% notes that were
outstanding. In addition, we repaid $2.1 million pursuant to the terms of our new senior secured
credit facilities and repaid $1.4 million in capital leases and other obligations. On June 22, 2004, as part of the Transactions, we entered into an amended and restated senior
credit agreement with various lenders and repaid all outstanding indebtedness under our former
senior secured credit facilities. 36




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##### Table of Contents



The senior secured credit facilities consist of:  
    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. The amended and restated senior credit agreement also contains an accordion feature that
permits us to borrow at a later date additional term loans, maturing no earlier than the Term
Facility, in an aggregate amount up to $300.0 million, subject to the receipt of commitments and
the satisfaction of other conditions (including compliance with the indebtedness covenant under the
notes). No commitments for such increase have been received at this time. The Term Facility has a maturity of seven years, with principal due in 24 consecutive equal
quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount
of the Term Facility during the first six years thereof, with the balance payable in four equal
installments in year seven. Unless terminated earlier, the Revolving Facility has a maturity of six
years. The senior secured credit facilities are subject to mandatory prepayment under specific
circumstances, including a portion of excess cash flow, a portion of the net proceeds from an
initial public offering, asset sales, debt issuances and specified casualty events, each subject to
various exceptions. The Tranche B term loan bears interest at a rate equal to LIBOR plus 2.25% per annum or, at
our option, the base rate plus 1.25% per annum. Loans under the Revolving Facility bear interest at
a rate equal to LIBOR plus 2.25% per annum or at our option, the base rate plus 1.25% per annum,
and may increase or decrease by 0.25% based on our total leverage ratio. A commitment fee equal to
0.50% per annum times the daily average undrawn portion of the Revolving Facility accrues and is
payable quarterly in arrears. The amended and restated senior credit agreement provides for capital expenditure limitations
and requires that we comply with various other financial ratios and tests and contains covenants
limiting our ability to, among other things, incur additional indebtedness; sell or dispose of
assets; make investments, loans or advances; pay certain restricted payments and dividends; or
amend the terms of the 8 3/4% notes. Under the amended and restated senior credit agreement, we may
acquire hospitals and other related businesses upon satisfaction of certain requirements, including
demonstrating pro forma compliance with a maximum senior leverage ratio of 3.5 to 1, along with the
maximum total leverage and minimum interest coverage ratios discussed below. Financial related
covenants under the amended and restated senior credit agreement, applicable to us as of March 31,
2005, include the following ratios: March 31,2005Actual Total Leverage Ratio
    
    4.10Maximum Total Leverage Ratio
    
    6.25Actual Interest Coverage Ratio
    
    3.62Minimum Interest Coverage Ratio
    
    2.00
 Consolidated EBITDA is defined by the senior secured credit facilities as earnings (loss)
before interest expense, income taxes, depreciation and amortization, loss on early extinguishment
of debt, management fees, write-off of debt issue costs, gain (loss) on sale of assets and minority
interests. Consolidated EBITDA is used as a basis for the ratios above. Failure to comply with
these ratios would constitute an event of default under the new senior secured credit facilities,
thereby accelerating all amounts outstanding under the Term Facility and Revolving Facility,
including all accrued interest thereon, as due and payable upon demand by the lenders. In addition,
the occurrence of an event of default under the new senior secured credit facilities would
constitute an event of default under the indenture governing the 8 3/4% notes. Such an event would
have a material adverse effect on our liquidity and financial condition. 37




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##### Table of Contents



At March 31, 2005, $421.8 million was outstanding under the Term Facility, no amounts were
outstanding under the Revolving Facility and we had $38.3 million outstanding in letters of credit.
During the next twelve months, we are required to repay $4.3 million in principal under our new
senior secured credit facilities and $2.9 million under capital leases and other obligations. On October 13, 1999, IAS issued $230.0 million of 13% senior subordinated notes due 2009. On
May 25, 2000, IAS exchanged all of its outstanding 13% senior subordinated notes due 2009 for 13%
senior subordinated exchange notes due 2009 registered under the Securities Act of 1933, as
amended, which we refer to as the 13% notes. On June 6, 2003, IAS issued $100.0 million of 8 1/2%
senior subordinated notes due 2009. On August 14, 2003, IAS exchanged all of its outstanding 8 1/2%
senior subordinated notes due 2009 for 8 1/2% senior subordinated notes due 2009 registered under
the Securities Act, which we refer to as the 8 1/2% notes. In connection with the Transactions, IAS
retired approximately 98.5% of the outstanding principal amount of the 13% notes and 100% of the
outstanding principal amount of the 8 1/2% notes pursuant to a cash tender offer and consent
solicitation. Holders of approximately $3.5 million of the 13% notes did not tender their notes. Of
the proceeds from the Transactions, $3.5 million was allocated for the future retirement of the
outstanding 13% notes, which were subsequently retired in October 2004. On June 22, 2004, in connection with the Transactions, IASIS LLC and IASIS Capital
Corporation, a wholly owned subsidiary of IASIS LLC formed solely for the purpose of serving as a
co-issuer, or IASIS Capital, issued $475.0 million aggregate principal amount of 8 3/4% senior
subordinated notes due 2014. On December 15, 2004, IASIS LLC and IASIS Capital exchanged all of
their outstanding 8 3/4% senior subordinated notes due 2014 for 8 3/4% senior subordinated notes
due 2014 registered under the Securities Act, which we refer to as the 8 3/4% notes. Terms and
conditions of the exchange offer were as set forth in the registration statement on Form S-4 filed
with the Securities and Exchange Commission that became effective on November 12, 2004. The 8 3/4% notes are general unsecured senior subordinated obligations of the issuers, are
subordinated in right of payment to their existing and future senior debt, are pari passu in right
of payment with any of their future senior subordinated debt and are senior in right of payment to
any of their future subordinated debt. Our existing domestic subsidiaries, other than non-guarantor
subsidiaries which include Health Choice and our non-wholly owned subsidiaries, are guarantors of
the 8 3/4% notes. The indenture governing the notes generally provides that we may designate other
subsidiaries as non-guarantors under certain circumstances. The 8 3/4% notes are effectively
subordinated to all of the issuers and the guarantors secured debt to the extent of the value of
the assets securing the debt and are structurally subordinated to all liabilities and commitments
(including trade payables and lease obligations) of our subsidiaries that are not guarantors of the
8 3/4% notes. As of March 31, 2005, we provided a performance guaranty in the form of a letter of credit in
the amount of $20.6 million for the benefit of the Arizona Health Care Cost Containment System to
support our obligations under the Health Choice contract to provide and pay for healthcare
services. Additionally, Health Choice maintains a cash balance of $5.0 million and an intercompany
demand note with us. The amount of the performance guaranty is based in part upon the membership in
the plan and the related capitation revenue paid to us. Based upon our current level of operations and anticipated growth, we believe we have
sufficient liquidity to meet our cash requirements over the short term (next 12 months) and over
the next three years. In evaluating the sufficiency of our liquidity for both the short term and
long term, we considered the expected cash flow to be generated by our operations, cash on hand and
the available borrowings under our senior secured credit facilities compared to our anticipated
cash requirements for debt service, working capital, capital expenditures and the payment of taxes,
as well as funding requirements for long-term liabilities. As a result of this evaluation, we
believe that we will have sufficient liquidity for the next three years to fund our contractual
obligations, cash required for the payment of taxes and the capital expenditures required to
maintain our facilities during this period of time. We are unable at this time to extend our
evaluation of the sufficiency of our liquidity beyond three years. We cannot assure you, however,
that our operating performance will generate sufficient cash flow from operations or that future
borrowings will be available under our new senior secured credit facilities, or otherwise, to
enable us to grow our business, service our indebtedness, including the senior secured credit
facilities and the 8 3/4% notes, or make anticipated capital expenditures. 38




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One element of our business strategy is to selectively pursue acquisitions and strategic
alliances in existing and new markets. Any acquisitions or strategic alliances may result in the
incurrence of, or assumption by us, of additional indebtedness. We continually assess our capital
needs and may seek additional financing, including debt or equity as considered necessary to fund
capital expenditures and potential acquisitions or for other corporate purposes. Our future
operating performance, ability to service or refinance the notes and ability to service and extend
or refinance the new senior secured credit facilities will be subject to future economic conditions
and to financial, business and other factors, many of which are beyond our control. Off-Balance Sheet Arrangements We are a party to a rent shortfall agreement and certain master lease agreements with
non-affiliated entities and an unconsolidated entity, including parent-subsidiary guarantees, in
the ordinary course of business. We do not believe we have engaged in any transaction or
arrangement with an unconsolidated entity that is reasonably likely to materially affect liquidity. We do not have any relationships with unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or special purpose entities, established for
the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. Accordingly, we are not materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in such relationships. Seasonality The patient volumes and net revenue at our healthcare operations are subject to seasonal
variations and generally are greater during the quarter ended March 31 than other quarters. These
seasonal variations are caused by a number of factors, including seasonal cycles of illness,
climate and weather conditions in our markets, vacation patterns of both patients and physicians
and other factors relating to the timing of elective procedures. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS 123(R), which is a
revision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, or SFAS 123. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and amends Statement of Financial Accounting Standards
No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach
described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. Under
SFAS No. 123(R) we must determine the appropriate fair value model to be used
for valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at the date
of adoption. The transition alternatives include prospective and
retroactive adoption methods. We expect to adopt SFAS 123(R) on October 1,
2006. We are evaluating the requirements of SFAS No. 123(R),
as well as related guidance recently issued by the SEC. We have not yet determined the method of adoption or the
effect of adopting the new standard. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk We are subject to market risk from exposure to changes in interest rates based on our
financing, investing, and cash management activities. We have in place $675.0 million of senior
secured credit facilities bearing interest at variable rates at specified margins above either the
agent banks alternate base rate or its LIBOR rate. The senior secured credit facilities consist of
the Term Facility, which is a $425.0 million, seven-year Tranche B term loan, and the Revolving
Facility, which is a $250.0 million, six-year revolving credit facility. Although changes in the
alternate base rate or the LIBOR rate would affect the cost of funds borrowed in the future, we
believe the effect, if any, of reasonably possible near-term changes in interest rates on our
consolidated financial position, results of operations or cash flow would not be material. As of
March 31, 2005, we had variable rate debt of approximately $424.0 million. Holding other variables
constant, including levels of indebtedness, a 0.125% increase in interest rates would have had an
estimated impact on pre-tax earnings and cash flows for the next twelve month period of $531,000.
We have not taken any action to cover interest rate risk and are not a party to any interest rate
market risk management activities. The Term Facility bears interest at a rate equal to LIBOR plus 2.25% per annum or, at our
option, the base rate plus 1.25% per annum, and will mature in 2011. The loans under the Revolving
Facility bear interest at a rate 39




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equal to the LIBOR rate, plus a margin of 2.00% to 2.50% or, at our option, the base rate,
plus a margin of 1.00% to 1.50%, such rate in each case depending on our total leverage ratio. The
Revolving Facility matures in 2010. No amounts were outstanding under the Revolving Facility as of
March 31, 2005. At March 31, 2005, the fair market value of the outstanding 8 3/4% notes was $494.0 million,
based upon quoted market prices as of that date. 
 Item 4. Controls and Procedures Evaluations of Disclosure Controls and Procedures Under the supervision and with the participation of our management team, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended, as of
March 31, 2005. Based on this
evaluation, the principal executive officer and principal accounting officer concluded that our
disclosure controls and procedures are effective in timely alerting them to material information
required to be included in our periodic reports. Changes in Internal Control Over Financial Reporting During the period covered by this report, there has been no change in our internal control
over financial reporting that has materially affected or is reasonably likely to materially affect
our internal control over financial reporting. 
 PART II
OTHER INFORMATION 
 Item 6. Exhibits  (a)
    List of Exhibits:  10.1
    Director Compensation and Restricted Share Award Agreement, dated as of
February 14, 2005, between IASIS Healthcare Corporation and Kirk Gorman
(1)10.2
    First Amendment to IASIS Healthcare Corporation 2004 Stock Option Plan (2)10.3
    Director Compensation and Restricted Share Award Agreement, dated as of
April 14, 2005, between IASIS Healthcare Corporation and Sharad Mansukani
(3)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 200231.2
    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 200232.1
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002   (1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
February 18, 2005.(2)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
March 22, 2005.(3)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
April 20, 2005. 40




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IASIS HEALTHCARE LLCDate: May 9, 2005
    
    By:
    
    /s/ W. Carl WhitmerW. Carl Whitmer, Chief Financial Officer
(Principal Financial and Accounting Officer)
 41




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EXHIBIT INDEX Exhibit No.
    
    Description10.1
    
    Director Compensation and Restricted Share Award Agreement, dated as of
February 14, 2005, between IASIS Healthcare Corporation and Kirk Gorman
(1)10.2
    
    First Amendment to IASIS Healthcare Corporation 2004 Stock Option Plan (2)10.3
    
    Director Compensation and Restricted Share Award Agreement, dated as of
April 14, 2005, between IASIS Healthcare Corporation and Sharad Mansukani
(3)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 200231.2
    
    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 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
   (1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
February 18, 2005.(2)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
March 22, 2005.(3)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, dated
April 20, 2005. 42