##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number: 333-110117
 Ardent Health Services LLC
 (Exact Name of Registrant as Specified in its Charter)
 Delaware(State or Other Jurisdiction of
Incorporation or Organization)
    
    62-1862223(I.R.S. Employer
Identification Number)One Burton Hills Blvd., Suite 250
Nashville, TN(Address of Principal Executive Offices)
    
    37215(Zip Code)
 Registrants telephone number, including area code:
(615) 296-3000
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o
 o þ




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EXPLANATORY NOTE
   TABLE OF CONTENTS
 PageNo.PART IItem 1. Business
    
    
    3Item 2. Properties
    
    
    30Item 3. Legal Proceedings
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30PART IIItem 5. Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    31Item 6. Selected Financial Data
    
    
    31Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    33Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    66Item 8. Financial Statements and Supplementary Data
    
    
    67Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    67Item 9A. Controls and Procedures
    
    
    67PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    70Item 11. Executive Compensation
    
    
    73Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    79Item 13. Certain Relationships and Related Transactions
    
    
    81Item 14. Principal Accounting Fees and Services
    
    
    83PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    84INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-1EX-10.23  EMPLOYMENT AGREEMENTEX-10.24  INDEMNIFICATION AGREEMENTEX-21  SUBSIDIARIES OF ARDENT HEALTH SERVICES LLCEX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1  SECTION 906 CEO CERTIFICATIONEX-32.2  SECTION 906 CFO CERTIFICATION
  2




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ARDENT HEALTH SERVICES LLC
 
 PART I
 Forward Looking Statements
   
 Item 1. Business
   Company Overview
  
    
    Our acute care facilities include 15 hospitals and other health care facilities, with a
total of 2,258 licensed beds, in Albuquerque, New Mexico, Tulsa, Oklahoma and Baton Rouge,
Louisiana. Our acute care hospitals and other health care facilities provide a broad range
of services, including general surgery, internal medicine, emergency room care,
orthopedics, neurosurgery, radiology, oncology, diagnostic care, cardiovascular services,
pediatric services and behavioral health services.
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##### Table of Contents




    
    Our health plan in Albuquerque, New Mexico includes approximately 193,000 members
throughout New Mexico and approximately 56,000 additional members to whom we provide
network access and medical management services through a contract with CIGNA HealthCare.
    
    During 2004, we were a leading operator of behavioral hospitals in the United States
with 20 behavioral hospitals, with 1,981 licensed beds, in 11 states. Our behavioral
hospitals offered a broad array of behavioral health care services ranging from inpatient
hospitalization to residential treatment programs and outpatient services. On July 1, 2005,
we sold our behavioral hospitals to Psychiatric Solutions, Inc. (PSI) for
approximately $565.3 million, resulting in a pre-tax gain of $456.4 million recorded in the third quarter of 2005.
  
    
    making selective acquisitions of acute care hospitals and other health care facilities
in our existing markets in order to grow our revenue base and enhance our competitive
position and economies of scale; and
    
    targeting acute care hospitals and other health care facilities in new markets with
favorable population growth rates, where we can improve operating performance and
profitability, either through a network of hospitals and other health care facilities or a
single well-positioned facility.
  Recent Developments
 Summit Hospital
  Samaritan Hospital
  Sale of Behavioral Health Services
  Debt Extinguishment
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Restatement of Financial Statements
     Our Acute Care Hospitals
  5




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LicensedState
    
    Facility
    
    Location
    
    BedsNew Mexico
    
    Lovelace Sandia Health System:Albuquerque Regional Medical Center
    
    Albuquerque
    
    
    254Lovelace Medical Center
    
    Albuquerque
    
    
    206Womens Hospital
    
    Albuquerque
    
    
    114(formerly Northeast Heights Medical Center)The Rehabilitation Hospital of New Mexico
    
    Albuquerque
    
    
    62West Mesa Medical Center
    
    Albuquerque
    
    
    95Oklahoma
    
    Hillcrest HealthCare System (1):Hillcrest Medical Center
    
    Tulsa
    
    
    557Tulsa Regional Medical Center
    
    Tulsa
    
    
    331Hillcrest Specialty Hospital
    
    Tulsa
    
    
    100Cushing Regional Hospital (2)
    
    Cushing
    
    
    99Bristow Memorial Hospital (2)
    
    Bristow
    
    
    30Cleveland Area Hospital (2)
    
    Cleveland
    
    
    17Pawnee Medical Center (2)
    
    Pawnee
    
    
    40Henryetta Medical Center (2)
    
    Henryetta
    
    
    52Wagoner Medical Center (2)
    
    Wagoner
    
    
    100Louisiana
    
    Summit Hospital (3)
    
    Baton Rouge
    
    
    201
 
 (1)
    
    The facility count excludes Bailey Medical Center, which is currently under construction in
Owasso, Oklahoma.(2)
    
    We operate the Oklahoma regional hospitals through long-term operating lease agreements.(3)
    
    We contributed this hospital to a 50/50 joint venture with Ochsner Clinic Foundation
effective February 1, 2005.  Lovelace Sandia Health System
   Hillcrest HealthCare System
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Bailey Medical Center
  Summit Hospital
  Our Health Plan
   Our Behavioral Hospitals
  7




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LicensedState
    
    Facility
    
    Location
    
    BedsArkansas
    
    Pinnacle Pointe
    
    Little Rock
    
    
    102California
    
    BHC Alhambra
    
    Rosemead
    
    
    85Fremont
    
    Fremont
    
    
    78Heritage Oaks
    
    Sacramento
    
    
    76Sierra Vista
    
    Sacramento
    
    
    72Idaho
    
    Intermountain
    
    Boise
    
    
    125Illinois
    
    Streamwood
    
    Chicago
    
    
    228Indiana
    
    Columbus
    
    Columbus
    
    
    48Meadows
    
    Bloomington
    
    
    78Valle Vista
    
    Greenwood
    
    
    88Nevada
    
    Montevista
    
    Las Vegas
    
    
    80West Hills
    
    Reno
    
    
    95Willow Springs
    
    Reno
    
    
    93New Mexico
    
    Mesilla Valley
    
    Las Cruces
    
    
    125Ohio
    
    Belmont Pines
    
    Youngstown
    
    
    76Fox Run
    
    St. Clairsville
    
    
    74Windsor
    
    Chagrin Falls
    
    
    47Pennsylvania
    
    Brooke Glen
    
    Fort Washington
    
    
    146Virginia
    
    Cumberland (1)
    
    New Kent
    
    
    132Washington
    
    Fairfax
    
    Kirkland
    
    
    133
 
 (1)
    
    Although Cumberland Hospital is included in our behavioral division, the facility is a
pediatric rehabilitation hospital licensed as a general hospital by the Commonwealth of
Virginia Department of Health. Our Operations
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
    
    We offer a commercial HMO product portfolio under the trademarks Lovelace Health Plan
and Cimarron Health Plan to employer groups of two or more employees. We receive monthly
prepaid premiums for all commercial HMO members under contracts with these employer groups.
This product portfolio includes a varied menu of copayments for services provided if the
participant utilizes the contracted or owned network. We also market a commercial HMO
point-of-service product that allows copayments for services provided through contracted or
owned providers or PPO-type benefits for services provided through non-contracted
providers.
    
    We are one of three managed care organizations to have a contract with the State of New
Mexico to provide services to the States managed Medicaid program, known as Salud!. Under
an agreement with the New Mexico Human Services Department (HSD), our health plan has
provided services to eligible Salud! members since 1997. Our health plans Salud!
membership focuses on the needs of women of childbearing age and their children, who
comprise a significant portion of Medicaid eligible participants in New Mexico, and also
places a strong emphasis on preventive care.Premium rates paid to our health plan under the program are negotiated directly with HSD. Our
health plan is paid a fixed per member per month premium to provide all covered services
to Salud! beneficiaries. We have negotiated rates with HSD through June 30, 2006.The Salud! agreement may be terminated for reasons customarily found in health care
contracts, including mutual agreement of the parties; 180 days prior written notice by
either party; court order, insufficient federal or state funding or changes in federal or
state law that would adversely affect this agreement; or violations of law, including the
Stark or Anti-kickback Statutes, by our health plan.Revenues attributed to our health plans contract with HSD represented 37.6% and 38.6% of our
premium revenue for the years ended December 31, 2004 and 2003, respectively.
    
    Our health plan contracts with the Centers for Medicare and Medicaid Services (CMS) to
provide Medicare HMO coverage for eligible individuals, called Medicare Advantage
(formerly called Medicare+Choice). This contract provides for a fixed per member per
month premium from CMS, based upon a formula that uses geographic, age and gender
demographics and is risk adjusted based on the health status of the beneficiary. Premium
amounts are updated annually. Members generally receive additional benefits over standard
Medicare fee-for-service coverage, including prescription drug and vision coverage and pay
a fixed co-payment for services used. Depending on the plan benefits selected, members may
be required to pay an additional premium to us for their HMO coverage.The CMS contract has a one-year term, expiring on December 31, 2005, and is subject to annual
renewal. Our health plan is obligated to accept new enrollments and to comply with all quality
of service, grievance, appeal, confidentiality requirements and other standard health care
requirements as set forth in federal regulations. This CMS agreement may be terminated upon
the mutual consent of the parties, a breach of CMS terms and conditions as defined in the
federal regulations, the commission of fraudulent or abusive activities by our health plan or
financial difficulties of our health plan that pose a risk to enrollees.
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Revenues attributed to our health plans contract with CMS represented 25.4% and 20.4% of our
premium revenue for the years ended December 31, 2004 and 2003.
    
    We have a five-year contract, which expires on December 31, 2007, with CIGNA HealthCare
to provide provider network access and administrative services to approximately 56,000
CIGNA HealthCare plan members in New Mexico. Under CIGNA HealthCares product portfolio,
CIGNA or the plan sponsor, which is typically the employer, assumes the risk for claim
costs incurred, rather than our health plan. Under these plans, we provide access to our
provider network, quality and cost
containment services or utilization management programs in exchange for a network access or
other administrative fee. Many of the services provided to CIGNA HealthCares members are
provided by our delivery system, which then submits claims and is paid on a fee-for-service
basis. In these situations, CIGNA HealthCares plans provide revenue to us in three forms,
network access fees, administrative fees, and direct payment for health care services
provided by our health care facilities.
   Supply Purchasing
  Competition
     10




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
    
    our reputation;
    
    our managed care contracting relationships;
    
    the amounts we charge for our services; and
    
    the restrictions of state certificate of need, or CON, laws.
    Employees and Medical Staff
   Compliance Program
  11




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Insurance
   Reimbursement and Payment
  Medicare Acute Care Hospital Inpatient Services
 General
    12




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Outlier Payments
  Medicare Acute Care Hospital Outpatient Services
  Medicare Rehabilitation Services
  Medicare Skilled Nursing Services
  Medicare Hospice Care
  13




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Medicare Long Term Acute Care Hospital Services
  Medicare Home Health Agencies
  Medicare Physician Services
  14




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Laboratory Reimbursement
  Medicaid
   Disproportionate Share Hospital (DSH)
  Critical Access Hospital (CAH)
  15




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Medicare Bad Debts
  Annual Cost Reports
   Medicare and Medicaid Quality Improvement Organizations
  Managed Care
  Commercial Insurance
  Other Federal Regulation
  16




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Regulation and Licensing
 Anti-kickback Statute
     Stark Law
  17




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The Federal False Claims Act and Similar State Laws
 qui tam,
 The Health Insurance Portability and Accountability Act of 1996
    Regulation of Clinical Laboratory Operations
  Emergency Medical Treatment and Active Labor Act
  18




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State Regulation
  Certificates of Need
  Corporate Practice of Medicine/Fee Splitting
  19




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Other State Laws
  HMO Regulation
   Medicaid
  Medicare
    20




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HIPAA
  ERISA
  Health Care Reform
   
    
    increasing the funding levels for Medicare Advantage products;
    
    requiring coverage of experimental procedures and drugs and liberalized definitions of medical necessity;
    
    limiting control of the utilization review and cost management and cost control initiatives of managed care plans;
    
    requiring that mental health benefits be treated the same as medical benefits;
    
    exempting physicians from the antitrust laws that prohibit price fixing, group boycotts
and other horizontal restraints on competition;
    
    regulating premium rates, including prior approval of rate changes by regulatory
authorities;
    
    changing the government programs for the uninsured or those who need assistance in
paying premiums, including potential mandates that all HMOs or insurers must participate;
    
    implementing a state-run single payor system that would partially or largely obviate the
current role of private health insurers or HMOs; and
    
    restricting or eliminating the use of formularies for prescription drugs.
  21




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Risk Factors
 Risks Relating to Our Business
 We have material weaknesses in our internal control over financial reporting.
  
    
    the lack of standard accounting policies and procedures that are appropriately
documented, communicated and consistently applied, which contributed to our inability to
effectively assess risk and monitor compliance;
    
    inadequate facility, division and entity-level month end close processes, including: (1)
untimely reconciliation of account balances and resolution of resulting discrepancies, (2)
lack of documentation supporting accounting estimates and allowances, and (3) an
inappropriate level of review of significant financial statement accounts, in particular
those requiring a higher degree of judgment and estimation;
    
    inadequate communication between financial reporting personnel in our Albuquerque market
regarding the elimination of transactions between our health care provider network and our
health plan;
    
    our continued need to add more qualified financial reporting personnel in the
Albuquerque market; and
    
    inadequate information systems integration and data reconciliation within our revenue
cycle processes in our central business office and accounting departments in our
Albuquerque market, which contributed to untimely reconciliation of balance sheet accounts
and resolution of resulting discrepancies.
    Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments or
managed care companies reduce our reimbursements.
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We may not successfully integrate our recent and future acquisitions and may be unable to achieve
anticipated cost savings and other benefits from these acquisitions.
  
    
    we may have difficulty integrating personnel and physicians from acquired hospitals;
    
    we may discover deficiencies in the financial systems and internal controls at our newly acquired facilities;
    
    we may have difficulty, and may incur unanticipated expenses related to, upgrading the
financial systems and controls at our new facilities;
    
    we may uncover liabilities at our newly-acquired operations of which we are not aware or
that are greater than expected and for which the previous owner may be unable or unwilling
to indemnify us; and
    
    we may be unable to improve existing managed care agreements and the mix of specialties
offered at our hospitals.
   A reduction in enrollment in our health plan or the failure to maintain satisfactory relationships
with providers could affect our business and profitability.
  23




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If we are unable to effectively price our health plan premiums or manage medical costs, our
profitability will be reduced.
     24




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Regional concentration of our business may subject us to economic downturns in New Mexico and
Oklahoma and in particular, the Albuquerque and Tulsa metropolitan areas.
  The cost of our malpractice insurance and the malpractice insurance of physicians who practice at
our facilities or who participate in our networks continues to rise. Successful malpractice or tort
claims asserted against us, our providers or our employees could adversely affect our financial
condition and profitability.
    Our success depends on our ability to attract and maintain good relationships with physicians and
other health care professionals at our hospitals.
   25




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We may be subjected to actions brought by individuals on the governments behalf under the False
Claims Acts qui tam or whistleblower provisions.
 qui tam qui tam qui tam
 We conduct business in a heavily regulated industry; changes in regulations or violations of
regulations may result in increased costs or sanctions that could reduce revenue and profitability.
    Our strategy depends in part on our ability to acquire hospitals that meet our target criteria. If
we are unable to complete strategic acquisitions, our future growth could be limited and our
operating results could be adversely affected.
  We may have difficulty acquiring hospitals from not-for-profit entities due to increased regulatory
scrutiny, which may negatively affect our business strategy and operating results.
  26




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We depend heavily on our senior and local management personnel, and the loss of the services of one
or more of our key senior management personnel or our key local management personnel could weaken
our management team and our ability to deliver health care services efficiently.
  We have a limited operating history as an owner and operator of acute care facilities and a health
plan.
  Our business depends on our information systems; our inability to effectively integrate and manage
our information systems could disrupt our operations.
   We face intense competition from other hospitals and other health care providers which may result
in a decline in revenues, profitability and market share.
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Recently enacted or proposed legislation, regulations and initiatives could adversely affect our
business by increasing our operating costs, reducing our health plan membership or subjecting us to
additional litigation.
  Failure to maintain the privacy and security of patients medical records could expose us to
liability.
  Our acquisition strategy may be limited by restrictions and covenants in our subsidiarys senior
secured credit facility and by the lack of adequate alternative sources of financing.
  Risks Relating to our Indebtedness
 We are a holding company and, as such, we do not have, and will not have in the future, any income
from operations.
  28




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As a regulated insurance company, Lovelace Sandia Health System, Inc. may be restricted from paying
dividends to us, which may reduce the amount of cash available to us.
  The agreements governing our debt, including our senior secured credit agreement, contain various
covenants that limit our discretion in the operation of our business and could lead to the
acceleration of our debt.
  
    
    incur additional debt and issue preferred equity;
    
    create liens;
    
    redeem and/or prepay certain debt;
    
    pay dividends on our equity or repurchase equity;
    
    make certain investments;
    
    enter new lines of business;
    
    engage in consolidations, mergers and acquisitions;
    
    make certain capital expenditures; and
    
    make other distributions.
   29




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Available information
 www.ardenthealth.com
 
 Item 2. Properties.
    
 Item 3. Legal Proceedings.
    
 Item 4. Submission of Matters to a Vote of Security Holders.
  30




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
       
 Item 6. Selected Financial Data.
    Accounting for Impairment and Disposal of Long-Lived Assets.
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Predecessor CompanyFive Months
    
    Seven Months
    
    Six MonthsYear Ended
    
    Year Ended
    
    Year Ended
    
    Ended
    
    Ended
    
    Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    July 31,
    
    December 31,
    
    June 30,2004
    
    2003
    
    2002
    
    2001
    
    2001
    
    2000
    
    2000(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Statement of Operations Data:Revenues:Net patient service revenue
    
    $
    852,687
    
    
    $
    565,086
    
    
    $
    309,027
    
    
    $
    103,173
    
    
    $
    124,090
    
    
    $
    107,840
    
    
    $
    223,441Premium revenue
    
    
    677,912
    
    
    
    592,293
    
    
    
    13,232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue
    
    
    76,397
    
    
    
    76,190
    
    
    
    20,374
    
    
    
    5,312
    
    
    
    2,681
    
    
    
    1,827
    
    
    
    4,410Total net revenues
    
    
    1,606,996
    
    
    
    1,233,569
    
    
    
    342,633
    
    
    
    108,485
    
    
    
    126,771
    
    
    
    109,667
    
    
    
    227,851Expenses:Salaries and benefits
    
    
    650,911
    
    
    
    491,580
    
    
    
    194,654
    
    
    
    61,690
    
    
    
    79,517
    
    
    
    64,130
    
    
    
    133,270Professional fees
    
    
    163,224
    
    
    
    121,858
    
    
    
    37,857
    
    
    
    14,611
    
    
    
    19,170
    
    
    
    15,483
    
    
    
    35,499Claims and capitation
    
    
    319,572
    
    
    
    271,660
    
    
    
    10,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Supplies
    
    
    188,956
    
    
    
    134,327
    
    
    
    28,128
    
    
    
    7,222
    
    
    
    7,530
    
    
    
    6,354
    
    
    
    13,017Provision for doubtful accounts
    
    
    97,436
    
    
    
    52,727
    
    
    
    19,205
    
    
    
    5,305
    
    
    
    3,792
    
    
    
    4,592
    
    
    
    13,758Other
    
    
    146,594
    
    
    
    110,935
    
    
    
    39,440
    
    
    
    12,204
    
    
    
    11,754
    
    
    
    9,610
    
    
    
    21,368Interest, net
    
    
    33,516
    
    
    
    19,847
    
    
    
    1,678
    
    
    
    1,245
    
    
    
    2,397
    
    
    
    4,176
    
    
    
    9,634Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    33,447
    
    
    
    7,365
    
    
    
    1,329
    
    
    
    2,992
    
    
    
    2,766
    
    
    
    7,282Investigation  related expenses
    
    
    3,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of long-lived assets and restructuring costs
    
    
    24,928
    
    
    
    2,913
    
    
    
    78
    
    
    
    1,374
    
    
    
    560
    
    
    
    
    
    
    
    1,487Losses (gains) on divestitures
    
    
    
    
    
    
    61
    
    
    
    (1,206
    )
    
    
    (109
    )
    
    
    (9,123
    )
    
    
    18
    
    
    
    1,252Income (loss) from continuing operations before income taxes
    
    
    (77,955
    )
    
    
    (5,228
    )
    
    
    4,478
    
    
    
    3,614
    
    
    
    8,182
    
    
    
    2,538
    
    
    
    (8,716
    )Income tax expense (benefit)
    
    
    31,197
    
    
    
    (1,068
    )
    
    
    1,721
    
    
    
    1,575
    
    
    
    (8,390
    )
    
    
    51
    
    
    
    (983
    )Income (loss) from continuing operations, net
    
    
    (109,152
    )
    
    
    (4,160
    )
    
    
    2,757
    
    
    
    2,039
    
    
    
    16,572
    
    
    
    2,487
    
    
    
    (7,733
    )Discontinued operations:Income (loss) from discontinued operations
    
    
    (4,462
    )
    
    
    404
    
    
    
    2,662
    
    
    
    610
    
    
    
    1,955
    
    
    
    1,189
    
    
    
    (199
    )Income tax expense (benefit)
    
    
    (1,552
    )
    
    
    305
    
    
    
    943
    
    
    
    63
    
    
    
    698
    
    
    
    340
    
    
    
    (103
    )Income (loss) from discontinued operations, net
    
    
    (2,910
    )
    
    
    99
    
    
    
    1,719
    
    
    
    547
    
    
    
    1,257
    
    
    
    849
    
    
    
    (96
    )Net income (loss)
    
    $
    (112,062
    )
    
    $
    (4,061
    )
    
    $
    4,476
    
    
    $
    2,586
    
    
    $
    17,829
    
    
    $
    3,336
    
    
    $
    (7,829
    )Other Financial Data:Adjusted EBITDA(1)
    
    $
    11,378
    
    
    $
    47,508
    
    
    
    13,521
    
    
    $
    6,188
    
    
    $
    13,571
    
    
    $
    9,480
    
    
    $
    8,200Capital expenditures (2)
    
    
    59,837
    
    
    
    84,544
    
    
    
    40,389
    
    
    
    6,903
    
    
    
    2,820
    
    
    
    1,354
    
    
    
    993Net cash provided by (used in):Operating activities
    
    
    77,075
    
    
    
    65,853
    
    
    
    2,147
    
    
    
    517
    
    
    
    6,782
    
    
    
    440
    
    
    
    10,322Discontinued operations
    
    
    (1,866
    )
    
    
    (10,154
    )
    
    
    1,071
    
    
    
    432
    
    
    
    360
    
    
    
    314
    
    
    
    301Investing activities
    
    
    (409,158
    )
    
    
    (268,701
    )
    
    
    (158,743
    )
    
    
    (25,189
    )
    
    
    18,047
    
    
    
    (213
    )
    
    
    18,598Financing activities
    
    
    346,015
    
    
    
    185,443
    
    
    
    259,411
    
    
    
    12,724
    
    
    
    (8,192
    )
    
    
    (6,377
    )
    
    
    (27,294
    )Balance Sheet Data:Cash and cash equivalents
    
    $
    98,361
    
    
    $
    86,295
    
    
    
    113,854
    
    
    $
    9,968
    
    
    $
    
    
    
    $
    4,471
    
    
    $
    10,307Working capital (deficit) (3)
    
    
    (453,774
    )
    
    
    (114,059
    )
    
    
    121,039
    
    
    
    25,474
    
    
    
    
    
    
    
    12,920
    
    
    
    1,394Total assets
    
    
    1,208,135
    
    
    
    821,472
    
    
    
    478,196
    
    
    
    169,646
    
    
    
    
    
    
    
    163,340
    
    
    
    168,859Total debt
    
    
    558,980
    
    
    
    261,443
    
    
    
    72,844
    
    
    
    31,627
    
    
    
    
    
    
    
    49,500
    
    
    
    55,908Other long-term liabilities
    
    
    9,894
    
    
    
    6,573
    
    
    
    11,379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Redeemable preferred units
    
    
    120,927
    
    
    
    111,931
    
    
    
    103,898
    
    
    
    47,658
    
    
    
    
    
    
    
    
    
    
    
    Members equity
    
    
    148,810
    
    
    
    211,991
    
    
    
    207,607
    
    
    
    49,745
    
    
    
    
    
    
    
    77,258
    
    
    
    73,903
 
 (1)
    
    Adjusted EBITDA represents income (loss) from continuing operations, net, before interest,
net, change in fair value of interest rate swap agreements, depreciation and amortization and
income tax expense (benefit). Adjusted EBITDA is presented because our management uses it as a
measure of performance and as a useful indicator with which to allocate resources.
Additionally, our management believes it is a useful indicator of our liquidity. Adjusted
EBITDA on a consolidated basis, subject to certain adjustments, has also been used as a
measure in certain of the covenants in our senior secured credit facility and the indenture
governing our subsidiarys 10.0% Senior Subordinated Notes due 2013. Adjusted EBITDA should
not be considered in isolation from, and is not intended as an alternative measure of, net
income or cash flow from operations, each as determined in accordance with accounting
principles generally accepted in the United States. Adjusted EBITDA is not necessarily
comparable to similarly titled measures used by other companies.(2)
    
    Includes capital expenditures for discontinued operations.(3)
    
    Working capital (deficit) includes amounts outstanding under our senior subordinated notes and our senior secured credit agreement at December 31, 2004 and 2003.
Refer to Classifications of Term Loans and Senior Subordinated 32




---



##### Table of Contents



Debt in Note 2 in the consolidated financial statements and in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations.  Five Months
    
    Seven Months
    
    Six MonthsYear Ended
    
    Ended
    
    Ended
    
    Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    July 31,
    
    December 31,
    
    June 30,2004
    
    2003
    
    2002
    
    2001
    
    2001
    
    2000
    
    2000(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Adjusted EBITDA
    
    $
    11,378
    
    
    $
    47,508
    
    
    $
    13,521
    
    
    $
    6,188
    
    
    $
    13,571
    
    
    $
    9,480
    
    
    $
    8,200Less:Interest, net
    
    
    33,516
    
    
    
    19,847
    
    
    
    1,678
    
    
    
    1,245
    
    
    
    2,397
    
    
    
    4,176
    
    
    
    9,634Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    33,447
    
    
    
    7,365
    
    
    
    1,329
    
    
    
    2,992
    
    
    
    2,766
    
    
    
    7,282Income tax expense (benefit)
    
    
    31,197
    
    
    
    (1,068
    )
    
    
    1,721
    
    
    
    1,575
    
    
    
    (8,390
    )
    
    
    51
    
    
    
    (983
    )Income (loss) from continuing operations, net
    
    
    (109,152
    )
    
    
    (4,160
    )
    
    
    2,757
    
    
    
    2,039
    
    
    
    16,572
    
    
    
    2,487
    
    
    
    (7,733
    )Changes in working capital and other items
    
    
    186,227
    
    
    
    70,013
    
    
    
    (610
    )
    
    
    (1,522
    )
    
    
    (9,790
    )
    
    
    (2,047
    )
    
    
    18,055Net cash provided by operating activities
    
    $
    77,075
    
    
    $
    65,853
    
    
    $
    2,147
    
    
    $
    517
    
    
    $
    6,782
    
    
    $
    440
    
    
    $
    10,322
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Executive Overview
 Our Company
  Restatement of Financial Statements
   33




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##### Table of Contents



Five Months
    
    Seven MonthsYear Ended
    
    Ended
    
    Ended
    
    Six MonthsDecember 31,
    
    December 31,
    
    July 31,
    
    Ended2003
    
    2002
    
    2001
    
    2001
    
    June 30, 2004(Unaudited)Net income as previously reported
    
    $
    4,291
    

    $
    5,053
    

    $
    2,716
    

    $
    17,869
    
    
    $
    5,165Restatement adjustments by category:Reconciliation of cash accounts
    
    
    (2,083
    )

    
    
    

    
    
    

    
    
    
    
    
    2,083Accounts receivable adjustments
    
    
    (1,545
    )

    
    
    

    
    
    

    
    
    
    
    
    (21,755
    )Reconciliation of intercompany accounts
    
    
    (6,474
    )

    
    
    

    
    
    

    
    
    
    
    
    (4,085
    )Other accruals and provisions
    
    
    (584
    )

    
    
    

    
    
    

    
    
    
    
    
    (1,600
    )Total adjustments of Albuquerque affiliates
    
    
    (10,686
    )

    
    
    

    
    
    

    
    
    
    
    
    (25,357
    )Severance costs
    
    
    (1,108
    )

    
    (935
    )

    
    (210
    )

    
    (66
    )
    
    
    260Income tax adjustments
    
    
    3,442
    

    
    358
    

    
    80
    

    
    26
    
    
    
    (26,268
    )Total adjustments
    
    
    (8,352
    )

    
    (577
    )

    
    (130
    )

    
    (40
    )
    
    
    (51,365
    )Restated net income (loss)
    
    $
    (4,061
    )

    $
    4,476
    

    $
    2,586
    

    $
    17,829
    
    
    $
    (46,200
    )
  Cash Reconciliation
  34




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##### Table of Contents



Accounts Receivable Adjustments
  Reconciliation and Elimination of Intercompany Accounts and Transactions
  Six MonthsYear Ended
    
    EndedDecember 31,
    
    June 30, 20042003
    
    (Unaudited)Adjustments to revenues:Net patient service revenue
    
    $
    (2,036
    )
    
    $
    (6,885
    )Other revenue
    
    
    (2,211
    )
    
    
    (1,417
    )Decrease in net revenues
    
    
    (4,247
    )
    
    
    (8,302
    )Adjustments to expenses:Professional fees
    
    
    768
    
    
    
    (475
    )Claims and capitation
    
    
    (1,062
    )
    
    
    (3,742
    )Provision
for doubtful accounts
    
    
    2,521
    
    
    
    Increase (decrease) in expenses
    
    
    2,227
    
    
    
    (4,217
    )Net adjustment
    
    $
    (6,474
    )
    
    $
    (4,085
    )
 Other Accruals and Provisions
   Six MonthsYear Ended
    
    EndedDecember 31,
    
    June 30, 20042003
    
    (Unaudited)Adjustments to revenues:Premium revenue
    
    $
    
    
    
    $
    (462
    )Other revenue
    
    
    518
    
    
    
    (596
    )Increase (decrease) in net revenues
    
    
    518
    
    
    
    (1,058
    )Adjustments to expenses:Salaries and benefits
    
    
    45
    
    
    
    (459
    )Professional fees
    
    
    (250
    )
    
    
    476Claims and capitation
    
    
    1,312
    
    
    
    781Other
    
    
    (5
    )
    
    
    (401
    )Depreciation and amortization
    
    
    
    
    
    
    145Increase in expenses
    
    
    1,102
    
    
    
    542Net adjustment
    
    $
    (584
    )
    
    $
    (1,600
    )
 35




---



##### Table of Contents



Severance Costs
  Income Tax Adjustments
  Other Adjustments
   2004 Operations Summary
  
    
    increased admissions and patient days over the prior year in both our consolidated acute
care and behavioral segments, including on a same facility basis;
    
    increased net patient service revenue per adjusted admission and patient day over the
prior year in both the consolidated acute care and behavioral segments;
    
    completion of the Hillcrest HealthCare System and the Cimarron acquisitions;
    
    progress toward finalizing the previously announced Samaritan Hospital divestiture and
the Summit Hospital joint venture, which were completed effective February 1, 2005;
    
    increased health plan segment revenue and effective management of the cost of medical
care; and
    
    certification by the CMS in May 2004 of our Brooke Glen behavioral hospital, which
allowed for increased access to patient admissions.
  
    
    disruption in the execution of some of our business initiatives because of resources
committed to the restatement of our consolidated financial statements and remediation of
identified material weaknesses and other control deficiencies;
 36




---



##### Table of Contents




    
    continued challenges in the collection of self-pay accounts, which continues to negatively impact our bad debt expense;
    
    integration of the 2004 Hillcrest and Cimarron acquisitions, including integration of disparate information systems;
    
    continued labor pricing and recruitment pressures brought on by the nationwide nursing shortage; and
    
    continued challenges in managing our general and professional liability and workers
compensation risks in a cost-effective manner.
 Revenues
   Year Ended December 31,2004
    
    2003
    
    2002(Restated)Net patient service
revenue
    
    $
    852,687
    
    
    
    53.1
    %
    
    $
    565,086
    
    
    
    45.8
    %
    
    $
    309,027
    
    
    
    90.2
    %Premium revenue
    
    
    677,912
    
    
    
    42.2
    
    
    
    592,293
    
    
    
    48.0
    
    
    
    13,232
    
    
    
    3.9Other revenue
    
    
    76,397
    
    
    
    4.7
    
    
    
    76,190
    
    
    
    6.2
    
    
    
    20,374
    
    
    
    5.9Total net revenues
    
    $
    1,606,996
    
    
    
    100.0
    %
    
    $
    1,233,569
    
    
    
    100.0
    %
    
    $
    342,633
    
    
    
    100.0
    %
 Net Patient Service Revenue
  Year Ended December 31,2004
    
    2003
    
    2002(Restated)Acute
    
    Behavioral
    
    Acute
    
    Behavioral
    
    Acute
    
    BehavioralMedicare
    
    
    38.6
    %
    
    
    9.9
    %
    
    
    40.6
    %
    
    
    9.5
    %
    
    
    49.2
    %
    
    
    8.5
    %Medicaid
    
    
    13.7
    
    
    
    36.8
    
    
    
    3.5
    
    
    
    33.9
    
    
    
    4.0
    
    
    
    33.9Managed care
    
    
    38.5
    
    
    
    28.0
    
    
    
    45.7
    
    
    
    29.6
    
    
    
    23.9
    
    
    
    29.4Other payors
    
    
    9.2
    
    
    
    25.3
    
    
    
    10.2
    
    
    
    27.0
    
    
    
    22.9
    
    
    
    28.2100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   37




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##### Table of Contents



Disclosures about Segments of an Enterprise and Related Information.
   Acute Care Hospital Trends
    38




---



##### Table of Contents



Premium Revenue
   Health Plan Trends
 New Mexico Market.
 Impact of Medicare Prescription Drug Act.
 Underwriting.
 39




---



##### Table of Contents



Medical Management.
 Other Revenue
  Other Trends
  Effects of the Medicare Prescription Drug Act
  Accounts Receivable Collection Risks and Resulting Increased Provision for Bad Debts
  Charity Care and Contemplated Revisions to Policies
 40




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##### Table of Contents



State Medicaid Funding Cuts
  Rising Professional Liability Costs
  Nursing Shortage
  Competition for Acquisitions
  Our Business Strategy
  
    
    Controls and Procedures.We have identified certain material weaknesses and deficiencies
in our internal control over financial reporting that contributed to our restatement of
previously filed or furnished financial information. We have
 41




---



##### Table of Contents



assigned the highest priority
to the remediation of the material weaknesses identified. Refer to Item 9A. Controls and
Procedures of this Annual Report for further discussion of the corrective actions that
have been taken and are underway to remediate these issues.
 
    
    Physician Recruiting and Retention.We strive to recruit both primary and specialty care
physicians who can provide quality services that we believe are currently needed in the
communities we serve. This reflects our strategy to expand capacity and more importantly
our service lines at our facilities. Additionally, we strive to retain our physicians by
maintaining strong relationships with them, by enhancing the scope and quality of services
at our hospitals, and by constantly improving our hospitals work environment. We believe
that as we continue to strengthen our position in each of our markets, we will further
improve our ability to attract and retain quality physicians. An example of our retention
efforts is the use of a program we refer to as Physician Leadership Councils, or PLCs. PLCs
generally consist of leading physicians in our communities who provide their ideas and
recommendations to the management of each facility on improving its operations. We use PLCs
to develop and maintain strong relationships with members of the medical staffs at each of
our acute care hospitals. Generally, PLCs meet with our hospital management teams on a
regular basis to discuss operating and strategic issues, serve as a sounding board for the
medical community at each hospital and enable our local management teams to communicate on
a regular basis with the medical staff. PLCs also actively participate in the strategic
planning process of each of our acute care hospitals.
 
    
    Acquisitions.An integral part of our business strategy is the continued selective
acquisitions of acute care hospitals in urban and suburban markets. To accomplish this, we
selectively seek acquisition opportunities in markets with populations over 100,000 and
growth rates above the national average, either through the acquisition of a network of
hospitals and other health care facilities or a single well-positioned facility, where we
generally can improve operating performance and profitability. For example, in August 2004,
we completed the acquisition of Hillcrest HealthCare System in Tulsa, Oklahoma. The
acquisition consisted of two metropolitan hospitals and other health care facilities and a
network of six regional hospitals acquired through long-term operating agreements. We have
generally acquired relatively underperforming acute care hospitals where we believe we can
improve their operational performance, profitability and their financial systems and
internal controls. After we acquire a hospital, we implement a number of measures designed
to increase revenues, lower operating costs and improve their financial systems and
internal controls. We also may make significant investments in the acquired hospital to
expand services, strengthen the medical staff, improve our market position overall and
integrate the acquired hospitals systems into our systems.
 
    
    Capital Expenditures.Upon acquisition of a health care system or a single facility, we
generally invest substantial capital in those new markets. For example, upon the
acquisition of the facilities now comprising Lovelace Sandia Health System, we committed to
the seller to invest $80.0 million of capital into those facilities in the Albuquerque
market through 2008. In connection with the acquisition of Hillcrest HealthCare System, we
committed to the seller to invest approximately $100.0 million in capital expenditures in
the Tulsa market through 2009. As of December 31, 2004, we had invested $77.0 million and
$13.5 million in the Albuquerque and Tulsa markets, respectively. See Liquidity and
Capital Resources below for additional discussion of our capital expenditures.
  Acquisitions, Divestitures and Joint Venture
  42




---



##### Table of Contents



2002 Acquisitions
    2003 Acquisitions
   2004 Acquisitions
   43




---



##### Table of Contents



2002 Divestitures
  2003 Divestitures
 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of
 2004 Divestitures
  2005 Joint Venture/Divestitures
    Critical Accounting Policies
  
    
    It requires assumptions to be made that were uncertain at the time the estimate was
made; and
 
    
    Changes in the estimate or different estimates that could have been selected could have
a material impact on our consolidated results of operations and financial condition.
 44




---



##### Table of Contents



Reconciliation and Elimination of Intercompany Accounts and Transactions
   Allowance for Contractual Discounts (and related Net Patient Service Revenue)
  Allowance for Doubtful Accounts (and related Provision for Doubtful Accounts)
   45




---



##### Table of Contents



Doubtful AccountsContractual
    
    (Change inDiscounts (Change
    
    Provision for(Decrease) Increase in Allowance Accounts
    
    in Net Revenue)
    
    Doubtful Accounts)(3.0)%
    
    $
    4,272
    
    
    $
    (3,186
    )(2.0)
    
    
    2,848
    
    
    
    (2,124
    )(1.0)
    
    
    1,424
    
    
    
    (1,062
    )1.0
    
    
    (1,424
    )
    
    
    1,0622.0
    
    
    (2,848
    )
    
    
    2,1243.0
    
    
    (4,272
    )
    
    
    3,186
  Medical Claims Payable (and related Claims and Capitation Expense)
  46




---



##### Table of Contents



Change in Claims Payablesand Claims and Capitation Expense(Decrease) Increase in Factor
    
    Completion Factor
    
    Claims Trend Factor(3.0)%
    
    $
    3,036
    
    
    $
    (626
    )(2.0)
    
    
    2,003
    
    
    
    (416
    )(1.0)
    
    
    991
    
    
    
    (207
    )1.0
    
    
    (972
    )
    
    
    2052.0
    
    
    (1,924
    )
    
    
    4093.0
    
    
    (2,859
    )
    
    
    612
     47




---



##### Table of Contents



Risk Management and Self-Insured Liabilities
    Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets,
 48




---



##### Table of Contents



Impairment or Disposal of Long-lived Assets
 Accounting for Impairment or Disposal of Long-Lived Assets,
    Accounting for Income Taxes
   49




---



##### Table of Contents



Results of Operations
  Year Ended December 31,2004
    
    2003
    
    2002Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %(Restated)
    
    (Restated)CONSOLIDATEDRevenues:Net patient service revenue
    
    $
    852,687
    
    
    
    53.1
    %
    
    $
    565,086
    
    
    
    45.8
    %
    
    $
    309,027
    
    
    
    90.2
    %Premium revenue
    
    
    677,912
    
    
    
    42.2
    
    
    
    592,293
    
    
    
    48.0
    
    
    
    13,232
    
    
    
    3.9Other revenue
    
    
    76,397
    
    
    
    4.7
    
    
    
    76,190
    
    
    
    6.2
    
    
    
    20,374
    
    
    
    5.9Total net revenues
    
    
    1,606,996
    
    
    
    100.0
    
    
    
    1,233,569
    
    
    
    100.0
    
    
    
    342,633
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    650,911
    
    
    
    40.5
    
    
    
    491,580
    
    
    
    39.8
    
    
    
    194,654
    
    
    
    56.8Professional fees
    
    
    163,224
    
    
    
    10.2
    
    
    
    121,858
    
    
    
    9.9
    
    
    
    37,857
    
    
    
    11.0Claims and capitation
    
    
    319,572
    
    
    
    19.9
    
    
    
    271,660
    
    
    
    22.0
    
    
    
    10,956
    
    
    
    3.2Supplies
    
    
    188,956
    
    
    
    11.8
    
    
    
    134,327
    
    
    
    10.9
    
    
    
    28,128
    
    
    
    8.2Provision for doubtful accounts
    
    
    97,436
    
    
    
    6.1
    
    
    
    52,727
    
    
    
    4.3
    
    
    
    19,205
    
    
    
    5.6Other
    
    
    146,594
    
    
    
    9.1
    
    
    
    110,935
    
    
    
    9.0
    
    
    
    39,440
    
    
    
    11.5Interest, net
    
    
    33,516
    
    
    
    2.1
    
    
    
    19,847
    
    
    
    1.6
    
    
    
    1,678
    
    
    
    0.5Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    0.1
    
    
    
    (558
    )
    
    
    0.0
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    3.4
    
    
    
    33,447
    
    
    
    2.7
    
    
    
    7,365
    
    
    
    2.2Investigation  related expenses
    
    
    3,997
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of long-lived assets and
restructuring costs
    
    
    24,928
    
    
    
    1.5
    
    
    
    2,913
    
    
    
    0.2
    
    
    
    78
    
    
    
    Losses (gains) on divestitures
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    0.0
    
    
    
    (1,206
    )
    
    
    (0.3
    )Total expenses
    
    
    1,684,951
    
    
    
    104.9
    
    
    
    1,238,797
    
    
    
    100.4
    
    
    
    338,155
    
    
    
    98.7Income (loss) from continuing operations before
income taxes
    
    
    (77,955
    )
    
    
    (4.9
    )
    
    
    (5,228
    )
    
    
    (0.4
    )
    
    
    4,478
    
    
    
    1.3Income tax expense (benefit)
    
    
    31,197
    
    
    
    1.9
    
    
    
    (1,068
    )
    
    
    (0.1
    )
    
    
    1,721
    
    
    
    0.5Income (loss) from continuing operations, net
    
    
    (109,152
    )
    
    
    (6.8
    )
    
    
    (4,160
    )
    
    
    (0.3
    )
    
    
    2,757
    
    
    
    0.8Discontinued operations:Income (loss) from discontinued operations
    
    
    (4,462
    )
    
    
    (0.2
    )
    
    
    404
    
    
    
    0.0
    
    
    
    2,662
    
    
    
    0.8Income tax expense (benefit)
    
    
    (1,552
    )
    
    
    0.0
    
    
    
    305
    
    
    
    0.0
    
    
    
    943
    
    
    
    0.3Income (loss) from discontinued operations, net
    
    
    (2,910
    )
    
    
    (0.2
    )
    
    
    99
    
    
    
    0.0
    
    
    
    1,719
    
    
    
    0.5Net income (loss)
    
    
    (112,062
    )
    
    
    (7.0
    )
    
    
    (4,061
    )
    
    
    (0.3
    )
    
    
    4,476
    
    
    
    1.3Accrued preferred dividends
    
    
    8,996
    
    
    
    0.5
    
    
    
    8,098
    
    
    
    0.7
    
    
    
    5,993
    
    
    
    1.7Net loss attributable to common members
    
    $
    (121,058
    )
    
    
    (7.5
    )%
    
    $
    (12,159
    )
    
    
    (1.0
    )%
    
    $
    (1,517
    )
    
    
    (0.4
    )%
 50




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##### Table of Contents



Year Ended December 31,2004
    
    2003
    
    2002Amount (1)
    
    %
    
    Amount
    
    %
    
    Amount
    
    %CONSOLIDATED ACUTE CARE SERVICES SEGMENT
    
    
    
    
    
    
    
    
    
    (Restated)Revenues:Net patient service revenue
    
    $
    575,121
    
    
    
    43.7
    %
    
    $
    311,881
    
    
    
    32.2
    %
    
    $
    76,128
    
    
    
    75.7
    %Premium revenue
    
    
    677,912
    
    
    
    51.6
    
    
    
    592,293
    
    
    
    61.2
    
    
    
    13,232
    
    
    
    13.2Other revenue
    
    
    61,685
    
    
    
    4.7
    
    
    
    62,970
    
    
    
    6.6
    
    
    
    11,218
    
    
    
    11.1Total net revenues
    
    
    1,314,718
    
    
    
    100.0
    
    
    
    967,144
    
    
    
    100.0
    
    
    
    100,578
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    453,896
    
    
    
    34.5
    
    
    
    318,730
    
    
    
    33.0
    
    
    
    46,029
    
    
    
    45.8Professional fees
    
    
    127,067
    
    
    
    9.7
    
    
    
    82,944
    
    
    
    8.6
    
    
    
    3,536
    
    
    
    3.5Claims and capitation
    
    
    319,572
    
    
    
    24.3
    
    
    
    271,660
    
    
    
    28.1
    
    
    
    10,956
    
    
    
    10.9Supplies
    
    
    173,095
    
    
    
    13.2
    
    
    
    119,887
    
    
    
    12.4
    
    
    
    14,302
    
    
    
    14.3Provision for doubtful accounts
    
    
    90,191
    
    
    
    6.9
    
    
    
    47,701
    
    
    
    4.9
    
    
    
    13,216
    
    
    
    13.1Other
    
    
    111,012
    
    
    
    8.4
    
    
    
    78,820
    
    
    
    8.1
    
    
    
    12,397
    
    
    
    12.3Investigation  related expenses
    
    
    3,997
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of long-lived
assets and restructuring costs
    
    
    
    
    
    
    
    
    
    
    2,913
    
    
    
    0.3
    
    
    
    
    
    
    
    Losses on divestitures
    
    
    
    
    
    
    
    
    
    
    679
    
    
    
    0.1
    
    
    
    
    
    
    
    Adjusted EBITDA
    
    $
    35,888
    
    
    
    2.7
    %
    
    $
    43,810
    
    
    
    4.5
    %
    
    $
    142
    
    
    
    0.1
    %
 Year Ended December 31,2004
    
    2003
    
    2002BEHAVIORAL CARE SERVICES SEGMENT (2)
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Revenues:Net patient service revenue
    
    $
    277,566
    
    
    
    94.3
    %
    
    $
    252,829
    
    
    
    94.5
    %
    
    $
    232,898
    
    
    
    96.3
    %Other revenue
    
    
    16,716
    
    
    
    5.7
    
    
    
    14,739
    
    
    
    5.5
    
    
    
    9,011
    
    
    
    3.7Total net revenues
    
    
    294,282
    
    
    
    100.0
    
    
    
    267,568
    
    
    
    100.0
    
    
    
    241,909
    
    
    
    100.0Expenses:Salaries and benefits
    
    
    168,528
    
    
    
    57.3
    
    
    
    147,992
    
    
    
    55.3
    
    
    
    133,310
    
    
    
    55.1Professional fees
    
    
    32,743
    
    
    
    11.1
    
    
    
    29,162
    
    
    
    10.9
    
    
    
    28,321
    
    
    
    11.7Supplies
    
    
    15,559
    
    
    
    5.3
    
    
    
    14,527
    
    
    
    5.5
    
    
    
    13,546
    
    
    
    5.6Provision for doubtful accounts
    
    
    7,245
    
    
    
    2.4
    
    
    
    6,227
    
    
    
    2.3
    
    
    
    5,990
    
    
    
    2.5Other
    
    
    25,906
    
    
    
    8.8
    
    
    
    23,078
    
    
    
    8.6
    
    
    
    21,157
    
    
    
    8.8Impairment of long-lived
assets and restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    0.0Gains on divestitures
    
    
    
    
    
    
    
    
    
    
    (618
    )
    
    
    (0.2
    )
    
    
    (1,196
    )
    
    
    (0.5
    )Adjusted EBITDA
    
    $
    44,301
    
    
    
    15.1
    %
    
    $
    47,200
    
    
    
    17.6
    %
    
    $
    40,703
    
    
    
    16.8
    %
 
 (1)
    
    Effective January 1, 2004, we managed the health plan as a separate operating
segment and the acute care services segment excluded the operations of the health
plan and included patient service revenue related to services rendered at our
acute care hospitals to our health plan members. Due to system limitations, it
is impractical to restate our segment information for 2003 and 2002 to correspond
with this change in reportable segments. The consolidated acute segment for the year
ended December 31, 2004 is comprised of the following (dollars in thousands): Acute
    
    Lovelace
    
    
    
    
    
    ConsolidatedCONSOLIDATED ACUTE CARE
    
    Care
    
    Health
    
    
    
    
    
    Acute CareSERVICES SEGMENT
    
    Services
    
    Plan
    
    Eliminations
    
    ServicesRevenues:Net patient service revenue
    
    $
    813,510
    
    
    $
    
    
    
    $
    (238,389
    )
    
    $
    575,121Premium revenue
    
    
    
    
    
    
    677,912
    
    
    
    
    
    
    
    677,912Other revenue
    
    
    85,590
    
    
    
    10,723
    

    
    
    (34,628
    )
    
    
    61,685Total net revenues
    
    
    899,100
    
    
    
    688,635
    
    
    
    (273,017
    )
    
    
    1,314,718Expenses:Salaries and benefits
    
    
    434,839
    
    
    
    20,228
    
    
    
    (1,171
    )
    
    
    453,896Professional fees
    
    
    88,582
    
    
    
    38,485
    
    
    
    
    
    
    
    127,067Claims and capitation
    
    
    
    
    
    
    591,418
    
    
    
    (271,846
    )
    
    
    319,572Supplies
    
    
    172,787
    
    
    
    308
    
    
    
    
    
    
    
    173,095Provision for doubtful accounts
    
    
    90,191
    
    
    
    
    
    
    
    
    
    
    
    90,191Other
    
    
    94,355
    
    
    
    16,657
    
    
    
    
    
    
    
    111,012Investigation  related expenses
    
    
    3,997
    
    
    
    
    
    
    
    
    
    
    
    3,997Adjusted EBITDA
    
    $
    14,349
    
    
    $
    21,539
    
    
    $
    
    
    
    $
    35,888
 
 (2)
    
    Our behavioral hospitals were sold on July 1, 2005. 51




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##### Table of Contents



Selected Operating Statistics
  Year Ended December 31,2004
    
    2003
    
    2002Acute Care Operating Data (1):Actual:Number of hospitals (end of period) (2)
    
    
    15
    
    
    
    6
    
    
    
    5Number of licensed beds (end of period) (3)
    
    
    2,258
    
    
    
    923
    
    
    
    723Total delivery system admissions (4) (5)
    
    
    45,666
    
    
    
    26,510
    
    
    
    5,348% Change
    
    
    72.3
    %
    
    
    395.7
    %
    
    
    N/MTotal delivery system adjusted admissions (AA) (5) (6)
    
    
    94,259
    
    
    
    64,901
    
    
    
    9,378% Change
    
    
    45.2
    %
    
    
    592.1
    %
    
    
    N/MAverage length of stay (days) (7)
    
    
    5.3
    
    
    
    5.4
    
    
    
    7.6Net patient service revenue/AA (8)
    
    $
    8,655
    
    
    
    N/M
    
    
    
    N/MSame Facilities (1):Number of hospitals (end of period) (2)
    
    
    6
    
    
    
    6
    
    
    
    N/MNumber of licensed beds (end of period) (3)
    
    
    932
    
    
    
    923
    
    
    
    N/MTotal delivery system admissions (4) (5)
    
    
    28,075
    
    
    
    26,510
    
    
    
    N/M% Change
    
    
    5.9
    %
    
    
    N/M
    
    
    
    N/MTotal delivery system adjusted admissions (AA) (5) (6)
    
    
    69,886
    
    
    
    65,873
    
    
    
    N/M% Change
    
    
    6.1
    %
    
    
    N/M
    
    
    
    N/MAverage length of stay (days) (7)
    
    
    5.2
    
    
    
    5.4
    
    
    
    N/MNet patient service revenue/AA (8)
    
    $
    8,344
    
    
    
    N/M
    
    
    
    N/MBehavioral Operating Data (1) (10):Actual:Number of hospitals (end of period)
    
    
    20
    
    
    
    20
    
    
    
    19Number of licensed beds (end of period) (3)
    
    
    1,981
    
    
    
    1,964
    
    
    
    1,832Admissions (4)
    
    
    37,162
    
    
    
    33,474
    
    
    
    31,456% Change
    
    
    11.0
    %
    
    
    6.4
    %
    
    
    N/MAdjusted Admissions (6)
    
    
    39,136
    
    
    
    35,361
    
    
    
    33,278% Change
    
    
    10.7
    %
    
    
    6.3
    %
    
    
    N/MPatient days (7)
    
    
    514,069
    
    
    
    481,317
    
    
    
    455,828% Change
    
    
    6.8
    %
    
    
    5.6
    %
    
    
    N/MAdjusted patient days (APD) (6)
    
    
    541,378
    
    
    
    508,450
    
    
    
    482,228% Change
    
    
    6.5
    %
    
    
    5.4
    %
    
    
    N/MNet patient service revenue/APD
    
    $
    513
    
    
    $
    497
    
    
    $
    483% Change
    
    
    3.2
    %
    
    
    2.9
    %
    
    
    N/MAverage length of stay (days) (7)
    
    
    13.8
    
    
    
    14.4
    
    
    
    14.5Same Facilities:Number of hospitals (end of period)
    
    
    19
    
    
    
    19
    
    
    
    N/MNumber of licensed beds (end of period) (3)
    
    
    1,835
    
    
    
    1,861
    
    
    
    N/MAdmissions (4)
    
    
    35,762
    
    
    
    33,256
    
    
    
    N/M% Change
    
    
    7.5
    %
    
    
    N/M
    
    
    
    N/MAdjusted Admissions (6)
    
    
    37,727
    
    
    
    35,142
    
    
    
    N/M% Change
    
    
    7.4
    %
    
    
    N/M
    
    
    
    N/MPatient days (7)
    
    
    498,947
    
    
    
    478,766
    
    
    
    N/M% Change
    
    
    4.2
    %
    
    
    N/M
    
    
    
    N/MAdjusted patient days (6)
    
    
    526,360
    
    
    
    505,922
    
    
    
    N/M% Change
    
    
    4.0
    %
    
    
    N/M
    
    
    
    N/MNet patient service revenue/APD
    
    $
    505
    
    
    $
    497
    
    
    
    N/M% Change
    
    
    1.6
    %
    
    
    N/M
    
    
    
    N/MAverage length of stay (days) (7)
    
    
    14.0
    
    
    
    14.4
    
    
    
    N/MHealth Plan Operating Data:Health plan members (end of period)
    
    
    192,719
    
    
    
    167,901
    
    
    
    6,002
 
 N/M
    
    Not Meaningful(1)
    
    The segment operating data excludes statistics for discontinued operations. One acute care
hospital owned as of December 31, 2004 was sold on February 1, 2005 and is included in
discontinued operations. Same facility statistics exclude the operations of facilities that
were either acquired or divested subsequent to January 1, 2003. 52




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(2)
    
    Includes six hospitals operated under long-term operating lease agreements and one hospital,
which effective February 1, 2005 was contributed to a 50/50 joint venture.(3)
    
    Licensed beds are those beds for which a facility has been granted approval to operate from
the applicable state licensing agency.(4)
    
    Represents the total number of patients admitted (for a period in excess of 23 hours) to our
hospitals and is used by management and certain investors as a general measure of inpatient
volume.(5)
    
    Total delivery system includes all operating data at our owned hospitals prior to elimination
of services rendered to our health plan members.(6)
    
    Adjusted admissions and adjusted patient days are used by management and certain investors as
a general measure of combined
inpatient and outpatient volume. Adjusted admissions/patient days are computed by multiplying
admissions/patient days (inpatient volume) by the sum of gross inpatient revenue and gross
outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The
adjusted admissions/patient days computation equates outpatient revenue to the volume
measure (admissions/patient days) used to measure inpatient volume resulting in a general
measure of combined inpatient and outpatient volume.(7)
    
    Represents the average number of days admitted patients stay in our hospitals.(8)
    
    Net patient service revenue and related admissions and adjusted admissions operating data
within the consolidated acute care services segment prior to January 1, 2004 excludes revenue
and related operating data for services provided to our health plan members. Due to system
limitations, it is impracticable to restate net patient service revenues and related operating
data for the year ended December 31, 2003 for purposes of comparability. Excluding our health
plan members, admissions and adjusted admissions were 36,256 and 64,938, respectively, for the
year ended December 31, 2004.(9)
    
    Represents the total number of days that patients stayed in our hospitals over the period.(10)
    
    Our behavioral hospitals were sold on July 1, 2005. Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 (Restated)
 Total Net Revenues.
   Salaries and Benefits
 53




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##### Table of Contents



Professional Fees.
   Claims and Capitation.
 Supplies.
 54




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##### Table of Contents



Provision for Doubtful Accounts.
  Other Operating Expenses.
   Interest and Change in Fair Value of Interest Rate Swap Agreements.
 Accounting for Derivative
Instruments and Hedging Activities
 Depreciation and Amortization.
 55




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##### Table of Contents



Investigation  Related Expenses.
 Impairment of Long-Lived Assets.
 Loss on Divestitures.
 Income Tax Expense.
 Net Loss from Continuing Operations.
 Income (loss) from Discontinued Operations, Net.
 Accrued Preferred Dividends.
 Year Ended December 31, 2003 (Restated) Compared to Year Ended December 31, 2002 (Restated)
 Total Net Revenues.
  56




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Salaries and Benefits.
    Professional Fees.
  57




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##### Table of Contents



Claims and Capitation.
 Supplies.
   Provision for Doubtful Accounts.
  58




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##### Table of Contents



Other Operating Expenses.
   Interest and Change in Fair Value of Interest Rate Swap Agreements.
 Accounting for Derivative Instruments and Hedging
Activities;
 Depreciation and Amortization.
 Impairment of Long-lived Assets and Restructuring Costs and Loss (Gain) on Divestitures.
 Income Tax Expense (Benefit).
 59




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##### Table of Contents



Net Income (loss) from Continuing Operations.
 Income from Discontinued Operations, Net.
 Accrued Preferred Dividends.
 Liquidity and Capital Resources
 Liquidity
  Sources and Uses of Cash
  Year Ended December 31,2004
    
    2003
    
    2002(Restated)
    
    (Restated)Statement of cash flows information:Cash flows provided by operating activities
    
    $
    77,075
    
    
    $
    65,853
    
    
    $
    2,147Cash flows used in discontinued operations
    
    
    (1,866
    )
    
    
    (10,154
    )
    
    
    1,071Cash flows used in investing activities
    
    
    (409,158
    )
    
    
    (268,701
    )
    
    
    (158,743
    )Cash flows provided by financing activities
    
    
    346,015
    
    
    
    185,443
    
    
    
    259,411
   60




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Restrictions on Cash Flows
   Cash Requirements
  61




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years
    
    TotalContractual Cash Obligations:Long-term debt, with interest
(1) (2)
    
    $
    551,842
    
    
    $
    7,690
    
    
    $
    7,446
    
    
    $
    51,164
    
    
    $
    618,142Operating leases
    
    
    20,914
    
    
    
    31,763
    
    
    
    18,132
    
    
    
    69,725
    
    
    
    140,534Outsourcing contracts (3)
    
    
    12,447
    
    
    
    15,354
    
    
    
    15,966
    
    
    
    7,983
    
    
    
    51,750Subtotal
    
    
    585,203
    
    
    
    54,807
    
    
    
    41,544
    
    
    
    128,872
    
    
    
    810,426
 Amount of Commitment Expiration Per PeriodLess than
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 Years
    
    TotalOther Commitments:Construction and improvement
commitments (4)(5)
    
    $
    10,631
    
    
    $
    
    
    
    $
    78,898
    
    
    $
    
    
    
    $
    89,529Letters of credits (6)
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,350Subtotal
    
    
    20,981
    
    
    
    
    
    
    
    78,898
    
    
    
    
    
    
    
    99,879Total obligations and commitments
    
    $
    606,184
    
    
    $
    54,807
    
    
    $
    120,442
    
    
    $
    128,872
    
    
    $
    910,305
 
 (1)
    
    The less than 1 year column includes the redemption of $225.0 million of senior subordinated
notes and the repayment of $202.8 million outstanding under our senior secured credit agreement in July 2005.
Additionally, the remaining $95.0 million outstanding under our senior secured credit agreement is presented
as current maturities in our consolidated balance sheet at December 31, 2004 due to our status with respect to certain covenants and cross-default provisions. Refer to Capital
Resources for further discussion.(2)
    
    We used 4.8%, the interest rate on our senior secured borrowings at December 31, 2004,
as the assumed interest rate to be paid on amounts outstanding which accrue interest at a
variable rate.(3)
    
    Our outsourcing contracts primarily consist of the information systems services provided to
both our Albuquerque and Tulsa markets under separate outsourcing arrangements. In
Albuquerque, our contract is for a period of two years expiring 2006. In Tulsa, our contract
is for a period of 10 years expiring in 2012. Both contracts provide penalties for early
termination, depending on when termination occurs in relation to the expiration dates.(4)
    
    The largest portion of the $10.6 million relates to our Hillcrest acquisition where we have
committed to invest $100.0 million in capital expenditures in the Tulsa market over a five
year period (of which $13.5 million had been invested as of December 31, 2004). We expect to
invest approximately $10.6 million in 2005. As our commitments
to invest the remaining $89.5 million in the Albuquerque and Tulsa markets
do not expire until 2008 and 2009, respectively, we have presented the commitments in 2008 and 2009, except for
actual commitments made as of December 31, 2004 for 2005.(5)
    
    As of December 31, 2004, we had projects under construction with an estimated cost to
complete of $21.8 million, of which $3.3 million related to our behavioral care services
segment. Except for construction contracts totaling $10.6 million, of which $0.3 million is
for our behavioral care services segment, included in (4) above, we can terminate
substantially all of the related construction contracts at any time without penalty, therefore
such costs are excluded from the above table under footnote (4).(6)
    
    We have letters of credit totaling $10.4 million outstanding at December 31, 2004, related to
workers compensation and professional liability insurer requirements and performance
guarantees with certain vendors.  62




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##### Table of Contents



Long-term Debt
  Operating Leases
  Capital Expenditures (including Capital Commitments)
    Letters of Credit
  Capital Resources
 Long-term Debt
 Classification of Term Loans and Senior Subordinated Notes
   63




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##### Table of Contents



Financing Activities
        64




---



##### Table of Contents



Capital
      65




---



##### Table of Contents



Interest Rate Swap Agreements
  Availability of Capital Resources
   Recently Issued Accounting Standards
  Seasonality
  Inflation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  66




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
    
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 Summary
  67




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##### Table of Contents




    
    the discovery of prior period accounting errors through an independent review of certain
accounting matters conducted by the Audit and Compliance Committee of our Board of Managers
with the assistance of independent counsel and an independent accounting firm, which
resulted in the restatement of our consolidated financial statements for the seven months
ended July 31, 2001, the five months ended December 31, 2001, the years ended December 31,
2002 and 2003 and the first and second
quarters of fiscal 2004;
    
    the material weaknesses in our internal control over financial reporting, which
contributed to the above noted restatements, that we and our independent auditor, Ernst &
Young LLP, have identified (as more fully described below); and
    
    the status of the corrective actions we have developed and begun to implement to remedy
those material weaknesses (as more fully described below).
   Material Weaknesses Identified
  
    
    the lack of standard accounting policies and procedures that are appropriately
documented, communicated and consistently applied, which contributed to our inability to
effectively assess risk and monitor compliance; and
    
    inadequate facility, division and entity-level month end close processes, including: (1)
untimely reconciliation of account balances and resolution of resulting discrepancies, (2)
lack of documentation supporting accounting estimates and allowances, and (3) an
inappropriate level of review of significant financial statement accounts, in particular
those requiring a higher degree of judgment and estimation; and
    
    inadequate communication between financial reporting personnel in our Albuquerque market
regarding the elimination of transactions between our health care provider network and our
health plan; and
    
    our continued need to add more qualified financial reporting personnel in the
Albuquerque market; and
 68




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##### Table of Contents





    
    inadequate information systems integration and data reconciliation within our revenue
cycle processes in our central business office and accounting departments in our
Albuquerque market, which contributed to untimely reconciliation of balance sheet accounts
and resolution of resulting discrepancies.
  Corrective Actions
   
    
    implementing improved standard accounting policies and procedures that are appropriately
documented, communicated and consistently applied throughout the Company;
    
    revising the month end close process to include enhanced and more timely monitoring of
(i) the reconciliation of account balances and resolution of resulting discrepancies (ii)
the reconciliation of accounts and elimination of transactions between our health care
provider network in Albuquerque and our health plan and (iii) compliance with standard
accounting policies and procedures, especially those requiring a higher degree of judgment
and estimation;
    
    simplifying the processing and accounting for transactions between our health care
provider network in Albuquerque and our health plan to facilitate the reconciliation and
elimination of related transactions;
    
    utilizing existing information system functionality to improve processes in the revenue
cycle in our Albuquerque market, including the processes for estimating contractual
discounts and allowances, and ultimately converting to a standard patient accounting system
Company-wide;
    
    consolidating certain accounting functions within the Albuquerque market and adding more
qualified financial reporting personnel;
    
    continuing to evaluate and implement improvements in the design and operating
effectiveness of internal controls and procedures (specifically within our revenue cycle
process) with the assistance of PricewaterhouseCoopers; and
    
    enhancing our Code of Conduct, including reemphasizing the availability of our ethics
and compliance hotline for reporting
 69




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##### Table of Contents



Changes in Our Internal Control Over Financial Reporting
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
 Executive Officers and Managers
  Name
    
    Age
    
    PositionDavid T. Vandewater
    
    
    54
    
    
    President, Chief Executive Officer and ManagerJamie E. Hopping
    
    
    51
    
    
    Chief Operating Officer and ManagerR. Dirk Allison
    
    
    49
    
    
    Chief Financial Officer and ManagerStephen C. Petrovich
    
    
    39
    
    
    Senior Vice President, General Counsel and SecretaryKevin J. Gross
    
    
    50
    
    
    President of Oklahoma DivisionNorman P. Becker
    
    
    49
    
    
    President and Chief Executive Officer of Lovelace
Sandia Health SystemRussell L. Carson
    
    
    61
    
    
    Manager and Chairman of the BoardNorman Brownstein
    
    
    62
    
    
    ManagerDavid C. Colby
    
    
    51
    
    
    ManagerColleen Conway-Welch
    
    
    61
    
    
    ManagerCarlos A. Ferrer
    
    
    51
    
    
    ManagerD. Scott Mackesy
    
    
    36
    
    
    ManagerKenneth J. Melkus
    
    
    59
    
    
    ManagerThomas A. Scully
    
    
    47
    
    
    Manager
 David T. Vandewater, President, Chief Executive Officer and Manager.
 70




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##### Table of Contents



Jamie E. Hopping, Chief Operating Officer and Manager.
 R. Dirk Allison, Chief Financial Officer and Manager.
 Stephen C. Petrovich, Senior Vice President, General Counsel and Secretary
 Kevin J. Gross, President of Oklahoma Division.
 Norman P. Becker, President and Chief Executive Officer of Lovelace Sandia Health System.
 Russell L. Carson, Manager and Chairman of the Board.
 Norman Brownstein, Manager.
 David C. Colby, Manager.
 Colleen Conway-Welch, Manager.
 71




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##### Table of Contents



Carlos A. Ferrer, Manager.
 D. Scott Mackesy, Manager.
 Kenneth J. Melkus, Manager.
 Thomas A. Scully, Manager.
 Board of Managers
 General.
  
    
    three managers designated by WCAS;
    
    one manager designated by Ferrer Freeman;
    
    our president and chief executive officer; and
    
    one independent manager designated by a majority in interest of our members holding common units.
  Committees of the Board of Managers.
 72




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##### Table of Contents



Indemnification of Managers and Officers
  Audit and Compliance Committee Financial Expert
  Code of Conduct
  
 Item 11. Executive Compensation.
 Executive Compensation
  73




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##### Table of Contents



Summary Compensation Table
 Long-TermAnnual Compensation
    
    CompensationSecuritiesBonus
    
    Other Annual
    
    Underlying
    
    All OtherName and Principal Position
    
    Year
    
    Salary ($)
    
    ($)(1)
    
    Compensation
    
    Options (#)
    
    Compensation ($)David T. Vandewater
    
    
    2004
    
    
    $
    467,299
    
    
    $
    
    
    
    $
    47,707
    (2)
    
    
    521,138
    
    
    $
    103,919
    (3)Chief Executive Officer
    
    
    2003
    
    
    
    449,992
    
    
    
    405,000
    
    
    
    
    
    
    
    149,581
    
    
    
    12,395
    (3)2002
    
    
    
    349,995
    
    
    
    175,000
    
    
    
    
    
    
    
    981,500
    
    
    
    6,395
    (3)Jamie E. Hopping
    
    
    2004
    
    
    
    407,993
    
    
    
    122,400
    
    
    
    
    
    
    
    260,071
    
    
    
    10,400
    (4)Chief Operating Officer
    
    
    2003
    
    
    
    407,989
    
    
    
    275,400
    
    
    
    122,585
    (5)
    
    
    56,094
    
    
    
    6,000
    (6)2002
    
    
    
    199,996
    
    
    
    2,475,000
    (7)
    
    
    
    
    
    
    885,443
    
    
    
    32,404
    (8)R. Dirk Allison (9)
    
    
    2004
    
    
    
    399,992
    
    
    
    120,000
    
    
    
    
    
    
    
    195,057
    
    
    
    31,092
    (10)Chief Financial Officer
    
    
    2003
    
    
    
    33,333
    
    
    
    700,000
    (11)
    
    
    
    
    
    
    942,808
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vernon S. Westrich (12)
    
    
    2004
    
    
    
    333,557
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,235
    (13)President, Behavioral Group
    
    
    2003
    
    
    
    333,560
    
    
    
    225,155
    
    
    
    
    
    
    
    
    
    
    
    6,000
    (6)2002
    
    
    
    320,728
    
    
    
    320,734
    
    
    
    
    
    
    
    75,000
    
    
    
    5,438
    (14)Norm P. Becker
    
    
    2004
    
    
    
    310,379
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    7,464
    (15)President, Lovelace Sandia
    
    
    2003
    
    
    
    198,074
    
    
    
    147,500
    
    
    
    
    
    
    
    100,000
    
    
    
    3,008
    (16)Health System
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Although performance targets were not met under our incentive compensation plan for
2004, 2003 and 2002, the board approved additional compensation for selected individuals.(2)
    
    Consists of $42,978 for income tax reimbursement, $729 for executive medical reimbursement and $4,000 for executive financial
planning.(3)
    
    For 2004, consists of $88,495 for term life insurance premiums, $9,274 for disability insurance
premiums and $6,150 for employer
401(k) match. For 2003, consists of $6,395 for term life insurance premium and $6,000 for
employer 401(k) match. For 2002, consists of $6,395 for term life insurance premium.(4)
    
    Consists of $4,250 for executive financial planning and $6,150 for employer 401(k)
match.(5)
    
    Consists of $86,951 for relocation expenses paid by Ardent and $35,634 for closing
costs paid by Ardent related to Ms. Hoppings purchase of a home.(6)
    
    Represents of $6,000 for employer 401(k) match.(7)
    
    Includes $2,400,000 additional compensation to compensate Ms. Hopping for stock options
and other compensation forfeited by reason of Ms. Hoppings termination of her employment
with her prior employer.(8)
    
    Consists of $28,997 for relocation expenses paid by Ardent and $3,407 for employer
401(k) match.(9)
    
    Mr. Allison was appointed our Chief Financial Officer as of December 1, 2003.(10)
    
    Consists of $24,942 for relocation/temporary living costs and $6,150 for employer
401(k) match.(11)
    
    Consists of additional compensation to compensate Mr. Allison for stock options and
other compensation forfeited by reason of Mr. Allisons termination of his employment with
his prior employer.(12)
    
    Mr. Westrich was the President of our Behavioral Division from January 1999 through
December 2004. Effective January 1, 2005, Mr. Westrich is providing consulting services to
us as an independent contractor.(13)
    
    Consists of $3,500 executive medical reimbursement, $585 for executive financial
planning and $6,150 for employer 401(k) match. 74




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##### Table of Contents



(14)
    
    Represents of $5,438 for employer 401(k) match.(15)
    
    Consists of $1,314 paid for medical reimbursement and $6,150 for employer 401(k) match.(16)
    
    Represents of $3,008 for employer 401(k) match.  Option Grants in Last Fiscal Year
 Individual GrantsPotential Realizable Value atNumber of
    
    Percent of
    
    
    
    
    
    
    
    
    
    Assumed Annual Rates ofSecurities
    
    Total Options
    
    
    
    
    
    
    
    
    
    Stock Price Appreciation forUnderlying
    
    Granted to
    
    Exercise of
    
    
    
    
    
    Option Term(1)Options Granted
    
    Employees in
    
    Base Price
    
    ExpirationName
    
    (#)(1)
    
    Fiscal Year
    
    ($/Share)
    
    Date
    
    5% ($)
    
    10% ($)David T. Vandewater
    
    
    30
    
    
    
    0.0
    %
    
    $
    4.50
    
    
    
    3/31/14
    
    
    $
    85
    
    
    $
    215444,444
    
    
    
    24.1
    
    
    
    4.50
    
    
    
    6/30/14
    
    
    
    1,257,788
    
    
    
    3,187,48275,074
    
    
    
    4.1
    
    
    
    4.50
    
    
    
    7/2/14
    
    
    
    212,461
    
    
    
    538,419900
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    8/11/14
    
    
    
    2,547
    
    
    
    6,45530
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/3/14
    
    
    
    85
    
    
    
    215650
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/10/14
    
    
    
    1,840
    
    
    
    4,66210
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    12/1/14
    
    
    
    28
    
    
    
    72Jamie E. Hopping
    
    
    17
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    3/30/14
    
    
    
    48
    
    
    
    122222,222
    
    
    
    12.1
    
    
    
    4.50
    
    
    
    6/30/14
    
    
    
    628,894
    
    
    
    1,593,74137,037
    
    
    
    2.0
    
    
    
    4.50
    
    
    
    7/2/14
    
    
    
    104,816
    
    
    
    265,623450
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    8/11/14
    
    
    
    1,274
    
    
    
    3,22715
    
    
    
    0.0
    
    
    

    4.50
    
    
    
    11/3/14
    
    
    
    42
    
    
    
    108325
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/10/14
    
    
    
    920
    
    
    
    2,3315
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    12/1/14
    
    
    
    14
    
    
    
    36R. Dirk Allison
    
    
    17
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    3/30/14
    
    
    
    48
    
    
    
    122166,667
    
    
    
    9.0
    
    
    
    4.50
    
    
    
    6/30/14
    
    
    
    471,672
    
    
    
    1,195,30927,778
    
    
    
    1.5
    
    
    
    4.50
    
    
    
    7/2/14
    
    
    
    78,612
    
    
    
    199,219337
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    8/11/14
    
    
    
    954
    
    
    
    2,41711
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/3/14
    
    
    
    31
    
    
    
    79244
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/10/14
    
    
    
    691
    
    
    
    1,7503
    
    
    
    0.0
    
    
    
    4.50
    
    
    
    11/30/14
    
    
    
    8
    
    
    
    22Vern S. Westrich
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norm P. Becker
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Options were granted pursuant to our Option and Restricted Unit Purchase Plan described below
and generally become exercisable in four equal installments on each of the first four
anniversaries of the grant.  75




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##### Table of Contents



Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
 Number of SecuritiesUnderlying Unexercised
    
    
    Value of Unexercised In-the-Options at Fiscal Year-End
    
    
    Money Options at Fiscal2004 (Both In- and At-the-Money)
    
    
    Year-End(1)SharesAcquired on
    
    
    ValueName
    
    Exercise (#)
    
    
    Realized ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableDavid T. Vandewater
    
    
    
    
    
    
    
    
    
    
    1,390,613
    
    
    
    1,411,590
    
    
    $
    924,836
    
    
    $
    309,616Jamie E. Hopping
    
    
    
    
    
    
    
    
    
    
    413,020
    
    
    
    701,150
    
    
    
    230,758
    
    
    
    230,758R. Dirk Allison
    
    
    
    
    
    
    
    
    
    
    284,649
    
    
    
    764,355
    
    
    
    
    
    
    
    Vernon S. Westrich
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    133,750
    
    
    
    Norm P. Becker
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
 
 (1)
    
    Value of options has been calculated using a current share value of $4.50. Compensation of Managers
  
    
    cash compensation of $3,000 each quarter, plus $1,500 for each board meeting attended
and $1,500 for each committee meeting attended;
    
    cash compensation of $6,000 annually for the Chairman of the Audit Committee;
    
    reimbursement for reasonable out-of-pocket expenses incurred in attending board meetings;
    
    the grant of an option to acquire 25,000 of our common units, granted upon election to the board; and
    
    the grant of an additional option to acquire 12,500 common units, granted on each
anniversary date of the managers election to the board.
 Employment Agreements
 David T. Vandewater.
  Jamie E. Hopping.
 76




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##### Table of Contents



R. Dirk Allison.
  Vernon S. Westrich.
     Norman P. Becker.
 77




---



##### Table of Contents



Kevin J. Gross
   Option and Restricted Unit Purchase Plan
 General.
    Stock Options held by Mr. Vandewater, Ms. Hopping and Mr. Allison.
 Incentive Compensation Program
  78




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation in Compensation Decisions
  
 Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
  Number of
    
    
    
    
    
    
    Percent ofRedeemable
    
    
    Number of
    
    
    Redeemable
    
    
    Percent ofPreferred Units
    
    
    Common Units
    
    
    Preferred Units
    
    
    Common UnitsBeneficially
    
    
    Beneficially
    
    
    Beneficially
    
    
    BeneficiallyName of Beneficial Owner
    
    Owned
    
    
    Owned
    
    
    Owned
    
    
    OwnedBancAmerica Capital Investors I,
L.P. (1)(2)
    
    
    1,457,726
    
    
    
    3,679,948
    
    
    
    5.18
    %
    
    
    5.22
    %FFC Executive Partners II, L.P. (3)(4)
    
    
    31,039
    
    
    
    78,357
    
    
    
    *
    
    
    
    *FFC Partners II, L.P. (3)(4)
    
    
    2,155,549
    
    
    
    5,441,564
    
    
    
    7.66
    
    
    
    7.72WCAS Capital Partners III, L.P. (5)(6)
    
    
    0
    
    
    
    1,030,928
    
    
    
    *
    
    
    
    1.46WCAS Healthcare Partners, L.P. (5)(6)
    
    
    182,305
    
    
    
    182,305
    
    
    
    *
    
    
    
    *WCAS Management Corporation (5)(6)
    
    
    0
    
    
    
    12,000
    
    
    
    *
    
    
    
    *WCAS IX (5)(6)
    
    
    20,986,392
    
    
    
    52,988,614
    
    
    
    74.57
    
    
    
    75.16R. Dirk Allison (7)
    
    
    0
    
    
    
    1,234,702
    
    
    
    *
    
    
    
    1.73Norman P. Becker (7)
    
    
    0
    
    
    
    212,000
    
    
    
    *
    
    
    
    *Norman Brownstein (7)
    
    
    58,320
    
    
    
    513,321
    
    
    
    *
    
    
    
    *Russell L. Carson (6)(7)
    
    
    95,844
    
    
    
    280,065
    
    
    
    *
    
    
    
    *David C. Colby (7)
    
    
    0
    
    
    
    45,000
    
    
    
    *
    
    
    
    *Colleen Conway-Welch (7)
    
    
    0
    
    
    
    55,000
    
    
    
    *
    
    
    
    *Carlos A. Ferrer (4)(7)
    
    
    0
    
    
    
    0
    
    
    
    *
    
    
    
    *Jamie E. Hopping (7)
    
    
    0
    
    
    
    1,256,638
    
    
    
    *
    
    
    
    1.75Scott D. Mackesy (6)(7)
    
    
    8,199
    
    
    
    21,755
    
    
    
    *
    
    
    
    *Kenneth J. Melkus (7)(8)
    
    
    150,799
    
    
    
    205,799
    
    
    
    *
    
    
    
    *Thomas A. Scully (7)
    
    
    0
    
    
    
    79,445
    
    
    
    *
    
    
    
    *David T. Vandewater (7)(9)
    
    
    0
    
    
    
    3,428,633
    
    
    
    *
    
    
    
    4.68Vernon S. Westrich (7) (10)
    
    
    24,781
    
    
    
    149,781
    
    
    
    *
    
    
    
    *All managers and named executives as
a group (13 persons) (6)
    
    
    337,943
    
    
    
    7,482,139
    
    
    
    1.20
    
    
    
    9.86
 
 *
    
    Indicates ownership of less than 1.0%. (1)
    
    The business address of BancAmerica Capital Investors I, L.P. is 100 North Tryon
Street, Suite 2500, Charlotte, NC 28255.(2)
    
    Banc of America Capital Management, L.P., a Delaware limited partnership (BA Capital
Management), is the general partner of Banc of America Capital Investors, I, L.P. (BAC)
which beneficially owns 1,457,726 redeemable preferred units and 3,679,948 common units.
BACM I GP, LLC, a Delaware limited liability company (BACM), is the general
 79




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##### Table of Contents



partner of BA
Capital Management. J. Travis Hain, an employee of a subsidiary of Bank of America
Corporation (Bank of America), is the managing member of BACM. As a result of these
relationships, each of BA Capital Management, BACM and Mr. Hain may be deemed to have
shared voting and dispositive power with regard to the units held by BAC. Mr. Hain
disclaims beneficial ownership of such units. If Mr. Hains employment with Bank of America
or any of its subsidiaries is terminated, Mr. Hain will cease to be the managing member of
BACM. Bank of America has the right to approve any replacement managing member of BACM.
Bank of America does not have any rights with respect to voting or disposition of the
preferred and common units owned by BAC.
 (3)
    
    The business address of FFC Executive Partners II, L.P. and FFC Partners II, L.P. is
The Mill, 10 Glenville Street, Greenwich, CT 06831.
 (4)
    
    Carlos A. Ferrer serves on our Board of Managers. Mr. Ferrers beneficial ownership
includes 5,441,564 common units held by FFC Partners II, L.P. (FFC II), 78,347 common
units held by FFC Executive Partners II, L.P. (FFC EP II), 2,155,549 redeemable preferred
units held by FFC II and 31,039 redeemable preferred units held by FFC EP II. Mr. Ferrer is
a member of FFC GP II, LLC and FFC Executive GP II, LLC, the general partners of FFC II and
FFC EP II (which are collectively referred to as the FFC Funds). Mr. Ferrer has shared
voting and dispositive power over the units held by the FFC Funds. Mr. Ferrer disclaims
beneficial ownership of the units held by the FFC Funds except to the extent of his
pecuniary interest therein, if any.
 (5)
    
    The business address of WCAS Capital Partners III, L.P., WCAS HealthCare Partners,
L.P., WCAS Management Corporation and WCAS IX, L.P. is c/o WCAS, 320 Park Avenue, Suite
2500, New York, NY 10022-6815.
 (6)
    
    Through their association with WCAS, Messrs. Carson and Mackesy, who are members of our
Board of Managers, may be deemed to beneficially own redeemable preferred and common units
owned by WCAS Capital Partners III, L.P., WCAS HealthCare Partners, L.P., WCAS Management
Corporation and WCAS IX. Messrs. Carson and Mackesy disclaim beneficial ownership of any
such preferred and common units.
 (7)
    
    Includes options vested but unexercised as of July 31, 2005 (Mr. Allison, 1,056,924;
Mr. Becker, 200,000; Mr. Brownstein, 28,750; Mr. Carson, 0; Mr. Colby, 45,000; Ms.
Conway-Welch, 55,000; Mr. Ferrer, 0; Ms. Hopping, 1,124,730; Mr. Mackesy, 0; Mr. Melkus,
42,500; Mr. Scully, 35,000; Mr. Vandewater, 2,823,323; and Mr. Westrich, 125,000).
 (8)
    
    Includes shares owned by The Lauren Evelyn Melkus Trust, The Melkus Family Foundation,
and Mr. Melkus.
 (9)
    
    Includes shares owned by The Vandewater Foundation, The David & Phyllis Vandewater 2001
Childrens GST-Exempt
Trust, The Phyllis Baker Vandewater Marital Trust, The David T. Vandewater Annuity Trust
No. 5-2003 the David T. Vandewater Annuity Trust No. 4, and Mr. Vandewater.
 (10)
    
    Mr. Westrich served as the President of our Behavioral Division from January 1999
through December 2004. Effective January 1, 2005, Mr. Westrich is providing consulting
services to us as an independent contractor.
 EQUITY COMPENSATION PLAN INFORMATION
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Equity Compensation Plan InformationNumber of SecuritiesNumber of
    
    
    
    
    
    
    Remaining Available forSecurities to be
    
    
    Weighted-Average
    
    
    Future Issuance UnderIssued upon
    
    
    Exercise Price of
    
    
    Equity CompensationExercise of
    
    
    Outstanding Options
    
    
    Plans (excludingOutstanding Options
    
    
    Warrants and
    
    
    securities reflected inWarrants and Rights
    
    
    Rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by security holders
    
    
    7,667,127
    
    
    $
    4.17
    
    
    
    2,087,905
    (1)Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    7,667,127
    
    
    $
    4.17
    
    
    
    2,087,905
 
 (1)
    
    Additional common units would become available under our Option Plan if we issue new common
units (other than common units issued under the Option Plan and common units issued pursuant
to the Subscription Agreement, dated as of September 25, 2001, which we describe in Item 13
below). The number of additional common units available under the Option Plan would be equal
to 13.6% of the number of new common units we issue, calculated on a fully diluted basis. 
 Item 13. Certain Relationships and Related Transactions
 Subscription Agreement
   10.2% Subordinated Notes due 2014
     81




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##### Table of Contents



8% Cumulative Redeemable Preferred Units
  Distribution Rights.
  Conversion Rights.
 Liquidation Rights.
 Redemption.
  
    
    the closing of the merger or consolidation of us with or into another entity with the
effect that the holders of a majority of the common units or other common equity interests
do not continue to represent more than 50.0% of the voting power of all outstanding equity
securities in the surviving entity, in substantially the same proportions, immediately
after such consolidation or merger;
    
    the closing of a sale or other disposition of all or substantially all of our assets and properties; or
    
    a registered initial public offering of equity securities by us with gross proceeds of at least $50.0 million.
 Voting Rights.
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##### Table of Contents



Professional Services Arrangement
  Other Related Transactions
     
 Item 14. Principal Accounting Fees and Services.
  Years Ended December 31,2004
    
    
    2003Audit Fees (a)
    
    $
    3,782,985
    
    
    $
    2,372,450Audit-Related Fees (b)
    
    
    647,502
    
    
    
    74,800Tax Fees (c)
    
    
    48,790
    
    
    
    272,025All Other Fees (d)
    
    
    40,177
    
    
    
    
 
 (a)
    
    Audit fees represent fees billed for professional services rendered for the audit of our
annual consolidated financial statements and review of our quarterly consolidated financial
statements, and audit services provided in connection with other statutory or regulatory
filings, including services related to our 10.0% senior subordinated notes issued in August
2003 and fees associated with the reaudit of our 2001 consolidated financial statements and
the restatement audit.(b)
    
    Audit-related fees represent fees billed for assurance services related to due diligence and
acquisition related services.(c)
    
    Tax fees represent fees billed for services principally consisting of tax advisory and
compliance services.(d)
    
    All other fees represent a compliance audit of our health plan. 83




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    Documents filed as part of this report:1.
    
    Financial Statements: See Item 8 of this report.2.
    
    Financial Statement Schedules: Not Applicable3.
    
    List of Exhibits: The following exhibits are filed with this report:
 ExhibitNo.
    
    
    
    Description3.1
    
    
    
    Certificate of Formation of Ardent Health
Services LLC, as filed with the Delaware
Secretary of State on June 1, 2001
(Incorporated by reference to Exhibit 3.1
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)3.2
    
    
    
    Limited Liability Company Agreement of
Ardent Health Services LLC, including
Amendment No. 1 thereto (Incorporated by
reference to Exhibit 3.2 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)3.3
    
    
    
    Amendment No. 2 to Limited Liability
Company Agreement of Ardent Health
Services LLC (Incorporated by reference
to Exhibit 3.3 to the Registrants Annual
Report on Form 10-K for the year ended
December 31, 2003, File No. 333-110117)4.1
    
    
    
    Indenture, dated as of August 19, 2003,
among Ardent Health Services, Inc.,
Ardent Health Services, LLC, the
Subsidiary Guarantors and U.S. Bank Trust
National Association, as trustee
(Incorporated by reference to Exhibit 4.1
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)4.2
    
    
    
    First Supplemental Indenture, dated as of
August 12, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.3
    
    
    
    Second Supplemental Indenture, dated as
of August 12, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.4
    
    
    
    Third Supplemental Indenture, dated as of
December 31, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.5
    
    
    
    Fourth Supplemental Indenture, dated as
of December 31, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank National
Association, as Trustee (Incorporated by
reference to Exhibit 10.4 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.6
    
    
    
    Form of Ardent Health Services, Inc. 10%
Senior Subordinated Note due 2013
(Incorporated by reference to Exhibit 4.2
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)
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##### Table of Contents



ExhibitNo.
    
    
    
    Description4.7
    
    
    
    Form of Notation of Guarantee, dated as
of August 19, 2003, executed by each of
the Guarantors (Incorporated by reference
to Exhibit 4.3 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)4.8
    
    
    
    Second Amended and Restated Intercompany
Promissory Note dated July 12, 2004
issued by Lovelace Sandia Health System,
Inc. in favor of Ardent Medical Services,
Inc. (Incorporated by reference to
Exhibit 10.3 to the Registrants
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, File No.
333-110117)4.9
    
    
    
    Amended and Restated Security Agreement,
dated as of October 1, 2003, between
Lovelace Health Systems, Inc. and Ardent
Health Services, Inc. (Incorporated by
reference to Exhibit 4.5 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)4.10
    
    
    
    Intercreditor and Subordination
Agreement, dated as of August 19, 2003,
among Bank one, NA, as Collateral Agent,
Bank One, NA, as Administrative Agent,
U.S. Bank Trust National Association, as
Trustee, and Ardent Health Services, Inc.
(Incorporated by reference to Exhibit 4.6
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)4.11
    
    
    
    Collateral Assignment of Note and
Security Agreement dated October 1, 2003
issued by Ardent Health Services, Inc. to
Bank One, NA, as Collateral Agent
(Incorporated by reference to Exhibit 4.7
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)10.1
    
    
    
    Credit Agreement, dated as of August 19,
2003, among Ardent Health Services, Inc.,
as Borrower, Ardent Health Services LLC
and certain of its subsidiaries as the
Guarantors, Bank One, NA, as
Administrative Agent, Swing Line Lender
and L/C Issuer, Bank of America, N.A. and
UBS Securities LLC, as Co-Syndication
Agents, General Electric Capital
Corporation and Merrill Lynch Capital, as
Co-Documentation Agents, and the other
Lenders party thereto (Incorporated by
reference to Exhibit 10.1 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.2
    
    
    
    First Amendment to Credit Agreement dated
as of December 31, 2003 among Ardent
Health Services, Inc., as Borrower,
Ardent Health Services LLC and certain of
its subsidiaries as Guarantors, Bank One,
NA, as Administrative Agent, Swing Line
Lender and L/C Issuer and the Lenders
party thereto (Incorporated by reference
to Exhibit 10.1 to the Registrants
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, File No. 333-110117)10.3
    
    
    
    Second Amendment to Credit Agreement
dated as of July 12, 2004 among Ardent
Health Services, Inc. as Borrower, Ardent
Health Services LLC and certain of its
subsidiaries as Guarantors, Bank One, NA,
as Administrative Agent, Swing Line
Lender and L/C Issuer and the other
Lenders party thereto (Incorporated by
reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004,
File No. 333-110117)10.4
    
    
    
    Third Amendment to Credit Agreement dated
as of August 12, 2004 among Ardent Health
Services, Inc., as Borrower, Ardent
Health Services LLC and certain of its
subsidiaries as Guarantors, Citicorp
North America, Inc., as Administrative
Agent, Swing Line Lender and L/C Issuer
and the other Lenders party thereto
(Incorporated by reference to Exhibit
10.1 to the Registrants Current Report
on Form 8-K dated August 12, 2004, File
No. 333-110117)10.5
    
    
    
    Fourth Amendment to Credit Agreement
dated as of November 12, 2004 among
Ardent Health Services, Inc., as
Borrower, Ardent Health Services LLC and
certain of its subsidiaries, as
Guarantors, the Lenders party thereto and
Citicorp North America, Inc., as
Administrative Agent (Incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K
dated November 12, 2004, File No.
333-110117)10.6
    
    
    
    Fifth Amendment to Credit Agreement dated
as of December 23, 2004 among Ardent
Health Services, Inc., as Borrower,
Ardent Health Services LLC and certain of
its subsidiaries, as Guarantors, the
Lenders party thereto and Citicorp North
America, Inc., as Administrative Agent
(Incorporated by reference to Exhibit
10.1 to the Registrants Current Report
on Form 8-K dated December 22, 2004, File
No. 333-110117)10.7
    
    
    
    Amendment and Assignment dated as of
August 12, 2004 among Bank One, NA, as
resigning administrative agent, Citicorp
North America, Inc., as successor to Bank
One, NA, and the other Loan Parties
thereto (Incorporated by reference to
Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed August 20, 2004,
File No. 333-110117)
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##### Table of Contents



ExhibitNo.
    
    
    
    Description10.8
    
    
    
    Form of 10.2% Senior Subordinated Notes
due August 15, 2014 (Incorporated by
reference to Exhibit 10.2 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.9
    
    
    
    Fourth Amended and Restated Ardent Health
Services LLC and its Subsidiaries Option
and Restricted Unit Purchase Plan
(Incorporated by reference to Exhibit
10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March
31, 2004, File No. 333-110117)10.10
    
    
    
    Form of Non-Qualified Common Membership
Interest Option Agreement for Directors
and Officers (Incorporated by reference
to Exhibit 10.4 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)*10.11
    
    
    
    Subscription Agreement, dated as of
December 11, 2002, as amended on February
7, 2003, among Ardent Health Services,
LLC, Welsh, Carson, Anderson & Stowe IX,
L.P., FFC Partners II, L.P. and related
entities, BancAmerica Capital Investors
I, L.P. and the several other purchasers
listed on Annex I thereto (Incorporated
by reference to Exhibit 10.6 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.12
    
    
    
    Professional Services Arrangement, dated
as of December 11, 2002, between Ardent
Health Services LLC and WCAS Management
Corporation (Incorporated by reference to
Exhibit 10.7 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)10.13
    
    
    
    Employment Agreement, dated as of July 1,
2004, between AHS Management Company,
Inc. and David T. Vandewater
(Incorporated by reference to Exhibit
10.4 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended June
30, 2004, File No. 333-110117)*10.14
    
    
    
    Indemnification Agreement, dated as of
August 4, 2001, between Ardent Health
Services LLC and David T. Vandewater
(Incorporated by reference to Exhibit
10.16 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.15
    
    
    
    Employment Agreement, dated as of May 5,
2003, between AHS Management Company,
Inc. and Norm Becker (Incorporated by
reference to Exhibit 10.10 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)*10.16
    
    
    
    Employment Agreement, dated as of June 1,
2001, between AHS Management Company,
Inc. and Jamie E. Hopping (Incorporated
by reference to Exhibit 10.11 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)*10.17
    
    
    
    Indemnification Agreement, dated as of
July 1, 2002, between Ardent Health
Services LLC and Jamie E. Hopping
(Incorporated by reference to Exhibit
10.14 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.18
    
    
    
    Indemnification Agreement, dated as of
January 31, 2002, between Ardent Health
Services LLC and Stephen C. Petrovich
(Incorporated by reference to Exhibit
10.15 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.19
    
    
    
    Amended and Restated Employment and
Consulting Agreement, dated as of June 7,
2004, between AHS Management Company,
Inc. and Vernon S. Westrich (Incorporated
by reference to Exhibit 10.5 to the
Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004,
File No. 333-110117)*10.20
    
    
    
    Indemnification Agreement, dated as of
January 31, 2002, between Ardent Health
Services LLC and Vernon S. Westrich
(Incorporated by reference to Exhibit
10.17 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.21
    
    
    
    Employment Agreement, dated as of
December 1, 2003, between AHS Management
Company, Inc. and R. Dirk Allison
(Incorporated by reference to Exhibit
10.18 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.22
    
    
    
    Indemnification Agreement, dated as of
December 1, 2003, between Ardent Health
Services LLC and R. Dirk Allison
(Incorporated by reference to Exhibit
10.19 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.23
    
    
    
    Employment Agreement, dated as of July 1,
2004, between AHS Management Company,
Inc. and Kevin Gross*10.24
    
    
    
    Indemnification Agreement, dated as of
July 1, 2004, between Ardent Health
Services LLC and Kevin Gross*
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ExhibitNo.
    
    
    
    Description10.25
    
    
    
    Medicaid Managed Care Services Agreement
No. PSC 02-05, effective July 1, 2001,
between the New Mexico Human Services
Department and Lovelace Community Health
Plan (Incorporated by reference to
Exhibit 10.20 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)10.26
    
    
    
    Amendment No. 1 to Medicaid Managed Care
Services Agreement No. PSC 02-05,
effective July 1, 2003, between the New
Mexico Human Services Department and
Lovelace Community Health Plan
(Incorporated by reference to Exhibit
10.21 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)10.27
    
    
    
    Contract P00149, effective January 1,
2002, between Centers for Medicare &
Medicaid Services and Lovelace Health
Plan, Inc. (Incorporated by reference to
Exhibit 10.22 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)21
    
    
    
    Subsidiaries of Ardent Health Services LLC31.1
    
    
    
    Certification of CEO pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    
    Certification of CFO pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    
    
    Certification of CEO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    
    
    Certification of CFO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 2002
 
 *
    
    Indicates management contract or compensatory plan or arrangement.(b)
    
    Exhibits:See Item 15(a)(3) of this report.(c)
    
    Financial Statement Schedules:See Item 15(a)(2) of this report. 87




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ARDENT HEALTH SERVICES LLC
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Statements of Operations, Years Ended December 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Balance Sheets at December 31, 2004 and 2003
    
    
    F-5Consolidated Statements of Members Equity, Years Ended December 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Cash Flows, Years Ended December 31, 2004, 2003 and 2002
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 F-3




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ARDENT HEALTH SERVICES LLC
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2004, 2003 and 2002  (Dollars in thousands)
 2004
    
    2003
    
    2002(Restated)
    
    (Restated)Revenues:Net patient service revenue
    
    $
    852,687
    
    
    $
    565,086
    
    
    $
    309,027Premium revenue
    
    
    677,912
    
    
    
    592,293
    
    
    
    13,232Other revenue
    
    
    76,397
    
    
    
    76,190
    
    
    
    20,374Total net revenues
    
    
    1,606,996
    
    
    
    1,233,569
    
    
    
    342,633Expenses:Salaries and benefits
    
    
    650,911
    
    
    
    491,580
    
    
    
    194,654Professional fees
    
    
    163,224
    
    
    
    121,858
    
    
    
    37,857Claims and capitation
    
    
    319,572
    
    
    
    271,660
    
    
    
    10,956Supplies
    
    
    188,956
    
    
    
    134,327
    
    
    
    28,128Provision for doubtful accounts
    
    
    97,436
    
    
    
    52,727
    
    
    
    19,205Other
    
    
    146,594
    
    
    
    110,935
    
    
    
    39,440Interest, net
    
    
    33,516
    
    
    
    19,847
    
    
    
    1,678Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (558
    )
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    33,447
    
    
    
    7,365Investigation-related expenses
    
    
    3,997
    
    
    
    
    
    
    
    Impairment of long-lived assets and restructuring costs
    
    
    24,928
    
    
    
    2,913
    
    
    
    78Losses (gains) on divestitures
    
    
    
    
    
    
    61
    
    
    
    (1,206
    )Total expenses
    
    
    1,684,951
    
    
    
    1,238,797
    
    
    
    338,155Income (loss) from continuing operations before income taxes
    
    
    (77,955
    )
    
    
    (5,228
    )
    
    
    4,478Income tax expense (benefit)
    
    
    31,197
    
    
    
    (1,068
    )
    
    
    1,721Income (loss) from continuing operations, net
    
    
    (109,152
    )
    
    
    (4,160
    )
    
    
    2,757Discontinued operations:Income (loss) from discontinued operations
    
    
    (8,404
    )
    
    
    (628
    )
    
    
    1,263Gains on divestitures of discontinued operations
    
    
    3,942
    
    
    
    1,032
    
    
    
    2,349Restructuring costs
    
    
    
    
    
    
    
    
    
    
    (950
    )Income (loss) from discontinued operations before income taxes
    
    
    (4,462
    )
    
    
    404
    
    
    
    2,662Income tax expense (benefit)
    
    
    (1,552
    )
    
    
    305
    
    
    
    943Income (loss) from discontinued operations, net
    
    
    (2,910
    )
    
    
    99
    
    
    
    1,719Net income (loss)
    
    
    (112,062
    )
    
    
    (4,061
    )
    
    
    4,476Accrued preferred dividends
    
    
    8,996
    
    
    
    8,098
    
    
    
    5,993Net loss attributable to common members
    
    $
    (121,058
    )
    
    $
    (12,159
    )
    
    $
    (1,517
    )
  F-4




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##### Table of Contents



ARDENT HEALTH SERVICES LLC
 
 CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003  (Dollars in thousands, except per unit amounts)
 2004
    
    2003(Restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    98,361
    
    
    $
    86,295Accounts receivable, less allowance for doubtful accounts
of $107,499 in 2004 and $42,438 in 2003
    
    
    160,734
    
    
    
    109,539Premiums receivable
    
    
    12,213
    
    
    
    14,733Inventories
    
    
    29,571
    
    
    
    14,612Deferred income taxes
    
    
    2,439
    
    
    
    23,040Prepaid expenses
    
    
    39,068
    
    
    
    29,404Other current assets
    
    
    14,986
    
    
    
    11,748Assets held for sale
    
    
    21,003
    
    
    
    25,254Income taxes receivable
    
    
    12,109
    
    
    
    6,012Total current assets
    
    
    390,484
    
    
    
    320,637Property and equipment, net
    
    
    557,758
    
    
    
    346,065Goodwill
    
    
    183,126
    
    
    
    75,379Other intangible assets, net
    
    
    48,942
    
    
    
    48,289Deferred income taxes
    
    
    2,035
    
    
    
    10,457Other assets
    
    
    25,790
    
    
    
    20,645Total assets
    
    $
    1,208,135
    
    
    $
    821,472LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    526,023
    
    
    $
    227,082Accounts payable
    
    
    101,542
    
    
    
    48,520Medical claims payable
    
    
    67,831
    
    
    
    46,500Accrued salaries and benefits
    
    
    69,697
    
    
    
    44,964Accrued interest
    
    
    10,160
    
    
    
    10,133Unearned premiums
    
    
    19,067
    
    
    
    15,399Liabilities held for sale
    
    
    5,493
    
    
    
    6,366Other accrued expenses and liabilities
    
    
    44,445
    
    
    
    35,732Total current liabilities
    
    
    844,258
    
    
    
    434,696Long-term debt, less current installments
    
    
    32,957
    
    
    
    34,361Self-insured liabilities
    
    
    51,289
    
    
    
    21,920Other long-term liabilities
    
    
    9,894
    
    
    
    6,573Total liabilities
    
    
    938,398
    
    
    
    497,550Redeemable preferred units and accrued dividends (mandatorily
redeemable preferred units in 2003), $3.43 per unit price,
$3.43 per unit redemption value; authorized, issued, and
outstanding: 28,141,807 units in 2004 and 2003
    
    
    120,927
    
    
    
    111,931Members equity:Authorized:
79,732,938 units in 2004 and 69,961,407
units in 2003; issued and outstanding: 69,977,906 units
in 2004 and 56,998,444 units in 2003
    
    
    282,208
    
    
    
    224,331Accumulated deficit
    
    
    (133,398
    )
    
    
    (12,340
    )Total members equity
    
    
    148,810
    
    
    
    211,991Total liabilities and members equity
    
    $
    1,208,135
    
    
    $
    821,472
  F-5




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##### Table of Contents



ARDENT HEALTH SERVICES LLC
 
 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
Years Ended December 31, 2004, 2003 and 2002  (Dollars in thousands, except per unit amounts)
 RetainedEarnings
    
    TotalCommon Units
    
    (Accumulated
    
    MembersUnits
    
    Amount
    
    Deficit)
    
    EquityBalance at January 1, 2002 (Restated)
    
    
    13,874,469
    
    
    $
    48,409
    
    
    $
    1,336
    
    
    $
    49,745Issuance of common units at $3.43 per
unit, net of issuance costs of $756
    
    
    14,874,134
    
    
    
    50,262
    
    
    
    
    
    
    
    50,262Issuance of common units at $4.50 per
unit, net of issuance costs of $1,190
    
    
    24,444,445
    
    
    
    108,810
    
    
    
    
    
    
    
    108,810Exercise of options
    
    
    93,713
    
    
    
    321
    
    
    
    
    
    
    
    321Redemption of common units
    
    
    (3,714
    )
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Net income (Restated)
    
    
    
    
    
    
    
    
    
    
    4,476
    
    
    
    4,476Accrual of dividends on preferred units
    
    
    
    
    
    
    
    
    
    
    (5,993
    )
    
    
    (5,993
    )Balance at December 31, 2002 (Restated)
    
    
    53,283,047
    
    
    
    207,788
    
    
    
    (181
    )
    
    
    207,607Issuance of common units at $4.50 per
unit, net of issuance costs of $173
    
    
    3,649,416
    
    
    
    16,254
    
    
    
    
    
    
    
    16,254Exercise of options
    
    
    96,139
    
    
    
    425
    
    
    
    
    
    
    
    425Redemption of common units
    
    
    (30,158
    )
    
    
    (136
    )
    
    
    
    
    
    
    (136
    )Net loss (Restated)
    
    
    
    
    
    
    
    
    
    
    (4,061
    )
    
    
    (4,061
    )Accrual of dividends on preferred units
    
    
    
    
    
    
    
    
    
    
    (8,098
    )
    
    
    (8,098
    )Balance at December 31, 2003 (Restated)
    
    
    56,998,444
    
    
    
    224,331
    
    
    
    (12,340
    )
    
    
    211,991Issuance of common units at $4.50 per
unit, net of issuance costs of $629
    
    
    12,962,962
    
    
    
    57,704
    
    
    
    
    
    
    
    57,704Modification of option units
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Exercise of options
    
    
    42,500
    
    
    
    153
    
    
    
    
    
    
    
    153Redemption of common units
    
    
    (26,000
    )
    
    
    (117
    )
    
    
    
    
    
    
    (117
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (112,062
    )
    
    
    (112,062
    )Accrual of dividends on preferred units
    
    
    
    
    
    
    
    
    
    
    (8,996
    )
    
    
    (8,996
    )Balance at December 31, 2004
    
    
    69,977,906
    
    
    $
    282,208
    
    
    $
    (133,398
    )
    
    $
    148,810
  F-6




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##### Table of Contents



ARDENT HEALTH SERVICES LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2004, 2003 and 2002  (Dollars in thousands)
 2004
    
    2003
    
    2002(Restated)
    
    (Restated)Cash flows from operating activities:Income (loss) from continuing operations, net
    
    $
    (109,152
    )
    
    $
    (4,160
    )
    
    $
    2,757Adjustments to reconcile income (loss) from continuing operations, net, to
net cash provided by operating activities, net of acquisitions and divestitures:Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (558
    )
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    33,447
    
    
    
    7,365Impairment of long-lived assets and restructuring costs
    
    
    24,928
    
    
    
    2,913
    
    
    
    78Losses (gains) on divestitures
    
    
    
    
    
    
    61
    
    
    
    (1,206
    )Amortization of deferred financing costs
    
    
    2,151
    
    
    
    6,042
    
    
    
    344Amortization of discount on subordinated debt
    
    
    403
    
    
    
    635
    
    
    
    Deferred income taxes
    
    
    30,575
    
    
    
    (449
    )
    
    
    (900
    )Changes in operating assets and liabilities:Accounts and premiums receivable, net
    
    
    11,294
    
    
    
    (11,966
    )
    
    
    (3,707
    )Prepaid expenses and other current assets
    
    
    (14,301
    )
    
    
    (10,362
    )
    
    
    (16,224
    )Income taxes receivable
    
    
    (6,097
    )
    
    
    (3,993
    )
    
    
    (4,042
    )Medical claims payable
    
    
    21,331
    
    
    
    2,437
    
    
    
    450Accounts payable and accrued expenses
    
    
    27,062
    
    
    
    16,609
    
    
    
    15,284Accrued interest
    
    
    27
    
    
    
    9,876
    
    
    
    186Unearned premiums
    
    
    3,668
    
    
    
    12,197
    
    
    
    (146
    )Self-insured liabilities
    
    
    29,369
    
    
    
    13,124
    
    
    
    1,908Net cash provided by operating activities
    
    
    77,075
    
    
    
    65,853
    
    
    
    2,147Net cash
provided by
(used in) discontinued operations
    
    
    (1,866
    )
    
    
    (10,154
    )
    
    
    1,071Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    (358,062
    )
    
    
    (204,826
    )
    
    
    (129,128
    )Purchases of property and equipment
    
    
    (59,837
    )
    
    
    (84,544
    )
    
    
    (40,389
    )Proceeds from divestitures
    
    
    6,018
    
    
    
    12,716
    
    
    
    9,390Other
    
    
    2,723
    
    
    
    7,953
    
    
    
    1,384Net cash used in investing activities
    
    
    (409,158
    )
    
    
    (268,701
    )
    
    
    (158,743
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    
    
    
    
    (38,703
    )
    
    
    35,577Proceeds from long-term debt
    
    
    300,000
    
    
    
    373,500
    
    
    
    5,468Proceeds from insurance financing arrangements
    
    
    20,022
    
    
    
    17,617
    
    
    
    18,820Payments on long-term debt
    
    
    (2,881
    )
    
    
    (143,415
    )
    
    
    (667
    )Payments on principal of insurance financing arrangements
    
    
    (17,992
    )
    
    
    (16,038
    )
    
    
    (11,773
    )Debt financing costs paid
    
    
    (11,503
    )
    
    
    (17,436
    )
    
    
    (305
    )Proceeds from issuance of preferred units
    
    
    
    
    
    
    
    
    
    
    50,999Proceeds from issuance of common units
    
    
    58,486
    
    
    
    12,162
    
    
    
    161,320Redemption of preferred units
    
    
    
    
    
    
    (116
    )
    
    
    (14
    )Redemption of common units
    
    
    (117
    )
    
    
    (136
    )
    
    
    (14
    )Common unit issuance costs
    
    
    
    
    
    
    (1,992
    )
    
    
    Net cash provided by financing activities
    
    
    346,015
    
    
    
    185,443
    
    
    
    259,411Net increase (decrease) in cash and cash equivalents
    
    
    12,066
    
    
    
    (27,559
    )
    
    
    103,886Cash and cash equivalents, beginning of year
    
    
    86,295
    
    
    
    113,854
    
    
    
    9,968Cash and cash equivalents, end of year
    
    $
    98,361
    
    
    $
    86,295
    
    
    $
    113,854Supplemental cash flow information:Interest payments, net of capitalized interest
    
    $
    34,520
    
    
    $
    12,279
    
    
    $
    2,546Capitalized interest
    
    
    382
    
    
    
    1,780
    
    
    
    500Income tax payments, net of refunds
    
    
    6,719
    
    
    
    3,374
    
    
    
    6,663Non-cash common units issued
    
    
    
    
    
    
    4,690
    
    
    
    28Non-cash preferred units issued
    
    
    
    
    
    
    51
    
    
    
    28Preferred unit dividends accrued
    
    
    8,996
    
    
    
    8,098
    
    
    
    5,993
  F-7




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##### Table of Contents



ARDENT HEALTH SERVICES LLC
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of the Business and Summary of Significant Accounting Policies
 Organization and Basis of Presentation
    Restatement of Financial Statements
  Divestiture of Behavioral Hospitals
  Summary of Significant Accounting Policies
 Accounting Estimates
  F-8




---



##### Table of Contents



Reconciliation and Elimination of Intercompany Accounts and Transactions
   Allowance for Contractual Discounts (and related Net Patient Service Revenue)
      F-9




---



##### Table of Contents



Allowance for Doubtful Accounts (and related Provision for Doubtful Accounts)
   AccountsProvision
    
    Charged to
    
    Written Off,Beginning
    
    for Doubtful
    
    Other
    
    Net of
    
    EndingBalance
    
    Accounts (1)
    
    Accounts (2)
    
    Recoveries
    
    BalanceAllowance for doubtful accounts:Year ended December 31, 2002
    
    $
    13,723
    
    
    $
    23,677
    
    
    $
    12,146
    
    
    $
    (23,737
    )
    
    $
    25,809Year ended December 31, 2003 (Restated)
    
    
    25,809
    
    
    
    60,425
    
    
    
    4,106
    
    
    
    (47,902
    )
    
    
    42,438Year ended December 31, 2004
    
    
    42,438
    
    
    
    108,207
    
    
    
    40,322
    
    
    
    (83,468
    )
    
    
    107,499
 
 (1)
    
    The provision for doubtful accounts includes amounts related to discontinued operations of
$10.8 million, $7.7 million and $4.5 million for the years ended December 31, 2004, 2003 and
2002, respectively. The provision for doubtful accounts also includes an $8.0 million increase
in the provision for doubtful accounts of acquired Hillcrest affiliates in 2004 to conform
those facilities allowances for doubtful accounts to our accounting policy and estimation
process. Refer to Note 3 for discussion of the Hillcrest acquisition.(2)
    
    Allowances recorded as a result of acquisitions. Medical Claims Payable (and related Claims and Capitation Expense)
    F-10




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##### Table of Contents



Risk Management and Self-Insured Liabilities
     Goodwill and Other Intangible Assets
 Goodwill and Other Intangible
Assets
 F-11




---



##### Table of Contents



Accounting for Impairment or Disposal of Long-Lived Assets .
 Impairment or Disposal of Long-Lived Assets
 Accounting for Impairment or Disposal of
Long-Lived Assets Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
    Cash and Cash Equivalents
  Market Risks
  Concentrations of Credit Risk
  Inventories
  F-12




---



##### Table of Contents



Property and Equipment
   December 31,2004
    
    2003Land and improvements
    
    $
    58,484
    
    
    $
    29,382Buildings and improvements
    
    
    364,415
    
    
    
    178,159Equipment
    
    
    189,333
    
    
    
    145,119Leasehold improvements
    
    
    8,452
    
    
    
    7,598Construction in progress
    
    
    14,858
    
    
    
    20,231635,542
    
    
    
    380,489Less accumulated depreciation and amortization
    
    
    (77,784
    )
    
    
    (34,424
    )Property and equipment, net
    
    $
    557,758
    
    
    $
    346,065
  Other Assets
    Premium Revenue and Related Receivables
   F-13




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##### Table of Contents



Other Revenues
  Investigation  Related Expenses
  Stock-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Year Ended December 31,2004
    
    2003
    
    2002(Restated)
    
    (Restated)Net income (loss), as reported
    
    $
    (112,062
    )
    
    $
    (4,061
    )
    
    $
    4,476Unit-based employee compensation
expense determined under fair-value based
method, net of related tax effects
    
    
    3,718
    
    
    
    1,022
    
    
    
    543Pro forma net income (loss)
    
    $
    (115,780
    )
    
    $
    (5,083
    )
    
    $
    3,933
   Year Ended December 31,2004
    
    2003
    
    2002Risk-free investment interest rate
    
    
    4.13
    %
    
    
    4.01
    %
    
    
    4.13
    %Expected life in years
    
    
    7.2
    
    
    
    10.0
    
    
    
    10.0Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 F-14




---



##### Table of Contents



Income Taxes
  Interest Rate Swap Agreements
 Accounting for Derivative Instruments and Hedging Activities
 Fair Value of Financial Instruments
  Reclassifications
  Recently Issued Accounting Standards
 Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equities
 Consolidation
of Variable Interest Entities Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51
 Share-Based Payments
 F-15




---



##### Table of Contents



2. Restatement of Financial Statements
     F-16




---



##### Table of Contents



Five Months
    
    Seven Months
    
    Six MonthsYear Ended
    
    Ended
    
    Ended
    
    EndedDecember 31,
    
    December 31,
    
    July 31,
    
    June 30, 20042003
    
    2002
    
    2001
    
    2001
    
    (Unaudited)Net income as previously reported
    
    $
    4,291
    

    $
    5,053
    

    $
    2,716
    

    $
    17,869
    
    
    $
    5,165Restatement adjustments by category:Reconciliation of cash accounts
    
    
    (2,083
    )

    
    
    

    
    
    

    
    
    
    
    
    2,083Accounts receivable adjustments
    
    
    (1,545
    )

    
    
    

    
    
    

    
    
    
    
    
    (21,755
    )Reconciliation of intercompany accounts
    
    
    (6,474
    )

    
    
    

    
    
    

    
    
    
    
    
    (4,085
    )Other accruals and provisions
    
    
    (584
    )

    
    
    

    
    
    

    
    
    
    
    
    (1,600
    )Total adjustments of Albuquerque affiliates
    
    
    (10,686
    )

    
    
    

    
    
    

    
    
    
    
    
    (25,357
    )Severance costs
    
    
    (1,108
    )

    
    (935
    )

    
    (210
    )

    
    (66
    )
    
    
    260Income tax adjustments
    
    
    3,442
    

    
    358
    

    
    80
    

    
    26
    
    
    
    (26,268
    )Total adjustments
    
    
    (8,352
    )

    
    (577
    )

    
    (130
    )

    
    (40
    )
    
    
    (51,365
    )Restated net income (loss)
    
    $
    (4,061
    )

    $
    4,476
    

    $
    2,586
    

    $
    17,829
    
    
    $
    (46,200
    )
  Reconciliation of Cash Accounts
  Accounts Receivable Adjustments
  Reconciliation and Elimination of Intercompany Accounts and Transactions
  F-17




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##### Table of Contents



Six MonthsYear Ended
    
    
    EndedDecember 31,
    
    
    June 30, 20042003
    
    
    (Unaudited)Adjustments to revenues:Net patient service revenue
    
    $
    (2,036
    )
    
    $
    (6,885
    )Other revenue
    
    
    (2,211
    )
    
    
    (1,417
    )Decrease in net revenues
    
    
    (4,247
    )
    
    
    (8,302
    )Adjustments to expenses:Professional fees
    
    
    768
    
    
    
    (475
    )Claims and capitation
    
    
    (1,062
    )
    
    
    (3,742
    )Provision
for doubtful accounts
    
    
    2,521
    
    
    
    Increase (decrease) in expenses
    
    
    2,227
    
    
    
    (4,217
    )Net adjustment
    
    $
    (6,474
    )
    
    $
    (4,085
    )
 Other Accruals and Provisions
   Six MonthsYear Ended
    
    
    EndedDecember 31,
    
    
    June 30, 20042003
    
    
    (Unaudited)Adjustments to revenues:Premium revenue
    
    $
    
    
    
    $
    (462
    )Other revenue
    
    
    518
    
    
    
    (596
    )Increase (decrease) in net revenues
    
    
    518
    
    
    
    (1,058
    )Adjustments to expenses:Salaries and benefits
    
    
    45
    
    
    
    (459
    )Professional fees
    
    
    (250
    )
    
    
    476Claims and capitation
    
    
    1,312
    
    
    
    781Other
    
    
    (5
    )
    
    
    (401
    )Depreciation and amortization
    
    
    
    
    
    
    145Increase in expenses
    
    
    1,102
    
    
    
    542Net adjustment
    
    $
    (584
    )
    
    $
    (1,600
    )
 Severance Costs
  Income Tax Adjustments
  F-18




---



##### Table of Contents



Other Adjustments
   Reconciliation to Previously Filed Financial Information
  CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS  Year Ended December 31, 2003  (Dollars in thousands)
 As
    
    
    RestatementPreviously
    
    
    Related
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Reclassifications (1)
    
    
    RestatedRevenues:Net patient service revenue
    
    $
    640,920
    
    
    $
    (2,036
    )
    
    $
    (73,798
    )
    
    $
    565,086Premium revenue
    
    
    592,293
    
    
    
    
    
    
    
    
    
    
    
    592,293Other revenue
    
    
    86,461
    
    
    
    (1,693
    )
    
    
    (8,578
    )
    
    
    76,190Total net revenues
    
    
    1,319,674
    
    
    
    (3,729
    )
    
    
    (82,376
    )
    
    
    1,233,569Expenses:Salaries and benefits
    
    
    531,893
    
    
    
    1,153
    
    
    
    (41,466
    )
    
    
    491,580Professional fees
    
    
    127,295
    
    
    
    518
    
    
    
    (5,955
    )
    
    
    121,858Claims and capitation
    
    
    272,872
    
    
    
    (1,212
    )
    
    
    
    
    
    
    271,660Supplies
    
    
    149,063
    
    
    
    
    
    
    
    (14,736
    )
    
    
    134,327Provision for doubtful accounts
    
    
    52,749
    
    
    
    7,611
    
    
    
    (7,633
    )
    
    
    52,727Other
    
    
    119,472
    
    
    
    (5
    )
    
    
    (8,532
    )
    
    
    110,935Interest, net
    
    
    22,155
    
    
    
    
    
    
    
    (2,308
    )
    
    
    19,847Change in fair value of interest rate swap agreements
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    (558
    )Depreciation and amortization
    
    
    35,742
    
    
    
    
    
    
    
    (2,295
    )
    
    
    33,447Impairment of long-lived assets and restructuring costs
    
    
    2,913
    
    
    
    
    
    
    
    
    
    
    
    2,913Losses on divestitures
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Total expenses
    
    
    1,313,657
    
    
    
    8,065
    
    
    
    (82,925
    )
    
    
    1,238,797Income (loss) from continuing operations before income taxes
    
    
    6,017
    
    
    
    (11,794
    )
    
    
    549
    
    
    
    (5,228
    )Income tax expense (benefit)
    
    
    2,312
    
    
    
    (3,442
    )
    
    
    62
    
    
    
    (1,068
    )Income (loss) from continuing operations, net
    
    
    3,705
    
    
    
    (8,352
    )
    
    
    487
    
    
    
    (4,160
    )Income from discontinued operations, net
    
    
    586
    
    
    
    
    
    
    
    (487
    )
    
    
    99Net income (loss)
    
    
    4,291
    
    
    
    (8,352
    )
    
    
    
    
    
    
    (4,061
    )Accrued preferred dividends
    
    
    8,098
    
    
    
    
    
    
    
    
    
    
    
    8,098Net loss attributable to common members
    
    $
    (3,807
    )
    
    $
    (8,352
    )
    
    $
    
    
    
    $
    (12,159
    )
 
 (1)
    
    Certain prior year amounts have been reclassified to conform to the current year
presentation. Additionally, certain prior year amounts have been reclassified due to
accounting for discontinued operations in accordance with SFAS No. 144. Refer to Note 3 for
further discussion. F-19




---



##### Table of Contents



CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS  Year Ended December 31, 2002  (Dollars in thousands)
 As
    
    RestatementPreviously
    
    Related
    
    
    
    
    
    AsReported
    
    Adjustments
    
    Reclassifications (1)
    
    RestatedRevenues:Net patient service revenue
    
    $
    369,539
    
    
    $
    
    
    
    $
    (60,512
    )
    
    $
    309,027Premium revenue
    
    
    13,232
    
    
    
    
    
    
    
    
    
    
    
    13,232Other revenue
    
    
    25,213
    
    
    
    
    
    
    
    (4,839
    )
    
    
    20,374Total net revenues
    
    
    407,984
    
    
    
    
    
    
    
    (65,351
    )
    
    
    342,633Expenses:Salaries and benefits
    
    
    224,885
    
    
    
    935
    
    
    
    (31,166
    )
    
    
    194,654Professional fees
    
    
    40,334
    
    
    
    
    
    
    
    (2,477
    )
    
    
    37,857Claims and capitation
    
    
    10,956
    
    
    
    
    
    
    
    
    
    
    
    10,956Supplies
    
    
    43,683
    
    
    
    
    
    
    
    (15,555
    )
    
    
    28,128Provision for doubtful accounts
    
    
    23,677
    
    
    
    
    
    
    
    (4,472
    )
    
    
    19,205Other
    
    
    46,864
    
    
    
    
    
    
    
    (7,424
    )
    
    
    39,440Interest, net
    
    
    2,751
    
    
    
    
    
    
    
    (1,073
    )
    
    
    1,678Depreciation and amortization
    
    
    8,929
    
    
    
    
    
    
    
    (1,564
    )
    
    
    7,365Impairment of long-lived assets and restructuring costs
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Gains on divestitures
    
    
    (1,206
    )
    
    
    
    
    
    
    
    
    
    
    (1,206
    )Total expenses
    
    
    400,951
    
    
    
    935
    
    
    
    (63,731
    )
    
    
    338,155Income from continuing operations before income taxes
    
    
    7,033
    
    
    
    (935
    )
    
    
    (1,620
    )
    
    
    4,478Income tax expense
    
    
    2,690
    
    
    
    (358
    )
    
    
    (611
    )
    
    
    1,721Income from continuing operations, net
    
    
    4,343
    
    
    
    (577
    )
    
    
    (1,009
    )
    
    
    2,757Income from discontinued operations, net
    
    
    710
    
    
    
    
    
    
    
    1,009
    
    
    
    1,719Net income
    
    
    5,053
    
    
    
    (577
    )
    
    
    
    
    
    
    4,476Accrued preferred dividends
    
    
    5,993
    
    
    
    
    
    
    
    
    
    
    
    5,993Net loss attributable to common members
    
    $
    (940
    )
    
    $
    (577
    )
    
    $
    
    
    
    $
    (1,517
    )
 
 (1)
    
    Certain prior year amounts have been reclassified to conform to the current year
presentation. Additionally, certain prior year amounts have been reclassified due to
accounting for discontinued operations in accordance with SFAS No. 144. Refer to Note 3 for
further discussion. F-20




---



##### Table of Contents



CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS  Six Months Ended June 30, 2004  (Dollars in thousands)  (Unaudited)
 As
    
    RestatementPreviously
    
    Related
    
    
    
    
    
    AsReported
    
    Adjustments
    
    Reclassifications (1)
    
    RestatedRevenues:Net patient service revenue
    
    $
    369,987
    
    
    $
    (27,857
    )
    
    $
    (33,799
    )
    
    $
    308,331Premium revenue
    
    
    312,802
    
    
    
    (462
    )
    
    
    
    
    
    
    312,340Other revenue
    
    
    40,093
    
    
    
    (2,014
    )
    
    
    (822
    )
    
    
    37,257Total net revenues
    
    
    722,882
    
    
    
    (30,333
    )
    
    
    (34,621
    )
    
    
    657,928Expenses:Salaries and benefits
    
    
    288,321
    
    
    
    (719
    )
    
    
    (15,796
    )
    
    
    271,806Professional fees
    
    
    66,013
    
    
    
    
    
    
    
    (2,753
    )
    
    
    63,260Claims and capitation
    
    
    146,317
    
    
    
    (5,044
    )
    
    
    
    
    
    
    141,273Supplies
    
    
    83,812
    
    
    
    
    
    
    
    (8,099
    )
    
    
    75,713Provision for doubtful accounts
    
    
    33,333
    
    
    
    783
    
    
    
    (3,967
    )
    
    
    30,149Other
    
    
    62,185
    
    
    
    (401
    )
    
    
    (3,404
    )
    
    
    58,380Interest, net
    
    
    13,541
    
    
    
    
    
    
    
    (908
    )
    
    
    12,633Change in fair value of interest rate swap agreements
    
    
    1,389
    
    
    
    
    
    
    
    
    
    
    
    1,389Depreciation and amortization
    
    
    22,529
    
    
    
    145
    
    
    
    (1,593
    )
    
    
    21,081Total expenses
    
    
    717,440
    
    
    
    (5,236
    )
    
    
    (36,520
    )
    
    
    675,684Income (loss) from continuing operations before income taxes
    
    
    5,442
    
    
    
    (25,097
    )
    
    
    1,899
    
    
    
    (17,756
    )Income tax expense
    
    
    2,123
    
    
    
    26,056
    
    
    
    1,065
    
    
    
    29,244Income (loss) from continuing operations, net
    
    
    3,319
    
    
    
    (51,153
    )
    
    
    834
    
    
    
    (47,000
    )Income from discontinued operations, net
    
    
    1,846
    
    
    
    (212
    )
    
    
    (834
    )
    
    
    800Net income
(loss)
    
    
    5,165
    
    
    
    (51,365
    )
    
    
    
    
    
    
    (46,200
    )Accrued preferred dividends
    
    
    4,377
    
    
    
    
    
    
    
    
    
    
    
    4,377Net income (loss) attributable to common members
    
    $
    788
    
    
    $
    (51,365
    )
    
    $
    
    
    
    $
    (50,577
    )
 
 (1)
    
    Relates to the reclassification of results of continuing operations to results of
discontinued operations in accordance with SFAS No. 144. Refer to Note 3. F-21




---



##### Table of Contents



CONDENSED
CONSOLIDATED BALANCE SHEET  December 31,
2003  (Dollars in thousands)
 As
    
    RestatementPreviously
    
    Related
    
    
    
    
    
    AsReported
    
    Adjustments
    
    Reclassifications (1)
    
    RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    89,762
    
    
    $
    (3,458
    )
    
    $
    (9
    )
    
    $
    86,295Accounts receivable, net
    
    
    116,515
    
    
    
    (6,976
    )
    
    
    
    
    
    
    109,539Premiums receivable
    
    
    14,733
    
    
    
    
    
    
    
    
    
    
    
    14,733Inventories
    
    
    16,783
    
    
    
    
    
    
    
    (2,171
    )
    
    
    14,612Deferred income taxes
    
    
    27,792
    
    
    
    (4,752
    )
    
    
    
    
    
    
    23,040Prepaid expenses and other current assets
    
    
    31,556
    
    
    
    10,145
    
    
    
    (549
    )
    
    
    41,152Assets held for sale
    
    
    
    
    
    
    
    
    
    
    25,254
    
    
    
    25,254Income taxes receivable
    
    
    2,128
    
    
    
    3,884
    
    
    
    
    
    
    
    6,012Total current assets
    
    
    299,269
    
    
    
    (1,157
    )
    
    
    22,525
    
    
    
    320,637Property and equipment, net
    
    
    368,574
    
    
    
    
    
    
    
    (22,509
    )
    
    
    346,065Goodwill
    
    
    75,529
    
    
    
    
    
    
    
    (150
    )
    
    
    75,379Other intangible assets, net
    
    
    48,289
    
    
    
    
    
    
    
    
    
    
    
    48,289Deferred income taxes
    
    
    5,682
    
    
    
    4,775
    
    
    
    
    
    
    
    10,457Other assets
    
    
    20,661
    
    
    
    
    
    
    
    (16
    )
    
    
    20,645Total assets
    
    $
    818,004
    
    
    $
    3,618
    
    
    $
    (150
    )
    
    $
    821,472LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    2,082
    
    
    $
    225,000
    
    
    $
    
    
    
    $
    227,082Accounts payable
    
    
    53,408
    
    
    
    (888
    )
    
    
    (4,000
    )
    
    
    48,520Medical claims payable
    
    
    45,751
    
    
    
    749
    
    
    
    
    
    
    
    46,500Accrued salaries and benefits
    
    
    44,783
    
    
    
    2,319
    
    
    
    (2,138
    )
    
    
    44,964Accrued interest
    
    
    10,133
    
    
    
    
    
    
    
    
    
    
    
    10,133Unearned premiums
    
    
    15,399
    
    
    
    
    
    
    
    
    
    
    
    15,399Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    6,366
    
    
    
    6,366Other accrued expenses and liabilities
    
    
    25,573
    
    
    
    10,537
    
    
    
    (378
    )
    
    
    35,732Total current liabilities
    
    
    197,129
    
    
    
    237,717
    
    
    
    (150
    )
    
    
    434,696Long-term debt, less current installments
    
    
    259,361
    
    
    
    (225,000
    )
    
    
    
    
    
    
    34,361Self-insured liabilities
    
    
    21,920
    
    
    
    
    
    
    
    
    
    
    
    21,920Other long-term liabilities
    
    
    6,573
    
    
    
    
    
    
    
    
    
    
    
    6,573Total liabilities
    
    
    484,983
    
    
    
    12,717
    
    
    
    (150
    )
    
    
    497,550Redeemable preferred units and accrued
dividends
    
    
    111,931
    
    
    
    
    
    
    
    
    
    
    
    111,931Members equity:Members equity
    
    
    224,331
    
    
    
    
    
    
    
    
    
    
    
    224,331Accumulated deficit
    
    
    (3,241
    )
    
    
    (9,099
    )
    
    
    
    
    
    
    (12,340
    )Total members equity
    
    
    221,090
    
    
    
    (9,099
    )
    
    
    
    
    
    
    211,991Total liabilities and members equity
    
    $
    818,004
    
    
    $
    3,618
    
    
    $
    (150
    )
    
    $
    821,472
 
 (1)
    
    Certain prior year amounts have been reclassified to conform to the current year
presentation. Additionally, certain prior year amounts have been reclassified due to
accounting for discontinued operations in accordance with SFAS No. 144. Refer to Note 3 for
further discussion. F-22




---



##### Table of Contents



CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS EQUITY  Years Ended December 31, 2004, 2003 and
2002  (Dollars in thousands)
 Total
Members EquityRestatementAs Previously
    
    RelatedReported
    
    Adjustments
    
    As RestatedBalance at January 1, 2002
    
    $
    49,915
    
    
    $
    (170
    )
    
    $
    49,745Issuance of common units at $3.43 per
unit, net of issuance costs of $756
    
    
    50,262
    
    
    
    
    
    
    
    50,262Issuance of common units at $4.50 per
unit, net of issuance costs of $1,190
    
    
    108,810
    
    
    
    
    
    
    
    108,810Exercise of options
    
    
    321
    
    
    
    
    
    
    
    321Redemption of common units
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Net income
    
    
    5,053
    
    
    
    (577
    )
    
    
    4,476Accrual of dividends on preferred
units
    
    
    (5,993
    )
    
    
    
    
    
    
    (5,993
    )Balance at December 31, 2002
    
    
    208,354
    
    
    
    (747
    )
    
    
    207,607Issuance of common units at $4.50 per
unit, net of issuance costs of $173
    
    
    16,254
    
    
    
    
    
    
    
    16,254Exercise of options
    
    
    425
    
    
    
    
    
    
    
    425Redemption of common units
    
    
    (136
    )
    
    
    
    
    
    
    (136
    )Net income (loss)
    
    
    4,291
    
    
    
    (8,352
    )
    
    
    (4,061
    )Accrual of dividends on preferred
units
    
    
    (8,098
    )
    
    
    
    
    
    
    (8,098
    )Balance at December 31, 2003
    
    $
    221,090
    
    
    $
    (9,099
    )
    
    $
    211,991
 F-23




---



##### Table of Contents



CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS  Year Ended December
31, 2003  (Dollars in thousands)
 RestatementAs Previously
    
    RelatedReported
    
    Adjustments
    
    Reclassifications (1)
    
    As RestatedCash flows from operating activities:Income (loss) from continuing operations, net
    
    $
    3,705
    
    
    $
    (8,352
    )
    
    $
    487
    
    
    $
    (4,160
    )Adjustments to reconcile income (loss) from continuing operations, net, to
net cash provided by operating activities, net of acquisitions and divestitures:Change in fair value of interest rate swap agreements
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    (558
    )Depreciation and amortization
    
    
    35,742
    
    
    
    
    
    
    
    (2,295
    )
    
    
    33,447Impairment of long-lived assets and restructuring costs
    
    
    2,913
    
    
    
    
    
    
    
    
    
    
    
    2,913Loss (gain) on divestitures
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Amortization of deferred financing costs
    
    
    6,042
    
    
    
    
    
    
    
    
    
    
    
    6,042Amortization of discount on subordinated debt
    
    
    635
    
    
    
    
    
    
    
    
    
    
    
    635Deferred income taxes
    
    
    (631
    )
    
    
    442
    
    
    
    (260
    )
    
    
    (449
    )Changes in operating assets and liabilities:Accounts and premiums receivable, net
    
    
    (25,267
    )
    
    
    6,976
    
    
    
    6,325
    
    
    
    (11,966
    )Prepaid expenses and other current assets
    
    
    (6,749
    )
    
    
    (1,951
    )
    
    
    (1,662
    )
    
    
    (10,362
    )Income tax receivable
    
    
    (355
    )
    
    
    (3,884
    )
    
    
    246
    
    
    
    (3,993
    )Medical claims payable
    
    
    1,688
    
    
    
    749
    
    
    
    
    
    
    
    2,437Accounts payable and accrued expenses
    
    
    13,872
    
    
    
    983
    
    
    
    1,754
    
    
    
    16,609Accrued interest
    
    
    9,876
    
    
    
    
    
    
    
    
    
    
    
    9,876Unearned premiums
    
    
    12,197
    
    
    
    
    
    
    
    
    
    
    
    12,197Self-insured liabilities
    
    
    13,339
    
    
    
    
    
    
    
    (215
    )
    
    
    13,124Net cash provided by operating activities
    
    
    66,510
    
    
    
    (5,037
    )
    
    
    4,380
    
    
    
    65,853Net cash used in discontinued operations
    
    
    (61
    )
    
    
    
    
    
    
    (10,093
    )
    
    
    (10,154
    )Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    (204,826
    )
    
    
    
    
    
    
    
    
    
    
    (204,826
    )Purchases of property and equipment
    
    
    (86,974
    )
    
    
    
    
    
    
    2,430
    
    
    
    (84,544
    )Proceeds from divestitures
    
    
    9,803
    
    
    
    
    
    
    
    2,913
    
    
    
    12,716Other
    
    
    7,877
    
    
    
    
    
    
    
    76
    
    
    
    7,953Net cash used in investing activities
    
    
    (274,120
    )
    
    
    
    
    
    
    5,419
    
    
    
    (268,701
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    (38,703
    )
    
    
    
    
    
    
    
    
    
    
    (38,703
    )Proceeds from long-term debt
    
    
    373,500
    
    
    
    
    
    
    
    
    
    
    
    373,500Proceeds from insurance financing
    
    
    
    
    
    
    17,617
    
    
    
    
    
    
    
    17,617Payments on long-term debt
    
    
    (143,415
    )
    
    
    
    
    
    
    
    
    
    
    (143,415
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    (16,038
    )
    
    
    
    
    
    
    (16,038
    )Debt financing costs paid
    
    
    (17,436
    )
    
    
    
    
    
    
    
    
    
    
    (17,436
    )Proceeds from issuance of common units
    
    
    12,162
    
    
    
    
    
    
    
    
    
    
    
    12,162Redemption of preferred units
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    (116
    )Redemption of common units
    
    
    (136
    )
    
    
    

    
    
    
    
    
    
    
    (136
    )Common unit issuance costs
    
    
    (1,992
    )
    
    
    
    
    
    
    
    
    
    
    (1,992
    )Net cash provided by financing activities
    
    
    183,864
    
    
    
    1,579
    
    
    
    
    
    
    
    185,443Net decrease in cash and cash equivalents
    
    
    (23,807
    )
    
    
    (3,458
    )
    
    
    (294
    )
    
    
    (27,559
    )Cash and cash equivalents, beginning of year
    
    
    113,569
    
    
    
    
    
    
    
    285
    
    
    
    113,854Cash and cash equivalents, end of year
    
    $
    89,762
    
    
    $
    (3,458
    )
    
    $
    (9
    )
    
    $
    86,295
 
 (1)
    
    Relates to the reclassification of results of continuing operations to results of
discontinued operations in accordance with SFAS No. 144. Refer to Note 3. F-24




---



##### Table of Contents



CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS  Year Ended December
31, 2002  (Dollars in thousands)
 RestatementAs Previously
    
    RelatedReported
    
    Adjustments
    
    Reclassifications (1)
    
    As RestatedCash flows from operating activities:Income (loss) from continuing operations, net
    
    $
    4,343
    
    
    $
    (577
    )
    
    $
    (1,009
    )
    
    $
    2,757Adjustments to reconcile income (loss) from continuing operations, net, to
net cash provided by operating activities, net of acquisitions and divestitures:Depreciation and amortization
    
    
    8,929
    
    
    
    
    
    
    
    (1,564
    )
    
    
    7,365Impairment of long-lived assets and restructuring costs
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Loss (gain) on divestitures
    
    
    (1,206
    )
    
    
    
    
    
    
    
    
    
    
    (1,206
    )Amortization of deferred financing costs
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    344Deferred income taxes
    
    
    199
    
    
    
    (358
    )
    
    
    (741
    )
    
    
    (900
    )Changes in operating assets and liabilities:Accounts and premiums receivable, net
    
    
    (5,266
    )
    
    
    
    
    
    
    1,559
    
    
    
    (3,707
    )Prepaid expenses and other current assets
    
    
    (17,410
    )
    
    
    (7,047
    )
    
    
    8,233
    
    
    
    (16,224
    )Income tax receivable
    
    
    (3,528
    )
    
    
    
    
    
    
    (514
    )
    
    
    (4,042
    )Medical claims payable
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    450Accounts payable and accrued expenses
    
    
    31,866
    
    
    
    935
    
    
    
    (17,517
    )
    
    
    15,284Accrued interest
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Unearned premiums
    
    
    (146
    )
    
    
    
    
    
    
    
    
    
    
    (146
    )Self-insured liabilities
    
    
    2,208
    
    
    
    
    
    
    
    (300
    )
    
    
    1,908Net cash provided by operating activities
    
    
    21,047
    
    
    
    (7,047
    )
    
    
    (11,853
    )
    
    
    2,147Net cash
provided by (used in) discontinued operations
    
    
    (1
    )
    
    
    
    
    
    
    1,072
    
    
    
    1,071Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    (129,128
    )
    
    
    
    
    
    
    
    
    
    
    (129,128
    )Purchases of property and equipment
    
    
    (46,029
    )
    
    
    
    
    
    
    5,640
    
    
    
    (40,389
    )Proceeds from divestitures
    
    
    5,419
    
    
    
    
    
    
    
    3,971
    
    
    
    9,390Other
    
    
    (55
    )
    
    
    
    
    
    
    1,439
    
    
    
    1,384Net cash used in investing activities
    
    
    (169,793
    )
    
    
    
    
    
    
    11,050
    
    
    
    (158,743
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    35,577
    
    
    
    
    
    
    
    
    
    
    
    35,577Proceeds from long-term debt
    
    
    5,468
    
    
    
    
    
    
    
    
    
    
    
    5,468Proceeds from insurance financing
    
    
    
    
    
    
    18,820
    
    
    
    
    
    
    
    18,820Payments on long-term debt
    
    
    (667
    )
    
    
    
    
    
    
    
    
    
    
    (667
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    (11,773
    )
    
    
    
    
    
    
    (11,773
    )Debt financing costs paid
    
    
    (305
    )
    
    
    
    

    
    
    
    
    
    
    (305
    )Proceeds from issuance of preferred units
    
    
    50,999
    
    
    
    
    
    
    
    
    
    
    
    50,999Proceeds from issuance of common units
    
    
    161,320
    
    
    
    
    
    
    
    
    
    
    
    161,320Redemption of preferred units
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Redemption of common units
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Net cash provided by financing activities
    
    
    252,364
    
    
    
    7,047
    
    
    
    
    
    
    
    259,411Net increase in cash and cash equivalents
    
    
    103,617
    
    
    
    
    
    
    
    269
    
    
    
    103,886Cash and cash equivalents, beginning of year
    
    
    9,952
    
    
    
    
    
    
    
    16
    
    
    
    9,968Cash and cash equivalents, end of year
    
    $
    113,569
    
    
    $
    
    
    
    $
    285
    
    
    $
    113,854
 
 (1)
    
    Relates to the reclassification of results of continuing operations to results of
discontinued operations in accordance with SFAS No. 144. Refer to Note 3. F-25




---



##### Table of Contents



CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS  Six Months Ended June
30, 2004  (Dollars in thousands)  (Unaudited)
 RestatementAs Previously
    
    RelatedReported
    
    Adjustments
    
    Reclassifications (1)
    
    As RestatedCash flows from operating activities:Income (loss) from continuing operations, net
    
    $
    3,319
    
    
    $
    (51,153
    )
    
    $
    834
    
    
    $
    (47,000
    )Adjustments to reconcile income (loss) from continuing operations, net, to
net cash (used in) provided by operating activities, net of acquisitions and divestitures:Change in fair value of interest rate swap agreements
    
    
    1,389
    
    
    
    
    
    
    
    
    
    
    
    1,389Depreciation and amortization
    
    
    22,529
    
    
    
    145
    
    
    
    (1,593
    )
    
    
    21,081Amortization of deferred financing costs
    
    
    1,019
    
    
    
    
    
    
    
    
    
    
    
    1,019Deferred income taxes
    
    
    (3,753
    )
    
    
    32,171
    
    
    
    478
    
    
    
    28,896Changes in operating assets and liabilities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts and premiums receivable, net
    
    
    (18,788
    )
    
    
    25,637
    
    
    
    3,430
    
    
    
    10,279Prepaid expenses and other current assets
    
    
    (1,669
    )
    
    
    10,423
    
    
    
    (6,248
    )
    
    
    2,506Income tax receivable
    
    
    (325
    )
    
    
    (5,982
    )
    
    
    
    
    
    
    (6,307
    )Medical claims payable
    
    
    (1,492
    )
    
    
    1,579
    
    
    
    
    
    
    
    87Accounts payable and accrued expenses
    
    
    (13,004
    )
    
    
    (953
    )
    
    
    4,830
    
    
    
    (9,127
    )Self-insured liabilities
    
    
    10,633
    
    
    
    
    
    
    
    
    
    
    
    10,633Net cash provided by (used in) operating activities
    
    
    (142
    )
    
    
    11,867
    
    
    
    1,731
    
    
    
    13,456Net cash used in discontinued operations
    
    
    (1,253
    )
    
    
    
    
    
    
    (2,971
    )
    
    
    (4,224
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (20,288
    )
    
    
    
    
    
    
    1,246
    
    
    
    (19,042
    )Proceeds from divestitures
    
    
    5,972
    
    
    
    
    
    
    
    
    
    
    
    5,972Other
    
    
    505
    
    
    
    
    
    
    
    
    
    
    
    505Net cash used in investing activities
    
    
    (13,811
    )
    
    
    
    
    
    
    1,246
    
    
    
    (12,565
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (1,047
    )
    
    
    
    
    
    
    
    
    
    
    (1,047
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    (8,409
    )
    
    
    
    
    
    
    (8,409
    )Debt financing costs paid
    
    
    (784
    )
    
    
    
    
    
    
    
    
    
    
    (784
    )Proceeds from issuance of common units,net
    
    
    49,986
    
    
    
    
    
    
    
    
    
    
    
    49,986Net cash provided by financing activities
    
    
    48,155
    
    
    
    (8,409
    )
    
    
    
    
    
    
    39,746Net increase in cash and cash equivalents
    
    
    32,949
    
    
    
    3,458
    
    
    
    6
    
    
    
    36,413Cash and cash equivalents, beginning of period
    
    
    89,762
    
    
    
    (3,458
    )
    
    
    (9
    )
    
    
    86,295Cash and cash equivalents, end of period
    
    $
    122,711
    
    
    $
    
    
    
    $
    (3
    )
    
    $
    122,708
 
 (1)
    
    Relates to the reclassification of results of continuing operations to results of
discontinued operations in accordance with SFAS No. 144. Refer to Note 3. 3. Acquisitions and Divestitures
 Acquisitions
 Business Combinations,
 2004 Acquisitions
 Cimarron Health Plan.
 F-26




---



##### Table of Contents



Purchase price
    
    $
    18,259Acquisition costs
    
    
    97$
    18,356
  Goodwill
    
    $
    12,556Other intangible assets
    
    
    5,800$
    18,356
 Hillcrest HealthCare System.
  Purchase price
    
    $
    332,841Acquisition costs
    
    
    6,893$
    339,734
  Cash
    
    $
    28Accounts receivable, net
    
    
    65,167Other current assets
    
    
    14,450Property and equipment
    
    
    224,241Goodwill
    
    
    95,191Current liabilities assumed
    
    
    (55,325
    )Other liabilities assumed
    
    
    (4,018
    )$
    339,734
  2003 Acquisitions
 Lovelace Hospital and Health Plan.
 F-27




---



##### Table of Contents



Purchase price
    
    $
    209,350Acquisition costs
    
    
    7,823$
    217,173
  Cash
    
    $
    22,677Accounts receivable, net
    
    
    17,113Premiums receivable
    
    
    17,345Other current assets
    
    
    14,858Restricted assets
    
    
    5,468Property and equipment
    
    
    104,916Goodwill
    
    
    62,457Other intangible assets
    
    
    52,000Current liabilities assumed
    
    
    (78,762
    )Other liabilities assumed
    
    
    (899
    )$
    217,173
  Northwestern Institute of Psychiatry.
  Purchase price
    
    $
    7,700Acquisition costs
    
    
    1,012$
    8,712
  Current assets
    
    $
    115Property and equipment
    
    
    8,943Current liabilities assumed
    
    
    (346
    )$
    8,712
 2002 Acquisitions
 Samaritan Hospital.
 F-28




---



##### Table of Contents



Purchase price
    
    $
    21,498Acquisition costs
    
    
    872$
    22,370
  Cash
    
    $
    9Accounts receivable, net
    
    
    7,315Other current assets
    
    
    2,479Property and equipment
    
    
    15,328Current liabilities assumed
    
    
    (2,761
    )$
    22,370
 Cumberland Hospital.
  Purchase price
    
    $
    14,640Acquisition costs
    
    
    333$
    14,973
  Cash
    
    $
    2Other current assets
    
    
    129Property and equipment
    
    
    6,134Goodwill
    
    
    9,233Other assets
    
    
    9Current liabilities assumed
    
    
    (534
    )$
    14,973
 St. Joseph Healthcare System.
  Purchase price
    
    $
    97,238Acquisition costs
    
    
    5,891$
    103,129
 F-29




---



##### Table of Contents



Cash
    
    $
    10,009Accounts receivable, net
    
    
    29,436Other current assets
    
    
    10,114Goodwill
    
    
    1,712Other assets
    
    
    7,995Property and equipment
    
    
    68,878Current liabilities assumed
    
    
    (24,673
    )Other liabilities assumed
    
    
    (342
    )$
    103,129
 Divestitures
 Discontinued Operations
   December 31,
    
    December 31,2004
    
    2003Assets:Inventories
    
    $
    2,375
    
    
    $
    2,170Other current assets
    
    
    553
    
    
    
    575Property and equipment, net
    
    
    18,075
    
    
    
    22,509Assets held for sale
    
    $
    21,003
    
    
    $
    25,254Liabilities:Accounts payable
    
    $
    3,033
    
    
    $
    4,001Accrued salaries and benefits
    
    
    2,396
    
    
    
    2,138Other current liabilities
    
    
    64
    
    
    
    227Liabilities held for sale
    
    $
    5,493
    
    
    $
    6,366
    F-30




---



##### Table of Contents



Other Divestitures
    Year Ended December 31,2004
    
    2003
    
    2002Proceeds from divestitures, net of selling costs paid
    
    $
    6,018
    
    
    $
    12,716
    
    
    $
    9,390Deferred financing obligation incurred
    
    
    
    
    
    
    (6,346
    )
    
    
    Net assets sold:Property and equipment
    
    
    
    
    
    
    (3,768
    )
    
    
    (5,041
    )Assets held for sale
    
    
    (2,158
    )
    
    
    (1,814
    )
    
    
    (315
    )Other long-term assets
    
    
    
    
    
    
    
    
    
    
    (479
    )Liabilities held for sale
    
    
    82
    
    
    
    183
    
    
    
    Gain on divestitures
    
    $
    3,942
    
    
    $
    971
    
    
    $
    3,555
 Pro Forma Results of Operations (Unaudited)
  Year Ended December 31,2004
    
    2003
    
    2002(Restated)
    
    (Restated)Total net revenues
    
    $
    1,995,586
    
    
    $
    1,896,262
    
    
    $
    1,148,835Net income (loss)
    
    
    (142,312
    )
    
    
    (6,934
    )
    
    
    3,449
  4. Restructuring Charges and Liabilities
   F-31




---



##### Table of Contents



Balance at January 1, 2002
    
    $
    1,119Charges
    
    
    1,075Payments
    
    
    (509
    )Changes in estimates related to prior period charges
    
    
    (125
    )Balance at December 31, 2002
    
    
    1,560Payments
    
    
    (906
    )Balance at December 31, 2003
    
    
    654Payments
    
    
    (529
    )Balance at December 31, 2004
    
    $
    125
 5. Goodwill and Other Intangible Assets
 Goodwill
  Consolidated
    
    BehavioralAcute Care
    
    Health
    
    Acute Care
    
    CareServices
    
    Plan
    
    Services
    
    Services
    
    TotalBalance at January 1, 2003
    
    $
    1,712
    
    
    $
    
    
    
    $
    1,712
    
    
    $
    11,360
    
    
    $
    13,072Goodwill acquired (adjusted)
    
    
    43,499
    
    
    
    18,958
    
    
    
    62,457
    
    
    
    (150
    )
    
    
    62,307Balance at December 31, 2003
    
    
    45,211
    
    
    
    18,958
    
    
    
    64,169
    
    
    
    11,210
    
    
    
    75,379Goodwill acquired
    
    
    95,191
    
    
    
    12,556
    
    
    
    107,747
    
    
    
    
    
    
    
    107,747Balance at December 31, 2004
    
    $
    140,402
    
    
    $
    31,514
    
    
    $
    171,916
    
    

    $
    11,210
    
    
    $
    183,126
  Acquired Other Intangible Assets
  December 31, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Customer relationships
    
    $
    35,300
    
    
    $
    8,678
    
    
    $
    26,622
    
    
    $
    29,500
    
    
    $
    3,578
    
    
    $
    25,922Provider network
    
    
    1,500
    
    
    
    180
    
    
    
    1,320
    
    
    
    1,500
    
    
    
    133
    
    
    
    1,36736,800
    
    
    
    8,858
    
    
    
    27,942
    
    
    
    31,000
    
    
    
    3,711
    
    
    
    27,289Unamortized intangible assets:Trade name
    
    
    21,000
    
    
    
    
    
    
    
    21,000
    
    
    
    21,000
    
    
    
    
    
    
    
    21,000$
    57,800
    
    
    $
    8,858
    
    
    $
    48,942
    
    
    $
    52,000
    
    
    $
    3,711
    
    
    $
    48,289
  F-32




---



##### Table of Contents



Customer
    
    ProviderRelationships
    
    Network2005
    
    $
    5,523
    
    
    $
    472006
    
    
    2,254
    
    
    
    472007
    
    
    2,254
    
    
    
    472008
    
    
    2,254
    
    
    
    472009
    
    
    2,254
    
    
    
    47
 6. Medical Claims Payable
  2004
    
    2003(Restated)Balance at January 1
    
    $
    46,500
    
    
    $
    3,497Assumed in acquisitions
    
    
    
    
    
    
    40,606Incurred related to:Current year
    
    
    318,834
    
    
    
    279,488Prior years
    
    
    738
    
    
    
    (7,828
    )319,572
    
    
    
    271,660Paid related to:Current year
    
    
    252,158
    
    
    
    233,390Prior years
    
    
    46,083
    
    
    
    35,873298,241
    
    
    
    269,263Balance at December 31
    
    $
    67,831
    
    
    $
    46,500
  F-33




---



##### Table of Contents



7. Long-Term Debt and Financing Matters
  December 31,2004
    
    2003Term Loans (interest at LIBOR plus 2.25% at December
31, 2004)
    
    $
    299,250
    
    
    $
    Senior subordinated notes (interest at 10.0%)
    
    
    225,000
    
    
    
    225,000Subordinated debt (interest at 10.2%), net
of unamortized discount of $3.6 million and
$4.0 million at December 31, 2004 and 2003, respectively
    
    
    32,399
    
    
    
    31,996Notes payable
    
    
    1,438
    
    
    
    3,157Other
    
    
    893
    
    
    
    1,290Total long-term debt
    
    
    558,980
    
    
    
    261,443Less current installments, including long-term
installments subject to acceleration
    
    
    (526,023
    )
    
    
    (227,082
    )Long-term debt, less current installments
    
    $
    32,957
    
    
    $
    34,361
 Classification of Term Loans and Senior Subordinated Notes
   Credit Facilities
     F-34




---



##### Table of Contents



$225.0 Million Senior Subordinated Notes
   F-35




---



##### Table of Contents



1 4
 $36.0 Million Subordinated Notes
       Notes Payable
  F-36




---



##### Table of Contents



Letters of Credit
  Interest Rate Swap Agreements
  Accounting for Derivative Instruments and Hedging Activities,
 Future Installments
  2005
    
    $
    4,7732006
    
    
    3,1402007
    
    
    3,1142008
    
    
    3,0192009
    
    
    3,000Thereafter
    
    
    545,535Total (excluding unamortized
discount of $3,601)
    
    $
    562,581
  F-37




---



##### Table of Contents



8. Income Taxes
  December 31,2004
    
    2003(Restated)Deferred tax assets:Patient accounts receivable, net
    
    $
    25,787
    
    
    $
    14,307Accrued liabilities
    
    
    19,853
    
    
    
    9,921Amortization
    
    
    2,865
    
    
    
    4,282Federal net operating loss carryforward
    
    
    24,368
    
    
    
    13,603State net operating loss carryforward
    
    
    10,772
    
    
    
    5,866Total deferred tax assets
    
    
    83,645
    
    
    
    47,979Deferred tax liabilities:Depreciation
    
    
    (9,188
    )
    
    
    (8,868
    )Total deferred tax liabilities
    
    
    (9,188
    )
    
    
    (8,868
    )Valuation allowance for deferred tax assets
    
    
    (69,983
    )
    
    
    (5,614
    )Net deferred tax assets
    
    $
    4,474
    
    
    $
    33,497
  December 31,2004
    
    2003(Restated)Current deferred tax asset
    
    $
    2,439
    
    
    $
    23,040Noncurrent deferred tax asset
    
    
    2,035
    
    
    
    10,457Net deferred tax asset
    
    $
    4,474
    
    
    $
    33,497
    F-38




---



##### Table of Contents



Year Ended December 31,2004
    
    2003
    
    2002(Restated)
    
    (Restated)Current:Federal
    
    $
    
    
    
    $
    (622
    )
    
    $
    1,489State
    
    
    622
    
    
    
    3
    
    
    
    1,132Total current
    
    
    622
    
    
    
    (619
    )
    
    
    2,621Deferred:Federal
    
    
    27,056
    
    
    
    (986
    )
    
    
    (62
    )State
    
    
    3,519
    
    
    
    537
    
    
    
    (838
    )Total deferred
    
    
    30,575
    
    
    
    (449
    )
    
    
    (900
    )Income tax expense
    
    $
    31,197
    
    
    $
    (1,068
    )
    
    $
    1,721
  Year Ended December 31,2004
    
    2003
    
    2002Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Tax (benefit) at federal statutory rate
    
    $
    (26,505
    )
    
    
    34.0
    %
    
    $
    (1,780
    )
    
    
    34.0
    %
    
    $
    1,522
    
    
    
    34.0
    %States taxes, net of federal benefits
    
    
    2,503
    
    
    
    (3.2
    )
    
    
    264
    
    
    
    (5.1
    )
    
    
    (185
    )
    
    
    (4.1
    )Change in federal valuation allowance
    
    
    55,272
    
    
    
    (70.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expiration of state net operating losses
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    (1.8
    )
    
    
    374
    
    
    
    8.3Permanent differences
    
    
    445
    
    
    
    (0.6
    )
    
    
    310
    
    
    
    (5.9
    )
    
    
    157
    
    
    
    3.5Other, net
    
    
    (518
    )
    
    
    0.7
    
    
    
    43
    
    
    
    (0.8
    )
    
    
    (147
    )
    
    
    (3.3
    )Total
    
    $
    31,197
    
    
    
    (40.0)
    %
    
    $
    (1,068
    )
    
    
    20.4
    %
    
    $
    1,721
    
    
    
    38.4
    %
 9. Redeemable Preferred Member Units
     F-39




---



##### Table of Contents



10. Members Equity
      11. Employee Benefit Plans
 Unit Incentive Plan
   F-40




---



##### Table of Contents



WeightedNumber of
    
    AverageOptions
    
    Exercise PriceBalance at January 1, 2002
    
    
    2,026,444
    
    
    $
    3.43Granted
    
    
    2,195,943
    
    
    
    4.12Exercised
    
    
    (93,713
    )
    
    
    3.43Cancelled
    
    
    (84,000
    )
    
    
    3.43Balance at December 31, 2002
    
    
    4,044,674
    
    
    
    3.81Granted
    
    
    2,411,326
    
    
    
    4.50Exercised
    
    
    (96,139
    )
    
    
    4.42Cancelled
    
    
    (203,000
    )
    
    
    3.72Balance at December 31, 2003
    
    
    6,156,861
    
    
    
    4.07Granted
    
    
    1,843,766
    
    
    
    4.50Exercised
    
    
    (42,500
    )
    
    
    3.59Cancelled
    
    
    (291,000
    )
    
    
    4.18Balance at December 31, 2004
    
    
    7,667,127
    
    
    $
    4.17
  Year Ended December 31,2004
    
    2003
    
    2002Weighted average fair value of options granted
(per unit)
    
    $
    1.89
    
    
    $
    1.47
    
    
    $
    1.36Options exercisable
    
    
    2,950,086
    
    
    
    1,466,092
    
    
    
    499,049Weighted average exercise price of options
exercisable (per unit)
    
    $
    3.90
    
    
    $
    3.69
    
    
    $
    3.43Options available for grant
    
    
    2,087,905
    
    
    
    1,872,995
    
    
    
    3,110,592
  Defined Contribution Plans
  Employee Health Plan
  F-41




---



##### Table of Contents



12. Minimum Net Worth and Dividend Restrictions
     13. Reinsurance
   14. Segment Information
   F-42




---



##### Table of Contents



Disclosures about Segments of an Enterprise and Related Information
   Year Ended December 31, 2004ConsolidatedAcute
    
    
    
    
    
    
    
    
    
    Acute
    
    BehavioralCare
    
    Health
    
    
    
    
    
    Care
    
    CareServices
    
    Plan
    
    Eliminations
    
    Services
    
    Services
    
    Other
    
    Eliminations
    
    TotalTotal net revenues
    
    $
    899,100
    
    
    $
    688,635
    
    
    $
    (273,017
    )
    
    $
    1,314,718
    
    
    $
    294,282
    
    
    $
    
    
    
    $
    (2,004
    )
    
    $
    1,606,996Adjusted EBITDA
    
    
    14,349
    
    
    
    21,539
    
    
    
    
    
    
    
    35,888
    
    
    
    44,301
    
    
    
    (68,811
    )
    
    
    
    
    
    
    11,378Segment assets
    
    
    854,725
    
    
    
    129,190
    
    
    
    (50,069
    )
    
    
    933,846
    
    
    
    139,787
    
    
    
    134,502
    
    
    
    
    
    
    
    1,208,135Goodwill
    
    
    140,402
    
    
    
    31,514
    
    
    
    
    
    
    
    171,916
    
    
    
    11,210
    
    
    
    
    
    
    
    
    
    
    
    183,126Other identifiable intangible assets
    
    
    
    
    
    
    48,942
    
    
    
    
    
    
    
    48,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,942Capital expenditures
    
    
    24,832
    
    
    
    3,647
    
    
    
    
    
    
    
    28,479
    
    
    
    10,997
    
    
    
    20,361
    
    
    
    
    
    
    
    59,837
 Year Ended December 31, 2003 (Restated)ConsolidatedAcute
    
    BehavioralCare
    
    CareServices
    
    Services
    
    Other
    
    Eliminations
    
    TotalTotal net revenues
    
    $
    967,144
    
    
    $
    267,568
    
    
    $
    
    
    
    $
    (1,143
    )
    
    $
    1,233,569Adjusted EBITDA
    
    
    43,810
    
    
    
    47,200
    
    
    
    (43,502
    )
    
    
    
    
    
    
    47,508Segment assets
    
    
    534,630
    
    
    
    159,236
    
    
    
    127,606
    
    
    
    
    
    
    
    821,472Goodwill
    
    
    64,169
    
    
    
    11,210
    
    
    
    
    
    
    
    
    
    
    
    75,379Other identifiable intangible assets
    
    
    48,289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,289Capital expenditures
    
    
    55,126
    
    
    
    9,142
    
    
    
    20,276
    
    
    
    
    
    
    
    84,544
 Year Ended December 31, 2003 (Restated)ConsolidatedAcute
    
    BehavioralCare
    
    CareServices
    
    Services
    
    Other
    
    Eliminations
    
    TotalTotal net revenues
    
    $
    100,578
    
    
    $
    241,909
    
    
    $
    146
    
    
    $
    
    
    
    $
    342,633Adjusted EBITDA
    
    
    142
    
    
    
    40,703
    
    
    
    (27,324
    )
    
    
    
    
    
    
    13,521Capital expenditures
    
    
    4,610
    
    
    
    5,521
    
    
    
    30,258
    
    
    
    
    
    
    
    40,389
  F-43




---



##### Table of Contents



2004
    
    2003
    
    2002(Restated)
    
    (Restated)Adjusted EBITDA
    
    $
    11,378
    
    
    $
    47,508
    
    
    $
    13,521Less:Interest, net
    
    
    33,516
    
    
    
    19,847
    
    
    
    1,678Change in fair value of interest rate swap agreements
    
    
    1,491
    
    
    
    (558
    )
    
    
    Depreciation and amortization
    
    
    54,326
    
    
    
    33,447
    
    
    
    7,365Income tax expense (benefit)
    
    
    31,197
    
    
    
    (1,068
    )
    
    
    1,721Income (loss) from continuing operations, net
    
    
    (109,152
    )
    
    
    (4,160
    )
    
    
    2,757Changes in working capital and other items
    
    
    186,227
    
    
    
    70,013
    
    
    
    (610
    )Net cash provided by operating activities
    
    $
    77,075
    
    
    $
    65,853
    
    
    $
    2,147
 15. Commitments and Contingencies
 Medical Office Building Sale Agreement
  Capital Expenditure and Other Contractual Commitments
  Net Revenue
    F-44




---



##### Table of Contents



Litigation and Regulatory Matters
     Acquisitions
  Employment Agreements
  Operating Leases
  2005
    
    $
    20,9142006
    
    
    18,2282007
    
    
    13,5352008
    
    
    10,1872009
    
    
    7,945Thereafter
    
    
    69,725Total rental payments
    
    $
    140,534
 F-45




---



##### Table of Contents



16. Related Party Transactions
     Other Related Party Transactions
   17. Subsequent Events
    F-46




---



##### Table of Contents



18. Financial Information for the Company and Subsidiaries
   F-47




---



##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2004  Dollars in thousands
 Subsidiary
    
    Non-
    
    
    
    
    
    CondensedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    39,803
    
    
    $
    58,558
    
    
    $
    
    
    
    $
    98,361Accounts receivable, less allowance for doubtful
accounts of $107,499
    
    
    
    
    
    
    
    
    
    
    113,700
    
    
    
    47,372
    
    
    
    (338
    )
    
    
    160,734Premiums receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,213
    
    
    
    
    
    
    
    12,213Inventories
    
    
    
    
    
    
    
    
    
    
    19,734
    
    
    
    9,837
    
    
    
    
    
    
    
    29,571Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    2,439
    
    
    
    
    
    
    
    
    
    
    
    2,439Prepaid expenses
    
    
    
    
    
    
    58
    
    
    
    32,367
    
    
    
    6,825
    
    
    
    (182
    )
    
    
    39,068Other current assets
    
    
    
    
    
    
    
    
    
    
    7,231
    
    
    
    7,755
    
    
    
    
    
    
    
    14,986Assets held for sale
    
    
    
    
    
    
    
    
    
    
    21,003
    
    
    
    
    
    
    
    
    
    
    
    21,003Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    12,109
    
    
    
    
    
    
    
    
    
    
    
    12,109Total current assets
    
    
    
    
    
    
    58
    
    
    
    248,386
    
    
    
    142,560
    
    
    
    (520
    )
    
    
    390,484Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    355,004
    
    
    
    202,754
    
    
    
    
    
    
    
    557,758Goodwill
    
    
    
    
    
    
    
    
    
    
    108,114
    
    
    
    75,012
    
    
    
    
    
    
    
    183,126Other
intangible assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,942
    
    
    
    
    
    
    
    48,942Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    2,035
    
    
    
    
    
    
    
    
    
    
    
    2,035Other assets
    
    
    269,737
    
    
    
    836,488
    
    
    
    254,140
    
    
    
    3,126
    
    
    
    (1,337,701
    )
    
    
    25,790Total assets
    
    $
    269,737
    
    
    $
    836,546
    
    
    $
    967,679
    
    
    $
    472,394
    
    
    $
    (1,338,221
    )
    
    $
    1,208,135LIABILITIES AND MEMBERS AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    
    
    
    $
    524,250
    
    
    $
    1,652
    
    
    $
    121
    
    
    $
    
    
    
    $
    526,023Accounts payable
    
    
    
    
    
    
    
    
    
    
    57,807
    
    
    
    43,735
    
    
    
    
    
    
    
    101,542Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,169
    
    
    
    (338
    )
    
    
    67,831Accrued salaries and benefits
    
    
    
    
    
    
    
    
    
    
    41,975
    
    
    
    27,722
    
    
    
    
    
    
    
    69,697Accrued interest
    
    
    
    
    
    
    10,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,160Unearned premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,249
    
    
    
    (182
    )
    
    
    19,067Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    5,493
    
    
    
    
    
    
    
    
    
    
    
    5,493Other accrued expenses and liabilities
    
    
    
    
    
    
    
    
    
    
    29,967
    
    
    
    14,478
    
    
    
    
    
    
    
    44,445Total current liabilities
    
    
    
    
    
    
    534,410
    
    
    
    136,894
    
    
    
    173,474
    
    
    
    (520
    )
    
    
    844,258Long-term debt, less current installments
    
    
    
    
    
    
    32,399
    
    
    
    222
    
    
    
    336
    
    
    
    
    
    
    
    32,957Self-insured liabilities
    
    
    
    
    
    
    
    
    
    
    43,811
    
    
    
    7,478
    
    
    
    
    
    
    
    51,289Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    9,894
    
    
    
    
    
    
    
    
    
    
    
    9,894Note payable to Parent
    
    
    
    
    
    
    
    
    
    
    (43,353
    )
    
    
    43,353
    
    
    
    
    
    
    
    Due to (from) Parent
    
    
    
    
    
    
    
    
    
    
    5,068
    
    
    
    (5,068
    )
    
    
    
    
    
    
    Total liabilities
    
    
    
    
    
    
    566,809
    
    
    
    152,536
    
    
    
    219,573
    
    
    
    (520
    )
    
    
    938,398Redeemable preferred units and accrued dividends
    
    
    120,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,927Members and stockholders equity:Capital stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    (150)
    
    
    
    Common units
    
    
    282,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,208Additional paid in capital
    
    
    
    
    
    
    378,838
    
    
    
    875,114
    
    
    
    301,424
    
    
    
    (1,555,376
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (133,398
    )
    
    
    (109,101
    )
    
    
    (59,971
    )
    
    
    (48,753
    )
    
    
    217,825
    
    
    
    (133,398
    )Total members and stockholders equity
    
    
    148,810
    
    
    
    269,737
    
    
    
    815,143
    
    
    
    252,821
    
    
    
    (1,337,701
    )
    
    
    148,810Total
liabilities and members and stockholders equity
    
    $
    269,737
    
    
    $
    836,546
    
    
    $
    967,679
    
    
    $
    472,394
    
    
    $
    (1,338,221
    )
    
    $
    1,208,135
 F-48




---



##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2003  Dollars in thousands  (Restated)
 Subsidiary
    
    Non-
    
    
    
    
    
    CondensedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    
    
    
    $
    49,910
    
    
    $
    36,385
    
    
    $
    
    
    
    $
    86,295Accounts receivable, less allowance for doubtful
accounts of $42,438
    
    
    
    
    
    
    
    
    
    
    57,943
    
    
    
    51,596
    
    
    
    
    
    
    
    109,539Premiums receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,733
    
    
    
    
    
    
    
    14,733Inventories
    
    
    
    
    
    
    
    
    
    
    4,377
    
    
    
    10,235
    
    
    
    
    
    
    
    14,612Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    18,465
    
    
    
    4,575
    
    
    
    
    
    
    
    23,040Prepaid expenses
    
    
    
    
    
    
    
    
    
    
    22,621
    
    
    
    6,783
    
    
    
    
    
    
    
    29,404Other current assets
    
    
    
    
    
    
    
    
    
    
    3,610
    
    
    
    8,138
    
    
    
    
    
    
    
    11,748Assets held
for sale
    
    
    
    
    
    
    
    
    
    
    25,254
    
    
    
    
    
    
    
    
    
    
    
    25,254Income taxes receivable
    
    
    
    
    
    
    
    
    
    
    6,012
    
    
    
    
    
    
    
    
    
    
    
    6,012Total current assets
    
    
    
    
    
    
    
    
    
    
    188,192
    
    
    
    132,445
    
    
    
    
    
    
    
    320,637Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    134,839
    
    
    
    211,226
    
    
    
    
    
    
    
    346,065Goodwill
    
    
    
    
    
    
    
    
    
    
    12,923
    
    
    
    62,456
    
    
    
    
    
    
    
    75,379Other
intangible assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,289
    
    
    
    
    
    
    
    48,289Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    10,457
    
    
    
    
    
    
    
    
    
    
    
    10,457Other assets
    
    
    323,922
    
    
    
    519,010
    
    
    
    254,346
    
    
    
    6,175
    
    
    
    (1,082,808
    )
    
    
    20,645Total assets
    
    $
    323,922
    
    
    $
    519,010
    
    
    $
    600,757
    
    
    $
    460,591
    
    
    $
    (1,082,808
    )
    
    $
    821,472LIABILITIES
AND MEMBERS AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    
    
    
    $
    225,000
    
    
    $
    1,931
    
    
    $
    151
    
    
    $
    
    
    
    $
    227,082Accounts payable
    
    
    
    
    
    
    
    
    
    
    22,282
    
    
    
    26,238
    
    
    
    
    
    
    
    48,520Medical claims payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,500
    
    
    
    
    
    
    
    46,500Accrued salaries and benefits
    
    
    
    
    
    
    
    
    
    
    23,701
    
    
    
    21,263
    
    
    
    
    
    
    
    44,964Accrued interest
    
    
    
    
    
    
    10,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,133Unearned premiums
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    15,098
    
    
    
    
    
    
    
    15,399Liabilities
held for sale
    
    
    
    
    
    
    
    
    
    
    6,366
    
    
    
    
    
    
    
    
    
    
    
    6,366Other accrued expenses and liabilities
    
    
    
    
    
    
    
    
    
    
    19,647
    
    
    
    16,085
    
    
    
    
    
    
    
    35,732Total current liabilities
    
    
    
    
    
    
    235,133
    
    
    
    74,228
    
    
    
    125,335
    
    
    
    
    
    
    
    434,696Long-term debt, less current installments
    
    
    
    
    
    
    31,996
    
    
    
    1,908
    
    
    
    457
    
    
    
    
    
    
    
    34,361Self-insured liabilities
    
    
    
    
    
    
    
    
    
    
    20,437
    
    
    
    1,483
    
    
    
    
    
    
    
    21,920Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    6,573
    
    
    
    
    
    
    
    
    
    
    
    6,573Note payable to Parent
    
    
    
    
    
    
    (71,412
    )
    
    
    
    
    
    
    71,412
    
    
    
    
    
    
    
    Due to (from) Parent
    
    
    
    
    
    
    
    
    
    
    (9,406
    )
    
    
    9,406
    
    
    
    
    
    
    
    Total liabilities
    
    
    
    
    
    
    195,717
    
    
    
    93,740
    
    
    
    208,093
    
    
    
    
    
    
    
    497,550Mandatorily redeemable preferred units and accrued dividends
    
    
    111,931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,931Members and stockholders equity:Capital stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    (150
    )
    
    
    Common units
    
    
    224,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224,331Additional paid in capital
    
    
    
    
    
    
    320,332
    
    
    
    486,207
    
    
    
    262,254
    
    
    
    (1,068,793
    )
    
    
    Retained earnings (accumulated deficit)
    
    
    (12,340
    )
    
    
    2,961
    
    
    
    20,810
    
    
    
    (9,906
    )
    
    
    (13,865
    )
    
    
    (12,340
    )Total members and stockholders equity
    
    
    211,991
    
    
    
    323,293
    
    
    
    507,017
    
    
    
    252,498
    
    
    
    (1,082,808
    )
    
    
    211,991Total
liabilities and members and stockholders equity
    
    $
    323,922
    
    
    $
    519,010
    
    
    $
    600,757
    
    
    $
    460,591
    
    
    $
    (1,082,808
    )
    
    $
    821,472
 F-49




---



##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2004  Dollars in thousands
 Subsidiary
    
    Non-
    
    
    
    
    
    CondensedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    536,841
    
    
    $
    315,846
    
    
    $
    
    
    
    $
    852,687Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    677,912
    
    
    
    
    
    
    
    677,912Other revenue
    
    
    (112,062
    )
    
    
    (80,781
    )
    
    
    39,908
    
    
    
    43,519
    
    
    
    185,813
    
    
    
    76,397Total net revenues
    
    
    (112,062
    )
    
    
    (80,781
    )
    
    
    576,749
    
    
    
    1,037,277
    
    
    
    185,813
    
    
    
    1,606,996Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    333,771
    
    
    
    317,243
    
    
    
    (103
    )
    
    
    650,911Professional fees
    
    
    
    
    
    
    
    
    
    
    83,906
    
    
    
    118,150
    
    
    
    (38,832
    )
    
    
    163,224Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323,805
    
    
    
    (4,233
    )
    
    
    319,572Supplies
    
    
    
    
    
    
    
    
    
    
    70,623
    
    
    
    118,333
    
    
    
    
    
    
    
    188,956Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    59,276
    
    
    
    38,160
    
    
    
    
    
    
    
    97,436Other
    
    
    
    
    
    
    
    
    
    
    26,892
    
    
    
    122,411
    
    
    
    (2,709
    )
    
    
    146,594Interest, net
    
    
    
    
    
    
    29,790
    
    
    
    (770
    )
    
    
    4,496
    
    
    
    
    
    
    
    33,516Change in
fair value of interest rate swap agreements
    
    
    
    
    
    
    1,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,491Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    26,696
    
    
    
    27,630
    
    
    
    
    
    
    
    54,326Investigation  related expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,997
    
    
    
    
    
    
    
    3,997Impairment of long-lived assets and
restructuring costs
    
    
    
    
    
    
    
    
    
    
    24,928
    
    
    
    
    
    
    
    
    
    
    
    24,928Total expenses
    
    
    
    
    
    
    31,281
    
    
    
    625,322
    
    
    
    1,074,225
    
    
    
    (45,877
    )
    
    
    1,684,951Loss from continuing operations before
income taxes
    
    
    (112,062
    )
    
    
    (112,062
    )
    
    
    (48,573
    )
    
    
    (36,948
    )
    
    
    231,690
    
    
    
    (77,955
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    31,197
    
    
    
    
    
    
    
    
    
    
    
    31,197Loss from continuing operations, net
    
    
    (112,062
    )
    
    
    (112,062
    )
    
    
    (79,770
    )
    
    
    (36,948
    )
    
    
    231,690
    
    
    
    (109,152
    )Discontinued operations:Loss from discontinued operations before income taxes
    
    
    
    
    
    
    
    
    
    
    (2,563
    )
    
    
    (1,899
    )
    
    
    
    
    
    
    (4,462
    )Income tax
benefit
    
    
    
    
    
    
    
    
    
    
    (1,552
    )
    
    
    
    
    
    
    
    
    
    
    (1,552
    )Loss from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (1,011
    )
    
    
    (1,899
    )
    
    
    
    
    
    
    (2,910
    )Net loss
    
    
    (112,062
    )
    
    
    (112,062
    )
    
    
    (80,781
    )
    
    
    (38,847
    )
    
    
    231,690
    
    
    
    (112,062
    )Accrued preferred dividends
    
    
    8,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,996Net loss
attributable to common members and stockholders
    
    $
    (121,058
    )
    
    $
    (112,062
    )
    
    $
    (80,781
    )
    
    $
    (38,847
    )
    
    $
    231,690
    
    
    $
    (121,058
    )
 F-50




---



##### Table of Contents



ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2003  Dollars in thousands  (Restated)
 Subsidiary
    
    Non-
    
    
    
    
    
    CondensedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedRevenues:Net patient service revenue
    
    $
    
    
    
    $
    
    
    
    $
    272,994
    
    
    $
    292,092
    
    
    $
    
    
    
    $
    565,086Premium revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    592,293
    
    
    
    
    
    
    
    592,293Other revenue
    
    
    (4,061
    )
    
    
    13,788
    
    
    
    42,331
    
    
    
    44,553
    
    
    
    (20,421
    )
    
    
    76,190Total net revenues
    
    
    (4,061
    )
    
    
    13,788
    
    
    
    315,325
    
    
    
    928,938
    
    
    
    (20,421
    )
    
    
    1,233,569Expenses:Salaries and benefits
    
    
    
    
    
    
    
    
    
    
    196,462
    
    
    
    295,118
    
    
    
    
    
    
    
    491,580Professional fees
    
    
    
    
    
    
    
    
    
    
    47,021
    
    
    
    88,911
    
    
    
    (14,074
    )
    
    
    121,858Claims and capitation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272,640
    
    
    
    (980
    )
    
    
    271,660Supplies
    
    
    
    
    
    
    
    
    
    
    25,936
    
    
    
    108,391
    
    
    
    
    
    
    
    134,327Provision for doubtful accounts
    
    
    
    
    
    
    
    
    
    
    10,288
    
    
    
    42,439
    
    
    
    
    
    
    
    52,727Other
    
    
    
    
    
    
    
    
    
    
    10,726
    
    
    
    100,955
    
    
    
    (746
    )
    
    
    110,935Interest, net
    
    
    
    
    
    
    18,407
    
    
    
    155
    
    
    
    1,285
    
    
    
    
    
    
    
    19,847Change in
fair value of interest rate swap agreements
    
    
    
    
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (558
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    12,090
    
    
    
    21,357
    
    
    
    
    
    
    
    33,447Impairment of long-lived assets and
restructuring costs
    
    
    
    
    
    
    
    
    
    
    2,913
    
    
    
    
    
    
    
    
    
    
    
    2,913Loss on divestitures
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Total expenses
    
    
    
    
    
    
    17,849
    
    
    
    305,652
    
    
    
    931,096
    
    
    
    (15,800
    )
    
    
    1,238,797Income (loss) from continuing operations before
income taxes
    
    
    (4,061
    )
    
    
    (4,061
    )
    
    
    9,673
    
    
    
    (2,158
    )
    
    
    (4,621
    )
    
    
    (5,228
    )Income tax
benefit
    
    
    
    
    
    
    
    
    
    
    (1,068
    )
    
    
    
    
    
    
    
    
    
    
    (1,068
    )Income (loss) from continuing operations, net
    
    
    (4,061
    )
    
    
    (4,061
    )
    
    
    10,741
    
    
    
    (2,158
    )
    
    
    (4,621
    )
    
    
    (4,160
    )Discontinued operations:Income
(loss) from discontinued operations before income taxes
    
    
    
    
    
    
    
    
    
    
    3,352
    
    
    
    (2,948
    )
    
    
    
    
    
    
    404Income tax expense
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    305Income from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    3,047
    
    
    
    (2,948
    )
    
    
    
    
    
    
    99Net income (loss)
    
    
    (4,061
    )
    
    
    (4,061
    )
    
    
    13,788
    
    
    
    (5,106
    )
    
    
    (4,621
    )
    
    
    (4,061
    )Accrued preferred dividends
    
    
    8,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,098Net income available for (loss attributable to)
common members and stockholders
    
    $
    (12,159
    )
    
    $
    (4,061
    )
    
    $
    13,788
    
    
    $
    (5,106
    )
    
    $
    (4,621
    )
    
    $
    (12,159
    )
 F-51




---



##### Table of Contents



ARDENT
HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2004  (Dollars in thousands)
 CondensedSubsidiary
    
    Non-
    
    
    
    
    
    ConsolidatedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ArdentNet cash provided by (used in) operating activities
    
    $
    
    
    
    $
    (27,209
    )
    
    $
    49,306
    
    
    $
    54,978
    
    
    $
    
    
    
    $
    77,075Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,045
    )
    
    
    (821
    )
    
    
    
    
    
    
    (1,866
    )Cash flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    
    
    
    
    
    
    
    
    (339,706
    )
    
    
    (18,356
    )
    
    
    
    
    
    
    (358,062
    )Purchases of property and equipment
    
    
    
    
    
    
    
    
    
    
    (45,802
    )
    
    
    (14,035
    )
    
    
    
    
    
    
    (59,837
    )Proceeds from divestitures
    
    
    
    
    
    
    
    
    
    
    5,904
    
    
    
    114
    
    
    
    
    
    
    
    6,018Other
    
    
    (58,369
    )
    
    
    (331,288
    )
    
    
    389,632
    
    
    
    2,748
    
    
    
    
    
    
    
    2,723Net cash provided by (used in) investing activities
    
    
    (58,369
    )
    
    
    (331,288
    )
    
    
    10,028
    
    
    
    (29,529
    )
    
    
    
    
    
    
    (409,158
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000Proceeds from insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    20,022
    
    
    
    
    
    
    
    
    
    
    
    20,022Payments on long-term debt
    
    
    
    


    
    
    
    
    
    
    (2,730
    )
    
    
    (151
    )
    
    
    
    
    
    
    (2,881
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    (17,992
    )

    
    
    
    
    
    
    
    
    
    
    (17,992
    )Debt financing costs paid
    
    
    
    
    
    
    (11,503
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,503
    )Intercompany advances, net
    
    
    
    
    
    
    
    
    
    
    14,474
    
    
    
    (14,474
    )
    
    
    
    
    
    
    Contributions from (distributions to) Parent
    
    
    
    
    
    
    
    
    
    
    (39,170
    )
    
    
    39,170
    
    
    
    
    
    
    
    Note payable to Issuer
    
    
    
    
    
    
    70,000
    
    
    
    (43,000
    )
    
    
    (27,000
    )
    
    
    
    
    
    
    Proceeds from issuance of common units
    
    
    58,486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,486Redemption of common units
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117
    )Net cash provided by (used in) financing activities
    
    
    58,369
    
    
    
    358,497
    
    
    
    (68,396
    )
    
    
    (2,455
    )
    
    
    
    
    
    
    346,015Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (10,107
    )
    
    
    22,173
    
    
    
    
    
    
    
    12,066Cash and
cash equivalents, beginning of year
    
    
    
    
    
    
    
    
    
    
    49,910
    
    
    
    36,385
    
    
    
    
    
    
    
    86,295Cash and
cash equivalents, end of year
    
    $
    
    
    
    $
    
    
    
    $
    39,803
    
    
    $
    58,558
    
    
    $
    
    
    
    $
    98,361
 F-52




---



##### Table of Contents



ARDENT
HEALTH SERVICES LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2003  (Dollars in thousands)
 CondensedSubsidiary
    
    Non-
    
    
    
    
    
    ConsolidatedParent
    
    Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ArdentNet cash provided by (used in) operating activities
    
    $
    
    
    
    $
    (1,854
    )
    
    $
    30,903
    
    
    $
    36,804
    
    
    $
    
    
    
    $
    65,853Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (6,298
    )
    
    
    (3,856
    )
    
    
    
    
    
    
    (10,154
    )Cash
flows from investing activities:Investments in acquisitions, less cash acquired
    
    
    
    
    
    
    
    
    
    
    (7,902
    )
    
    
    (196,924
    )
    
    
    
    
    
    
    (204,826
    )Purchases of property and equipment
    
    
    
    
    
    
    
    
    
    
    (38,563
    )
    
    
    (45,981
    )
    
    
    
    
    
    
    (84,544
    )Transfer of assets
    
    
    
    
    
    
    
    
    
    
    6,625
    
    
    
    (6,625
    )
    
    
    
    
    
    
    Proceeds from divestitures
    
    
    
    
    
    
    
    
    
    
    12,716
    
    
    
    
    
    
    
    
    
    
    
    12,716Other
    
    
    (9,918
    )
    
    
    (171,710
    )
    
    
    183,806
    
    
    
    5,775
    
    
    
    
    
    
    
    7,953Net cash provided by (used in) investing activities
    
    
    (9,918
    )
    
    
    (171,710
    )
    
    
    156,682
    
    
    
    (243,755
    )
    
    
    
    
    
    
    (268,701
    )Cash
flows from financing activities:Net change
in revolving line of credit
    
    
    
    
    
    
    
    
    
    
    (38,703
    )
    
    
    
    
    
    
    
    
    
    
    (38,703
    )Proceeds from long-term debt
    
    
    
    
    
    
    373,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373,500Proceeds from insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    17,617
    
    
    
    
    
    
    
    
    
    
    
    17,617Payments on long-term debt
    
    
    
    
    
    
    (112,500
    )
    
    
    (30,721
    )
    
    
    (194
    )
    
    
    
    
    
    
    (143,415
    )Payments on principal of insurance financing arrangements
    
    
    
    
    
    
    
    
    
    
    (16,038
    )

    
    
    
    

    
    
    
    
    
    
    (16,038
    )Debt financing costs paid
    
    
    
    
    
    
    (17,436
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,436
    )Intercompany advances, net
    
    
    
    
    
    
    
    
    
    
    (3,072
    )
    
    
    3,072
    
    
    
    
    
    
    
    Contributions from (distributions to) Parent
    
    
    
    
    
    
    
    
    
    
    (163,308
    )
    
    
    163,308
    
    
    
    
    
    
    
    Note payable to Issuer
    
    
    
    
    
    
    (70,000
    )
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    Proceeds from the issuance of common units
    
    
    12,162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,162Redemption of preferred units
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )Redemption of common units
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136
    )Common unit issuance costs
    
    
    (1,992
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,992
    )Net cash provided by (used in) financing activities
    
    
    9,918
    
    
    
    173,564
    
    
    
    (234,225
    )
    
    
    236,186
    
    
    
    
    
    
    
    185,443Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (52,938
    )
    
    
    25,379
    
    
    
    
    
    
    
    (27,559
    )Cash and
cash equivalents, beginning of year
    
    
    
    
    
    
    
    
    
    
    102,848
    
    
    
    11,006
    
    
    
    
    
    
    
    113,854Cash and
cash equivalents, end of year
    
    $
    
    
    
    $
    
    
    
    $
    49,910
    
    
    $
    36,385
    
    
    $
    
    
    
    $
    86,295
 F-53




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##### Table of Contents



19. Quarterly Consolidated Financial Information (Unaudited)
  2004First (3)
    
    Second
    
    Third (1)
    
    Fourth (1) (2)(Restated)
    
    (Restated)Total net revenues
    
    $
    332,798
    
    
    $
    325,130
    
    
    $
    442,688
    
    
    $
    506,380Loss from continuing operations, net
    
    
    (36,397
    )
    
    
    (10,603
    )
    
    
    (8,072
    )
    
    
    (54,080
    )Net loss
    
    
    (38,473
    )
    
    
    (7,727
    )
    
    
    (9,555
    )
    
    
    (56,307
    )
 2003First
    
    Second
    
    Third
    
    Fourth (2)(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Total net revenues
    
    $
    292,476
    
    
    $
    300,396
    
    
    $
    309,853
    
    
    $
    330,844Income (loss) from continuing operations, net
    
    
    1,831
    
    
    
    (763
    )
    
    
    2,066
    
    
    
    (7,294
    )Net income (loss)
    
    
    2,458
    
    
    
    (918
    )
    
    
    1,889
    
    
    
    (7,490
    )
 2002First
    
    Second
    
    Third
    
    Fourth(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Total net revenues
    
    $
    65,221
    
    
    $
    68,024
    
    
    $
    85,798
    
    
    $
    123,590Income (loss) from continuing operations, net
    
    
    3,267
    
    
    
    2,655
    
    
    
    (1,365
    )
    
    
    (1,800
    )Net income (loss)
    
    
    3,380
    
    
    
    2,956
    
    
    
    (1,292
    )
    
    
    (568
    )
 
 (1)
    
    Total net revenues increased in the third and fourth quarters of 2004 primarily due to the
Hillcrest acquisition (Refer to Note 3).(2)
    
    The significant decreases in net income (loss) from continuing operations and net income
(loss) during the fourth quarter of 2004 and 2003, respectively, were primarily the result of
the Company recording impairment charges of approximately $24.9 million and $2.9 million
(Refer to Note 1). The Company also incurred higher professional fees and investigation
related expenses in the fourth quarter of 2004 in connection with the Audit and Compliance Committees independent review
(Refer to Note 1).(3)
    
    The  loss from continuing operations, net, and the net loss during the first quarter of 2004 includes income tax
expense of $28.8 million primarily related to valuation allowances recorded on the Companys
deferred tax assets (Refer to Note 8). F-54




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##### Table of Contents



SIGNATURES
  ARDENT HEALTH SERVICES LLCBy:
    
    /s/ R. DIRK ALLISONR. Dirk AllisonExecutive Vice President, Chief Financial Officerand Manager
   Signature
    
    Title
    
    Date/s/ DAVID T. VANDEWATER

David T. Vandewater
    
    President, Chief Executive Officer
and Manager (Principal Executive
Officer)
    
    August 30, 2005/s/ R. DIRK ALLISON

R. Dirk Allison
    
    Executive Vice President, Chief
Financial Officer and Manager
(Principal Financial and
Accounting Officer)
    
    August 30, 2005/s/ NORMAN BROWNSTEIN

Norman Brownstein
    
    Manager
    
    August 30, 2005/s/ RUSSELL L. CARSON

Russell L. Carson
    
    Manager
    
    August 30, 2005/s/ DAVID C. COLBY

David C. Colby
    
    Manager
    
    August 30, 2005/s/ COLLEEN CONWAY-WELCH

Colleen Conway-Welch
    
    Manager
    
    August 30, 2005/s/ CARLOS A. FERRER

Carlos A. Ferrer
    
    Manager
    
    August 30, 2005/s/ JAMIE E. HOPPING

Jamie E. Hopping
    
    Manager
    
    August 30, 2005/s/ D. SCOTT MACKESY

D. Scott Mackesy
    
    Manager
    
    August 30, 2005/s/ KENNETH J. MELKUS

Kenneth J. Melkus
    
    Manager
    
    August 30, 2005/s/ THOMAS A. SCULLY

Thomas A. Scully
    
    Manager
    
    August 30, 2005
 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    
    
    Description3.1
    
    
    
    Certificate of Formation of Ardent Health
Services LLC, as filed with the Delaware
Secretary of State on June 1, 2001
(Incorporated by reference to Exhibit 3.1
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)3.2
    
    
    
    Limited Liability Company Agreement of
Ardent Health Services LLC, including
Amendment No. 1 thereto (Incorporated by
reference to Exhibit 3.2 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)3.3
    
    
    
    Amendment No. 2 to Limited Liability
Company Agreement of Ardent Health
Services LLC (Incorporated by reference
to Exhibit 3.3 to the Registrants Annual
Report on Form 10-K for the year ended
December 31, 2003, File No. 333-110117)4.1
    
    
    
    Indenture, dated as of August 19, 2003,
among Ardent Health Services, Inc.,
Ardent Health Services, LLC, the
Subsidiary Guarantors and U.S. Bank Trust
National Association, as trustee
(Incorporated by reference to Exhibit 4.1
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)4.2
    
    
    
    First Supplemental Indenture, dated as of
August 12, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.3
    
    
    
    Second Supplemental Indenture, dated as
of August 12, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.4
    
    
    
    Third Supplemental Indenture, dated as of
December 31, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank Trust National
Association, as Trustee (Incorporated by
reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.5
    
    
    
    Fourth Supplemental Indenture, dated as
of December 31, 2004, among Ardent Health
Services, Inc. Ardent Health Services
LLC, the Subsidiary Guarantors named
therein and U.S. Bank National
Association, as Trustee (Incorporated by
reference to Exhibit 10.4 to the
Registrants Current Report on Form 8-K
filed January 6, 2005, File No.
333-110117)4.6
    
    
    
    Form of Ardent Health Services, Inc. 10%
Senior Subordinated Note due 2013
(Incorporated by reference to Exhibit 4.2
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)4.7
    
    
    
    Form of Notation of Guarantee, dated as
of August 19, 2003, executed by each of
the Guarantors (Incorporated by reference
to Exhibit 4.3 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)4.8
    
    
    
    Second Amended and Restated Intercompany
Promissory Note dated July 12, 2004
issued by Lovelace Sandia Health System,
Inc. in favor of Ardent Medical Services,
Inc. (Incorporated by reference to
Exhibit 10.3 to the Registrants
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, File No.
333-110117)4.9
    
    
    
    Amended and Restated Security Agreement,
dated as of October 1, 2003, between
Lovelace Health Systems, Inc. and Ardent
Health Services, Inc. (Incorporated by
reference to Exhibit 4.5 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)4.10
    
    
    
    Intercreditor and Subordination
Agreement, dated as of August 19, 2003,
among Bank one, NA, as Collateral Agent,
Bank One, NA, as Administrative Agent,
U.S. Bank Trust National Association, as
Trustee, and Ardent Health Services, Inc.
(Incorporated by reference to Exhibit 4.6
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)4.11
    
    
    
    Collateral Assignment of Note and
Security Agreement dated October 1, 2003
issued by Ardent Health Services, Inc. to
Bank One, NA, as Collateral Agent
(Incorporated by reference to Exhibit 4.7
to the Registrants Registration
Statement on Form S-1, File No.
333-110117)




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##### Table of Contents



ExhibitNo.
    
    
    
    Description10.1
    
    
    
    Credit Agreement, dated as of August 19,
2003, among Ardent Health Services, Inc.,
as Borrower, Ardent Health Services LLC
and certain of its subsidiaries as the
Guarantors, Bank One, NA, as
Administrative Agent, Swing Line Lender
and L/C Issuer, Bank of America, N.A. and
UBS Securities LLC, as Co-Syndication
Agents, General Electric Capital
Corporation and Merrill Lynch Capital, as
Co-Documentation Agents, and the other
Lenders party thereto (Incorporated by
reference to Exhibit 10.1 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.2
    
    
    
    First Amendment to Credit Agreement dated
as of December 31, 2003 among Ardent
Health Services, Inc., as Borrower,
Ardent Health Services LLC and certain of
its subsidiaries as Guarantors, Bank One,
NA, as Administrative Agent, Swing Line
Lender and L/C Issuer and the Lenders
party thereto (Incorporated by reference
to Exhibit 10.1 to the Registrants
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004, File No.
333-110117)10.3
    
    
    
    Second Amendment to Credit Agreement
dated as of July 12, 2004 among Ardent
Health Services, Inc. as Borrower, Ardent
Health Services LLC and certain of its
subsidiaries as Guarantors, Bank One, NA,
as Administrative Agent, Swing Line
Lender and L/C Issuer and the other
Lenders party thereto (Incorporated by
reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004,
File No. 333-110117)10.4
    
    
    
    Third Amendment to Credit Agreement dated
as of August 12, 2004 among Ardent Health
Services, Inc., as Borrower, Ardent
Health Services LLC and certain of its
subsidiaries as Guarantors, Citicorp
North America, Inc., as Administrative
Agent, Swing Line Lender and L/C Issuer
and the other Lenders party thereto
(Incorporated by reference to Exhibit
10.1 to the Registrants Current Report
on Form 8-K dated August 12, 2004, File
No. 333-110117)10.5
    
    
    
    Fourth Amendment to Credit Agreement
dated as of November 12, 2004 among
Ardent Health Services, Inc., as
Borrower, Ardent Health Services LLC and
certain of its subsidiaries, as
Guarantors, the Lenders party thereto and
Citicorp North America, Inc., as
Administrative Agent (Incorporated by
reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K
dated November 12, 2004, File No.
333-110117)10.6
    
    
    
    Fifth Amendment to Credit Agreement dated
as of December 23, 2004 among Ardent
Health Services, Inc., as Borrower,
Ardent Health Services LLC and certain of
its subsidiaries, as Guarantors, the
Lenders party thereto and Citicorp North
America, Inc., as Administrative Agent
(Incorporated by reference to Exhibit
10.1 to the Registrants Current Report
on Form 8-K dated December 22, 2004, File
No. 333-110117)10.7
    
    
    
    Amendment and Assignment dated as of
August 12, 2004 among Bank One, NA, as
resigning administrative agent, Citicorp
North America, Inc., as successor to Bank
One, NA, and the other Loan Parties
thereto (Incorporated by reference to
Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed August 20, 2004,
File No. 333-110117)10.8
    
    
    
    Form of 10.2% Senior Subordinated Notes
due August 15, 2014 (Incorporated by
reference to Exhibit 10.2 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.9
    
    
    
    Fourth Amended and Restated Ardent Health
Services LLC and its Subsidiaries Option
and Restricted Unit Purchase Plan
(Incorporated by reference to Exhibit
10.1 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended March
31, 2004, File No. 333-110117)10.10
    
    
    
    Form of Non-Qualified Common Membership
Interest Option Agreement for Directors
and Officers (Incorporated by reference
to Exhibit 10.4 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)*10.11
    
    
    
    Subscription Agreement, dated as of
December 11, 2002, as amended on February
7, 2003, among Ardent Health Services,
LLC, Welsh, Carson, Anderson & Stowe IX,
L.P., FFC Partners II, L.P. and related
entities, BancAmerica Capital Investors
I, L.P. and the several other purchasers
listed on Annex I thereto (Incorporated
by reference to Exhibit 10.6 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)10.12
    
    
    
    Professional Services Arrangement, dated
as of December 11, 2002, between Ardent
Health Services LLC and WCAS Management
Corporation (Incorporated by reference to
Exhibit 10.7 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)10.13
    
    
    
    Employment Agreement, dated as of July 1,
2004, between AHS Management Company,
Inc. and David T. Vandewater
(Incorporated by reference to Exhibit
10.4 to the Registrants Quarterly Report
on Form 10-Q for the quarter ended June
30, 2004, File No. 333-110117)*




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##### Table of Contents



ExhibitNo.
    
    
    
    Description10.14
    
    
    
    Indemnification Agreement, dated as of
August 4, 2001, between Ardent Health
Services LLC and David T. Vandewater
(Incorporated by reference to Exhibit
10.16 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.15
    
    
    
    Employment Agreement, dated as of May 5,
2003, between AHS Management Company,
Inc. and Norm Becker (Incorporated by
reference to Exhibit 10.10 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)*10.16
    
    
    
    Employment Agreement, dated as of June 1,
2001, between AHS Management Company,
Inc. and Jamie E. Hopping (Incorporated
by reference to Exhibit 10.11 to the
Registrants Registration Statement on
Form S-1, File No. 333-110117)*10.17
    
    
    
    Indemnification Agreement, dated as of
July 1, 2002, between Ardent Health
Services LLC and Jamie E. Hopping
(Incorporated by reference to Exhibit
10.14 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.18
    
    
    
    Indemnification Agreement, dated as of
January 31, 2002, between Ardent Health
Services LLC and Stephen C. Petrovich
(Incorporated by reference to Exhibit
10.15 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.19
    
    
    
    Amended and Restated Employment and
Consulting Agreement, dated as of June 7,
2004, between AHS Management Company,
Inc. and Vernon S. Westrich (Incorporated
by reference to Exhibit 10.5 to the
Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004,
File No. 333-110117)*10.20
    
    
    
    Indemnification Agreement, dated as of
January 31, 2002, between Ardent Health
Services LLC and Vernon S. Westrich
(Incorporated by reference to Exhibit
10.17 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.21
    
    
    
    Employment Agreement, dated as of
December 1, 2003, between AHS Management
Company, Inc. and R. Dirk Allison
(Incorporated by reference to Exhibit
10.18 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.22
    
    
    
    Indemnification Agreement, dated as of
December 1, 2003, between Ardent Health
Services LLC and R. Dirk Allison
(Incorporated by reference to Exhibit
10.19 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)*10.23
    
    
    
    Employment Agreement, dated as of July 1,
2004, between AHS Management Company,
Inc. and Kevin Gross*10.24
    
    
    
    Indemnification Agreement, dated as of
July 1, 2004, between Ardent Health
Services LLC and Kevin Gross*10.25
    
    
    
    Medicaid Managed Care Services Agreement
No. PSC 02-05, effective July 1, 2001,
between the New Mexico Human Services
Department and Lovelace Community Health
Plan (Incorporated by reference to
Exhibit 10.20 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)10.26
    
    
    
    Amendment No. 1 to Medicaid Managed Care
Services Agreement No. PSC 02-05,
effective July 1, 2003, between the New
Mexico Human Services Department and
Lovelace Community Health Plan
(Incorporated by reference to Exhibit
10.21 to the Registrants Registration
Statement on Form S-1, File No.
333-110117)10.27
    
    
    
    Contract P00149, effective January 1,
2002, between Centers for Medicare &
Medicaid Services and Lovelace Health
Plan, Inc. (Incorporated by reference to
Exhibit 10.22 to the Registrants
Registration Statement on Form S-1, File
No. 333-110117)21
    
    
    
    Subsidiaries of Ardent Health Services LLC31.1
    
    
    
    Certification of CEO pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    
    Certification of CFO pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    
    
    Certification of CEO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 200232.2
    
    
    
    Certification of CFO pursuant to 18
U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act
of 2002
 
 *
    
    Indicates management contract or compensatory plan or arrangement.