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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] 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: 333-94521
IASIS HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0450619
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
113 SEABOARD LANE, SUITE A-200
FRANKLIN, TENNESSEE 37067
(Address of Principal Executive Offices)
(615) 844-2747
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark [X] whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of May 15, 2003, 31,956,113 shares of the Registrant's Common Stock
were outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION..................................................................................................1
Item 1. Financial Statements: Condensed and Consolidated Balance Sheets at March 31, 2003 (Unaudited)
and September 30, 2002 ..............................................................................................1
Condensed and Consolidated Statements of Operations (Unaudited) -- Three Months Ended March 31, 2003
and 2002 and Six Months Ended March 31, 2003 and 2002................................................................2
Condensed and Consolidated Statements of Cash Flows (Unaudited) -- Six Months Ended March 31, 2003 and 2002......................3
Notes to Unaudited Condensed and Consolidated Financial Statements...............................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................................30
Item 4. Controls and Procedures................................................................................................30
PART II. OTHER INFORMATION....................................................................................................31
Item 1. Legal Proceedings......................................................................................................31
Item 2. Changes in Securities and Use of Proceeds..............................................................................31
Item 6. Exhibits and Reports on Form 8-K.......................................................................................31
ii
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
2003 2002
------------ --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 6,362 $ --
Accounts receivable, net of allowance for doubtful
accounts of $39,095 and $34,450, respectively ............... 155,935 154,452
Inventories ................................................... 23,996 23,909
Prepaid expenses and other current assets ..................... 14,993 15,697
Assets held for sale .......................................... 22,106 22,106
-------- ---------
Total current assets ...................................... 223,392 216,164
Property and equipment, net ....................................... 415,679 402,171
Goodwill .......................................................... 252,204 252,397
Other assets, net ................................................. 34,459 27,751
-------- ---------
Total assets .............................................. $925,734 $ 898,483
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 48,543 $ 47,061
Salaries and benefits payable ................................. 23,367 21,551
Accrued interest payable ...................................... 16,754 15,016
Medical claims payable ........................................ 31,146 30,262
Accrued expenses and other current liabilities ................ 15,994 19,023
Current portion of long-term debt and capital lease
obligations .............................................. 5,032 26,252
-------- ---------
Total current liabilities ................................. 140,836 159,165
Long-term debt and capital lease obligations ...................... 581,741 556,691
Other long-term liabilities ....................................... 25,691 22,347
Minority interest ................................................. 3,490 4,736
-------- ---------
Total liabilities ......................................... 751,758 742,939
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value, authorized
5,000,000 shares; no shares issued and outstanding
at March 31, 2003 and September 30, 2002 ...................
Common stock - $0.01 par value, authorized 100,000,000
shares; 31,985,029 shares and 31,984,779 shares issued at
March 31, 2003 and September 30, 2002, respectively,
and 31,956,113 shares and 31,955,863 shares
outstanding at March 31, 2003 and September 30,
2002, respectively ......................................... 320 320
Nonvoting common stock - $0.01 par value, authorized
10,000,000 shares; no shares issued and outstanding
at March 31, 2003 and September 30, 2002 ................... -- --
Additional paid-in capital .................................... 450,720 450,718
Treasury stock, at cost, 16,306,541 shares at March 31,
2003 and September 30, 2002 ............................... (155,300) (155,300)
Accumulated deficit ........................................... (121,764) (140,194)
-------- ---------
Total stockholders' equity .................................. 173,976 155,544
-------- ---------
Total liabilities and stockholders' equity .................. $925,734 $ 898,483
======== =========
See accompanying notes.
1
IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------- -------- --------- ---------
2003 2002 2003 2002
-------- -------- --------- ---------
Net revenue ................................................................ $271,436 $244,424 $ 526,201 $ 465,305
Costs and expenses:
Salaries and benefits ................................................... 94,153 80,318 182,952 158,045
Supplies ................................................................ 37,768 34,705 73,451 65,998
Other operating expenses ................................................ 78,289 73,578 155,703 143,155
Provision for bad debts ................................................. 20,154 17,591 39,865 34,365
Interest, net ........................................................... 13,131 14,036 26,448 28,539
Depreciation and amortization ........................................... 12,682 11,180 25,533 21,668
Loss on debt extinguishment ............................................. 3,900 -- 3,900 --
-------- -------- --------- ---------
Total costs and expenses .............................................. 260,077 231,408 507,852 451,770
-------- -------- --------- ---------
Earnings before gain on sale of assets, minority interests, income taxes and
cumulative effect of a change in
account principle ....................................................... 11,359 13,016 18,349 13,535
Loss (gain) on sale of assets, net ......................................... -- -- (780) 7
Minority interests ......................................................... 421 301 699 524
-------- -------- --------- ---------
Earnings before income taxes and
cumulative effect of a change in
accounting principle .................................................... 10,938 12,715 18,430 13,004
Income tax expense ......................................................... -- -- -- --
-------- -------- --------- ---------
Net earnings before cumulative effect of a
change in accounting principle .......................................... $ 10,938 $ 12,715 $ 18,430 $ 13,004
Cumulative effect of a change in
accounting principle .................................................. -- -- -- (39,497)
-------- -------- --------- ---------
Net earnings (loss) ........................................................ $ 10,938 $ 12,715 $ 18,430 $ (26,493)
======== ======== ========= =========
See accompanying notes
2
IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ............................................ $ 18,430 $ (26,493)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................ 25,533 21,668
Minority interests ........................................... 699 524
Cumulative effect of a change in accounting principle ........ -- 39,497
(Gain) loss on sale of assets ................................ (780) 7
Loss on debt extinguishment .................................. 3,900 --
Changes in operating assets and liabilities,
net of disposals:
Accounts receivable ........................................ (1,340) (6,913)
Inventories, prepaid expenses and other current assets ..... (916) (5,249)
Accounts payable and other accrued liabilities ............. 6,583 6,431
--------- ---------
Net cash provided by operating activities .................... 52,109 29,472
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (36,520) (16,107)
Purchase of real estate ........................................ -- (55,338)
Proceeds from sales of assets .................................. 2,863 149
Change in other assets ......................................... (1,732) (2,578)
--------- ---------
Net cash used in investing activities ........................ (35,389) (73,874)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........................ 2 222
Proceeds from senior bank debt borrowings ..................... 454,100 120,300
Payment of debt and capital leases ............................ (453,450) (79,673)
Debt financing costs incurred ................................. (10,600) (2,347)
Distribution of minority interests ............................ (410) --
Other ......................................................... -- (156)
--------- ---------
Net cash provided by (used in) financing activities ......... (10,358) 38,346
--------- ---------
Increase (decrease) in cash and cash equivalents .................. 6,362 (6,056)
Cash and cash equivalents at beginning of the period .............. -- 6,056
--------- ---------
Cash and cash equivalents at end of the period .................... $ 6,362 $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................ $ 24,789 $ 28,937
========= =========
Cash paid (refunded) for income taxes, net .................... $ 6 $ (1,831)
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred to acquire equipment ....... $ 3,318 $ --
========= =========
See accompanying notes.
3
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed and consolidated financial statements include
the accounts of IASIS Healthcare Corporation ("IASIS" or "the Company") and all
subsidiaries and entities under common control of the Company and have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial reporting and in accordance with Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
for complete financial statements. The balance sheet at September 30, 2002 has
been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2002.
In the opinion of management, the accompanying unaudited condensed and
consolidated financial statements contain all material adjustments (consisting
of normal recurring items) necessary for a fair presentation of results for the
interim periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year.
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the accompanying unaudited condensed and consolidated financial statements and
notes. Actual results could differ from those estimates.
IASIS operates networks of medium-sized hospitals in high-growth urban
and suburban markets. At March 31, 2003, the Company owned or leased 14
hospitals with a total of 2,116 beds in service. The Company's hospitals are
located in four regions:
- Salt Lake City, Utah;
- Phoenix, Arizona;
- Tampa-St. Petersburg, Florida; and
- three cities in Texas, including San Antonio.
The Company also operates three ambulatory surgery centers and a
Medicaid managed health plan in Phoenix called Health Choice, serving over
60,900 members at March 31, 2003.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, Consolidation of Variable Interest Entities
("VIEs") an Interpretation of Accounting Research Bulletin No. 51 ("FIN 46").
FIN 46 requires certain VIEs to be consolidated by the primary beneficiary of
the entity if the equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new VIEs created or
acquired after January 31, 2003. For VIEs created or acquired prior to February
1, 2003, the provisions of FIN 46 must be applied for the first interim or
annual period beginning after June 15, 2003. The Company does not expect this
interpretation to have a material effect on its future results of operations or
financial position.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees ("FIN 45"). FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issuing the guarantee.
The Company will apply FIN 45 to guarantees, if any, issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material effect on the
Company's consolidated financial position or results of operations.
4
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following (in
thousands):
MARCH 31, SEPTEMBER 30,
2003 2002
--------- -------------
Bank facilities ............................................................. $ 349,126 $ 347,846
Senior subordinated notes ................................................... 230,000 230,000
Capital lease obligations ................................................... 7,647 5,097
--------- -----------
586,773 582,943
Less current maturities ..................................................... 5,032 26,252
--------- -----------
$ 581,741 $ 556,691
========= ===========
BANK FACILITIES
On October 15, 1999, the Company entered into a bank credit facility
through which a syndicate of lenders made a total of $455.0 million available in
the form of an $80.0 million tranche A term loan, a $250.0 million tranche B
term loan and a $125.0 million revolving credit facility. Effective October 5,
2001, the Company amended its bank credit facility to provide for an additional
$30.0 million incremental senior secured term loan on substantially the same
terms and conditions as the existing bank credit facility. The new incremental
term loan was used solely to fund the purchase on October 15, 2001 of the land
and buildings at two facilities in Arizona previously operated under long-term
leases and related costs and expenses. The amended bank credit facility also
provided for revisions to certain financial covenants.
On February 7, 2003, the Company completed the refinancing of its bank
credit facility to provide for a new $475.0 million credit facility in the form
of a $350.0 million, six year term B loan and $125.0 million, five year
revolving credit facility. The loans under the new credit facility accrue
interest at variable rates at specified margins above either the agent bank's
alternate base rate or its Eurodollar rate. Principal payments on the new term B
loan are due in quarterly installments of $875,000 beginning March 31, 2003
until maturity. The new credit facility is also subject to mandatory prepayment
under specific circumstances including a portion of excess cash flow and the net
proceeds from an initial public offering, asset sales, debt issuances and
specified casualty events, each subject to various exceptions. Proceeds from the
new credit facility were used to refinance amounts outstanding under the
previous credit facility and to fund closing and other transaction related costs
of $10.6 million incurred in connection with the refinancing. The new credit
facility increased the Company's annual capital expenditure limitation to $80.0
million per year. In addition, the new credit facility provides for revisions to
certain financial covenants and replaced the fixed charge coverage covenant
under the previous credit facility with a senior leverage test. The new $125.0
million revolving credit facility is available for working capital and other
general corporate purposes. Consistent with the previous credit facility, the
new bank credit facility requires that the Company comply with various financial
ratios and tests and contains covenants limiting the Company's ability to, among
other things, incur debt, engage in acquisitions or mergers, sell assets, make
investments or capital expenditures, make distributions or stock repurchases and
pay dividends. The new bank credit facility includes a 1% prepayment penalty on
voluntary prepayments made during the first year on amounts outstanding under
the term loan. The new bank credit facility is guaranteed by the Company's
subsidiaries and these guaranties are secured by a pledge of substantially all
of the subsidiaries' assets. Substantially all of the Company's outstanding
common stock is pledged for the benefit of the Company's lenders as security for
the Company's obligations under the new credit facility.
At March 31, 2003, there was $349.1 million outstanding under the six
year term B loan and no amounts outstanding under the revolving credit facility.
The new revolving credit facility includes a $75.0 million sub-limit for letters
of credit that may be issued. At March 31, 2003, the Company had issued $38.3
million in letters of
5
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
credit. The loans under the previous bank credit facility accrued interest at
variable rates at specified margins above either the agent bank's alternate base
rate or its reserve-adjusted Eurodollar rate. The weighted average interest rate
of outstanding borrowings under the bank credit facilities was approximately
5.78% for the six months ended March 31, 2003. The Company pays a commitment fee
equal to 0.5% of the average daily amount available under the new revolving
credit facility. During the three months ended March 31, 2003, the Company
expensed approximately $3.9 million in unamortized deferred financing costs
associated with the previous credit facility.
SENIOR SUBORDINATED NOTES
On October 13, 1999, the Company issued $230.0 million of 13% senior
subordinated notes due 2009. On May 25, 2000, the Company exchanged all of its
outstanding 13% senior subordinated notes due 2009 for 13% senior subordinated
exchange notes due 2009 that have been registered under the Securities Act of
1933, as amended (the "Notes"). Terms and conditions of the exchange offer were
as set forth in the registration statement on Form S-4 filed with the Securities
and Exchange Commission that became effective on April 17, 2000. The Notes are
unsecured obligations and are subordinated in right of payment to all existing
and future senior indebtedness of the Company. Interest on the Notes is payable
semi-annually.
Except with respect to a change of control, the Company is not required
to make mandatory redemption or sinking fund payments with respect to the Notes.
The Notes are guaranteed, jointly and severally, by all of the Company's
subsidiaries ("Subsidiary Guarantors"). The Company is a holding company with no
independent assets or operations apart from its ownership of the Subsidiary
Guarantors. At March 31, 2003, all of the Subsidiary Guarantors fully and
unconditionally guaranteed the Notes and, with the exception of Odessa Regional
Hospital, LP, all were 100% owned by the Company. The indenture for the Notes
contains certain covenants, including but not limited to, restrictions on new
indebtedness, asset sales, capital expenditures, dividends and the Company's
ability to merge or consolidate.
4. STOCK BENEFIT PLANS
The Company, from time to time, grants stock options for a fixed number
of common shares to employees. Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for employee
stock option grants in accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, uses the intrinsic method to value
options and recognizes no compensation expense for the stock option grants when
the exercise price of the options equals, or is greater than, the market value
of the underlying stock on the date of grant.
Pro forma information regarding interim net earnings is required by
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method. The fair value for these options was
estimated at the date of grant using a minimum value option valuation model with
the following range of weighted-average assumptions:
MARCH 31, MARCH 31,
2003 2002
------------------- ------------------
Risk-free interest rate 2.70% - 5.03% 4.64% - 5.57%
Expected life 2 1/2 to 5 years 2 1/2 to 5 years
Expected dividend yield 0.0% 0.0%
If the Company had measured compensation cost for the stock options
granted under the fair value based method prescribed by SFAS No. 123, Accounting
for Stock-Based Compensation, the Company's net earnings (loss) would have been
changed to the pro forma amounts set forth below (in thousands):
6
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
SIX MONTHS ENDED,
---------------------------
MARCH 31, MARCH 31,
2003 2002
---------- ---------
Net earnings, as reported ................................................... $ 10,938 $ 12,715
Less: stock-based compensation expense
determined under fair value based
method .................................................................. (222) (128)
--------- ---------
Pro forma net earnings (loss) ............................................... $ 10,716 $ 12,587
========= =========
The effect of applying SFAS No. 123 for providing pro forma disclosure is not
likely to be representative of the effect on reported net income for future
years.
5. CONTINGENCIES
NET REVENUE
The calculation of appropriate payments from the Medicare and Medicaid
programs as well as terms governing agreements with other third party payors are
complex and subject to interpretation. Final determination of amounts earned
under the Medicare and Medicaid programs often occurs subsequent to the year in
which services are rendered because of audits by the programs, rights of appeal
and the application of numerous technical provisions. As a result, there is at
least a reasonable possibility that recorded estimates will change by a material
amount in the near term. In the opinion of management, adequate provision has
been made for adjustments that may result from such routine audits and appeals.
PROFESSIONAL, GENERAL AND WORKERS COMPENSATION LIABILITY RISKS
The Company is subject to claims and legal actions in the ordinary
course of business, including claims relating to patient treatment and personal
injuries. To cover these types of claims, the Company maintains general
liability and professional liability insurance in excess of self-insured
retentions through a commercial insurance carrier in amounts that the Company
believes to be sufficient for its operations, although, potentially, some claims
may exceed the scope of coverage in effect. Plaintiffs may request punitive or
other damages that may not be covered by insurance. The Company is currently not
a party to any such proceedings that, in the Company's opinion, would have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company expenses an actuarially determined estimate
of the costs it expects to incur under the self-insured retention exposure for
professional liability claims. As of March 31, 2003 and September 30, 2002, the
Company's professional and general liability accrual for asserted and unasserted
claims was approximately $21.4 million and $17.6 million, respectively, which is
included within other long-term liabilities in the accompanying condensed and
consolidated balance sheets.
The Company is subject to claims and legal actions in the ordinary
course of business relative to workers compensation and other labor and
employment matters. To cover these types of claims, the Company maintains
workers compensation insurance coverage with a self-insured retention. The
Company accrues costs of workers compensation claims based upon estimates
derived from its claims experience.
7
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
HEALTH CHOICE
Health Choice has entered into a capitated contract whereby the plan
provides healthcare services in exchange for fixed periodic and supplemental
payments from the Arizona Health Care Cost Containment System ("AHCCCS"). These
services are provided regardless of the actual costs incurred to provide these
services. The Company receives reinsurance and other supplemental payments from
AHCCCS to cover certain costs of healthcare services that exceed certain
thresholds. The Company believes the capitated payments, together with
reinsurance and other supplemental payments, are sufficient to pay for the
services Health Choice is obligated to deliver. As of March 31, 2003, the
Company provided performance guaranties in the form of a letter of credit in the
amount of $20.6 million for the benefit of AHCCCS to support its obligations
under the Health Choice contract to provide and pay for the healthcare services.
TAX SHARING AGREEMENT
The Company and some of its subsidiaries are included in JLL
Healthcare, LLC's consolidated group for U.S. Federal income tax purposes as
well as in some consolidated, combined or unitary groups which include JLL
Healthcare, LLC for state, local and foreign income tax purposes. The Company
and JLL Healthcare, LLC have entered into a tax sharing agreement that requires
the Company to make payments to JLL Healthcare, LLC such that, with respect to
tax returns for any taxable period in which the Company or any of its
subsidiaries is included in JLL Healthcare, LLC's consolidated group or any
combined group, including JLL Healthcare, LLC, the amount of taxes to be paid by
the Company will be determined, subject to some adjustments, as if the Company
and each of its subsidiaries included in JLL Healthcare, LLC's consolidated
group or a combined group including JLL Healthcare, LLC filed their own
consolidated, combined or unitary tax return.
Each member of a consolidated group for U.S. Federal income tax
purposes is jointly and severally liable for the Federal income tax liability of
each other member of the consolidated group. Accordingly, although the tax
sharing agreement allocates tax liabilities between the Company and JLL
Healthcare, LLC, for any period in which the Company is included in JLL
Healthcare, LLC's consolidated group, the Company could be liable in the event
that any Federal tax liability was incurred, but not discharged, by any other
member of JLL Healthcare, LLC's consolidated group.
OTHER
The Company has been advised that its hospital in San Antonio, Texas,
Southwest General Hospital, is a subject of an investigation relating to the
provision of hyperbaric oxygen therapy services. In a letter dated February 11,
2003, the U.S. Attorney for the Western District of Texas stated that the
investigation relates to certain billing practices for these services since
1998. The Company is cooperating with the U.S. Attorney's office with respect to
this investigation. Based on information currently available, the Company
believes the investigation relates primarily to the period when Tenet Healthcare
Corporation ("Tenet") owned the hospital. Although the Company is unable to
predict the outcome of this investigation, management does not currently believe
it will have a material adverse effect on the Company's business, financial
condition or results of operations.
Tenet and its affiliates are defendants in a civil action brought on
January 9, 2003 in the U.S. District Court for the Central District of
California by the United States for the improper assignment of diagnostic codes
and submitting false claims to Medicare. The litigation stems from an
investigation by the U.S. Department of Justice, in conjunction with the Office
of Inspector General, of certain hospital billings to Medicare for inpatient
stays reimbursed pursuant to diagnosis related groups 79 (pneumonia), 415
(operating room procedure for infectious and parasitic diseases), 416
(septicemia) and 475 (respiratory system diagnosis with mechanical ventilator).
Although hospitals that the Company acquired from Tenet are referenced in the
complaint, all of the actions complained of occurred prior to December 31, 1998
and thus before the hospitals' acquisition by the Company. The Company has
informed Tenet that the Company has no obligation or liability for any of the
matters described in the complaint and that the
8
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
Company is entitled to indemnification if any damages or relief were to be
sought against IASIS in connection with the proceeding.
The Company believes it is in material compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing that it believes
would have a material effect on its financial statements. Compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
6. GOODWILL
The Company adopted SFAS No. 142 effective October 1, 2001. As a result
of the transitional impairment test required by SFAS No. 142, the Company
recorded an impairment charge to goodwill of $39.5 million as of October 1,
2001. The impairment charge to goodwill is reflected as a cumulative effect of a
change in accounting principle in the accompanying condensed and consolidated
statements of operations. The impairment relates to goodwill associated with the
Arizona market included in the acute care service segment and was based on a
discounted cash flow analysis. Pursuant to the provisions of SFAS No. 142,
goodwill is no longer amortized but is subject to annual impairment reviews.
7. ASSET REVALUATION AND CLOSURE COSTS
In the third quarter of fiscal 2001, the Company recorded a pre-tax
asset revaluation charge of approximately $2.8 million related to the closure of
Rocky Mountain Medical Center and revaluation of net assets in conjunction with
their classification as held for sale. At March 31, 2003, Rocky Mountain Medical
Center net assets held for sale consisted of property and equipment and totaled
approximately $22.1 million.
The Company adopted and implemented an exit plan and recorded pre-tax
closure charges of approximately $9.1 million in the third quarter of fiscal
2001 with respect to the closure of Rocky Mountain Medical Center. At March 31,
2003, accrued closure costs totaled approximately $898,000. During the six
months ended March 31, 2003, the Company paid a total of $1.3 million in closure
costs, which consisted of $500,000 in facility and lease termination costs and
$800,000 in other exist costs.
8. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's acute care hospitals and related healthcare businesses
are similar in their activities and the economic environments in which they
operate (i.e., urban and suburban markets). Accordingly, the Company's
reportable operating segments consist of (1) acute care hospitals and related
healthcare businesses, collectively, and (2) its Medicaid managed health plan,
Health Choice and a related entity (collectively referred to as Health Choice).
The following is a financial summary by business segment for the periods
indicated:
9
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
THREE MONTHS SIX MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
ACUTE CARE SERVICE:
Net patient revenue .................................... $ 235,802 $ 210,143 $ 455,527 $ 399,291
Revenue between segments ............................... (1,625) (1,407) (3,533) (2,844)
--------- --------- --------- ---------
Net revenue ......................................... 234,177 208,736 451,994 396,447
Salaries and benefits .................................. 92,495 79,047 179,738 155,535
Supplies ............................................... 37,663 34,608 73,224 65,801
Other operating expenses ............................... 44,905 41,002 88,880 79,892
Provision for bad debts ................................ 20,154 17,591 39,865 34,365
--------- --------- --------- ---------
EBITDA(1) ........................................... 38,960 36,488 70,287 60,854
Loss on debt extinguishment ............................ 3,900 -- 3,900 --
Interest expense, net .................................. 13,131 14,036 26,448 28,587
Depreciation and amortization .......................... 12,653 11,153 25,471 21,612
Loss (gain) on sale of assets, net ..................... -- -- (780) 7
--------- --------- --------- ---------
Earnings before minority interests, income taxes and
cumulative effect of a change in accounting principle 9,276 11,299 15,248 10,648
Minority interests ..................................... 421 301 699 524
--------- --------- --------- ---------
Earnings before income taxes and cumulative
effect of a change in accounting principle .......... $ 8,855 $ 10,998 $ 14,549 $ 10,124
========= ========= ========= =========
Segment assets ......................................... $ 922,043 $ 905,150 $ 922,043 $ 905,150
========= ========= ========= =========
HEALTH CHOICE:
Capitation premiums and other payments ................. $ 37,259 $ 35,688 $ 74,207 $ 68,858
Revenue between segments ............................... -- -- -- --
--------- --------- --------- ---------
Net revenue ......................................... 37,259 35,688 74,207 68,858
Salaries and benefits .................................. 1,658 1,271 3,214 2,510
Supplies ............................................... 105 97 227 197
Other operating expenses ............................... 33,384 32,576 66,823 63,263
Provision for bad debts ................................ -- -- -- --
--------- --------- --------- ---------
EBITDA(1) ........................................... 2,112 1,744 3,943 2,888
Loss on debt extinguishment ............................ -- -- -- --
Interest income ........................................ -- -- -- (48)
Depreciation and amortization .......................... 29 27 62 56
--------- --------- --------- ---------
Earnings before minority interests, income taxes and
cumulative effect of a change in accounting principle 2,083 1,717 3,881 2,880
Minority interests ..................................... -- -- -- --
--------- --------- --------- ---------
Earnings before income taxes and cumulative
effect of a change in accounting principle .......... $ 2,083 $ 1,717 $ 3,881 $ 2,880
========= ========= ========= =========
Segment assets ......................................... $ 3,691 $ 20,060 $ 3,691 $ 20,060
========= ========= ========= =========
(1) EBITDA represents earnings before interest expense, loss (gain) on sale
of assets, loss on debt extinguishment, minority interests, income
taxes, cumulative effect of a change in accounting principle and
depreciation and amortization.
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Notes described in Note 3 are fully and unconditionally guaranteed
on a joint and several basis by all of the Company's Subsidiary Guarantors.
A summarized condensed consolidating balance sheet at March 31, 2003
and September 30, 2002 and condensed consolidating statements of operations and
statements of cash flows for the three months and six months ended March 31,
2003 and 2002 for the Company, segregating the parent company issuer, the
combined 100% owned Subsidiary Guarantors, the non-100% owned Subsidiary
Guarantor and eliminations, are found below. Separate unaudited financial
statements of the non-100% owned Subsidiary Guarantor, Odessa Regional Hospital,
LP ("Odessa"), are included as Exhibit 99.1 to the Company's filing on Form
10-Q. On February 1, 2001, Odessa sold 11.2% of its limited partner units, which
reduced the Company's ownership accordingly. However, Odessa's guaranty
continues to be full and unconditional with respect to the Notes.
10
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
MARCH 31, 2003
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
----------------------
NON-
PARENT 100% 100% CONDENSED
ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
-------- --------- ------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ -- $ 6,362 $ -- $ -- $ 6,362
Accounts receivable, net ................................ -- 145,326 10,609 -- 155,935
Inventories ............................................. -- 22,262 1,734 -- 23,996
Prepaid expenses and other current assets ............... -- 14,682 311 -- 14,993
Assets held for sale .................................... -- 22,106 -- -- 22,106
-------- --------- ------- -------- --------
Total current assets ................................. -- 210,738 12,654 -- 223,392
Property and equipment, net .............................. -- 391,894 23,785 -- 415,679
Net investment in and advances to subsidiaries ............. 868,864 (834,849) 6,853 (40,868) --
Goodwill ................................................... -- 223,377 28,827 -- 252,204
Other assets, net ........................................ 22,755 10,747 957 -- 34,459
-------- --------- ------- -------- --------
Total assets ......................................... $891,619 $ 1,907 $73,076 $(40,868) $925,734
======== ========= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ -- $ 46,409 $ 2,134 $ -- $ 48,543
-------- --------- ------- -------- --------
Salaries and benefits payable ........................... -- 22,652 715 -- 23,367
Accrued interest payable ................................ 16,754 -- -- -- 16,754
Medical claims payable .................................. -- 31,146 -- -- 31,146
Accrued expenses and other current liabilities .......... -- 15,634 360 -- 15,994
Current portion of long-term debt and capital lease
obligations .......................................... 3,500 723 809 -- 5,032
-------- --------- ------- -------- --------
Total current liabilities ............................ 20,254 116,564 4,018 -- 140,836
Long-term debt and capital lease obligations .............. 575,625 6,121 40,863 (40,868) 581,741
Other long-term liabilities ............................... -- 25,691 -- -- 25,691
Minority interest ......................................... -- 3,490 -- -- 3,490
-------- --------- ------- -------- --------
Total liabilities ................................. 595,879 151,866 44,881 (40,868) 751,758
Stockholders' equity ...................................... 295,740 (149,959) 28,195 -- 173,976
-------- --------- ------- -------- --------
Total liabilities and stockholders' equity .............. $891,619 $ 1,907 $73,076 $(40,868) $925,734
======== ========= ======= ======== ========
11
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
----------------------
NON-
PARENT 100% 100% CONDENSED
ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
-------- --------- -------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ -- $ -- $ -- $ -- $ --
Accounts receivable, net ................................ -- 145,704 8,748 -- 154,452
Inventories ............................................. -- 22,218 1,691 -- 23,909
Prepaid expenses and other current assets ............... -- 14,792 905 -- 15,697
Assets held for sale .................................... -- 22,106 -- -- 22,106
-------- --------- -------- -------- --------
Total current assets ................................. -- 204,820 11,344 -- 216,164
Property and equipment, net .............................. -- 378,715 23,456 -- 402,171
Net investment in and advances to subsidiaries ............. 870,372 (833,886) (3,426) (33,060) --
Goodwill ................................................... -- 223,570 28,827 -- 252,397
Other assets, net .......................................... 18,006 9,081 664 -- 27,751
-------- --------- -------- -------- --------
Total assets ......................................... $888,378 $ (17,700) $ 60,865 $(33,060) $898,483
======== ========= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ -- $ 45,127 $ 1,934 $ -- $ 47,061
Salaries and benefits payable ........................... -- 20,504 1,047 -- 21,551
Accrued interest payable ................................ 15,016 -- -- -- 15,016
Medical claims payable .................................. -- 30,262 -- -- 30,262
Accrued expenses and other current liabilities .......... -- 18,824 199 -- 19,023
Current portion of long-term debt and capital lease
obligations .......................................... 25,307 945 470 (470) 26,252
-------- --------- -------- -------- --------
Total current liabilities ............................ 40,323 115,662 3,650 (470) 159,165
Long-term debt and capital lease obligations .............. 552,539 4,152 32,590 (32,590) 556,691
Other long-term liabilities ............................... -- 22,347 -- -- 22,347
Minority interest ......................................... -- 4,736 -- -- 4,736
-------- --------- -------- -------- --------
Total liabilities .................................... 592,862 146,897 36,240 (33,060) 742,939
Stockholders' equity ...................................... 295,516 (164,597) 24,625 -- 155,544
-------- --------- -------- -------- --------
Total liabilities and stockholders' equity ............. $888,378 $ (17,700) $ 60,865 $(33,060) $898,483
======== ========= ======== ========= ========
12
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
---------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- ----- ----- ------------ ------------
Net revenue ....................................... $ -- $254,015 $17,769 $ (348) $271,436
Costs and expenses:
Salaries and benefits ........................... -- 88,630 5,523 -- 94,153
Supplies ........................................ -- 35,402 2,366 -- 37,768
Other operating expenses ........................ -- 75,659 2,630 -- 78,289
Provision for bad debts ......................... -- 18,799 1,355 -- 20,154
Interest, net ................................... 12,920 211 1,262 (1,262) 13,131
Depreciation and amortization ................... 839 11,318 525 -- 12,682
Loss on debt extinguishment ..................... 3,900 -- -- -- 3,900
Management fees ................................. -- -- 348 (348) --
Equity in earnings of affiliates ................ (27,335) -- -- 27,335 --
-------- -------- ------- -------- --------
Total costs and expenses ...................... (9,676) 230,019 14,009 25,725 260,077
Earnings (loss) from operations before minority
interests and income taxes ...................... 9,676 23,996 3,760 (26,073) 11,359
Minority interests ................................ -- 421 -- -- 421
-------- -------- ------- -------- --------
Earnings (loss) from operations before income taxes 9,676 23,575 3,760 (26,073) 10,938
Income tax expense ................................ -- -- -- -- --
-------- -------- ------- -------- --------
Net earnings (loss) ............................... $ 9,676 $ 23,575 $ 3,760 $(26,073) $ 10,938
======== ======== ======= ======== ========
13
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
----------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- ----- -------- ------------ ------------
Net revenue ....................................... $ -- $232,582 $12,078 $ (236) $244,424
Costs and expenses:
Salaries and benefits ........................... -- 76,361 3,957 -- 80,318
Supplies ........................................ -- 33,500 1,205 -- 34,705
Other operating expenses ........................ -- 71,613 1,965 -- 73,578
Provision for bad debts ......................... -- 16,561 1,030 -- 17,591
Interest, net ................................... 13,831 205 1,083 (1,083) 14,036
Depreciation and amortization ................... 1,071 9,760 349 -- 11,180
Management fees ................................. -- -- 236 (236) --
Equity in earnings of affiliates ................ (26,534) -- -- 26,534 --
-------- -------- ------- -------- --------
Total costs and expenses ...................... (11,632) 208,000 9,825 25,215 231,408
Earnings (loss) from operations before minority
interests and income taxes ...................... 11,632 24,582 2,253 (25,451) 13,016
Minority interests ................................ -- 301 -- -- 301
-------- -------- ------- -------- --------
Earnings (loss) from operations before income taxes 11,632 24,281 2,253 (25,451) 12,715
Income tax expense ................................ -- -- -- -- --
-------- -------- ------- -------- --------
Net earnings (loss) ............................... $ 11,632 $ 24,281 $ 2,253 $(25,451) $ 12,715
======== ======== ======= ======== ========
14
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
----------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- --------- --------- ------------ ------------
Net revenue ................................... $ -- $ 492,874 $33,989 $ (662) $ 526,201
Costs and expenses:
Salaries and benefits ....................... -- 172,113 10,839 -- 182,952
Supplies .................................... -- 68,656 4,795 -- 73,451
Other operating expenses .................... -- 150,527 5,176 -- 155,703
Provision for bad debts ..................... -- 37,085 2,780 -- 39,865
Interest, net ............................... 26,166 282 2,517 (2,517) 26,448
Depreciation and amortization ............... 1,952 22,549 1,032 -- 25,533
Loss on debt extinguishment ................. 3,900 -- -- -- 3,900
Management fees ............................. -- -- 662 (662) --
Equity in earnings of affiliates ............ (47,931) -- -- 47,931 --
-------- --------- ------- -------- ---------
Total costs and expenses ................. (15,913) 451,212 27,801 44,752 507,852
Earnings (loss) from operations before minority
interests and income taxes .................. 15,913 41,662 6,188 (45,414) 18,349
Loss (gain) on sale of assets, net ......... -- (780) -- -- (780)
Minority interests ............................ -- 699 -- -- 699
-------- --------- ------- -------- ---------
Earnings before income taxes .................. 15,913 41,743 6,188 (45,414) 18,430
Income tax expense ............................ -- -- -- -- --
-------- --------- ------- -------- ---------
Net earnings (loss) ........................... $ 15,913 $ 41,743 $ 6,188 $(45,414) $ 18,430
======== ========= ======= ======== =========
15
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
----------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- --------- ------- ------------ -------------
Net revenue ........................................... $ -- $ 442,742 $23,013 $ (450) $ 465,305
Costs and expenses:
Salaries and benefits ............................... -- 150,314 7,731 -- 158,045
Supplies ............................................ -- 63,696 2,302 -- 65,998
Other operating expenses ............................ -- 139,289 3,866 -- 143,155
Provision for bad debts ............................. -- 32,389 1,976 -- 34,365
Interest, net ....................................... 28,239 300 2,170 (2,170) 28,539
Depreciation and amortization ....................... 2,130 18,843 695 -- 21,668
Management fees ..................................... -- -- 450 (450) --
Equity in earnings of affiliates .................... (41,203) -- -- 41,203 --
-------- --------- ------- -------- ---------
Total costs and expenses .......................... (10,834) 404,831 19,190 38,583 451,770
Earnings (loss) from operations before loss on sale
of assets, minority interests, income taxes and
cumulative effect of a change in accounting principle 10,834 37,911 3,823 (39,033) 13,535
Loss on sale of assets, net ........................... -- 7 -- -- 7
Minority interests .................................... -- 524 -- -- 524
-------- --------- ------- -------- ---------
Earnings (loss) before income taxes and cumulative
effect of a change in accounting principle .......... 10,834 37,380 3,823 (39,033) 13,004
Income tax expense .................................... -- -- -- -- --
-------- --------- ------- -------- ---------
Net earnings (loss) before cumulative effect of a
change in accounting principle ...................... $ 10,834 $ 37,380 $ 3,823 $(39,033) $ 13,004
Cumulative effect of a change in accounting
principal ........................................... -- (39,497) -- -- (39,497)
-------- --------- ------- -------- ---------
Net earnings (loss) ................................... $ 10,834 $ (2,117) $ 3,823 $(39,033) $ (26,493)
======== ========= ======= ======== =========
16
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2003 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
---------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- --------- ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................................. $ 15,913 $ 41,743 $ 6,188 $(45,414) $ 18,430
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization .............................. 1,952 22,549 1,032 -- 25,533
Minority interests ......................................... -- 699 -- -- 699
Gain on sale of property and equipment ..................... -- (780) -- -- (780)
Loss on debt extinguishment ................................ -- 3,900 -- -- 3,900
Equity in earnings of affiliates ........................... (47,931) -- -- 47,931 --
Changes in operating assets and liabilities, net
of the effect of dispositions:
Accounts receivable ...................................... -- 520 (1,860) -- (1,340)
Inventories, prepaid expenses and other current assets ... -- (1,466) 550 -- (916)
Accounts payable and other accrued liabilities ........... 1,737 4,817 29 -- 6,583
--------- -------- ------- -------- ---------
Net cash provided by (used in) operating activities ........ (28,329) 71,982 5,939 2,517 52,109
--------- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ............................. -- (36,000) (520) -- (36,520)
Proceeds from sale of property and equipment .................... -- 2,863 -- -- 2,863
Change in other assets .......................................... -- (1,439) (293) -- (1,732)
--------- -------- ------- -------- ---------
Net cash used in investing activities ...................... -- (34,576) (813) -- (35,389)
--------- -------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock .......................... -- 2 -- -- 2
Proceeds from senior bank debt borrowings ....................... 454,100 -- -- -- 454,100
Payment of debt and capital leases .............................. (452,821) (593) (36) -- (453,450)
Debt financing costs incurred ................................... (10,600) -- -- -- (10,600)
Change in intercompany balances with affiliates, net ............ 44,012 (36,805) (4,690) (2,517) --
Distribution of minority interests .............................. -- (10) (400) -- (410)
--------- -------- ------- -------- ---------
Net cash provided by (used in) financing activities ........ 34,691 (37,406) (5,126) (2,517) (10,358)
--------- -------- ------- -------- ---------
Net increase in cash and cash equivalents ....................... 6,362 -- -- -- 6,362
Cash and cash equivalents at beginning of period ................ -- -- -- -- --
--------- -------- ------- -------- ---------
Cash and cash equivalents at end of period....................... $ 6,362 $ -- $ -- $ -- $ 6,362
========= ======== ======= ======== =========
17
IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
IASIS HEALTHCARE CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
(IN THOUSANDS)
SUBSIDIARY GUARANTORS
---------------------
100% NON-100% CONDENSED
PARENT ISSUER OWNED OWNED ELIMINATIONS CONSOLIDATED
------------- -------- --------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) .............................................. $ 10,834 $ (2,117) $ 3,823 $(39,033) $ (26,493)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................... 2,130 18,843 695 -- 21,668
Minority interests .......................................... -- 524 -- -- 524
Cumulative effect of a change in accounting principle ....... -- 39,497 -- -- 39,497
Loss on sale of property and equipment ...................... -- 7 -- -- 7
Equity in earnings of affiliates ............................ (41,203) -- -- 41,203 --
Changes in operating assets and liabilities net of disposals:
Accounts receivable ....................................... -- (6,710) (203) -- (6,913)
Inventories, prepaid expenses and other current assets .... -- (4,567) (682) -- (5,249)
Accounts payable and other accrued liabilities ............ (652) 7,967 (884) -- 6,431
--------- -------- ------- -------- ---------
Net cash provided by (used in) operating activities ......... (28,891) 53,444 2,749 2,170 29,472
--------- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .............................. -- (10,395) (5,712) -- (16,107)
Purchase of real estate .......................................... -- (55,338) -- -- (55,338)
Proceeds from sale of property and equipment ..................... -- 149 -- -- 149
Change in other assets ........................................... -- (2,578) -- -- (2,578)
--------- -------- ------- -------- ---------
Net cash used in investing activities ....................... -- (68,162) (5,712) -- (73,874)
--------- -------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ........................... 222 -- -- -- 222
Proceeds from senior bank debt borrowings ........................ 120,300 -- -- -- 120,300
Payment of debt and capital leases ............................... (79,550) (123) -- -- (79,673)
Change in intercompany balances with affiliates, net ............. (9,734) 8,941 2,963 (2,170) --
Debt financing costs incurred .................................... (2,347) -- -- -- (2,347)
Other ............................................................ -- (156) -- -- (156)
--------- -------- ------- -------- ---------
Net cash provided by (used in) financing activities ......... 28,891 8,662 2,963 (2,170) 38,346
--------- -------- ------- -------- ---------
Decrease in cash and cash equivalents ............................ -- (6,056) -- -- (6,056)
Cash and cash equivalents at beginning of period ................. -- 6,056 -- -- 6,056
--------- -------- ------- -------- ---------
Cash and cash equivalents at end of period ....................... $ -- $ -- $ -- $ -- $ --
========= ======== ======= ======== =========
10. SUBSEQUENT EVENT
On April 1, 2003, the Company sold limited partnership units in the
Company's subsidiary that owns Jordan Valley Hospital to third party investors,
including physicians, for a net amount of $1.3 million. The net proceeds of this
equity sale will be used to fund a portion of the expansion of the hospital,
which is expected to be completed within the next 18 to 24 months. After giving
effect to this sale, the Company owns approximately 97.4% of the equity of this
subsidiary.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with our unaudited condensed
and consolidated financial statements, the notes to our unaudited condensed and
consolidated financial statements and the other financial information appearing
elsewhere in this report. Data for the three and six months ended March 31, 2003
and 2002 has been derived from our unaudited condensed and consolidated
financial statements.
FORWARD LOOKING STATEMENTS
Some of the statements we make in this report are forward-looking
within the meaning of the federal securities laws, which are intended to be
covered by the safe harbors created thereby. Those forward-looking statements
include all statements that are not historical statements of fact and those
regarding our intent, belief or expectations including, but not limited to, the
discussions of our operating and growth strategy (including possible
acquisitions and dispositions), financing needs, projections of revenue, income
or loss, capital expenditures and future operations. Forward-looking statements
involve known and unknown risks and uncertainties that may cause actual results
in future periods to differ materially from those anticipated in the
forward-looking statements. Those risks and uncertainties include, among others,
the risks and uncertainties discussed under the caption "Risk Factors" in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2002.
Although we believe that the assumptions underlying the forward-looking
statements contained in this report are reasonable, any of these assumptions
could prove to be inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements included in this report, you should not regard the inclusion of such
information as a representation by us or any other person that our objectives
and plans will be achieved. We undertake no obligation to publicly release any
revisions to any forward-looking statements contained herein to reflect events
and circumstances occurring after the date hereof or to reflect the occurrence
of unanticipated events.
GENERAL
We are a leading owner and operator of acute care hospitals that
develops and operates networks of medium-sized hospitals in high-growth urban
and suburban markets. We operate our hospitals with a strong community focus by
offering and developing healthcare services to meet the needs of the markets we
serve, promoting strong relationships with physicians and working with local
managed care plans. At March 31, 2003, we owned or leased 14 hospitals with a
total of 2,116 beds in service. Our hospitals are located in four regions:
- Salt Lake City, Utah;
- Phoenix, Arizona;
- Tampa-St. Petersburg, Florida; and
- three cities in Texas, including San Antonio.
We also operate three ambulatory surgery centers and a Medicaid managed
health plan called Health Choice, serving over 60,900 members in Arizona at
March 31, 2003.
Net revenue is comprised of net patient service revenue and other
revenue. Net patient service revenue is reported net of contractual adjustments.
The adjustments principally result from differences between the hospitals'
established charges and payment rates under Medicare, Medicaid and various
managed care plans. Established hospital charges generally have increased at a
faster rate than the rate of increase for Medicare and Medicaid payments. The
calculation of appropriate payments from the Medicare and Medicaid programs as
well as terms governing agreements with other third party payors are complex and
subject to interpretation. As a result, there is at least a reasonable
possibility that recorded estimates will change by a material amount. Other
revenue includes revenue from Health Choice, medical office building rental
income and other miscellaneous revenue. Operating expenses consist of salaries
and benefits, supplies, other operating expenses and provision for bad debts.
Our hospitals' net patient service revenue continues to be affected by
an increasing proportion of revenue being derived from fixed payment, higher
discount sources including Medicare, Medicaid, managed care
19
organizations and others. Fixed payment amounts are often based upon a diagnosis
regardless of the cost incurred or the level of services provided. Our net
revenue, cash flows and results of operations have been negatively impacted by
this reimbursement methodology. We expect patient volumes from Medicare and
Medicaid to continue to increase due to the general aging of the population and
expansion of state Medicaid programs. The percentage of our net patient service
revenue related to Medicare and Medicaid was approximately 39.8% and 39.0% for
the six months ended March 31, 2003 and 2002, respectively.
Our hospitals have historically experienced growth in outpatient volume
at a faster rate than the growth in inpatient volume primarily as a result of
improvements in technology, pharmacology and clinical practices and hospital
payment changes by Medicare and managed care organizations. In response to this
shift toward outpatient care, we have reconfigured some of our hospitals to more
effectively accommodate outpatient services and restructured existing surgical
and diagnostic capacity to permit additional outpatient volume and a greater
variety of outpatient services.
In addition, inpatient care is expanding to include sub-acute care when
a less-intensive, lower cost level of care is appropriate. We have been
proactive in the development of a variety of sub-acute inpatient services to
utilize a portion of our available capacity. By offering cost-effective
sub-acute services in appropriate circumstances, we are able to provide a
continuum of care when the demand for such services exists. We have identified
opportunities to expand existing physical rehabilitation units and develop other
post-acute services such as long term acute care arrangements within our
facilities.
Certain states in which we operate have reported budget deficits as a
result of increased costs and lower than expected tax collections. Health and
human service programs, including Medicaid and similar programs, represent a
significant portion of state spending. As a response to these budgetary
concerns, certain states have proposed and others may propose decreased funding
for these programs. If such funding decreases are approved by the states in
which we operate, our operating results and cash flows could be materially
reduced.
Upon renewal of our insurance policies effective October 2002, we
experienced a significant increase in premiums paid to insurance carriers,
especially for professional and general liability coverage. For 2003, our
self-insured retention increased from $2.0 million in 2002 to $5.0 million and
the maximum coverage under our insurance has decreased from $100 million to $75
million. The cost of insurance has negatively affected operating results and
cash flows throughout the healthcare industry due to pricing pressures on
insurers and fewer carriers willing to underwrite professional and general
liability insurance. We currently have no information that would lead us to
believe that this current trend is temporary in nature, and thus there is no
assurance that continued increases in insurance costs will not have a material
adverse effect on our future operating results and cash flows.
The hospital industry continues to experience a shortage of nurses. We
have experienced particular difficulty in retaining and recruiting nurses in our
Phoenix, Arizona market and certain hospitals in our Texas markets. This
shortage is forecasted to continue into the near future. We have begun a
comprehensive recruiting and retention plan for nurses that focuses on
competitive salaries and benefits as well as employee satisfaction, best
practices, tuition assistance, effective training programs and workplace
environment. Additionally, we are actively developing programs to recruit
qualified nurses from countries outside of the United States. However, should we
be unsuccessful in our attempts to maintain nursing coverage adequate for our
present and future needs, our future operating results could be adversely
impacted.
CRITICAL ACCOUNTING POLICIES
A summary of our significant accounting policies is disclosed in Note 1
to the Consolidated Financial Statements included in our Annual Report on Form
10-K for the year ended September 30, 2002. Our critical accounting policies are
further described under the caption "Critical Accounting Policies" in
Management's Discussion and Analysis in our Annual Report on Form 10-K for the
year ended September 30, 2002. There have been no changes in the nature of our
critical accounting policies or the application of those policies since
September 30, 2002.
20
SELECTED OPERATING DATA
The following table sets forth certain unaudited operating data for
each of the periods presented.
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------
Number of hospitals at end of period 14 14 14 14
Licensed beds at end of period 2,492 2,507 2,492 2,507
Beds in service at end of period 2,116 2,085 2,116 2,085
Average length of stay (days) (1) 4.56 4.40 4.48 4.29
Occupancy rates (average beds in service) 51.8% 48.3% 48.5% 44.2%
Admissions(2) 21,650 20,621 41,684 39,179
Adjusted admissions(3) 35,299 33,466 69,396 64,531
Patient days(4) 98,677 90,630 186,825 168,122
Adjusted patient days(3) 154,458 142,367 297,760 268,782
Outpatient revenue as percentage of gross
patient revenue 35.8% 36.1% 36.9% 37.5%
- ---------------------------------
(1) Represents the average number of days that a patient stayed in our
hospitals.
(2) Represents the total number of patients admitted to our hospitals for stays
in excess of 23 hours. Management and investors use this number as a
general measure of inpatient volume.
(3) Adjusted admissions and adjusted patient days are general measures of
combined inpatient and outpatient volume. We compute adjusted
admissions/patient days by multiplying admissions/patient days by gross
patient revenue and then dividing that number by gross inpatient revenue.
(4) Represents the number of days our beds were occupied over the period.
21
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net revenue. Such information has been derived from
our unaudited condensed and consolidated statements of operations.
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net revenue 100.0% 100.0% 100.0% 100.0%
Salaries and benefits 34.7 32.9 34.8 34.0
Supplies 13.9 14.2 14.0 14.2
Other operating expenses 28.9 30.1 29.5 30.7
Provision for bad debts 7.4 7.2 7.6 7.4
Depreciation and amortization 4.7 4.6 4.8 4.7
Interest, net 4.8 5.7 5.0 6.1
Loss on debt extinguishment 1.5 -- 0.8 --
Loss (gain) on sale of assets, net -- -- (0.1) --
Minority interests 0.1 0.1 0.1 0.1
----- ----- ----- -----
Earnings before income taxes and
cumulative effect of a change in
accounting principle 4.0 5.2 3.5 2.8
Income tax expense -- -- -- --
----- ----- ----- -----
Net earnings before cumulative
effect of a change in accounting
principle 4.0 5.2 3.5 2.8
Cumulative effect of a change in
accounting principle(1) -- -- -- (8.5)
----- ----- ----- -----
Net earnings (loss) 4.0% 5.2% 3.5% (5.7)%
===== ===== ===== =====
(1) Cumulative effect of a change in accounting principle consists of a
$39.5 million non-cash transitional impairment charge, related to the
adoption of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, on October 1, 2001.
22
The following table presents EBITDA for the periods indicated (dollars in
millions):
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
2003 2002
----------------------- -----------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
Net revenue $271.4 100.0% $244.4 100.0%
Salaries and benefits 94.1 34.7 80.3 32.9
Supplies 37.8 13.9 34.7 14.2
Other operating expenses 78.3 28.9 73.6 30.1
Provision for bad debts 20.1 7.4 17.6 7.2
------ ----- ------ -----
EBITDA(a) $ 41.1 15.1% $ 38.2 15.6%
====== ===== ====== =====
SIX MONTHS ENDED MARCH 31,
------------------------------------------------------
2003 2002
----------------------- -----------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
Net revenue $ 526.2 100.0% $ 465.3 100.0%
Salaries and benefits 182.9 34.8 158.0 33.9
Supplies 73.5 14.0 66.0 14.2
Other operating expenses 155.7 29.5 143.2 30.8
Provision for bad debts 39.9 7.6 34.4 7.4
------ ------- --------- -----
EBITDA(a) $ 74.2 14.1% $ 63.7 13.7%
====== ======= ======== =====
(a) EBITDA represents earnings before interest expense, gain on sale of assets,
minority interests, income taxes, depreciation and amortization, loss on
debt extinguishment and cumulative effect of a change in accounting
principle. Management routinely calculates and communicates EBITDA and
believes that it is useful to investors because it is commonly used as an
analytical indicator within the healthcare industry to evaluate hospital
performance, allocate resources and measure leverage capacity and debt
service ability. EBITDA should not be considered as a measure of financial
performance under generally accepted accounting principles (GAAP), and the
items excluded from EBITDA are significant components in understanding and
assessing financial performance. A table reconciling EBITDA to net earnings
(loss) is included below. EBITDA should not be considered in isolation or
as an alternative to net earnings (loss), cash flows generated by
operating, investing, or financing activities or other financial statement
data presented in the consolidated financial statements as an indicator of
financial performance or liquidity. EBITDA, as presented, may not be
comparable to similarly titled measures of other companies.
The following table reconciles EBITDA, as presented above, to net
earnings (loss) as reflected in our condensed consolidated statements of
operations and in accordance with GAAP (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------ --------------------
2003 2002 2003 2002
----- ----- ----- -------
CONSOLIDATED RESULTS:
Net earnings (loss) $10.9 $12.7 $18.4 $(26.4)
Add:
Income tax expense -- -- -- --
Interest expense, net 13.1 14.0 26.5 28.5
Minority interests 0.5 0.3 0.7 0.5
Loss (gain) on sale of assets, net -- -- (0.8) --
Cumulative effect of a change in
accounting principle -- -- -- 39.5
Depreciation and amortization 12.7 11.2 25.5 21.6
Loss on debt extinguishment 3.9 -- 3.9 --
----- ----- ----- ------
EBITDA $41.1 $38.2 $74.2 $ 63.7
===== ===== ===== ======
23
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Net revenue for the three months ended March 31, 2003 was $271.4
million, an increase of $27.0 million, or 11.0%, from $244.4 million for the
same period in 2002. The increase in net revenue was a combination of an
increase of $25.5 million in net revenue from hospital operations, which we
refer to as our acute care service segment in our financial statements, and an
increase of $1.5 million in net revenue from Health Choice.
Net revenue from our hospital operations for the three months ended
March 31, 2003 was $234.2 million, an increase of $25.5 million, or 12.2%, from
$208.7 million for the same period in 2002. Our net patient revenue per adjusted
patient day increased 5.0% for the three months ended March 31, 2003, compared
to the same period in 2002. The increase in net revenue per adjusted patient day
was due primarily to increased acuity and price increases in our hospital
operations.
Admissions increased 5.0% from 20,621 for the three months ended March
31, 2002, to 21,650 for the same period in 2003, and patient days increased 8.9%
from 90,630 for the three months ended March 31, 2002 to 98,677 for the same
period in 2003. Adjusted admissions increased 5.5% from 33,466 for the three
months ended March 31, 2002 to 35,299 for the same period in 2003, and adjusted
patient days increased 8.5% from 142,367 for the three months ended March 31,
2002 to 154,458 for the same period in 2003. The increase in volume was due
primarily to a combination of population growth in our markets, introduction of
new technologies and expanded services at our hospitals, and results of our
physician recruiting efforts. The average length of stay increased 3.6% from
4.40 days for the three months ended March 31, 2002 to 4.56 days for the same
period in 2003. This increase in length of stay was attributable in part to
greater acuity, an increase in sub-acute services with expected longer lengths
of stay and an increased emphasis on product lines, such as cardiac and
bariatric surgical cases, requiring longer lengths of stay.
Net revenue from Health Choice was $37.3 million for the three months
ended March 31, 2003, an increase of $1.6 million, or 4.5%, from $35.7 million
for the same period in 2002. Covered lives under this prepaid Medicaid plan
increased from 55,719 at March 31, 2002 to 60,933 at March 31, 2003. The
increase in covered lives has positively impacted Health Choice's net revenue
for the three months ended March 31, 2003 compared to the same period in 2002.
Operating expenses increased $24.1 million from $206.2 million for the
three months ended March 31, 2002 to $230.3 million for the same period in 2003.
Operating expenses as a percentage of net revenue were 84.9% for the three
months ended March 31, 2003, compared to 84.4% for the same period in 2002.
Operating expenses from our hospital operations for the three months
ended March 31, 2003 were $195.2 million, an increase of $23.0 million, or
13.4%, from $172.2 million for the same period in 2002. This increase was
comprised of a $14.6 million increase in operating expenses as a result of
volume growth in our markets, along with increases in insurance costs, rent
expense, physician recruiting costs, corporate infrastructure and general
inflation.
Operating expenses from our hospital operations as a percentage of net
revenue were 83.3% for the three months ended March 31, 2003 compared to 82.5%
for the same period in 2002. This increase was due to an increase in salaries
and benefits expense and provision for bad debts. Salaries and benefits expense
as a percentage of net revenue increased 1.6% from period to period due
primarily to increased contract labor resulting from volume growth. Salaries and
benefits expense increased by approximately $13.4 million for the three months
ended March 31, 2003 compared to the same period in 2002 due primarily to volume
growth, general wage inflation and an increase in employee benefits and contract
labor. Contract labor, a component of salaries and benefits expense, increased
by $3.2 million for the three months ended March 31, 2003 compared to the same
period in 2002 due primarily to significant volume growth in certain markets
requiring greater utilization of agency nurses and technicians, coupled with
increases in the rates charged by the staffing agencies. Benefits expense
increased by approximately $2.2 million for the three months ended March 31,
2003 compared to the same period in 2002 due primarily to the increased cost and
utilization of healthcare benefits for employees.
Provision for bad debts as a percentage of net revenue increased 0.2%
from period to period due to a slight increase in our self-pay and other payor
mix in the three months ended March 31, 2003. Supplies expense as a percentage
of net revenue decreased 0.5% from period to period due in part to our group
purchasing contract which
24
we entered into in the third quarter of fiscal 2002, which has resulted in
better pricing generally and discounts on implants and cardiac devices. The
supplies expense improvement was also due to better compliance with the group
purchasing contract compared to the prior year, as well as having better
inventory systems and processes in place. Other operating expenses as a
percentage of net revenue decreased 0.4% from period to period due primarily to
the growth in net revenue, offset to an extent by an increase in insurance
costs, rent expense and physician recruiting costs. We expect our other
operating expenses to continue to be negatively impacted for the remainder of
fiscal year 2003 by increases in insurance expense and physician recruiting
costs. On an annual basis, insurance costs are currently estimated to increase
in the range of $3.6 million to $4.0 million, or 19.9% to 22.1%, over the prior
year.
Operating expenses for Health Choice increased $1.2 million to $35.2
million for the three months ended March 31, 2003 compared to $34.0 million for
the same period in 2002. Operating expenses as a percentage of net revenue for
Health Choice were 94.4% for the three months ended March 31, 2003 and 95.2% for
the same period in 2002. The increase in operating expenses was due primarily to
the incremental cost of increased enrollment. Operating expenses as a percentage
of net revenue improved primarily as a result of an improvement in the medical
loss ratio.
EBITDA was $41.1 million, or 15.1% of net revenue, for the three months
ended March 31, 2003, compared to $38.2 million, or 15.6% of net revenue, for
the same period in 2002. EBITDA for hospital operations was $39.0 million, or
16.6% of net revenue, for the three months ended March 31, 2003, compared to
$36.5 million, or 17.5% of net revenue, for the same period in 2002. The decline
in the EBITDA margin for hospital operations was due primarily to the increase
in costs for contract labor, insurance, physician recruitment and corporate
infrastructure, as noted above.
Health Choice, our Medicaid managed health plan, has a significantly
lower EBITDA margin than hospital operations. EBITDA for Health Choice was $2.1
million, or 5.6% of net revenue, for the three months ended March 31, 2003,
compared to $1.7 million, or 4.8% of net revenue, for the same period in 2002.
The 23.5% increase in EBITDA and the increase in EBITDA margin were due to
increased enrollment and an improvement in the medical loss ratio, as noted
above.
Depreciation and amortization expense increased $1.5 million from $11.2
million for the three months ended March 31, 2002 to $12.7 million for the same
period in 2003. The increase in depreciation and amortization was the result of
additions to property and equipment during 2002 and 2003.
Interest expense decreased $900,000 from $14.0 million for the three
months ended March 31, 2002 to $13.1 million for the same period in 2003 due to
declines in interest rates during fiscal year 2002 and 2003. Borrowings under
our bank credit facility bear interest at variable rates, and the weighted
average interest rate of outstanding borrowings under the bank credit facility
was approximately 5.6% for the three months ended March 31, 2003 compared to
6.3% for the same period in 2002.
During the three months ended March 31, 2003, we recorded a loss on
debt extinguishment of $3.9 million related to the expensing of unamortized
deferred financing costs associated with the refinancing of our bank credit
facility, as discussed below.
We recorded no provision for income taxes for the three months ended
March 31, 2003 and 2002 due to the use of deferred tax assets that were
previously reserved with a valuation allowance.
SIX MONTHS ENDED MARCH 31, 2003 COMPARED TO SIX MONTHS ENDED MARCH 31, 2002
Net revenue for the six months ended March 31, 2003 was $526.2 million,
an increase of $60.9 million, or 13.1%, from $465.3 million for the same period
in 2002. The increase in net revenue was a combination of an increase of $55.6
million in net revenue from hospital operations and an increase of $5.3 million
in net revenue from Health Choice.
Net revenue from our hospital operations for the six months ended March
31, 2003 was $452.0 million, an increase of $55.6 million, or 14.0 %, from
$396.4 million for the same period in 2002. Our net patient revenue per adjusted
patient day increased 4.3 % for the six months ended March 31, 2003, compared to
the same period in
25
2002. The increase in net revenue per adjusted patient day was due primarily to
increased acuity and price increases in our hospital operations.
Admissions increased 6.4% from 39,179 for the six months ended March
31, 2002 to 41,684 for the same period in 2003, and patient days increased 11.1%
from 168,122 for the six months ended March 31, 2002 to 186,825 for the same
period in 2003. Adjusted admissions increased 7.5% from 64,531 for the six
months ended March 31, 2002, to 69,396 for the same period in 2003, and adjusted
patient days increased 10.8% from 268,782 for the six months ended March 31,
2002, to 297,760 for the same period in 2003. The average length of stay
resulting from admissions and patient days increased 4.4% from 4.29 days for the
six months ended March 31, 2002 to 4.48 days for the same period in 2003. This
increase in length of stay was attributable in part to greater acuity, an
increase in sub-acute services with expected longer lengths of stay and an
increased emphasis on product lines, such as cardiac and bariatric surgical
cases, requiring longer lengths of stay during the six months ended March 31,
2003.
Net revenue from Health Choice was $74.2 million for the six months
ended March 31, 2003, an increase of $5.3 million, or 7.7%, from $68.9 million
for the same period in 2002. The increase in covered lives, as noted above, has
positively impacted Health Choice's net revenue for the six months ended March
31, 2003 compared to the same period in 2002.
Operating expenses increased $50.4 million from $401.6 million for the
six months ended March 31, 2002 to $452.0 million for the same period in 2003.
Operating expenses as a percentage of net revenue were 85.9% for the six months
ended March 31, 2003, compared to 86.3% for the same period in 2002.
Operating expenses from our hospital operations for the six months
ended March 31, 2003 were $381.7 million, an increase of $46.1 million, or
13.7%, from $335.6 million for the same period in 2002. This increase was
comprised of a $36.2 million increase in operating expenses as a result of
volume growth in our markets, including increased contract labor utilization,
along with increases in insurance costs, rent expense, physician recruiting
costs, corporate infrastructure and general inflation.
Operating expenses from our hospital operations as a percentage of net
revenue were 84.4% for the six months ended March 31, 2003 compared to 84.7% for
the same period in 2002. This decrease was due to a combination of decreased
supplies expense, provision for bad debts and other operating expenses as a
percentage of net revenue, offset partially by an increase in salaries and
benefits expense as a percentage of net revenue. Salaries and benefits expense
as a percentage of net revenue increased 0.6% from period to period due
primarily to increased contract labor resulting from volume growth. Salaries and
benefits expense increased by approximately $24.2 million for the six months
ended March 31, 2003 compared to the same period in 2002 due primarily to volume
growth, general wage inflation and an increase in employee benefits and contract
labor. Contract labor, a component of salaries and benefits expense, increased
by $6.2 million for the six months ended March 31, 2003 compared to the same
period in 2002 due primarily to significant volume growth in certain markets
requiring greater utilization of agency nurses and technicians, coupled with
increases in the rates charged by the staffing agencies. Benefits expense
increased by approximately $3.9 million for the six months ended March 31, 2003
compared to the same period in 2002 due primarily to the increased cost and
utilization of healthcare benefits for employees.
Provision for bad debts as a percentage of net revenue was generally
unchanged from period to period. Supplies expense as a percentage of net revenue
decreased 0.4% from period to period due in part to our new group purchasing
contract which we entered into in the third quarter of fiscal 2002, which has
resulted in better pricing generally and discounts on implants and cardiac
devices. The supplies expense improvement was also due to better compliance with
the group purchasing contract compared to the prior year, as well as having
better inventory systems and processes in place. Other operating expenses as a
percentage of net revenue decreased 0.5% from period to period due primarily to
the growth in net revenue, offset to an extent by an increase in insurance
costs, rent expense, and physician recruiting costs. We expect our other
operating expenses to continue to be negatively impacted for the remainder of
fiscal year 2003 by increases in insurance expense. On an annual basis,
insurance costs are currently estimated to increase in the range of $3.6 million
to $4.0 million, or 19.9% to 22.1%, over the prior year.
Operating expenses for Health Choice increased $4.3 million to $70.3
million for the six months ended March 31, 2003 compared to $66.0 million for
the same period in 2002. Operating expenses as a percentage of net revenue for
Health Choice were 94.7% for the six months ended March 31, 2003 and 95.8 % for
the same period in
26
2002. The increase in operating expenses was due to the incremental cost of
increased enrollment, while as a percentage of net revenue, operating expenses
benefited from a decrease in the medical loss ratio.
EBITDA was $74.2 million, or 14.1% of net revenue, for the six months
ended March 31, 2003, compared to $63.7 million, or 13.7% of net revenue, for
the same period in 2002. EBITDA for hospital operations was $70.3 million, or
15.6% of net revenue, for the six months ended March 31, 2003, compared to $60.8
million, or 15.3% of net revenue, for the same period in 2002. The increase in
the EBITDA margin for hospital operations was due primarily to increases in
volume and net revenue coupled with decreases in supplies and other operating
expenses as a percentage of net revenue as noted above, offset by increases in
salaries and benefits expense.
Health Choice, our Medicaid managed health plan, has a significantly
lower EBITDA margin than hospital operations. EBITDA for Health Choice was $3.9
million, or 5.3% of net revenue, for the six months ended March 31, 2003,
compared to $2.9 million, or 4.2% of net revenue, for the same period in 2002.
The 34.5% increase in EBITDA and the increase in EBITDA margin were due to
increased enrollment and an improvement in the medical loss ratio, as noted
above.
Depreciation and amortization expense increased $3.8 million from $21.7
million for the six months ended March 31, 2002 to $25.5 million for the same
period in 2003. The increase in depreciation and amortization was the result of
additions to property and equipment during 2002 and 2003.
Interest expense decreased $2.1 million from $28.5 million for the six
months ended March 31, 2002 to $26.4 million for the same period in 2003 due to
declines in interest rates during fiscal year 2002 and 2003. Borrowings under
our bank credit facility bear interest at variable rates, and the weighted
average interest rate of outstanding borrowings under the bank credit facility
was approximately 5.8% for the six months ended March 31, 2003 compared to 6.6%
for the same period in 2002.
During the six months ended March 31, 2003, we recorded a loss on debt
extinguishment of $3.9 million related to the expensing of unamortized deferred
financing costs associated with the refinancing of our bank credit facility, as
discussed below.
We recorded no provision for income taxes for the six months ended
March 31, 2003 and 2002 due to the use of deferred tax assets that were
previously reserved with a valuation allowance.
During the six months ended March 31, 2002, we recorded a $39.5 million
cumulative effect of a change in accounting principle, consisting of a non-cash
transitional impairment charge, related to the adoption of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had $82.6 million in working capital compared to
$57.0 million at September 30, 2002. We generated cash of $52.1 million from
operating activities during the six months ended March 31, 2003, compared to
$29.5 million during the six months ended March 31, 2002. Net accounts
receivable increased from $154.5 million at September 30, 2002 to $155.9 million
at March 31, 2003. Excluding third-party settlement receivables, our days of net
revenue outstanding at March 31, 2003 were 57 compared to 60 at September 30,
2002.
Investing activities used $35.4 million during the six months ended
March 31, 2003. Capital expenditures for the six months ended March 31, 2003
were approximately $36.5 million. Our growth strategy requires significant
capital expenditures during the year ending September 30, 2003 and future years.
We have budgeted capital expenditures for the remainder of fiscal 2003 to be
approximately $33.5 million to $43.5 million, including $23.3 million of
construction costs for the renovation and expansion of certain of our existing
facilities and $7.7 million to $12.2 million for new equipment at our
facilities. On November 20, 2002, we announced plans to build a new hospital in
Jefferson County, Texas to replace our Mid-Jefferson Hospital in Nederland,
Texas and Park Place Medical Center in Port Arthur, Texas. We plan to commence
construction in the fall of 2003 and open the new facility in the first half of
2005. The total cost to build the new hospital is currently estimated to be
approximately $80.0 million. Included in our budgeted capital expenditures are
construction and other project related costs for the new hospital of
approximately $5 million that we expect to incur during 2003. We plan to finance
our proposed
27
capital expenditures, including the construction of the new hospital, with
borrowings under our revolving credit facility, cash generated from operations,
real estate financing and other capital sources that become available.
Financing activities used net cash of $10.4 million during the six
months ended March 31, 2003. During the six months ended March 31, 2003, we
borrowed $91.1 million pursuant to the terms of our bank credit facility, repaid
$1.5 million in outstanding borrowings pursuant to the terms of our bank credit
facility and capital lease obligations and made voluntary prepayments of $100.5
million pursuant to the terms of our revolving credit facility. In addition, we
paid $353.0 million on our previous credit facility and paid $10.6 million in
financing costs with the $363.0 million in proceeds received from our new bank
credit facility, as discussed below. During the next twelve months, we are
required to repay $3.5 million under our new bank credit facility.
On October 15, 1999, we entered into a bank credit facility through
which a syndicate of lenders made a total of $455.0 million available to us in
the form of an $80.0 million tranche A term loan, a $250.0 million tranche B
term loan and a $125.0 million revolving credit facility. Proceeds from the
tranche A and tranche B term loans were used in conjunction with the
recapitalization and acquisition transactions. Effective October 5, 2001, we
amended our bank credit facility to provide for an additional $30.0 million
incremental senior secured term loan on substantially the same terms and
conditions as our current existing bank credit facility. The new incremental
term loan was used solely to fund the purchase on October 15, 2001, of the land
and buildings at two of our facilities in Arizona previously operated under
long-term leases and related costs and expenses. The amended bank credit
facility also provided for revisions to certain financial covenants.
On February 7, 2003, we completed the refinancing of our bank credit
facility to provide for a new $475.0 million credit facility in the form of a
$350.0 million, six year term B loan and $125.0 million, five year revolving
credit facility. The loans under the new credit facility accrue interest at
variable rates at specified margins above either the agent bank's alternate base
rate or its Eurodollar rate. Principal payments on the new term B loan are due
in quarterly installments of $875,000 beginning March 31, 2003 until maturity.
The new credit facility is also subject to mandatory prepayment under specific
circumstances including a portion of excess cash flow and the net proceeds from
an initial public offering, asset sales, debt issuances and specified casualty
events, each subject to various exceptions. Proceeds from the new credit
facility were used to refinance amounts outstanding under our previous credit
facility and to fund closing and other transaction related costs of
approximately $10.6 million incurred in conjunction with the refinancing. The
new credit facility increased our annual capital expenditure limitation to $80.0
million per year. In addition, the new credit facility provides for revisions to
certain financial covenants and replaced the fixed charge coverage covenant
under our previous credit facility with a senior leverage test. The new $125.0
million revolving credit facility is available for working capital and other
general corporate purposes. Consistent with the previous credit facility, the
new bank credit facility requires that we comply with various financial ratios
and tests and contains covenants limiting our ability to, among other things,
incur debt, engage in acquisitions or mergers, sell assets, make investments or
capital expenditures, make distributions or stock repurchases and pay dividends.
The new bank credit facility includes a 1% prepayment penalty on voluntary
prepayments made during the first year on amounts outstanding under the term
loan. We were in compliance with all such covenants under the new credit
facility as of March 31, 2003. The new bank credit facility is guaranteed by our
subsidiaries and these guaranties are secured by a pledge of substantially all
of the subsidiaries' assets. Substantially all of our outstanding common stock
is pledged for the benefit of our lenders as security for our obligations under
the new credit facility.
On January 15, 2003, Standard and Poor's (1) affirmed our corporate
credit rating of "B"; (2) affirmed the credit rating on our 13% senior
subordinated notes of "CCC+"; and (3) assigned a "B" credit rating to our new
$475.0 million bank credit facility. Additionally, Standard and Poor's revised
our outlook to stable from negative. On January 22, 2003, Moody's assigned a
rating of "B1" to the $125.0 million revolving credit facility under the new
bank credit facility, affirmed its existing rating of "B3" on our 13.0% senior
subordinated notes and assigned a "B1" rating to the $350.0 million term loan
under the new bank credit facility. Additionally, Moody's revised our outlook to
stable from negative. The ratings assigned to the new bank credit facility are
consistent with the ratings assigned to the previous bank credit facility.
At March 31, 2003, $349.1 million was outstanding under our term B loan
and no amounts were outstanding under our revolving credit facility. The new
revolving credit facility includes a $75.0 million sub-limit for letters of
credit that may be issued by us and, at March 31, 2003, we had issued $38.3
million in letters of credit. We also pay a commitment fee equal to 0.5% of the
average daily amount available under the new revolving credit
28
facility. At May 15, 2003, we had drawn $2.5 million under our new revolving
credit facility and had issued $39.6 million in letters of credit, resulting in
remaining availability under the revolving credit facility of $82.9 million.
During the three months ended March 31, 2003, we expensed approximately $3.9
million in deferred financing costs associated with the previous credit
facility.
On October 13, 1999, we issued $230.0 million of 13% senior
subordinated notes due 2009. On May 25, 2000, we exchanged all of our
outstanding 13% senior subordinated notes due 2009 for 13% senior subordinated
exchange notes due 2009 that have been registered under the Securities Act of
1933, as amended. The notes are unsecured obligations and are subordinated in
right of payment to all of our existing and future senior indebtedness. If a
change in control occurs, as defined in the indenture, each holder of the notes
will have the right to require us to repurchase all or any part of that holder's
notes in cash at 101% of the aggregate principal amount of notes repurchased
plus accrued and unpaid interest to the date of purchase. Except with respect to
a change of control, we are not required to make mandatory redemption or sinking
fund payments with respect to the notes. At March 31, 2003, all of the
subsidiaries fully and unconditionally guaranteed the notes on a joint and
several basis. The indenture for the notes contains certain covenants, including
but not limited to, restrictions on new indebtedness, asset sales, capital
expenditures, dividends and our ability to merge or consolidate.
On August 18, 2000, our subsidiary, Rocky Mountain Medical Center,
Inc., filed a Complaint and Motion for Preliminary Injunction in the Third
Judicial District Court for Salt Lake County, State of Utah against St. Mark's
Hospital. St. Mark's Hospital is owned by HCA Inc. The complaint alleges certain
state law violations by St. Mark's Hospital, including exclusionary contracting
practices and other conduct constituting, among other things, a group boycott
under the Utah Antitrust Act, and seeks unspecified monetary and punitive
damages. Both parties filed Motions for Summary Judgment in this case and
consolidated oral arguments regarding both parties' motions were held on October
29, 2001. On December 14, 2001, the court denied both parties' motions. On June
25, 2002, the court granted our motion to add HCA Inc. and one of its
subsidiaries as defendants. On July 22, 2002, Rocky Mountain Medical Center
filed an amended complaint. The amended complaint alleges the same causes of
actions as the original complaint and names HCA Inc. and Ogden Regional Medical
Center, Inc. as defendants. On February 3, 2003, the action was reassigned to a
new judge and, on March 11, 2003, he held a status conference in which he
ordered Rocky Mountain Medical Center to certify the case ready for trial no
later than September 15, 2003. Discovery is ongoing and we continue to
vigorously pursue this litigation. We expect to incur additional fees and costs
related to this civil action during the next several fiscal quarters.
As of March 31, 2003, we provided a performance guaranty in the form of
a letter of credit in the amount of $20.6 million for the benefit of the Arizona
Health Care Cost Containment System to support our obligations under the Health
Choice contract to provide and pay for healthcare services. The amount of the
performance guaranty that the Arizona Health Care Cost Containment System
requires is based upon the membership in the plan and the related capitation
revenue paid to us. Health Choice has entered into a new three year contract
with the Arizona Health Care Cost Containment System effective October 1, 2003.
The contract provides the Arizona Health Care Cost Containment System with two
one year renewal options following the initial term.
We are a party to certain rent shortfall or master lease agreements
with certain non-affiliated entities and an unconsolidated entity, including
parent-subsidiary guarantees, in the ordinary course of business. We have not
engaged in any transaction or arrangement with an unconsolidated entity that is
reasonably likely to materially affect liquidity.
Based upon our current level of operations and anticipated growth, we
believe that cash generated from operations and amounts available under the
revolving credit facility will be adequate to meet our anticipated debt service
requirements, capital expenditures and working capital needs for the next 12
months. We cannot assure you, however, that our business will generate
sufficient cash flow from operations or that future borrowings will be available
under our bank credit facility, or otherwise, to enable us to grow our business,
service our indebtedness, including the bank credit facility and our senior
subordinated exchange notes, or make anticipated capital expenditures. We do not
consider the sale of any assets to be necessary to repay our indebtedness or to
provide working capital. However, for other reasons, we may sell facilities in
the future from time to time. One element of our business strategy is expansion
through the acquisition of hospitals in existing and new markets. The completion
of acquisitions may result in the incurrence, or assumption by us, of additional
indebtedness. We continually assess our capital needs and may seek additional
financing, including debt or equity, as considered necessary to fund
29
capital expenditures and potential acquisitions or for other corporate purposes.
Our future operating performance, ability to service or refinance the senior
subordinated exchange notes and ability to service and extend or refinance the
bank credit facility will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond our control.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2 of our condensed and consolidated financial
statements included elsewhere herein for a discussion of the impact of recently
issued accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the six months ended March 31, 2003, there were no material
changes to our quantitative and qualitative disclosures about the market risk
associated with financial instruments as described in our Annual Report on Form
10-K for the year ended September 30, 2002. At March 31, 2003, the fair market
value of our outstanding senior subordinated exchange notes was $253.0 million,
based upon quoted market prices as of that date.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management
team, including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended, within 90 days of the filing date of this report. Based on
this evaluation, the principal executive officer and principal accounting
officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our
periodic reports.
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referenced in the paragraph above.
30
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tenet Healthcare Corporation and its affiliates are defendants in a
civil action brought on January 9, 2003 in the U.S. District Court for the
Central District of California by the United States for the improper assignment
of diagnostic codes and submitting false claims to Medicare. The litigation
stems from an investigation by the U.S. Department of Justice, in conjunction
with the Office of Inspector General, of certain hospital billings to Medicare
for inpatient stays reimbursed pursuant to diagnosis related groups 79
(pneumonia), 415 (operating room procedure for infectious and parasitic
diseases), 416 (septicemia) and 475 (respiratory system diagnosis with
mechanical ventilator). Although hospitals that we acquired from Tenet are
referenced in the complaint, all of the actions complained of occurred prior to
December 31, 1998 and thus before we acquired the hospitals. We have informed
Tenet that we have no obligation or liability for any of the matters described
in the complaint and that we are entitled to indemnification if any damages or
relief were to be sought against us in connection with the proceeding.
On August 18, 2000, our subsidiary, Rocky Mountain Medical Center,
Inc., filed a Complaint and Motion for Preliminary Injunction in the Third
Judicial District Court for Salt Lake County, State of Utah against St. Mark's
Hospital. St. Mark's Hospital is owned by HCA Inc. The complaint alleges certain
state law violations by St. Mark's Hospital, including exclusionary contracting
practices and other conduct constituting, among other things, a group boycott
under the Utah Antitrust Act, and seeks unspecified monetary and punitive
damages. Both parties filed Motions for Summary Judgment in this case and
consolidated oral arguments regarding both parties' motions were held on October
29, 2001. On December 14, 2001, the court denied both parties' motions. On June
25, 2002, the court granted our motion to add HCA Inc. and one of its
subsidiaries as defendants. On July 22, 2002, Rocky Mountain Medical Center
filed an amended complaint. The amended complaint alleges the same causes of
actions as the original complaint and names HCA Inc. and Ogden Regional Medical
Center, Inc. as defendants. On February 3, 2003, the action was reassigned to a
new judge and, on March 11, 2003, he held a status conference in which he
ordered Rocky Mountain Medical Center to certify the case ready for trial no
later than September 15, 2003. Discovery is ongoing and we continue to
vigorously pursue this litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 1, 2003, we sold 250 shares of our common stock to a former
employee pursuant to the exercise of stock options for total consideration of
$2,380.00. The shares were issued in a private transaction exempt under Section
4(2) of the Securities Act, which exempts sales of securities that do not
involve a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
99.1 Odessa Regional Hospital, LP Financial Statements
(b) Reports on Form 8-K:
On January 13, 2003, the Company filed a Current Report on Form 8-K to
report plans to disclose certain preliminary financial information for
the fiscal quarter ended December 31, 2002 to prospective lenders and
others in conjunction with its efforts to refinance its senior secured
credit facility.
On January 21, 2003, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing the date of the
online web simulcast of its fiscal first quarter 2003 earnings
conference call.
31
On February 4, 2003, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing its earnings for
the fiscal first quarter ended December 31, 2002.
On February 11, 2003, the Company filed a Current Report on Form 8-K to
report that it had issued a press release announcing the refinancing of
its senior bank credit facility.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IASIS HEALTHCARE CORPORATION
Date: May 15, 2003 By: /s/ W. Carl Whitmer
----------------------------------------
W. Carl Whitmer, Chief Financial Officer
33
CERTIFICATION
I, David R. White, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IASIS Healthcare
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ David R. White
- --------------------------------------
David R. White
Chairman of the Board, President
and Chief Executive Officer
CERTIFICATION
I, W. Carl Whitmer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of IASIS Healthcare
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 15, 2003
/s/ W. Carl Whitmer
- --------------------------------------
W. Carl Whitmer
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Odessa Regional Hospital, LP Unaudited Financial Statements