UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

IASIS HEALTHCARE LLC

(Exact name of registrant as specified in its charter)

DELAWARE		20-1150104
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
DOVER CENTRE
117 SEABOARD LANE, BUILDING E
FRANKLIN, TENNESSEE		37067
(Address of principal executive offices)		(Zip Code)

(615) 844-2747
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

As of August 15, 2011, 100% of the registrant’s common interests outstanding (all of which are privately owned and are not traded on any public market) were owned by IASIS Healthcare Corporation, its sole member.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Condensed Consolidated Balance Sheets — June 30, 2011 (Unaudited) and September 30, 2010			1
Condensed Consolidated Statements of Operations (Unaudited) — Quarters and Nine Months Ended June 30, 2011 and 2010			2
Condensed Consolidated Statement of Equity (Unaudited) — Nine Months Ended June 30, 2011			3
Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended June 30, 2011 and 2010			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			44
Item 4. Controls and Procedures			44
PART II. OTHER INFORMATION			45
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			46
Item 6. Exhibits			47
Exhibit 31.1
Exhibit 31.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I.
FINANCIAL INFORMATION

Item 1.		Financial Statements

IASIS HEALTHCARE LLC

		June 30,				September 30,
		2011				2010
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	144,595			$	144,511
Accounts receivable, less allowance for doubtful accounts of $145,092 and $125,406 at June 30, 2011 and September 30, 2010, respectively			295,823				209,173
Inventories			65,446				53,842
Deferred income taxes			31,565				15,881
Prepaid expenses and other current assets			88,404				65,340
Total current assets			625,833				488,747
Property and equipment, net			1,129,151				985,291
Goodwill			836,688				718,243
Other intangible assets, net			33,385				27,000
Deposit for acquisition			—				97,891
Other assets, net			61,743				36,022
Total assets		$	2,686,800			$	2,353,194
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		$	108,667			$	78,931
Salaries and benefits payable			65,046				38,110
Accrued interest payable			11,994				12,536
Medical claims payable			99,530				111,373
Other accrued expenses and other current liabilities			96,913				106,614
Current portion of long-term debt and capital lease obligations			13,973				6,691
Total current liabilities			396,123				354,255
Long-term debt and capital lease obligations			1,867,460				1,044,887
Deferred income taxes			118,380				109,272
Other long-term liabilities			82,218				60,162
Non-controlling interests with redemption rights			97,443				72,112
Equity
Member’s equity			115,342				702,135
Non-controlling interests			9,834				10,371
Total equity			125,176				712,506
Total liabilities and equity		$	2,686,800			$	2,353,194

See accompanying notes.

IASIS HEALTHCARE LLC

		Quarter Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net revenue
Acute care revenue		$	529,844			$	438,211			$	1,489,432			$	1,300,445
Premium revenue			188,765				199,777				580,917				591,022
Total net revenue			718,609				637,988				2,070,349				1,891,467
Costs and expenses
Salaries and benefits (includes stock-based compensation of $330, $118, $1,364 and $2,367, respectively)			211,114				170,035				597,063				514,688
Supplies			83,071				66,333				237,431				200,167
Medical claims			155,885				172,031				484,635				510,692
Other operating expenses			114,778				93,579				315,254				266,854
Provision for bad debts			60,685				49,416				175,100				142,901
Rentals and leases			11,774				10,067				34,229				30,487
Interest expense, net			27,597				16,711				60,984				50,065
Depreciation and amortization			26,312				24,007				74,942				71,909
Management fees			1,250				1,250				3,750				3,750
Loss on extinguishment of debt			23,075				—				23,075				—
Total costs and expenses			715,541				603,429				2,006,463				1,791,513
Earnings from continuing operations before gain (loss) on disposal of assets and income taxes			3,068				34,559				63,886				99,954
Gain (loss) on disposal of assets, net			(114	)			(149	)			771				(206	)
Earnings from continuing operations before income taxes			2,954				34,410				64,657				99,748
Income tax expense			1,389				12,683				24,078				36,544
Net earnings from continuing operations			1,565				21,727				40,579				63,204
Loss from discontinued operations, net of income taxes			(15	)			(384	)			(6,069	)			(363	)
Net earnings			1,550				21,343				34,510				62,841
Net earnings attributable to non-controlling interests			(2,013	)			(2,002	)			(6,201	)			(6,063	)
Net earnings (loss) attributable to IASIS Healthcare LLC		$	(463	)		$	19,341			$	28,309			$	56,778

See accompanying notes.

IASIS HEALTHCARE LLC

		Non-controlling
		Interests with								Non-
		Redemption				Member’s				controlling
		Rights				Equity				Interests				Total Equity
Balance at September 30, 2010		$	72,112			$	702,135			$	10,371			$	712,506
Net earnings			6,144				28,309				57				28,366
Distributions to non-controlling interests			(7,308	)			—				(87	)			(87	)
Repurchase of non-controlling interests			(307	)			—				(507	)			(507	)
Acquisition related adjustments to redemption value of non-controlling interests with redemption rights			34,303				—				—				—
Stock-based compensation			—				1,364				—				1,364
Other comprehensive income			—				1,698				—				1,698
Contribution from parent company related to tax benefit from Holdings Senior PIK Loans interest			—				7,201				—				7,201
Distributions to parent company in connection with refinancing			—				(632,866	)			—				(632,866	)
Adjustment to redemption value of non-controlling interests with redemption rights			(7,501	)			7,501				—				7,501
Balance at June 30, 2011		$	97,443			$	115,342			$	9,834			$	125,176

See accompanying notes.

IASIS HEALTHCARE LLC

		Nine Months Ended
		June 30,
		2011				2010
Cash flows from operating activities
Net earnings		$	34,510			$	62,841
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			74,942				71,909
Amortization of loan costs			4,319				2,356
Stock-based compensation			1,364				2,367
Deferred income taxes			899				23,839
Income tax benefit from stock-based compensation			—				(1,770	)
Income tax benefit from parent company interest			7,201				4,989
Fair value change in interest rate swaps			(695	)			—
Loss (gain) on disposal of assets, net			(771	)			206
Loss from discontinued operations, net			6,069				363
Loss on extinguishment of debt			23,075				—
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions:
Accounts receivable, net			(32,494	)			9,154
Inventories, prepaid expenses and other current assets			(13,572	)			(74,909	)
Accounts payable, other accrued expenses and other accrued liabilities			(11,455	)			13,137
Net cash provided by operating activities — continuing operations			93,392				114,482
Net cash provided by (used in) operating activities — discontinued operations			3,260				(567	)
Net cash provided by operating activities			96,652				113,915
Cash flows from investing activities
Purchases of property and equipment, net			(64,475	)			(53,465	)
Cash paid for acquisitions, net			(155,428	)			—
Proceeds from sale of assets			150				50
Change in other assets, net			1,385				1,856
Net cash used in investing activities			(218,368	)			(51,559	)
Cash flows from financing activities
Proceeds from refinancing			1,863,730				—
Payment of debt and capital lease obligations			(1,049,547	)			(6,772	)
Debt financing costs incurred			(51,308	)			—
Distributions to parent company			(632,866	)			(124,962	)
Distributions to non-controlling interests			(7,395	)			(6,921	)
Costs paid for the repurchase of non-controlling interests			(814	)			(69	)
Net cash provided by (used in) financing activities			121,800				(138,724	)
Change in cash and cash equivalents			84				(76,368	)
Cash and cash equivalents at beginning of period			144,511				206,528
Cash and cash equivalents at end of period		$	144,595			$	130,160
Supplemental disclosure of cash flow information
Cash paid for interest		$	58,283			$	58,145
Cash paid for income taxes, net		$	17,587			$	7,513
Supplemental disclosure of non-cash investing and financing activities
Capital lease obligations resulting from acquisitions		$	9,559			$	—

See accompanying notes.

IASIS HEALTHCARE LLC

1. ORGANIZATION AND BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements as of and for the quarters and nine months ended June 30, 2011 and 2010, reflect the financial position, results of operations and cash flows of IASIS Healthcare LLC (“IASIS” or the “Company”). The Company’s sole member and parent company is IASIS Healthcare Corporation (“Holdings” or “IAS”).

IASIS owns and operates medium-sized acute care hospitals in high-growth urban and suburban markets. At June 30, 2011, the Company owned or leased 18 acute care hospital facilities and one behavioral health hospital facility, with a total of 4,362 licensed beds, located in seven regions:

•

Salt Lake City, Utah;

•

Phoenix, Arizona;

•

Tampa-St. Petersburg, Florida;

•

five cities in Texas, including Houston and San Antonio;

•

Las Vegas, Nevada;

•

West Monroe, Louisiana; and

•

Woodland Park, Colorado.

The Company also owns and operates Health Choice Arizona, Inc. (“Health Choice” or the “Plan”), a Medicaid and Medicare managed health plan in Phoenix, Arizona.

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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 GAAP for complete financial statements. The condensed consolidated balance sheet of the Company at September 30, 2010, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by GAAP 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, 2010.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments (consisting of normal recurring items) necessary for a fair presentation of results for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year.

Principles of Consolidation

The unaudited condensed consolidated financial statements include all subsidiaries and entities under common control of the Company. Control is generally defined by the Company as ownership of a majority of the voting interest of an entity. In addition, control is demonstrated in most instances when the Company is the sole general partner in a limited partnership. Significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and notes. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no impact on the Company’s total assets or total liabilities and equity.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

General and Administrative

The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as “general and administrative” by the Company would include the IASIS corporate office costs, which were $12.7 million and $7.7 million for the quarters ended June 30, 2011 and 2010, respectively, and $33.5 million and $27.0 million for the nine months ended June 30, 2011 and 2010, respectively.

Subsequent Events Consideration

The Company has evaluated its financial statements and disclosures for the impact of subsequent events up to the date of filing its quarterly report on Form 10-Q with the Securities and Exchange Commission.

2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

On May 3, 2011, the Company completed a transaction to refinance its then existing debt (the “Refinancing”). The Refinancing included $1.325 billion in new senior secured credit facilities and the issuance by the Company, together with its wholly owned subsidiary IASIS Capital Corporation (“IASIS Capital”), of $850.0 million aggregate principal amount of 8.375% senior notes due 2019 (the “Senior Notes”). Proceeds from the Refinancing were used to refinance amounts outstanding under the Company’s then existing credit facilities; fund a cash tender offer to repurchase any and all of the Company’s $475.0 million aggregate principal amount of 8 ³/4% senior subordinated notes due 2014; repay in full the Holdings Senior Paid-in-Kind (“PIK”) Loans held at IAS; pay fees and expenses associated with the Refinancing; and raise capital for general corporate purposes.

As part of the Refinancing, the Company distributed $632.9 million to IAS, which is comprised of $402.9 million to fund the repayment of the Holdings Senior PIK Loans, including interest that had accrued to the principal balance of the loans totaling $102.9 million, and $230.0 million to be held for future acquisitions and strategic growth initiatives, as well as potential distributions to the equity holders of IAS.

Long-term debt and capital lease obligations consist of the following (in thousands):

		June 30,				September 30,
		2011				2010
Senior secured term loan facility		$	1,017,435			$	570,260
Senior Notes			843,983				—
8 3/4% senior subordinated notes due 2014			—				475,000
Capital leases and other obligations			20,015				6,318
			1,881,433				1,051,578
Less current maturities			13,973				6,691
		$	1,867,460			$	1,044,887

As of June 30, 2011, the senior secured term loan facility balance reflects an original issue discount (“OID”) of $5.0 million, which is net of accumulated amortization of $122,000. The Senior Notes balance reflects an OID of $6.0 million, which is net of accumulated amortization of $128,000.

In connection with the Refinancing, the Company incurred a loss on extinguishment of debt totaling $23.1 million, which is included in the accompanying unaudited condensed consolidated statements of operations for the quarter and nine months ended June 30, 2011. The loss on extinguishment of debt included the write-off of $8.3 million in existing deferred financing costs, $4.9 million in creditor fees and $9.9 million in redemption premiums associated with the repurchase of the 8 ³/4% senior subordinated notes due 2014. Additionally, the Company incurred $36.5 million in creditor fees and other related costs that have been included in other assets in the accompanying unaudited condensed consolidated balance sheet at June 30, 2011.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

$1.325 Billion Senior Secured Credit Facilities

In connection with the Refinancing, the Company entered into a new senior credit agreement (the “Restated Credit Agreement”). The Restated Credit Agreement provides for senior secured financing of up to $1.325 billion consisting of (1) a $1.025 billion senior secured term loan facility with a seven-year maturity and (2) a $300.0 million senior secured revolving credit facility with a five-year maturity, of which up to $150.0 million may be utilized for the issuance of letters of credit (together, the “Senior Secured Credit Facilities”). Principal under the senior secured term loan facility is due in consecutive equal quarterly installments in an aggregate annual amount equal to 1% of the principal amount outstanding at the closing of the Refinancing, with the remaining balance due upon maturity of the senior secured term loan facility. The senior secured revolving credit facility does not require installment payments.

Borrowings under the senior secured term loan facility bear interest at a rate per annum equal to, at the Company’s option, either (1) a base rate (the “base rate”) determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of America, N.A. and (c) a one-month LIBOR rate, subject to a floor of 1.25%, plus 1.00%, in each case, plus a margin of 2.75% per annum or (2) the LIBOR rate for the interest period relevant to such borrowing, subject to a floor of 1.25%, plus a margin of 3.75% per annum. Borrowings under the senior secured revolving credit facility generally bear interest at a rate per annum equal to, at the Company’s option, either (1) the base rate plus a margin of 2.50% per annum, or (2) the LIBOR rate for the interest period relevant to such borrowing plus a margin of 3.50% per annum. In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the Company will be required to pay a commitment fee on the unutilized commitments under the senior secured revolving credit facility, as well as pay customary letter of credit fees and agency fees.

The Senior Secured Credit Facilities are unconditionally guaranteed by IAS and certain subsidiaries of the Company (collectively, the “Credit Facility Guarantors”) and are required to be guaranteed by all future material wholly-owned subsidiaries of the Company, subject to certain exceptions. All obligations under the Restated Credit Agreement are secured, subject to certain exceptions, by substantially all of the Company’s assets and the assets of the Credit Facility Guarantors, including (1) a pledge of 100% of the equity interests of the Company and the Credit Facility Guarantors, (2) mortgage liens on all of the Company’s material real property and that of the Credit Facility Guarantors, and (3) all proceeds of the foregoing.

The Restated Credit Agreement requires the Company to mandatorily prepay borrowings under the senior secured term loan facility with net cash proceeds of certain asset dispositions, following certain casualty events, following certain borrowings or debt issuances, and from a percentage of annual excess cash flow.

The Restated Credit Agreement contains certain restrictive covenants, including, among other things: (1) limitations on the incurrence of debt and liens; (2) limitations on investments other than, among other exceptions, certain acquisitions that meet certain conditions; (3) limitations on the sale of assets outside of the ordinary course of business; (5) limitations on dividends and distributions; and (6) limitations on transactions with affiliates, in each case, subject to certain exceptions. The Restated Credit Agreement also contains certain customary events of default, including, without limitation, a failure to make payments under the Senior Secured Credit Facilities, cross-defaults, certain bankruptcy events and certain change of control events.

8.375% Senior Notes due 2019

In connection with the Refinancing, the Company and IASIS Capital (together, the “Issuers”) issued the Senior Notes, which mature on May 15, 2019, pursuant to an indenture, dated as of May 3, 2011, among the Issuers and certain of the Issuers’ wholly owned domestic subsidiaries that guarantee the Senior Secured Credit Facilities (the “Notes Guarantors”) (the “Indenture”). The Indenture provides that the Senior Notes are general unsecured, senior obligations of the Issuers, and initially will be unconditionally guaranteed on a senior unsecured basis.

The Senior Notes bear interest at a rate of 8.375% per annum and will accrue from May 3, 2011. Interest on the Senior Notes is payable semi-annually, in cash in arrears, on May 15 and November 15 of each year, commencing on November 15, 2011.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company may redeem the Senior Notes, in whole or in part, at any time prior to May 15, 2014, at a price equal to 100% of the aggregate principal amount of the Senior Notes plus a “make-whole” premium and accrued and unpaid interest and special interest, if any, to but excluding the redemption date. In addition, the Company may redeem up to 35% of the Senior Notes before May 15, 2014, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.375% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest and special interest, if any, to but excluding the redemption date, subject to compliance with certain conditions.

The Indenture contains covenants that limit the Company’s (and its restricted subsidiaries’) ability to, among other things: (1) incur additional indebtedness or liens or issue disqualified stock or preferred stock; (2) pay dividends or make other distributions on, redeem or repurchase the Company’s capital stock; (3) sell certain assets; (4) make certain loans and investments; (5) enter into certain transactions with affiliates; (5) impose restrictions on the ability of a subsidiary to pay dividends or make payments or distributions to the Company and its restricted subsidiaries; and (6) consolidate, merge or sell all or substantially all of the Company’s assets. These covenants are subject to a number of important limitations and exceptions.

The Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately. If the Company experiences certain kinds of changes of control, it must offer to purchase the Senior Notes at 101% of their principal amount, plus accrued and unpaid interest and special interest, if any, to but excluding the repurchase date. Under certain circumstances, the Company will have the ability to make certain payments to facilitate a change of control transaction and to provide for the assumption of the Senior Notes by a new parent company resulting from such change of control transaction. If such change of control transaction is facilitated, the Issuers will be released from all obligations under the Indenture and the Issuers and the trustee will execute a supplemental indenture effectuating such assumption and release.

Registration Rights Agreement

In connection with the issuance of the Senior Notes, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) that provides holders of the Senior Notes certain rights relating to registration of the Senior Notes under the Securities Act of 1933, as amended (the “Securities Act”).

Pursuant to the Registration Rights Agreement, the Company will file a registration statement on or prior to 180 days after the issuance of the Senior Notes, enabling noteholders to exchange the privately placed notes for publicly registered notes with substantially identical terms; use commercially reasonable efforts to cause the registration statement to become effective on or prior to 270 days after the closing of the offering; and use commercially reasonable efforts to consummate the exchange offer within 30 business days after the effective date of the registration statement, or longer if required by the federal securities laws.

If the Company fails to comply with any of the requirements described above or if the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable (in either case, a “Registration Default”), the annual interest rate borne by the Senior Notes will be increased by 0.25% per annum during the 90-day period immediately following such Registration Default and will increase by 0.25% per annum at the end of each subsequent 90-day period, but in no event shall such increase exceed 1.00% per annum.

3. INTEREST RATE SWAPS

Effective March 2, 2009, the Company executed interest rate swap agreements with Citibank, N.A. and Wachovia Bank, N.A. (currently Wells Fargo Bank, N.A.), as counterparties, with notional amounts totaling $425.0 million, of which $225.0 million expired on February 28, 2011. As of June 30, 2011, two interest rate swap agreements remain in effect with each agreement having a notional amount of $100.0 million expiring on February 29, 2012. The Company entered into its interest rate swap arrangements to mitigate the floating interest rate risk on a portion of its outstanding variable rate debt. Under the remaining agreements, the Company is required to make monthly fixed rate payments to the counterparties, as calculated on the notional amounts, at an annual fixed rate of 2.0%. The counterparties are obligated to make monthly floating rate payments to the Company based on the one-month LIBOR rate.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company accounts for its interest rate swaps in accordance with the provisions of Financial Accounting Standards Board (“FASB”) authoritative guidance regarding accounting for derivative instruments and hedging activities, which also includes enhanced disclosure requirements. In accordance with these provisions, the Company has designated its interest rate swaps as a cash flow hedge instrument. The Company assesses the effectiveness of its cash flow hedge on a quarterly basis, with any ineffectiveness being measured using the hypothetical derivative method. The Company completed an assessment of its cash flow hedge during the quarters and nine months ended June 30, 2011 and 2010, and determined that the hedge was effective for all periods except the quarter ended June 30, 2011. The hedging ineffectiveness during the quarter ended June 30, 2011, was a result of the Refinancing which established a LIBOR floor applicable to borrowings under the Senior Secured Credit Facilities, the source of the Company’s variable rate debt. Accordingly, a gain resulting from the $695,000 change in fair value of the Company’s interest rate swaps since March 31, 2011, the last period that the hedge was deemed effective, has been reflected as a component of interest expense in the accompanying unaudited condensed consolidated statement of operations. No gain or loss has been reflected in the accompanying unaudited condensed consolidated statements of operations for the periods that the cash flow hedge was determined to be effective.

The Company applies the provisions of FASB authoritative guidance regarding fair value measurements, which provides a single definition of fair value, establishes a framework for measuring fair value, and expands disclosures concerning fair value measurements. The Company applies these provisions to the valuation and disclosure of its interest rates swaps. This authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: (i) Level 1, which is defined as quoted prices in active markets that can be accessed at the measurement date; (ii) Level 2, which is defined as inputs other than quoted prices in active markets that are observable, either directly or indirectly; and (iii) Level 3, which is defined as unobservable inputs resulting from the existence of little or no market data, therefore potentially requiring an entity to develop its own assumptions.

The Company determines the fair value of its interest rate swaps in a manner consistent with that used by market participants in pricing hedging instruments, which includes using a discounted cash flow analysis based upon the terms of the agreements, the impact of the one-month forward LIBOR curve and an evaluation of credit risk. Given the use of observable market assumptions and the consideration of credit risk, the Company has categorized the valuation of its interest rate swaps as Level 2.

The fair value of the Company’s interest rate swaps at June 30, 2011 and September 30, 2010, reflect liability balances of $2.3 million and $5.7 million, respectively, and are included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets. The fair value of the Company’s interest rate swaps reflects a liability because the effect of the forward LIBOR curve on future interest payments results in less interest due to the Company under the variable rate component included in the interest rate swap agreements, as compared to the amount due the Company’s counterparties under the fixed interest rate component. Any change in the fair value of the Company’s interest rate swaps, net of income taxes, from inception to March 31, 2011, is included in accumulated other comprehensive loss as a component of member’s equity in the accompanying unaudited condensed consolidated balance sheets. Any change in fair value since March 31, 2011, has been included as a component of interest expense in the accompanying unaudited condensed consolidated statement of operations, as previously described.

4. ACQUISITIONS

Effective May 1, 2011, the Company acquired a 79.1% equity ownership interest in St. Joseph Medical Center (“St. Joseph”), a 792-licensed bed acute care hospital facility located in downtown Houston, Texas, in exchange for cash consideration of $156.8 million, subject to changes in net assets. In accordance with the purchase agreement, independent investors, most of whom are physicians on the medical staff of St. Joseph, retained an aggregate 20.9% ownership interest in the hospital. This acquisition was accounted for as a business combination, which requires the Company to allocate the purchase price to assets acquired or liabilities assumed based on their fair values. The excess of the purchase price allocation over those fair values is recorded as goodwill. The Company is currently working with third party valuation experts to finalize the valuation of acquired assets; therefore, the fair values as recorded in the accompanying unaudited condensed consolidated balance sheet at June 30, 2011, have been estimated based upon the most accurate information available, and are subject to adjustment once the valuation is completed.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Effective October 1, 2010, the Company acquired Brim Holdings, Inc. (“Brim”) in a cash-for-stock transaction valued at $95.0 million, subject to changes in net working capital. Brim operates Wadley Regional Medical Center (“Wadley”), a 370-licensed bed acute care hospital facility located in Texarkana, Texas, and Pikes Peak Regional Hospital, a 15-licensed bed critical access acute care hospital facility, in Woodland Park, Colorado, through operating lease agreements with separate parties. The Brim acquisition was accounted for as a business combination; therefore, the Company allocated the purchase price of these facilities to the assets acquired or liabilities assumed based on their fair values. The excess of the purchase price allocation over those fair values was recorded as goodwill. The Company’s third-party valuation of acquired assets has been finalized, and the appropriate fair values have been reflected in the accompanying unaudited condensed consolidated balance sheet at June 30, 2011.

5. GOODWILL

The following table presents the changes in the carrying amount of goodwill (in thousands):

		Acute				Health
		Care				Choice				Total
Balance at September 30, 2010		$	712,486			$	5,757			$	718,243
Brim acquisition			78,451				—				78,451
St. Joseph acquisition			34,692				—				34,692
Other acquisitions			5,302				—				5,302
Balance at June 30, 2011		$	830,931			$	5,757			$	836,688

See Note 4 for more information regarding the fair value assessment of acquired assets and assumed liabilities.

6. COMPREHENSIVE INCOME

Comprehensive income consists of two components: net earnings and other comprehensive income. Other comprehensive income refers to revenues, expenses, gains and losses that under the FASB authoritative guidance related to accounting for comprehensive income are recorded as elements of equity, but are excluded from net earnings. The following table presents the components of comprehensive income, net of income taxes (in thousands):

		Quarter Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net earnings		$	1,550			$	21,343			$	34,510			$	62,841
Change in fair value of interest rate swaps			—				56				2,708				(1,092	)
Change in income tax expense (benefit)			—				(21	)			(1,010	)			407
Comprehensive income		$	1,550			$	21,378			$	36,208			$	62,156

As a result of the Company’s cash flow hedge being deemed ineffective during the quarter ended June 30, 2011, the change in fair value of the Company’s interest rate swaps since March 31, 2011, is included as a component of interest expense in the accompanying unaudited condensed consolidated statement of operations.

The components of accumulated other comprehensive loss, net of income taxes, are as follows (in thousands):

		June 30,				September 30,
		2011				2010
Fair value of interest rate swaps		$	(2,999	)		$	(5,707	)
Income tax benefit			1,118				2,128
Accumulated other comprehensive loss		$	(1,881	)		$	(3,579	)

The fair value of the Company’s interest rate swaps included as a component of accumulated other comprehensive loss in the table above represents the fair value as of March 31, 2011, the last period the cash flow hedge was deemed effective.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. DISTRIBUTION TO PARENT

As part of the Refinancing, the Company distributed $632.9 million to IAS, $402.9 million to fund the repayment of the Holdings Senior PIK Loans, which included interest that had accrued to the principal balance of the loans totaling $102.9 million, and $230.0 million to be held for future acquisitions and strategic growth initiatives, as well as potential distributions to the equity holders of IAS.

During fiscal 2010, the Company distributed $125.0 million, net of a $1.8 million income tax benefit, to IAS to fund the repurchase of certain shares of its outstanding preferred stock and cancel certain vested rollover options to purchase its common stock. The holder of the IAS preferred stock is represented by an investor group led by TPG, JLL Partners and Trimaran Fund Management. The repurchase of preferred stock, which included accrued and outstanding dividends, and the cancellation of rollover options, were funded by the Company’s excess cash on hand. The cancellation of the rollover options, which were associated with the Company’s 2004 recapitalization, resulted in the Company recognizing $2.0 million in stock-based compensation during the quarter ended March 31, 2010.

8. COMMITMENTS AND 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, is 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. 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 but not limited to claims relating to patient treatment and personal injuries. To cover these types of claims, the Company maintains professional and general 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 in these matters 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 estimate of the costs it expects to incur under the self-insured retention exposure for professional and general liability claims using historical claims data, demographic factors, severity factors, current incident logs and other actuarial analysis. At June 30, 2011 and September 30, 2010, the Company’s professional and general liability accrual for asserted and unasserted claims totaled $65.2 million and $41.6 million, respectively. The semi-annual valuations from the Company’s independent actuary for professional and general liability losses resulted in a change in related estimates for prior periods which increased insurance expense by $948,000 during the nine months ended June 30, 2011, compared to a decrease of $1.9 million during the same prior year period. No changes were reflected in the quarters ended June 30, 2011 and 2010.

The Company is subject to claims and legal actions in the ordinary course of business relating to workers’ compensation matters. To cover these types of claims, the Company maintains workers’ compensation insurance coverage with a self-insured retention. The Company accrues the costs of workers’ compensation claims based upon estimates derived from its claims experience. The semi-annual valuations from the Company’s independent actuary for workers’ compensation losses resulted in a change in related estimates for prior periods which increased benefits expense by $1.2 million and $801,000 during the nine months ended June 30, 2011 and 2010, respectively. No changes were reflected in the quarters ended June 30, 2011 and 2010.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Health Choice

Health Choice has entered into capitated contracts whereby the Plan provides managed healthcare services in exchange for fixed periodic and supplemental payments from the Arizona Health Care Cost Containment System (“AHCCCS”) and the Centers for Medicare & Medicaid Services (“CMS”). 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 that current capitated payments received, together with reinsurance and other supplemental payments, are sufficient to pay for the services Health Choice is obligated to deliver. As of June 30, 2011, the Company has provided a performance guaranty in the form of letters of credit totaling $48.3 million for the benefit of AHCCCS to support Health Choice’s obligations under its contract to provide and pay for the healthcare services. The amount of the performance guaranty is generally based, in part, upon the membership in the Plan and the related capitation revenue paid to Health Choice.

Acquisitions

The Company has acquired and in the future may choose to acquire businesses with prior operating histories. Such businesses may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company has procedures designed to conform business practices to its policies following the completion of any acquisition, there can be no assurance that the Company will not become liable for previous activities of prior owners that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification, or if covered, that such indemnification will be adequate to cover potential losses and fines.

Other

On March 31, 2008, the United States District Court for the District of Arizona (“District Court”) dismissed with prejudice the qui tam complaint against IAS, our parent company. The qui tam action sought monetary damages and civil penalties under the federal False Claims Act (“FCA”) and included allegations that certain business practices related to physician relationships and the medical necessity of certain procedures resulted in the submission of claims for reimbursement in violation of the FCA. The case dates back to March 2005 and became the subject of a subpoena by the Office of Inspector General in September 2005. In August 2007, the case was unsealed and the U.S. Department of Justice (“DOJ”) declined to intervene. The District Court dismissed the case from the bench at the conclusion of oral arguments on IAS’ motion to dismiss. On April 21, 2008, the District Court issued a written order dismissing the case with prejudice and entering formal judgment for IAS and denying as moot IAS’ motions related to the relator’s misappropriation of information subject to a claim of attorney-client privilege by IAS. Both parties appealed. On August 12, 2010, United States Court of Appeals for the Ninth Circuit reversed the District Court’s dismissal of the qui tam complaint and the District Court’s denial of IAS’ motions concerning the relator’s misappropriation of documents and ordered that the qui tam relator be allowed leave to file a Third Amended Complaint and for the District Court to consider IAS’ motions concerning the relator’s misappropriation of documents. The District Court ordered the qui tam relator to file his Third Amended Complaint by November 22, 2010, and set a schedule for the filing of motions related to the relator’s misappropriation of documents. On October 20, 2010, the qui tam relator filed a motion to transfer this action to the United States District Court for the Eastern District of Texas. On November 22, 2010, the relator filed his Third Amended Complaint. On January 3, 2011, IAS filed its renewed motion for sanctions concerning the relator’s misappropriation of documents and, on January 14, 2011, IAS filed its motion to dismiss the relator’s Third Amended Complaint. On May 4, 2011, the District Court in Arizona heard oral arguments on all pending motions, including IAS’ motion to dismiss and renewed motions for sanctions and the relator’s motion to transfer the action to the United States District Court for the Eastern District of Texas. On June 1, 2011, the District Court in Arizona issued a written order dismissing the relator’s Third Amended Complaint with prejudice. The order also denied the relator’s motion to transfer the case to the Eastern District of Texas, finding that the relator was “attempting to engage in forum shopping,” and denied the relator’s request for leave to further amend the complaint. The District Court expressly reserved decision on the collateral issue of sanctions against the relator and, preliminary to further briefing on IAS’ pending motion for sanctions, directed the relator to return all documents withheld to IAS within 20 days. IAS continues its vigorous pursuit of sanctions and other remedies against the relator related to the misappropriation and misuse of information subject to a claim of attorney-client privilege by IAS. Oral argument on IAS’ pending motion for sanctions currently is set for August 26, 2011. The District Court’s dismissal of this lawsuit with prejudice is appealable and the relator filed a notice of appeal on June 28, 2011. While the District Court’s order in favor of IAS should effectively bring to an end the relator’s qui tam litigation in the District Court that has been pending since March 2005, if the appeal of the District Court’s ruling was resolved in a manner unfavorable to IAS, it could have a material adverse effect on the Company’s business, financial condition and results of operations, including exclusion from the Medicare and Medicaid programs. In addition, the Company may incur material fees, costs and expenses in connection with defending the qui tam action.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company’s facilities obtain clinical and administrative services from a variety of vendors. One vendor, a medical practice that furnished cardiac catheterization services under contractual arrangements at Mesa General Hospital and St. Luke’s Medical Center through March 31, 2008 and May 31, 2008, respectively, asserted that, because of deferred fee adjustments that it claims were due under these arrangements, it was owed additional amounts for services rendered since April 1, 2006 at both facilities. The Company and the vendor were unable to reach an agreement with respect to the amount of the fee adjustment, if any, that was contractually required, nor with respect to an appropriate methodology for determining such amount. On September 30, 2008, the vendor filed a state court complaint for an aggregate adjustment in excess of the amount accrued by the Company, in addition to certain tort claims. On March 20, 2009, the Company filed a Motion to Dismiss and in the alternative to Compel Arbitration. On July 27, 2009, the court granted the Company’s Motion to Compel Arbitration on the grounds that the issues are to be determined by binding arbitration. On December 24, 2010, after conducting the arbitration hearing, the arbitration panel issued its decision rejecting the fees sought by the vendor, but did not adopt the fees proposed by the Company. The arbitration panel rendered its judgment on the fair market value of the vendor’s services at a point between the amounts the two parties argued were owed. On July 22, 2011, the Company paid $15.0 million to discharge the liability resulting from the arbitration panel’s decision, which includes all amounts required to be paid with respect to the fair market value compensation for services rendered by the vendor, pre-judgment interest and its attorneys’ fees, but excludes consideration of amounts that may be recoverable by the Company from its insurance carrier with respect to the Company’s attorneys fees above its insurance limits. The payment of this claim brings this arbitration dispute to a final resolution.

In November 2010, the DOJ sent a letter to IAS requesting a 12-month tolling agreement in connection with an investigation into Medicare claims submitted by the Company’s hospitals in connection with the implantation of implantable cardioverter defibrillators (“ICDs”) from 2003 through November 2010. At that time, neither the precise number of procedures, number of claims nor the hospitals involved were identified by the DOJ. The Company understands that the government is conducting a national initiative with respect to ICD procedures involving a number of healthcare providers and is seeking information in order to determine if ICD implantation procedures were performed in accordance with Medicare coverage requirements. On January 11, 2011, IAS entered into the tolling agreement with the DOJ and, subsequently, the DOJ has provided IAS with a list of 194 procedures involving ICDs at 14 hospitals which are the subject of further medical necessity review by the DOJ. The Company is cooperating fully with the government and, to date, the DOJ has not asserted any claim against the Company’s hospitals.

9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-7, “Health Care Entities ” (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. ASU 2011-7 requires healthcare organizations to present their provision for doubtful accounts related to patient service revenue as a deduction from revenue, similar to contractual discounts. In addition, all healthcare organizations will be required to provide certain disclosures designed to help users understand how contractual discounts and bad debts affect recorded revenue in both interim and annual financial statements. ASU 2011-7 is required to be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning December 15, 2011, with early adoption permitted. ASU 2011-7 is effective for the Company’s fiscal year beginning October 1, 2012, and is not expected to significantly impact the Company’s financial position, results of operations or cash flows, although it will change the presentation of the Company’s revenues on its statements of operations, as well as requiring additional disclosures.

In December 2010, the FASB issued ASU No. 2010-29, “Business Combinations” (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. ASU 2010-29 clarifies that, if a reporting entity presents comparative financial statements, the pro forma revenue and earnings of the combined entity should be reported as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. ASU No. 2010-29 is effective for the Company’s fiscal year beginning October 1, 2011, with early adoption permitted, and is an accounting principle which clarifies disclosure requirements, and is not expected to significantly impact the Company’s financial statement disclosures.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In December 2010, the FASB issued ASU No. 2010-28, “Intangibles—Goodwill and Other” (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. ASU 2010-28 requires Step 2 of the impairment test be performed in circumstances where the carrying amount of a reporting unit is zero or negative and there are qualitative factors that indicate it is more likely than not that a goodwill impairment exists. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. ASU 2010-28 is effective for the Company’s fiscal year beginning October 1, 2011, and is not expected to significantly impact the Company’s financial position, results of operations or cash flows.

In August 2010, the FASB issued ASU No. 2010-24, “Health Care Entities” (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries. This ASU eliminates the practice of netting claim liabilities with expected related insurance recoveries for balance sheet presentation. Claim liabilities are to be determined with no regard for recoveries and presented gross. Expected recoveries are presented separately. ASU 2010-24 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. ASU 2010-24 is effective for the Company’s fiscal year beginning October 1, 2011, and is not expected to significantly impact the Company’s financial position, results of operations or cash flows.

In August 2010, the FASB issued ASU No. 2010-23, “Health Care Entities” (Topic 954): Measuring Charity Care for Disclosure. Due to the lack of comparability existing as a result of the use of either revenue or cost as the basis for disclosure of charity care, this ASU standardizes cost as the basis for charity care disclosures and specifies the elements of cost to be used in charity care disclosures. ASU 2010-23 is effective for the Company’s fiscal year beginning October 1, 2011, and is not expected to significantly impact the Company’s financial statement disclosures.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10. 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 “Acute Care”, and (2) Health Choice. The following is a financial summary by business segment for the periods indicated (in thousands):

		For the Quarter Ended June 30, 2011
		Acute Care				Health Choice				Eliminations				Consolidated
Acute care revenue		$	529,844			$	—			$	—			$	529,844
Premium revenue			—				188,765				—				188,765
Revenue between segments			3,065				—				(3,065	)			—
Net revenue			532,909				188,765				(3,065	)			718,609
Salaries and benefits (excludes stock-based compensation)			205,509				5,275				—				210,784
Supplies			83,010				61				—				83,071
Medical claims			—				158,950				(3,065	)			155,885
Other operating expenses			108,658				6,120				—				114,778
Provision for bad debts			60,685				—				—				60,685
Rentals and leases			11,378				396				—				11,774
Adjusted EBITDA (1)			63,669				17,963				—				81,632
Interest expense, net			27,597				—				—				27,597
Depreciation and amortization			25,425				887				—				26,312
Stock-based compensation			330				—				—				330
Management fees			1,250				—				—				1,250
Loss on extinguishment of debt			23,075				—				—				23,075
Earnings (loss) from continuing operations before loss on disposal of assets and income taxes			(14,008	)			17,076				—				3,068
Loss on disposal of assets, net			(114	)			—				—				(114	)
Earnings (loss) from continuing operations before income taxes		$	(14,122	)		$	17,076			$	—			$	2,954

		For the Quarter Ended June 30, 2010
		Acute Care				Health Choice				Eliminations				Consolidated
Acute care revenue		$	438,211			$	—			$	—			$	438,211
Premium revenue			—				199,777				—				199,777
Revenue between segments			2,319				—				(2,319	)			—
Net revenue			440,530				199,777				(2,319	)			637,988
Salaries and benefits (excludes stock-based compensation)			165,051				4,866				—				169,917
Supplies			66,293				40				—				66,333
Medical claims			—				174,350				(2,319	)			172,031
Other operating expenses			87,451				6,128				—				93,579
Provision for bad debts			49,416				—				—				49,416
Rentals and leases			9,650				417				—				10,067
Adjusted EBITDA(1)			62,669				13,976				—				76,645
Interest expense, net			16,711				—				—				16,711
Depreciation and amortization			23,115				892				—				24,007
Stock-based compensation			118				—				—				118
Management fees			1,250				—				—				1,250
Earnings from continuing operations before loss on disposal of assets and income taxes			21,475				13,084				—				34,559
Loss on disposal of assets, net			(149	)			—				—				(149	)
Earnings from continuing operations before income taxes		$	21,326			$	13,084			$	—			$	34,410

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		For the Nine Months Ended June 30, 2011
		Acute Care				Health Choice				Eliminations				Consolidated
Acute care revenue		$	1,489,432			$	—			$	—			$	1,489,432
Premium revenue			—				580,917				—				580,917
Revenue between segments			8,532				—				(8,532	)			—
Net revenue			1,497,964				580,917				(8,532	)			2,070,349
Salaries and benefits (excludes stock-based compensation)			580,228				15,471				—				595,699
Supplies			237,274				157				—				237,431
Medical claims			—				493,167				(8,532	)			484,635
Other operating expenses			295,913				19,341				—				315,254
Provision for bad debts			175,100				—				—				175,100
Rentals and leases			32,991				1,238				—				34,229
Adjusted EBITDA (1)			176,458				51,543				—				228,001
Interest expense, net			60,984				—				—				60,984
Depreciation and amortization			72,273				2,669				—				74,942
Stock-based compensation			1,364				—				—				1,364
Management fees			3,750				—				—				3,750
Loss on extinguishment of debt			23,075				—				—				23,075
Earnings from continuing operations before gain on disposal of assets and income taxes			15,012				48,874				—				63,886
Gain on disposal of assets, net			771				—				—				771
Earnings from continuing operations before income taxes		$	15,783			$	48,874			$	—			$	64,657
Segment assets		$	2,368,758			$	318,042							$	2,686,800
Capital expenditures		$	64,104			$	371							$	64,475
Goodwill		$	830,931			$	5,757							$	836,688

		For the Nine Months Ended June 30, 2010
		Acute Care				Health Choice				Eliminations				Consolidated
Acute care revenue		$	1,300,445			$	—			$	—			$	1,300,445
Premium revenue			—				591,022				—				591,022
Revenue between segments			8,331				—				(8,331	)			—
Net revenue			1,308,776				591,022				(8,331	)			1,891,467
Salaries and benefits (excludes stock-based compensation)			497,916				14,405				—				512,321
Supplies			200,030				137				—				200,167
Medical claims			—				519,023				(8,331	)			510,692
Other operating expenses			248,380				18,474				—				266,854
Provision for bad debts			142,901				—				—				142,901
Rentals and leases			29,334				1,153				—				30,487
Adjusted EBITDA(1)			190,215				37,830				—				228,045
Interest expense, net			50,065				—				—				50,065
Depreciation and amortization			69,240				2,669				—				71,909
Stock-based compensation			2,367				—				—				2,367
Management fees			3,750				—				—				3,750
Earnings from continuing operations before loss on disposal of assets and income taxes			64,793				35,161				—				99,954
Loss on disposal of assets, net			(206	)			—				—				(206	)
Earnings from continuing operations before income taxes		$	64,587			$	35,161			$	—			$	99,748
Segment assets		$	2,006,311			$	293,150							$	2,299,461
Capital expenditures		$	53,288			$	177							$	53,465
Goodwill		$	712,163			$	5,757							$	717,920

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Senior Notes described in Note 2 are fully and unconditionally guaranteed on a joint and several basis by all of the Company’s existing domestic subsidiaries, other than non-guarantor subsidiaries which include Health Choice and the Company’s non-wholly owned subsidiaries.

Effective October 1, 2010, the operations and net assets of Wadley, acquired as part of the Brim acquisition, are included in the subsidiary non-guarantor information in the following summarized unaudited condensed consolidating financial statements.

Effective May 1, 2011, the operations and net assets of St. Joseph are included in the subsidiary non-guarantor information in the following summarized unaudited condensed consolidating financial statements.

Summarized condensed consolidating balance sheets at June 30, 2011 and September 30, 2010, condensed consolidating statements of operations for the quarters and nine months ended June 30, 2011 and 2010, and condensed consolidating statements of cash flows for the nine months ended June 30, 2011 and 2010, for the Company, segregating the parent company issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, are found below. Prior year amounts have been reclassified to conform to the current year presentation.

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

IASIS Healthcare LLC
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2011
(in thousands)

						Subsidiary				Subsidiary								Condensed
		Parent Issuer				Guarantors				Non-Guarantors				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	—			$	136,874			$	7,721			$	—			$	144,595
Accounts receivable, net			—				109,608				186,215				—				295,823
Inventories			—				24,015				41,431				—				65,446
Deferred income taxes			31,565				—				—				—				31,565
Prepaid expenses and other current assets			—				33,823				54,581				—				88,404
Total current assets			31,565				304,320				289,948				—				625,833
Property and equipment, net			—				347,698				781,453				—				1,129,151
Intercompany			—				(269,735	)			269,735				—				—
Net investment in and advances to subsidiaries			2,030,278				—				—				(2,030,278	)			—
Goodwill			7,701				99,663				729,324				—				836,688
Other intangible assets, net			—				8,635				24,750				—				33,385
Other assets, net			37,589				(24,978	)			49,132				—				61,743
Total assets		$	2,107,133			$	465,603			$	2,144,342			$	(2,030,278	)		$	2,686,800
Liabilities and Equity
Current liabilities:
Accounts payable		$	—			$	31,947			$	76,720			$	—			$	108,667
Salaries and benefits payable			—				30,372				34,674				—				65,046
Accrued interest payable			11,994				(3,222	)			3,222				—				11,994
Medical claims payable			—				—				99,530				—				99,530
Other accrued expenses and other current liabilities			—				42,216				54,697				—				96,913
Current portion of long-term debt and capital lease obligations			10,250				3,723				25,036				(25,036	)			13,973
Total current liabilities			22,244				105,036				293,879				(25,036	)			396,123
Long-term debt and capital lease obligations			1,851,167				16,293				674,685				(674,685	)			1,867,460
Deferred income taxes			118,380				—				—				—				118,380
Other long-term liabilities			—				81,593				625				—				82,218
Total liabilities			1,991,791				202,922				969,189				(699,721	)			2,464,181
Non-controlling interests with redemption rights			—				97,443				—				—				97,443
Equity:
Member’s equity			115,342				155,404				1,175,153				(1,330,557	)			115,342
Non-controlling interests			—				9,834				—				—				9,834
Total equity			115,342				165,238				1,175,153				(1,330,557	)			125,176
Total liabilities and equity		$	2,107,133			$	465,603			$	2,144,342			$	(2,030,278	)		$	2,686,800

IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

IASIS Healthcare LLC
Condensed Consolidating Balance Sheet
September 30, 2010
(in thousands)

						Subsidiary				Subsidiary								Condensed
		Parent Issuer				Guarantors				Non-Guarantors				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	—			$	143,599			$	912			$	—			$	144,511
Accounts receivable, net			—				81,649				127,524				—				209,173
Inventories			—				22,793				31,049				—				53,842
Deferred income taxes			15,881				—				—				—				15,881
Prepaid expenses and other current assets			—				23,577				41,763				—				65,340
Total current assets			15,881				271,618				201,248				—				488,747
Property and equipment, net			—				351,265				634,026				—				985,291
Intercompany			—				(297,257	)			297,257				—				—
Net investment in and advances to subsidiaries			1,823,973				—				—				(1,823,973	)			—
Goodwill			17,331				65,504				635,408				—				718,243
Other intangible assets, net			—				—				27,000				—				27,000
Deposit for acquisition			—				97,891				—				—				97,891
Other assets, net			12,018				17,967				6,037				—				36,022
Total assets		$	1,869,203			$	506,988			$	1,800,976			$	(1,823,973	)		$	2,353,194
Liabilities and Equity
Current liabilities:
Accounts payable		$	—			$	32,400			$	46,531			$	—			$	78,931
Salaries and benefits payable			—				19,916				18,194				—				38,110
Accrued interest payable			12,536				(3,237	)			3,237				—				12,536
Medical claims payable			—				—				111,373				—				111,373
Other accrued expenses and other current liabilities			—				32,326				74,288				—				106,614
Current portion of long-term debt and capital lease obligations			5,890				801				20,570				(20,570	)			6,691
Total current liabilities			18,426				82,206				274,193				(20,570	)			354,255
Long-term debt and capital lease obligations			1,039,370				5,517				547,170				(547,170	)			1,044,887
Deferred income taxes			109,272				—				—				—				109,272
Other long-term liabilities			—				59,527				635				—				60,162
Total liabilities			1,167,068				147,250				821,998				(567,740	)			1,568,576
Non-controlling interests with redemption rights			—				72,112				—				—				72,112
Equity:
Member’s equity			702,135				277,255				978,978				(1,256,233	)			702,135
Non-controlling interests			—				10,371				—				—				10,371
Total equity			702,135				287,626				978,978				(1,256,233	)			712,506
Total liabilities and equity		$	1,869,203			$	506,988			$	1,800,976			$	(1,823,973	)		$	2,353,194