IASIS HEALTHCARE CORP - 10-Q Quarterly Report

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 June 30, 2002

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 Incorporation or Organization)		(I.R.S. Employer (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 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 [X] NO [ ]

As of August 12, 2002, 31,955,863 shares of the Registrant’s Common Stock were outstanding.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED AND CONSOLIDATED BALANCE SHEETS
		CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
		CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II
OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Amendment No.17 to Contract
Amended and Restated Pioneer Hospital Lease
Odessa Regional Hospital, LP Unaudited Financials

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION			1
		Item 1.	Financial Statements:
			Condensed and Consolidated Balance Sheets at June 30, 2002 (Unaudited) and September 30, 2001	1
			Condensed and Consolidated Statements of Operations (Unaudited) — Three Months Ended June 30, 2002 and 2001 and Nine Months Ended June 30, 2002 and 2001	2
			Condensed and Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended June 30, 2002 and 2001	3
			Notes to Unaudited Condensed and Consolidated Financial Statements	4
		Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
PART II.	OTHER INFORMATION
		Item 6.	Exhibits and Reports on Form 8-K	28

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)


					(Unaudited)
					June 30,			September 30,
					2002			2001

				ASSETS
Current assets:
	Cash and cash equivalents				$	—		$	6,056
	Accounts receivable, net of allowance for doubtful accounts of $30,271 and $25,945, respectively					155,464			147,810
	Inventories					23,444			21,891
	Prepaid expenses and other current assets					21,228			15,454
	Assets held for sale					22,377			25,106

			Total current assets			222,513			216,317
Property and equipment, net						392,609			335,037
Goodwill, net						292,039			292,060
Deferred debt financing costs, net						18,902			19,768
Other assets						3,546			3,127

			Total assets		$	929,609		$	866,309


				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	47,073		$	48,062
	Salaries and benefits payable					16,025			16,806
	Accrued interest payable					10,307			18,297
	Medical claims payable					28,066			21,871
	Other accrued expenses and other current liabilities					19,953			21,647
	Current portion of accrued loss on discontinued operations					244			396
	Current portion of long-term debt and capital lease obligations					28,410			19,603

			Total current liabilities			150,078			146,682
Long-term debt and capital lease obligations, net of current portion						566,165			530,574
Other long-term liabilities						20,386			18,380
Minority interest						4,706			4,379

			Total liabilities			741,335			700,015

Stockholders’ equity:
	Common stock — $0.01 par value, authorized 100,000,000 shares; 31,984,779 shares issued and 31,955,863 shares outstanding at June 30, 2002; 31,961,445 shares issued and 31,932,529 shares outstanding at September 30, 2001					320			320
	Additional paid-in capital					450,718			450,496
	Treasury stock, at cost, 16,306,541 shares at June 30, 2002 and September 30, 2001					(155,300	)		(155,300	)
	Accumulated deficit					(107,464	)		(129,222	)

		Total stockholders’ equity				188,274			166,294

		Total liabilities and stockholders’ equity			$	929,609		$	866,309

See accompanying notes.

IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)


			Three Months Ended					Nine Months Ended
			June 30,					June 30,

			2002		2001			2002		2001

Net revenue			$	239,898	$	216,975		$	705,203	$	668,963
Costs and expenses:
	Salaries and benefits			81,057		79,205			239,102		237,520
	Supplies			32,617		34,810			98,615		100,397
	Other operating expenses			74,093		67,215			217,255		195,363
	Provision for bad debts			18,503		18,578			52,868		55,148
	Interest, net			13,356		15,726			41,895		49,583
	Depreciation and amortization			11,283		12,372			32,951		40,339
	Provision for asset revaluation, closure and other costs			—		16,612			—		16,612

		Total costs and expenses		230,909		244,518			682,686		694,962

Earnings (loss) from continuing operations before minority interests and income taxes				8,989		(27,543	)		22,517		(25,999	)
Minority interests				235		156			759		329

Earnings (loss) from continuing operations before income taxes				8,754		(27,699	)		21,758		(26,328	)
Income tax expense				—		—			—		—

		Net earnings (loss) from continuing operations		8,754		(27,699	)		21,758		(26,328	)
Discontinued operations:
Reversal of excess loss accrual for discontinued physician practice operations				—		(1,000	)		—		(1,000	)

		Net earnings (loss)		8,754		(26,699	)		21,758		(25,328	)
Preferred stock dividends reversed				—		—			—		(25,348	)

Net earnings (loss) attributable to common stockholders			$	8,754	$	(26,699	)	$	21,758	$	20

See accompanying notes.

IASIS HEALTHCARE CORPORATION
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)


				Nine Months Ended
				June 30,

				2002			2001

Cash flows from operating activities:
	Net earnings (loss)			$	21,758		$	(25,328	)
	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
		Depreciation and amortization			32,951			40,339
		Minority interests			759			329
		Loss (gain) on sale of property and equipment			7			(52	)
		Reversal of excess loss accrual for discontinued operations			—			(1,000	)
		Provision for asset revaluation and closure costs			—			11,900
		Changes in operating assets and liabilities, net of the effect of dispositions:
			Accounts receivable		(7,439	)		(5,905	)
			Inventories, prepaid expenses and other current assets		(7,493	)		(4,068	)
			Accounts payable and other accrued liabilities		(1,161	)		7,841
			Accrued loss on discontinued operations		(491	)		(2,772	)

		Net cash provided by operating activities			38,891			21,284

Cash flows from investing activities:
	Purchases of property and equipment				(84,687	)		(29,269	)
	Proceeds from sale of property and equipment				149			536
	Payments for dispositions, net				—			(101	)
	Change in other assets				(535	)		4

		Net cash used in investing activities			(85,073	)		(28,830	)

Cash flows from financing activities:
	Proceeds from issuance of common stock				222			1,900
	Proceeds from senior bank debt borrowings				160,600			124,000
	Payment of debt and capital leases				(117,916	)		(115,428	)
	Debt financing costs incurred				(2,347	)		—
	Other				(433	)		1,697

		Net cash provided by financing activities			40,126			12,169

Increase (decrease) in cash and cash equivalents					(6,056	)		4,623
Cash and cash equivalents at beginning of the period					6,056			—

Cash and cash equivalents at end of the period				$	—		$	4,623

Supplemental disclosure of cash flow information:
	Cash paid for interest			$	49,986		$	58,080

	Cash paid (refunded) for income taxes, net			$	(1,835	)	$	2,262

Supplemental schedule of investing activities:
	Effects of dispositions, net:
		Assets disposed of, net of cash		$	—		$	853
		Liabilities paid			—			(679	)
		Repurchase of common stock			—			(275	)

			Payments for dispositions, net	$	—		$	(101	)

Supplemental schedule of noncash investing and financing activities:
	Capital lease obligations incurred to acquire equipment			$	1,714		$	667

	Exchange of preferred stock for common stock			$	—		$	189,278

See accompanying notes.

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, 2001 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 and combined financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2001.

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.

Certain prior period amounts have been reclassified in order to conform to current period presentation. Such reclassifications had no material effect on the financial position and results of operations as previously reported.

IASIS operates networks of medium-sized hospitals in high-growth urban and suburban markets. At June 30, 2002, the Company owned or leased 14 hospitals with a total of 2,096 beds in service. The Company’s hospitals are located in four regions:

• Salt Lake City, Utah;

• Phoenix, Arizona;

• Tampa-St. Petersburg, Florida; and

• four cities in the state of Texas, including San Antonio.

The Company also operates five ambulatory surgery centers and a Medicaid managed health plan in Phoenix called Health Choice, serving over 56,500 members at June 30, 2002.

2. Long-Term Debt and Capital Lease Obligations

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


	June 30,		September 30,
	2002		2001

Bank facilities	$	362,250	$	319,375
Senior subordinated notes		230,000		230,000
Capital lease obligations		2,325		802

		594,575		550,177
Less current maturities		28,410		19,603

	$	566,165	$	530,574

IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

Bank Facilities

Under a credit facility dated October 15, 1999, a syndicate of lenders made a total of $455.0 million available to the Company 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 (collectively, the “Bank Facilities”). Effective October 5, 2001, the Company amended its Bank Facilities. The amended Bank Facilities provided for an additional $30.0 million incremental term loan on substantially the same terms and conditions as the Company’s existing Bank Facilities. The amended Bank Facilities also provided for revisions to certain financial covenants.

On October 15, 2001, the Company acquired the land and buildings at two of its hospitals previously operated under long-term leases for an aggregate purchase price of approximately $55.3 million. The purchase price was financed by the $30.0 million new incremental term loan and borrowings under the Company’s revolving credit facility.

At June 30, 2002, amounts outstanding under the tranche A, tranche B and incremental term loans were approximately $65.0 million, $243.8 million and $30.0 million, respectively. At June 30, 2002, the Company had drawn $23.5 million under the revolving credit facility and had issued approximately $31.2 million in letters of credit, resulting in remaining availability under the revolving credit facility of approximately $70.3 million. The revolving credit facility includes a $75.0 million sub-limit for letters of credit that may be issued by the Company. Repayments under the term loans are due in quarterly installments. In addition, the loans under the Bank Facilities are subject to mandatory prepayment under specific circumstances, including from a portion of excess cash flow and the net proceeds of specified casualty events, asset sales and debt issuances, each subject to various exceptions. The loans under the Bank Facilities bear 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 on outstanding borrowings under the Bank Facilities was approximately 6.5% for the nine months ended June 30, 2002. The Company also pays a commitment fee equal to 0.5% of the average daily amount available under the revolving credit facility.

The Bank Facilities require the Company to comply with various financial ratios and tests and contain 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 Bank Facilities are 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 Bank Facilities.

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 June 30, 2002, 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.

IASIS HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS
(Continued)

3. Preferred Stock

In October 1999, the Company acquired ten acute care hospitals and other related facilities and assets from Tenet Healthcare Corporation (“Tenet”) for approximately $431.8 million in cash and approximately $41.2 million in assumed liabilities. Concurrent with the Tenet transaction, the Company issued 160,000 shares of mandatorily redeemable Series A preferred stock for proceeds, net of issuance costs, of $158.6 million. In conjunction with the Tenet transaction, a company formed by members of the Company’s manageme

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•		Salt Lake City, Utah;
•		Phoenix, Arizona;
•		Tampa-St. Petersburg, Florida; and
•		four cities in the state of Texas, including San Antonio.