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EX-31.2 - EXHIBIT 31.2 - IASIS Healthcare LLC | c04219exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - IASIS Healthcare LLC | c04219exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 |
For the quarterly period ended June 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
COMMISSION FILE NUMBER: 333-117362
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
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(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
o 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. (Check one):
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 11, 2010, 100% of the registrants 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
Item 1. Financial Statements
IASIS HEALTHCARE LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
(In Thousands)
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 130,160 | $ | 206,528 | ||||
Accounts receivable, less allowance for doubtful accounts of
$120,280 and $126,132 at June 30, 2010 and September 30, 2009,
respectively |
221,327 | 230,198 | ||||||
Inventories |
53,476 | 50,492 | ||||||
Deferred income taxes |
11,130 | 39,038 | ||||||
Prepaid expenses and other current assets |
121,379 | 49,453 | ||||||
Total current assets |
537,472 | 575,709 | ||||||
Property and equipment, net |
980,797 | 997,353 | ||||||
Goodwill |
717,920 | 717,920 | ||||||
Other intangible assets, net |
27,750 | 30,000 | ||||||
Other assets, net |
35,522 | 36,222 | ||||||
Total assets |
$ | 2,299,461 | $ | 2,357,204 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 71,821 | $ | 68,552 | ||||
Salaries and benefits payable |
45,369 | 42,548 | ||||||
Accrued interest payable |
2,128 | 12,511 | ||||||
Medical claims payable |
110,556 | 113,519 | ||||||
Other accrued expenses and other current liabilities |
85,389 | 65,701 | ||||||
Current portion of long-term debt and capital lease obligations |
6,705 | 8,366 | ||||||
Total current liabilities |
321,968 | 311,197 | ||||||
Long-term debt and capital lease obligations |
1,046,480 | 1,051,471 | ||||||
Deferred income taxes |
103,352 | 106,425 | ||||||
Other long-term liabilities |
56,212 | 54,222 | ||||||
Non-controlling interests with redemption rights |
72,527 | 72,527 | ||||||
Equity: |
||||||||
Members equity |
688,576 | 750,932 | ||||||
Non-controlling interests |
10,346 | 10,430 | ||||||
Total equity |
698,922 | 761,362 | ||||||
Total liabilities and equity |
$ | 2,299,461 | $ | 2,357,204 | ||||
See accompanying notes.
1
Table of Contents
IASIS HEALTHCARE LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
(In Thousands)
Quarter Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net revenue: |
||||||||||||||||
Acute care revenue |
$ | 438,211 | $ | 417,880 | $ | 1,300,445 | $ | 1,237,506 | ||||||||
Premium revenue |
199,777 | 183,738 | 591,022 | 504,410 | ||||||||||||
Total net revenue |
637,988 | 601,618 | 1,891,467 | 1,741,916 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Salaries and benefits (includes
stock compensation of $118, $141,
$2,367 and $420, respectively) |
170,035 | 164,879 | 514,688 | 495,387 | ||||||||||||
Supplies |
66,333 | 63,950 | 200,167 | 187,529 | ||||||||||||
Medical claims |
172,031 | 158,919 | 510,692 | 422,519 | ||||||||||||
Other operating expenses |
93,579 | 79,708 | 266,854 | 237,011 | ||||||||||||
Provision for bad debts |
49,416 | 45,594 | 142,901 | 137,892 | ||||||||||||
Rentals and leases |
10,067 | 10,008 | 30,487 | 29,221 | ||||||||||||
Interest expense, net |
16,711 | 16,334 | 50,065 | 51,129 | ||||||||||||
Depreciation and amortization |
24,007 | 24,217 | 71,909 | 73,509 | ||||||||||||
Management fees |
1,250 | 1,250 | 3,750 | 3,750 | ||||||||||||
Hurricane-related property damage |
| | | 938 | ||||||||||||
Total costs and expenses |
603,429 | 564,859 | 1,791,513 | 1,638,885 | ||||||||||||
Earnings from continuing operations
before gain (loss) on disposal of
assets and income taxes |
34,559 | 36,759 | 99,954 | 103,031 | ||||||||||||
Gain (loss) on disposal of assets, net |
(149 | ) | 184 | (206 | ) | 1,497 | ||||||||||
Earnings from continuing operations
before income taxes |
34,410 | 36,943 | 99,748 | 104,528 | ||||||||||||
Income tax expense |
12,683 | 13,715 | 36,544 | 38,975 | ||||||||||||
Net earnings from continuing operations |
21,727 | 23,228 | 63,204 | 65,553 | ||||||||||||
Earnings (loss) from discontinued
operations, net of income taxes |
(384 | ) | 167 | (363 | ) | (333 | ) | |||||||||
Net earnings |
21,343 | 23,395 | 62,841 | 65,220 | ||||||||||||
Net earnings attributable to
non-controlling interests |
(2,002 | ) | (2,666 | ) | (6,063 | ) | (7,240 | ) | ||||||||
Net earnings attributable to IASIS
Healthcare LLC |
$ | 19,341 | $ | 20,729 | $ | 56,778 | $ | 57,980 | ||||||||
See accompanying notes.
2
Table of Contents
IASIS HEALTHCARE LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
(In Thousands)
Nine Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities |
||||||||
Net earnings |
$ | 62,841 | $ | 65,220 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
71,909 | 73,509 | ||||||
Amortization of loan costs |
2,356 | 2,257 | ||||||
Stock compensation costs |
2,367 | 420 | ||||||
Deferred income taxes |
23,839 | 11,792 | ||||||
Income tax benefit from stock compensation |
(1,770 | ) | | |||||
Income tax benefit from parent company interest |
4,989 | | ||||||
Loss (gain) on disposal of assets, net |
206 | (1,497 | ) | |||||
Loss from discontinued operations |
363 | 333 | ||||||
Hurricane-related property damage |
| 938 | ||||||
Changes in operating assets and liabilities, net of the effect of acquisitions and
dispositions: |
||||||||
Accounts receivable, net |
9,154 | (18,854 | ) | |||||
Inventories, prepaid expenses and other current assets |
(74,909 | ) | (2,491 | ) | ||||
Accounts payable, other accrued expenses and other accrued liabilities |
13,137 | 39,231 | ||||||
Net cash provided by operating activities continuing operations |
114,482 | 170,858 | ||||||
Net cash provided by (used in) operating activities discontinued operations |
(567 | ) | 1,548 | |||||
Net cash provided by operating activities |
113,915 | 172,406 | ||||||
Cash flows from investing activities |
||||||||
Purchases of property and equipment, net |
(53,465 | ) | (66,608 | ) | ||||
Cash paid for acquisition, net |
| (1,521 | ) | |||||
Proceeds from sale of assets |
50 | 5,240 | ||||||
Change in other assets, net |
1,856 | 1,832 | ||||||
Net cash used in investing activities continuing operations |
(51,559 | ) | (61,057 | ) | ||||
Net cash provided by investing activities discontinued operations |
| 10 | ||||||
Net cash used in investing activities |
(51,559 | ) | (61,047 | ) | ||||
Cash flows from financing activities |
||||||||
Payment of debt and capital lease obligations |
(6,772 | ) | (53,672 | ) | ||||
Distribution to parent company in connection with the repurchase of equity, net |
(124,962 | ) | | |||||
Distributions to non-controlling interests |
(6,921 | ) | (4,721 | ) | ||||
Costs paid
for the repurchase of partnership interests, net |
(69 | ) | (1,379 | ) | ||||
Net cash used in financing activities |
(138,724 | ) | (59,772 | ) | ||||
Change in cash and cash equivalents |
(76,368 | ) | 51,587 | |||||
Cash and cash equivalents at beginning of period |
206,528 | 80,738 | ||||||
Cash and cash equivalents at end of period |
$ | 130,160 | $ | 132,325 | ||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for interest |
$ | 58,145 | $ | 60,519 | ||||
Cash paid for income taxes, net |
$ | 7,513 | $ | 3,834 | ||||
See accompanying notes.
3
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements as of and for the quarters and nine
months ended June 30, 2010 and 2009, reflect the financial position, results of operations and cash
flows of IASIS Healthcare LLC (IASIS or the Company). The Companys 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, 2010, the Company owned or leased 15 acute care hospital facilities and one
behavioral health hospital facility, with a total of 2,886 beds in service, located in six regions:
| Salt Lake City, Utah; | ||
| Phoenix, Arizona; | ||
| Tampa-St. Petersburg, Florida; | ||
| three cities in Texas, including San Antonio; | ||
| Las Vegas, Nevada; and | ||
| West Monroe, Louisiana. |
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, which covered over
199,000 lives at June 30, 2010.
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, 2009, has been derived from the audited
consolidated financial statements at that date. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for
the fiscal year ended September 30, 2009.
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.
4
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 Companys total assets or total liabilities and
equity.
General and Administrative
The majority of the Companys 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 $7.7 million and $12.4 million for the quarters ended June 30, 2010 and 2009,
respectively, and $27.0 million and $33.0 million for the nine months ended June 30, 2010 and 2009,
respectively.
Adoption of New Accounting Standards
Effective October 1, 2009, the Company adopted the new provisions of Financial Accounting
Standards Board (FASB) authoritative guidance regarding non-controlling interests in consolidated
financial statements. The guidance requires the Company to clearly identify and present ownership
interests in subsidiaries held by parties other than the Company in the consolidated financial
statements within the equity section. It also requires the amounts of consolidated net earnings
attributable to the Company and to the non-controlling interests to be clearly identified and
presented on the face of the consolidated statements of operations.
The Company consolidates seven subsidiaries with non-controlling interests that include
third-party partners that own limited partnership units with certain redemption features. The
redeemable limited partnership units require the Company to buy back the units upon the occurrence of
certain events at the fair value of the units. In addition, the limited partnership agreements for
all of the limited partnerships provide the limited partners with put rights which allow the
units to be sold back to the Company, subject to certain limitations, at the fair value of the
units. According to the limited partnership agreements, the fair value of the units is generally
calculated as the product of the EBITDA (earnings before interest, taxes, depreciation,
amortization and management fees) and a fixed multiple, less any long-term debt of the entity. The
majority of these put rights require an initial holding period of six years after purchase, at
which point the holder of the redeemable limited partnership units may put back to the Company 20%
of such holders units. Each succeeding year, the number of vested redeemable units will increase
by 20% until the end of the tenth year after the initial investment, at which point 100% of the
units may be put back to the Company. Under no circumstances shall the Company be required to
repurchase more than 25% of the total vested redeemable limited partnership units in any fiscal
year. The equity attributable to these interests has been classified as non-controlling interests
with redemption rights in the accompanying unaudited condensed consolidated balance sheets.
5
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following schedule presents the reconciliation of total equity, members equity
attributable to the Company, and equity attributable to the non-controlling interests as if the
provisions of the non-controlling interest authoritative guidance were adopted as of September 30,
2009 (in thousands):
Non-controlling | ||||||||||||||||
Interests with | Non- | |||||||||||||||
Redemption | Members | controlling | ||||||||||||||
Rights | Equity | Interests | Total Equity | |||||||||||||
Balance at September 30, 2009 (as previously
reported) |
$ | | $ | 780,847 | $ | | $ | 780,847 | ||||||||
Adjustment to non-controlling interests
from adoption of FASB authoritative
guidance |
72,527 | (29,915 | ) | 10,430 | (19,485 | ) | ||||||||||
Balance at September 30, 2009 (as adjusted) |
72,527 | 750,932 | 10,430 | 761,362 | ||||||||||||
Net earnings |
5,968 | 56,778 | 95 | 56,873 | ||||||||||||
Distributions to, and repurchases of,
non-controlling interests |
(6,811 | ) | | (179 | ) | (179 | ) | |||||||||
Stock compensation |
| 2,367 | | 2,367 | ||||||||||||
Other comprehensive loss |
| (685 | ) | | (685 | ) | ||||||||||
Distribution to parent company in
connection with the repurchase of equity,
net |
| (124,962 | ) | | (124,962 | ) | ||||||||||
Contribution from parent related to tax
benefit from Holdings Senior PIK Loans
interest |
| 4,989 | | 4,989 | ||||||||||||
Adjustment to redemption value of
non-controlling interests with redemption
rights |
843 | (843 | ) | | (843 | ) | ||||||||||
Balance at June 30, 2010 |
$ | 72,527 | $ | 688,576 | $ | 10,346 | $ | 698,922 | ||||||||
The Company has adopted the new FASB authoritative guidance regarding business combinations,
which applies prospectively to 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, 2008. This
new guidance establishes principles and requirements for recognition and measurement of items
acquired during a business combination, as well as certain disclosure requirements in the financial
statements. The adoption of these provisions did not impact the Companys results of operations or
financial position; however, it is anticipated to have a material effect on the Companys
accounting for future acquisitions.
The Company has adopted the new FASB authoritative guidance issued in January 2010 requiring
additional information to be disclosed with respect to Level 3 fair value measurements, as well as
transfers to and from Level 1 and Level 2 measurements. In addition, enhanced disclosures are
required concerning inputs and valuation techniques used to determine Level 2 and Level 3 fair
value measurements. The new disclosures and clarifications of existing disclosures were effective
for the quarter ending March 31, 2010, with the effective date for additional Level 3 related
disclosures effective for periods beginning after December 15, 2010. The new provisions have not
significantly impacted the Companys disclosures, and the Company does not anticipate any
significant impact in periods after December 15, 2010.
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.
6
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, | |||||||
2010 | 2009 | |||||||
Senior secured credit facilities |
$ | 571,733 | $ | 576,150 | ||||
Senior subordinated notes |
475,000 | 475,000 | ||||||
Capital leases and other obligations |
6,452 | 8,687 | ||||||
1,053,185 | 1,059,837 | |||||||
Less current maturities |
6,705 | 8,366 | ||||||
$ | 1,046,480 | $ | 1,051,471 | |||||
Senior Secured Credit Facilities
The $854.0 million senior secured credit facilities include: (i) a senior secured term loan of
$439.0 million; (ii) a senior secured delayed draw term loan of $150.0 million; (iii) a senior
secured revolving credit facility of $225.0 million, which includes a $100.0 million sub-limit for
letters of credit; and (iv) a senior secured synthetic letter of credit facility of $40.0 million.
All facilities mature on March 15, 2014, except for the revolving credit facility, which matures on
April 27, 2013. The term loans bear interest at an annual rate of LIBOR plus 2.00% or, at the
Companys option, the administrative agents base rate plus 1.00%. The revolving loans bear
interest at an annual rate of LIBOR plus an applicable margin ranging from 1.25% to 1.75% or, at
the Companys option, the administrative agents base rate plus an applicable margin ranging from
0.25% to 0.75%, such rate in each case depending on the Companys senior secured leverage ratio. A
commitment fee ranging from 0.375% to 0.50% per annum is charged on the undrawn portion of the
senior secured revolving credit facility and is payable in arrears.
Principal under the senior secured term loan is due in equal quarterly installments in an
aggregate annual amount equal to 1.0% of the original principal amount ($439.0 million) during the
first six years thereof, with the balance payable in four equal installments beginning April 2013.
Principal under the senior secured delayed draw term loan is due in equal quarterly installments in
an aggregate annual amount equal to 1.0% of the original principal amount ($150.0 million) until
March 31, 2013, with the balance payable in four equal installments during the final year of the
loan. The senior secured credit facilities are also subject to mandatory prepayment under specific
circumstances, including a portion of excess cash flow, a portion of the net proceeds from an
initial public offering, asset sales, debt issuances and specified casualty events, each subject to
various exceptions.
The senior secured credit facilities are (i) secured by a first mortgage and lien on the real
property and related personal and intellectual property of the Company and pledges of equity
interests in the entities that own such properties and (ii) guaranteed by certain of the Companys
subsidiaries.
The senior secured credit facilities contain certain covenants which,
among other things, limit the incurrence of additional indebtedness, investments, dividends,
transactions with affiliates, asset sales, acquisitions, mergers and consolidations, liens and
encumbrances and other matters customarily restricted in such agreements.
At June 30, 2010, amounts outstanding under the Companys senior secured credit facilities
consisted of a $424.7 million term loan and a $147.0 million delayed draw term loan. In addition,
the Company had $39.9 million and $36.2 million in letters of credit outstanding under the
synthetic letter of credit facility and the revolving credit facility, respectively. The weighted
average interest rate of outstanding borrowings under the senior secured credit facilities was
3.4%
and
3.3% for the quarter and nine months ended June 30, 2010, respectively.
7
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8 3/4% Senior Subordinated Notes
The Company, together with its wholly-owned subsidiary, IASIS Capital Corporation, a holding
company with no assets or operations, as issuers, have outstanding $475.0 million aggregate
principal amount of 8 3/4% senior subordinated notes due 2014 (the 8
3/4% notes). The 8 3/4% notes are general unsecured
senior subordinated obligations and are subordinated in right of payment to all existing and future senior debt of
the Company. The Companys existing domestic subsidiaries, other than certain non-guarantor
subsidiaries, which include Health Choice and the Companys non-wholly owned subsidiaries, are
guarantors of the 8 3/4% notes. The 8 3/4% notes are
effectively subordinated to all of the issuers and the guarantors secured debt to the extent of
the value of the assets securing the debt and are structurally subordinated to all liabilities and
commitments (including trade payables and capital lease obligations) of the Companys subsidiaries
that are not guarantors of the 8 3/4% notes.
Holdings Senior Paid-in-Kind Loans
IAS has outstanding Senior Paid-in-Kind (PIK) Loans, which were used to repurchase
certain preferred equity from its stockholders in fiscal 2007. The Senior PIK Loans mature
June 15, 2014, and bear interest at an annual rate equal to LIBOR plus 5.25%. At June 30, 2010, the
outstanding balance of the Senior PIK Loans was $384.2 million, which includes $84.2
million of interest that has accrued to the principal of these loans since the date of issuance,
and is recorded in the financial statements of IAS. In June 2012, the Senior PIK Loans,
which rank behind the Companys existing debt, will convert to cash-pay, at which time all accrued
interest becomes payable.
3. INTEREST RATE SWAPS
Effective March 2, 2009, the Company executed interest rate swap transactions with Citibank,
N.A. and Wachovia Bank, N.A., as counterparties, with notional amounts totaling $425.0 million. The
arrangements with each counterparty include two interest rate swap agreements, one with a notional
amount of $112.5 million maturing on February 28, 2011 and one with a notional amount of $100.0
million maturing on February 29, 2012. The Company entered into these interest rate swap
arrangements to mitigate the floating interest rate risk on a portion of its outstanding variable
rate debt. Under these agreements, the Company is required to make monthly fixed rate payments to
the counterparties, as calculated on the applicable notional amounts, at annual fixed rates, which
range from 1.5% to 2.0% depending upon the agreement. The counterparties are obligated to make
monthly floating rate payments to the Company based on the one-month LIBOR rate for the same
referenced notional amount.
Total Notional | ||||
Date Range | Amounts | |||
(in thousands) | ||||
Expiring on February 28, 2011 |
$ | 225,000 | ||
Expiring on February 29, 2012 |
$ | 200,000 |
The Company accounts for its interest rate swaps in accordance with the provisions of 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 cash flow hedge instruments. The Company assesses
the effectiveness of these cash flow hedges on a quarterly basis, with any ineffectiveness being
measured using the hypothetical derivative method. The Company completed an assessment of its cash
flow hedge instruments during the quarters and nine months ended June 30, 2010 and 2009, and
determined its hedging instruments to be highly effective in all periods. Accordingly, no gain or
loss resulting from hedging ineffectiveness is reflected in the Companys accompanying unaudited
condensed consolidated statements of operations.
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 rate 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.
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 Companys interest rate swaps at June 30, 2010 and September 30, 2009,
reflect liability balances of $5.8 million and $4.7 million, respectively, and are included in
other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets.
The fair value of the Companys 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 Companys counterparties under the fixed interest rate component. Any change in the
fair value of the Companys interest rate swaps, net of income taxes, is included in other
comprehensive loss as a component of members equity in the accompanying unaudited condensed
consolidated balance sheets.
4. 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, for the quarters and nine months ended June 30, 2010 and 2009
(in thousands):
Quarter Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net earnings |
$ | 21,343 | $ | 23,395 | $ | 62,841 | $ | 65,220 | ||||||||
Change in fair value of interest rate swaps |
56 | 2,852 | (1,092 | ) | (2,217 | ) | ||||||||||
Change in
income tax expense (benefit) |
(21 | ) | (1,068 | ) | 407 | 829 | ||||||||||
Comprehensive income |
$ | 21,378 | $ | 25,179 | $ | 62,156 | $ | 63,832 | ||||||||
The
components of accumulated other comprehensive loss, net of income taxes, as of June 30, 2010 and
September 30, 2009, are as follows (in thousands):
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
Fair value of interest rate swaps |
$ | (5,753 | ) | $ | (4,660 | ) | ||
Income tax benefit |
2,142 | 1,734 | ||||||
Accumulated other comprehensive loss |
$ | (3,611 | ) | $ | (2,926 | ) | ||
5. DISTRIBUTION TO PARENT
During the nine months ended June 30, 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 Companys excess cash on
hand. The cancellation of the rollover options, which were associated with the Companys 2004
recapitalization, resulted in the Company recognizing $2.0 million in stock compensation expense
during the nine months ended June 30, 2010.
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. 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 Companys opinion, would have a material adverse effect on the Companys 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, 2010 and September 30, 2009, the Companys professional and general
liability accrual for asserted and unasserted claims totaled $43.9 million and $41.7 million,
respectively. The semi-annual valuations from the Companys independent actuary for professional
and general liability losses resulted in a change in related estimates for prior periods which
decreased professional and general liability expense by $1.9 million and $3.2 million during the
nine months ended June 30, 2010 and 2009, respectively.
The Company is subject to claims and legal actions in the ordinary course of business related
to workers compensation. 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. The semi-annual valuations from the Companys independent actuary for workers
compensation losses resulted in a change in related estimates for prior periods which increased
benefits expense by $801,000 during the nine months ended June 30, 2010, compared to a decrease of
$852,000 during the same prior year period.
Health Choice
Health Choice has entered into capitated contracts whereby the Plan provides 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, 2010, the Company has
provided a performance guaranty in the form of letters of credit totaling $43.2 million for the
benefit of AHCCCS to support its obligations under the Health Choice 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.
As of June 30, 2010,
in connection with
a state-wide effort in Arizona to manage the states
fiscal budget issues, AHCCCS delayed the transmittal of the Plans June capitation payment totaling
$64.7 million. The Company has recorded a receivable related to this delayed capitation
payment, which is classified in other current assets in the balance
sheet at June 30, 2010. The capitation payment was subsequently received in July 2010.
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 (the District
Court) dismissed with prejudice a qui tam complaint previously filed against IAS. 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 (OIG) in September 2005. In August 2007, the case was unsealed and
became a private lawsuit after the Department of Justice declined to intervene. The United States
District Judge dismissed the case from the bench at the conclusion of oral arguments on IAS motion
to dismiss. On April 21, 2008, the court issued a written order dismissing the case with prejudice
and entering formal judgment for IAS. On May 7, 2008, the qui tam relators counsel filed a Notice
of Appeal to the United States Court of Appeals for the Ninth Circuit to appeal the District
Courts dismissal of the case. On May 21, 2008, IAS filed a Notice of Cross-Appeal to the United
States Court of Appeals for the Ninth Circuit from a portion of the April 21, 2008 Order related to
the relators misappropriation of information subject to a claim of attorney-client privilege by
IAS. Oral argument in the Ninth Circuit was held before the United States Court of Appeals for the
Ninth Circuit on March 9, 2010. Currently, the Company does not anticipate receiving a written
opinion from the Ninth Circuit in less than six months from the date of oral argument. If the
appeal of the order dismissing the qui tam action with prejudice was to be resolved in a manner
unfavorable to IAS, it could have a material adverse effect on the Companys business, financial
condition and results of operations, including exclusion from the Medicare and Medicaid programs.
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. SEGMENT AND GEOGRAPHIC INFORMATION
The Companys 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 Companys 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, 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 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 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 | ||||||||
For the Quarter Ended June 30, 2009 | ||||||||||||||||
Acute Care | Health Choice | Eliminations | Consolidated | |||||||||||||
Acute care revenue |
$ | 417,880 | $ | | $ | | $ | 417,880 | ||||||||
Premium revenue |
| 183,738 | | 183,738 | ||||||||||||
Revenue between segments |
2,542 | | (2,542 | ) | | |||||||||||
Net revenue |
420,422 | 183,738 | (2,542 | ) | 601,618 | |||||||||||
Salaries and benefits (excludes
stock compensation) |
159,838 | 4,900 | | 164,738 | ||||||||||||
Supplies |
63,905 | 45 | | 63,950 | ||||||||||||
Medical claims |
| 161,461 | (2,542 | ) | 158,919 | |||||||||||
Other operating expenses |
75,876 | 3,832 | | 79,708 | ||||||||||||
Provision for bad debts |
45,594 | | | 45,594 | ||||||||||||
Rentals and leases |
9,635 | 373 | | 10,008 | ||||||||||||
Adjusted EBITDA(1) |
65,574 | 13,127 | | 78,701 | ||||||||||||
Interest expense, net |
16,334 | | | 16,334 | ||||||||||||
Depreciation and amortization |
23,320 | 897 | | 24,217 | ||||||||||||
Stock compensation |
141 | | | 141 | ||||||||||||
Management fees |
1,250 | | | 1,250 | ||||||||||||
Earnings from continuing
operations before gain on
disposal of assets and income
taxes |
24,529 | 12,230 | | 36,759 | ||||||||||||
Gain on disposal of assets, net |
184 | | | 184 | ||||||||||||
Earnings from continuing
operations before income
taxes |
$ | 24,713 | $ | 12,230 | $ | | $ | 36,943 | ||||||||
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 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 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 | ||||||||||
For the Nine Months Ended June 30, 2009 | ||||||||||||||||
Acute Care | Health Choice | Eliminations | Consolidated | |||||||||||||
Acute care revenue |
$ | 1,237,506 | $ | | $ | | $ | 1,237,506 | ||||||||
Premium revenue |
| 504,410 | | 504,410 | ||||||||||||
Revenue between segments |
6,551 | | (6,551 | ) | | |||||||||||
Net revenue |
1,244,057 | 504,410 | (6,551 | ) | 1,741,916 | |||||||||||
Salaries and benefits (excludes
stock compensation) |
480,214 | 14,753 | | 494,967 | ||||||||||||
Supplies |
187,316 | 213 | | 187,529 | ||||||||||||
Medical claims |
| 429,070 | (6,551 | ) | 422,519 | |||||||||||
Other operating expenses |
220,272 | 16,739 | | 237,011 | ||||||||||||
Provision for bad debts |
137,892 | | | 137,892 | ||||||||||||
Rentals and leases |
28,038 | 1,183 | | 29,221 | ||||||||||||
Hurricane-related property damage |
938 | | | 938 | ||||||||||||
Adjusted EBITDA(1) |
189,387 | 42,452 | | 231,839 | ||||||||||||
Interest expense, net |
51,129 | | | 51,129 | ||||||||||||
Depreciation and amortization |
70,860 | 2,649 | | 73,509 | ||||||||||||
Stock compensation |
420 | | | 420 | ||||||||||||
Management fees |
3,750 | | | 3,750 | ||||||||||||
Earnings from continuing
operations before gain on
disposal of assets and income
taxes |
63,228 | 39,803 | | 103,031 | ||||||||||||
Gain on disposal of assets, net |
1,497 | | | 1,497 | ||||||||||||
Earnings from continuing
operations before income
taxes |
$ | 64,725 | $ | 39,803 | $ | | $ | 104,528 | ||||||||
Segment assets |
$ | 2,141,103 | $ | 225,832 | $ | 2,366,935 | ||||||||||
Capital expenditures |
$ | 65,810 | $ | 798 | $ | 66,608 | ||||||||||
Goodwill |
$ | 776,341 | $ | 5,757 | $ | 782,098 | ||||||||||
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) | Adjusted EBITDA represents earnings from continuing operations before interest expense, income tax expense, depreciation and amortization, stock compensation, gain (loss) on disposal of assets and management fees. Management fees represent monitoring and advisory fees paid to TPG, the Companys majority financial sponsor, and certain other members of IASIS Investment LLC, majority shareholder of IAS. Management routinely calculates and communicates adjusted EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within the healthcare industry to evaluate hospital performance, allocate resources and measure leverage capacity and debt service ability. In addition, the Company uses adjusted EBITDA as a measure of performance for its business segments and for incentive compensation purposes. Adjusted EBITDA should not be considered as a measure of financial performance under GAAP, and the items excluded from adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to net earnings, cash flows generated by operating, investing, or financing activities or other financial statement data presented in the condensed consolidated financial statements as an indicator of financial performance or liquidity. Adjusted EBITDA, as presented, differs from what is defined under the Companys senior secured credit facilities and may not be comparable to similarly titled measures of other companies. |
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 8 3/4% notes described in Note 2 are fully and unconditionally
guaranteed on a joint and several basis by all of the Companys existing domestic subsidiaries,
other than non-guarantor subsidiaries which include Health Choice and the Companys non-wholly
owned subsidiaries.
Summarized condensed consolidating balance sheets at June 30, 2010 and September 30, 2009,
condensed consolidating statements of operations for the quarters and nine months ended June 30,
2010 and 2009, and condensed consolidating statements of cash flows for the nine months ended June
30, 2010 and 2009, 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.
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2010
(in thousands)
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2010
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 129,963 | $ | 197 | $ | | $ | 130,160 | ||||||||||
Accounts receivable, net |
| 89,781 | 131,546 | | 221,327 | |||||||||||||||
Inventories |
| 23,351 | 30,125 | | 53,476 | |||||||||||||||
Deferred income taxes |
11,130 | | | | 11,130 | |||||||||||||||
Prepaid expenses and other
current assets |
| 18,374 | 103,005 | | 121,379 | |||||||||||||||
Total current assets |
11,130 | 261,469 | 264,873 | | 537,472 | |||||||||||||||
Property and equipment, net |
| 349,340 | 631,457 | | 980,797 | |||||||||||||||
Intercompany |
| (214,143 | ) | 214,143 | | | ||||||||||||||
Net investment in and advances
to subsidiaries |
1,799,503 | | | (1,799,503 | ) | | ||||||||||||||
Goodwill |
17,331 | 67,445 | 633,144 | | 717,920 | |||||||||||||||
Other intangible assets, net |
| | 27,750 | | 27,750 | |||||||||||||||
Other assets, net |
12,825 | 18,224 | 4,473 | | 35,522 | |||||||||||||||
Total assets |
$ | 1,840,789 | $ | 482,335 | $ | 1,775,840 | $ | (1,799,503 | ) | $ | 2,299,461 | |||||||||
Liabilities and Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 32,769 | $ | 39,052 | $ | | $ | 71,821 | ||||||||||
Salaries and benefits payable |
| 23,278 | 22,091 | | 45,369 | |||||||||||||||
Accrued interest payable |
2,128 | (3,223 | ) | 3,223 | | 2,128 | ||||||||||||||
Medical claims payable |
| | 110,556 | | 110,556 | |||||||||||||||
Other accrued expenses and
other current liabilities |
| 34,457 | 50,932 | | 85,389 | |||||||||||||||
Current portion of long-term
debt and capital lease
obligations |
5,890 | 815 | 20,274 | (20,274 | ) | 6,705 | ||||||||||||||
Total current liabilities |
8,018 | 88,096 | 246,128 | (20,274 | ) | 321,968 | ||||||||||||||
Long-term debt and capital
lease obligations |
1,040,843 | 5,637 | 552,400 | (552,400 | ) | 1,046,480 | ||||||||||||||
Deferred income taxes |
103,352 | | | | 103,352 | |||||||||||||||
Other long-term liabilities |
| 55,575 | 637 | | 56,212 | |||||||||||||||
Total liabilities |
1,152,213 | 149,308 | 799,165 | (572,674 | ) | 1,528,012 | ||||||||||||||
Non-controlling interests with
redemption rights |
| 72,527 | | | 72,527 | |||||||||||||||
Equity: |
||||||||||||||||||||
Members equity |
688,576 | 250,154 | 976,675 | (1,226,829 | ) | 688,576 | ||||||||||||||
Non-controlling interests |
| 10,346 | | | 10,346 | |||||||||||||||
Total equity |
688,576 | 260,500 | 976,675 | (1,226,829 | ) | 698,922 | ||||||||||||||
Total liabilities and equity |
$ | 1,840,789 | $ | 482,335 | $ | 1,775,840 | $ | (1,799,503 | ) | $ | 2,299,461 | |||||||||
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IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Balance Sheet (unaudited)
September 30, 2009
(in thousands)
Condensed Consolidating Balance Sheet (unaudited)
September 30, 2009
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 206,331 | $ | 197 | $ | | $ | 206,528 | ||||||||||
Accounts receivable, net |
| 90,883 | 139,315 | | 230,198 | |||||||||||||||
Inventories |
| 22,405 | 28,087 | | 50,492 | |||||||||||||||
Deferred income taxes |
39,038 | | | | 39,038 | |||||||||||||||
Prepaid expenses and other
current assets |
| 15,521 | 33,932 | | 49,453 | |||||||||||||||
Total current assets |
39,038 | 335,140 | 201,531 | | 575,709 | |||||||||||||||
Property and equipment, net |
| 347,657 | 649,696 | | 997,353 | |||||||||||||||
Intercompany |
| (243,956 | ) | 243,956 | | | ||||||||||||||
Net investment in and advances
to subsidiaries |
1,851,008 | | | (1,851,008 | ) | | ||||||||||||||
Goodwill |
17,331 | 67,445 | 633,144 | | 717,920 | |||||||||||||||
Other intangible assets, net |
| | 30,000 | | 30,000 | |||||||||||||||
Other assets, net |
15,182 | 16,780 | 4,260 | | 36,222 | |||||||||||||||
Total assets |
$ | 1,922,559 | $ | 523,066 | $ | 1,762,587 | $ | (1,851,008 | ) | $ | 2,357,204 | |||||||||
Liabilities and Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 25,269 | $ | 43,283 | $ | | $ | 68,552 | ||||||||||
Salaries and benefits payable |
| 25,008 | 17,540 | | 42,548 | |||||||||||||||
Accrued interest payable |
12,511 | (3,239 | ) | 3,239 | | 12,511 | ||||||||||||||
Medical claims payable |
| | 113,519 | | 113,519 | |||||||||||||||
Other accrued expenses and
other current liabilities |
| 39,559 | 26,142 | | 65,701 | |||||||||||||||
Current portion of long-term
debt and capital lease
obligations |
7,431 | 935 | 20,614 | (20,614 | ) | 8,366 | ||||||||||||||
Total current liabilities |
19,942 | 87,532 | 224,337 | (20,614 | ) | 311,197 | ||||||||||||||
Long-term debt and capital
lease obligations |
1,045,260 | 6,211 | 566,980 | (566,980 | ) | 1,051,471 | ||||||||||||||
Deferred income taxes |
106,425 | | | | 106,425 | |||||||||||||||
Other long-term liabilities |
| 53,577 | 645 | | 54,222 | |||||||||||||||
Total liabilities |
1,171,627 | 147,320 | 791,962 | (587,594 | ) | 1,523,315 | ||||||||||||||
Non-controlling interests with
redemption rights |
| 72,527 | | | 72,527 | |||||||||||||||
Equity: |
||||||||||||||||||||
Members equity |
750,932 | 292,789 | 970,625 | (1,263,414 | ) | 750,932 | ||||||||||||||
Non-controlling interests |
| 10,430 | | | 10,430 | |||||||||||||||
Total equity |
750,932 | 303,219 | 970,625 | (1,263,414 | ) | 761,362 | ||||||||||||||
Total liabilities and equity |
$ | 1,922,559 | $ | 523,066 | $ | 1,762,587 | $ | (1,851,008 | ) | $ | 2,357,204 | |||||||||
16
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Quarter Ended June 30, 2010 (unaudited)
(in thousands)
Condensed Consolidating Statement of Operations
For the Quarter Ended June 30, 2010 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
||||||||||||||||||||
Acute care revenue |
$ | | $ | 170,905 | $ | 269,625 | $ | (2,319 | ) | $ | 438,211 | |||||||||
Premium revenue |
| | 199,777 | | 199,777 | |||||||||||||||
Total net revenue |
| 170,905 | 469,402 | (2,319 | ) | 637,988 | ||||||||||||||
Costs and expenses |
||||||||||||||||||||
Salaries and benefits |
| 86,937 | 83,098 | | 170,035 | |||||||||||||||
Supplies |
| 27,907 | 38,426 | | 66,333 | |||||||||||||||
Medical claims |
| | 174,350 | (2,319 | ) | 172,031 | ||||||||||||||
Other operating expenses |
| 29,185 | 64,394 | | 93,579 | |||||||||||||||
Provision for bad debts |
| 21,589 | 27,827 | | 49,416 | |||||||||||||||
Rentals and leases |
| 4,268 | 5,799 | | 10,067 | |||||||||||||||
Interest expense, net |
16,711 | | 10,507 | (10,507 | ) | 16,711 | ||||||||||||||
Depreciation and amortization |
| 10,271 | 13,736 | | 24,007 | |||||||||||||||
Management fees |
1,250 | (5,759 | ) | 5,759 | | 1,250 | ||||||||||||||
Equity in earnings of affiliates |
(39,249 | ) | | | 39,249 | | ||||||||||||||
Total costs and expenses |
(21,288 | ) | 174,398 | 423,896 | 26,423 | 603,429 | ||||||||||||||
Earnings (loss) from continuing
operations before loss on disposal
of assets and income taxes |
21,288 | (3,493 | ) | 45,506 | (28,742 | ) | 34,559 | |||||||||||||
Loss on disposal of assets,
net |
| (31 | ) | (118 | ) | | (149 | ) | ||||||||||||
Earnings (loss) from continuing
operations before income taxes |
21,288 | (3,524 | ) | 45,388 | (28,742 | ) | 34,410 | |||||||||||||
Income tax expense |
12,683 | | | | 12,683 | |||||||||||||||
Net earnings (loss) from
continuing operations |
8,605 | (3,524 | ) | 45,388 | (28,742 | ) | 21,727 | |||||||||||||
Earnings (loss) from discontinued
operations, net of income taxes |
229 | (608 | ) | (5 | ) | | (384 | ) | ||||||||||||
Net earnings (loss) |
8,834 | (4,132 | ) | 45,383 | (28,742 | ) | 21,343 | |||||||||||||
Net earnings attributable to
non-controlling interests |
| (2,002 | ) | | | (2,002 | ) | |||||||||||||
Net earnings (loss) attributable
to IASIS Healthcare LLC |
$ | 8,834 | $ | (6,134 | ) | $ | 45,383 | $ | (28,742 | ) | $ | 19,341 | ||||||||
17
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Quarter Ended June 30, 2009 (unaudited)
(in thousands)
Condensed Consolidating Statement of Operations
For the Quarter Ended June 30, 2009 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
||||||||||||||||||||
Acute care revenue |
$ | | $ | 162,850 | $ | 257,572 | $ | (2,542 | ) | $ | 417,880 | |||||||||
Premium revenue |
| | 183,738 | | 183,738 | |||||||||||||||
Total net revenue |
| 162,850 | 441,310 | (2,542 | ) | 601,618 | ||||||||||||||
Costs and expenses |
||||||||||||||||||||
Salaries and benefits |
| 81,176 | 83,703 | | 164,879 | |||||||||||||||
Supplies |
| 26,629 | 37,321 | | 63,950 | |||||||||||||||
Medical claims |
| | 161,461 | (2,542 | ) | 158,919 | ||||||||||||||
Other operating expenses |
| 31,174 | 48,534 | | 79,708 | |||||||||||||||
Provision for bad debts |
| 22,557 | 23,037 | | 45,594 | |||||||||||||||
Rentals and leases |
| 3,925 | 6,083 | | 10,008 | |||||||||||||||
Interest expense, net |
16,334 | | 9,464 | (9,464 | ) | 16,334 | ||||||||||||||
Depreciation and amortization |
| 10,064 | 14,153 | | 24,217 | |||||||||||||||
Management fees |
1,250 | (5,531 | ) | 5,531 | | 1,250 | ||||||||||||||
Equity in earnings of affiliates |
(41,599 | ) | | | 41,599 | | ||||||||||||||
Total costs and expenses |
(24,015 | ) | 169,994 | 389,287 | 29,593 | 564,859 | ||||||||||||||
Earnings (loss) from continuing
operations before gain (loss) on
disposal of assets and income
taxes |
24,015 | (7,144 | ) | 52,023 | (32,135 | ) | 36,759 | |||||||||||||
Gain (loss) on disposal of assets,
net |
| 187 | (3 | ) | | 184 | ||||||||||||||
Earnings (loss) from continuing
operations before income taxes |
24,015 | (6,957 | ) | 52,020 | (32,135 | ) | 36,943 | |||||||||||||
Income tax expense |
12,650 | | 1,065 | | 13,715 | |||||||||||||||
Net earnings (loss) from
continuing operations |
11,365 | (6,957 | ) | 50,955 | (32,135 | ) | 23,228 | |||||||||||||
Earnings (loss) from discontinued
operations, net of income taxes |
(100 | ) | 253 | 14 | | 167 | ||||||||||||||
Net earnings (loss) |
11,265 | (6,704 | ) | 50,969 | (32,135 | ) | 23,395 | |||||||||||||
Net earnings attributable
to non-controlling interests |
| (2,666 | ) | | | (2,666 | ) | |||||||||||||
Net earnings (loss) attributable
to IASIS Healthcare LLC |
$ | 11,265 | $ | (9,370 | ) | $ | 50,969 | $ | (32,135 | ) | $ | 20,729 | ||||||||
18
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Nine Months Ended June 30, 2010 (unaudited)
(in thousands)
Condensed Consolidating Statement of Operations
For the Nine Months Ended June 30, 2010 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
||||||||||||||||||||
Acute care revenue |
$ | | $ | 517,001 | $ | 791,775 | $ | (8,331 | ) | $ | 1,300,445 | |||||||||
Premium revenue |
| | 591,022 | | 591,022 | |||||||||||||||
Total net revenue |
| 517,001 | 1,382,797 | (8,331 | ) | 1,891,467 | ||||||||||||||
Costs and expenses |
||||||||||||||||||||
Salaries and benefits |
| 261,713 | 252,975 | | 514,688 | |||||||||||||||
Supplies |
| 84,049 | 116,118 | | 200,167 | |||||||||||||||
Medical claims |
| | 519,023 | (8,331 | ) | 510,692 | ||||||||||||||
Other operating
expenses |
| 86,414 | 180,440 | | 266,854 | |||||||||||||||
Provision for bad debts |
| 65,352 | 77,549 | | 142,901 | |||||||||||||||
Rentals and leases |
| 12,750 | 17,737 | | 30,487 | |||||||||||||||
Interest expense, net |
50,065 | | 30,886 | (30,886 | ) | 50,065 | ||||||||||||||
Depreciation and
amortization |
| 30,129 | 41,780 | | 71,909 | |||||||||||||||
Management fees |
3,750 | (17,075 | ) | 17,075 | | 3,750 | ||||||||||||||
Equity in earnings of
affiliates |
(116,035 | ) | | | 116,035 | | ||||||||||||||
Total costs and
expenses |
(62,220 | ) | 523,332 | 1,253,583 | 76,818 | 1,791,513 | ||||||||||||||
Earnings (loss) from
continuing operations
before gain (loss) on
disposal of assets and
income taxes |
62,220 | (6,331 | ) | 129,214 | (85,149 | ) | 99,954 | |||||||||||||
Gain (loss) on disposal
of assets, net |
| 28 | (234 | ) | | (206 | ) | |||||||||||||
Earnings (loss) from
continuing operations
before income taxes |
62,220 | (6,303 | ) | 128,980 | (85,149 | ) | 99,748 | |||||||||||||
Income tax expense |
36,544 | | | | 36,544 | |||||||||||||||
Net earnings (loss) from
continuing operations |
25,676 | (6,303 | ) | 128,980 | (85,149 | ) | 63,204 | |||||||||||||
Earnings (loss) from
discontinued operations,
net of income taxes |
216 | (571 | ) | (8 | ) | | (363 | ) | ||||||||||||
Net earnings (loss) |
25,892 | (6,874 | ) | 128,972 | (85,149 | ) | 62,841 | |||||||||||||
Net earnings attributable
to non-controlling
interests |
| (6,063 | ) | | | (6,063 | ) | |||||||||||||
Net earnings (loss)
attributable to IASIS
Healthcare LLC |
$ | 25,892 | $ | (12,937 | ) | $ | 128,972 | $ | (85,149 | ) | $ | 56,778 | ||||||||
19
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Operations
For the Nine Months Ended June 30, 2009 (unaudited)
(in thousands)
Condensed Consolidating Statement of Operations
For the Nine Months Ended June 30, 2009 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net revenue |
||||||||||||||||||||
Acute care revenue |
$ | | $ | 488,285 | $ | 755,772 | $ | (6,551 | ) | $ | 1,237,506 | |||||||||
Premium revenue |
| | 504,410 | | 504,410 | |||||||||||||||
Total net revenue |
| 488,285 | 1,260,182 | (6,551 | ) | 1,741,916 | ||||||||||||||
Costs and expenses |
||||||||||||||||||||
Salaries and benefits |
| 246,364 | 249,023 | | 495,387 | |||||||||||||||
Supplies |
| 78,200 | 109,329 | | 187,529 | |||||||||||||||
Medical claims |
| | 429,070 | (6,551 | ) | 422,519 | ||||||||||||||
Other operating
expenses |
| 86,769 | 150,242 | | 237,011 | |||||||||||||||
Provision for bad debts |
| 68,297 | 69,595 | | 137,892 | |||||||||||||||
Rentals and leases |
| 11,942 | 17,279 | | 29,221 | |||||||||||||||
Interest expense, net |
51,129 | | 33,237 | (33,237 | ) | 51,129 | ||||||||||||||
Depreciation and
amortization |
| 31,827 | 41,682 | | 73,509 | |||||||||||||||
Management fees |
3,750 | (16,267 | ) | 16,267 | | 3,750 | ||||||||||||||
Hurricane-related
property damage |
| | 938 | | 938 | |||||||||||||||
Equity in earnings of
affiliates |
(117,334 | ) | | | 117,334 | | ||||||||||||||
Total costs and
expenses |
(62,455 | ) | 507,132 | 1,116,662 | 77,546 | 1,638,885 | ||||||||||||||
Earnings (loss) from
continuing operations
before gain on disposal
of assets and income
taxes |
62,455 | (18,847 | ) | 143,520 | (84,097 | ) | 103,031 | |||||||||||||
Gain on disposal of
assets, net |
| 1,479 | 18 | | 1,497 | |||||||||||||||
Earnings (loss) from
continuing operations
before income taxes |
62,455 | (17,368 | ) | 143,538 | (84,097 | ) | 104,528 | |||||||||||||
Income tax expense |
37,910 | | 1,065 | | 38,975 | |||||||||||||||
Net earnings (loss) from
continuing operations |
24,545 | (17,368 | ) | 142,473 | (84,097 | ) | 65,553 | |||||||||||||
Earnings (loss) from
discontinued operations,
net of income taxes |
198 | (561 | ) | 30 | | (333 | ) | |||||||||||||
Net earnings (loss) |
24,743 | (17,929 | ) | 142,503 | (84,097 | ) | 65,220 | |||||||||||||
Net earnings attributable
to non-controlling
interests |
| (7,240 | ) | | | (7,240 | ) | |||||||||||||
Net earnings (loss)
attributable to IASIS
Healthcare LLC |
$ | 24,743 | $ | (25,169 | ) | $ | 142,503 | $ | (84,097 | ) | $ | 57,980 | ||||||||
20
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended June 30, 2010 (unaudited)
(in thousands)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended June 30, 2010 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net earnings (loss) |
$ | 25,892 | $ | (6,874 | ) | $ | 128,972 | $ | (85,149 | ) | $ | 62,841 | ||||||||
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities: |
||||||||||||||||||||
Depreciation and amortization |
| 30,129 | 41,780 | | 71,909 | |||||||||||||||
Amortization of loan costs |
2,356 | | | | 2,356 | |||||||||||||||
Stock compensation costs |
2,367 | | | | 2,367 | |||||||||||||||
Deferred income taxes |
23,839 | | | | 23,839 | |||||||||||||||
Income tax benefit from stock compensation |
(1,770 | ) | | | | (1,770 | ) | |||||||||||||
Income tax benefit from parent company
interest |
4,989 | | | | 4,989 | |||||||||||||||
Loss (gain) on disposal of assets, net |
| (28 | ) | 234 | | 206 | ||||||||||||||
Loss (earnings) from discontinued operations |
(216 | ) | 571 | 8 | | 363 | ||||||||||||||
Equity in earnings of affiliates |
(116,035 | ) | | | 116,035 | | ||||||||||||||
Changes in operating assets and liabilities,
net of the effect of acquisitions and
dispositions: |
||||||||||||||||||||
Accounts receivable, net |
| 1,385 | 7,769 | | 9,154 | |||||||||||||||
Inventories, prepaid expenses and other
current assets |
| (3,798 | ) | (71,111 | ) | | (74,909 | ) | ||||||||||||
Accounts payable, other accrued expenses
and other accrued liabilities |
(8,613 | ) | 13,557 | 8,193 | | 13,137 | ||||||||||||||
Net cash provided by (used in) operating
activities continuing operations |
(67,191 | ) | 34,942 | 115,845 | 30,886 | 114,482 | ||||||||||||||
Net cash used in operating
activities discontinued operations |
(216 | ) | (351 | ) | | | (567 | ) | ||||||||||||
Net cash provided by (used in) operating
activities |
(67,407 | ) | 34,591 | 115,845 | 30,886 | 113,915 | ||||||||||||||
Cash flows from investing activities |
||||||||||||||||||||
Purchases of property and equipment, net |
| (31,626 | ) | (21,839 | ) | | (53,465 | ) | ||||||||||||
Proceeds from sale of assets |
| 19 | 31 | | 50 | |||||||||||||||
Change in other assets, net |
| 1,960 | (104 | ) | | 1,856 | ||||||||||||||
Net cash used in investing activities |
| (29,647 | ) | (21,912 | ) | | (51,559 | ) | ||||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Payment of debt and capital lease obligations |
(6,079 | ) | | (693 | ) | | (6,772 | ) | ||||||||||||
Distribution to parent company in connection
with the repurchase of equity, net |
(124,962 | ) | | | | (124,962 | ) | |||||||||||||
Distributions to
non-controlling interests |
| (179 | ) | (6,742 | ) | | (6,921 | ) | ||||||||||||
Costs paid for repurchase of partnership
interests, net |
| (69 | ) | | | (69 | ) | |||||||||||||
Change in intercompany balances with
affiliates, net |
198,448 | (81,064 | ) | (86,498 | ) | (30,886 | ) | | ||||||||||||
Net cash provided by (used in) financing
activities |
67,407 | (81,312 | ) | (93,933 | ) | (30,886 | ) | (138,724 | ) | |||||||||||
Change in cash and cash equivalents |
| (76,368 | ) | | | (76,368 | ) | |||||||||||||
Cash and cash equivalents at beginning of period |
| 206,331 | 197 | | 206,528 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 129,963 | $ | 197 | $ | | $ | 130,160 | ||||||||||
21
Table of Contents
IASIS HEALTHCARE LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
IASIS Healthcare LLC
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended June 30, 2009 (unaudited)
(in thousands)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended June 30, 2009 (unaudited)
(in thousands)
Subsidiary | Subsidiary | Condensed | ||||||||||||||||||
Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net earnings (loss) |
$ | 24,743 | $ | (17,929 | ) | $ | 142,503 | $ | (84,097 | ) | $ | 65,220 | ||||||||
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities: |
||||||||||||||||||||
Depreciation and amortization |
| 31,827 | 41,682 | | 73,509 | |||||||||||||||
Amortization of loan costs |
2,257 | | | | 2,257 | |||||||||||||||
Stock compensation costs |
420 | | | | 420 | |||||||||||||||
Deferred income taxes |
11,792 | | | | 11,792 | |||||||||||||||
Gain on disposal of assets, net |
| (1,479 | ) | (18 | ) | | (1,497 | ) | ||||||||||||
Loss (earnings) from discontinued operations |
(198 | ) | 561 | (30 | ) | | 333 | |||||||||||||
Hurricane-related property damage |
| | 938 | | 938 | |||||||||||||||
Equity in earnings of affiliates |
(117,334 | ) | | | 117,334 | | ||||||||||||||
Changes in operating assets and liabilities,
net of the effect of acquisitions and
dispositions: |
||||||||||||||||||||
Accounts receivable, net |
| 4,724 | (23,578 | ) | | (18,854 | ) | |||||||||||||
Inventories, prepaid expenses and other
current assets |
| (505 | ) | (1,986 | ) | | (2,491 | ) | ||||||||||||
Accounts payable, other accrued expenses
and other accrued liabilities |
(10,346 | ) | 42,896 | 6,681 | | 39,231 | ||||||||||||||
Net cash provided by (used in) operating
activities continuing operations |
(88,666 | ) | 60,095 | 166,192 | 33,237 | 170,858 | ||||||||||||||
Net cash provided by (used in) operating
activities discontinued operations |
(198 | ) | 1,905 | (159 | ) | | 1,548 | |||||||||||||
Net cash provided by (used in) operating
activities |
(88,864 | ) | 62,000 | 166,033 | 33,237 | 172,406 | ||||||||||||||
Cash flows from investing activities |
||||||||||||||||||||
Purchases of property and equipment, net |
| (18,835 | ) | (47,773 | ) | | (66,608 | ) | ||||||||||||
Cash paid for acquisition, net |
| (1,521 | ) | | | (1,521 | ) | |||||||||||||
Proceeds from sale of assets |
| 3,007 | 2,233 | | 5,240 | |||||||||||||||
Change in other assets, net |
| (173 | ) | 2,005 | | 1,832 | ||||||||||||||
Net cash used in investing activities
continuing operations |
| (17,522 | ) | (43,535 | ) | | (61,057 | ) | ||||||||||||
Net cash provided by investing activities
discontinued operations |
| 10 | | | 10 | |||||||||||||||
Net cash used in investing activities |
| (17,512 | ) | (43,535 | ) | | (61,047 | ) | ||||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Payment of debt and capital lease obligations |
(52,813 | ) | 125 | (984 | ) | | (53,672 | ) | ||||||||||||
Distributions to non-controlling interests |
| | (4,721 | ) | | (4,721 | ) | |||||||||||||
Costs paid for repurchase of partnership
interests, net |
| (1,379 | ) | | | (1,379 | ) | |||||||||||||
Change in intercompany balances with
affiliates, net |
141,677 | 8,508 | (116,948 | ) | (33,237 | ) | | |||||||||||||
Net cash provided by (used in) financing
activities |
88,864 | 7,254 | (122,653 | ) | (33,237 | ) | (59,772 | ) | ||||||||||||
Change in cash and cash equivalents |
| 51,742 | (155 | ) | | 51,587 | ||||||||||||||
Cash and cash equivalents at beginning of period |
| 80,336 | 402 | | 80,738 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | 132,078 | $ | 247 | $ | | $ | 132,325 | ||||||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should
be read in conjunction with our unaudited condensed consolidated financial statements, the notes to
our unaudited condensed consolidated financial statements and the other financial information
appearing elsewhere in this report. Data for the quarters and nine months ended June 30, 2010 and
2009, has been derived from our unaudited condensed consolidated financial statements. References
herein to we, our and us are to IASIS Healthcare LLC and its subsidiaries.
FORWARD LOOKING STATEMENTS
Some of the statements we make in this report are forward-looking within the meaning of the
federal securities laws, which are intended to be covered by the safe harbors created thereby.
Those forward-looking statements include all statements that are not historical statements of fact
and those regarding our intent, belief or expectations including, but not limited to, the
discussions of our operating and growth strategy (including possible acquisitions and
dispositions), financing needs, projections of revenue, income or loss, capital expenditures and
future operations. Forward-looking statements involve known and unknown risks and uncertainties
that may cause actual results in future periods to differ materially from those anticipated in the
forward-looking statements. Those risks and uncertainties include, among others, the risks and
uncertainties related to our ability to generate sufficient cash to service our existing
indebtedness, our substantial level of indebtedness that could adversely affect our financial
condition, the possibility of an increase in interest rates, which would increase the cost of
servicing our debt and could reduce profitability, our ability to retain and negotiate favorable
contracts with managed care plans, the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010 (collectively the Health Reform Law),
which represents significant change to the healthcare industry, and other changes in governmental
programs that may reduce our revenues, our hospitals competition for patients from other hospitals
and healthcare providers, our hospitals facing a growth in volume and revenue related to
uncompensated care, our ability to recruit and retain quality physicians, our hospitals
competition for staffing which may increase our labor costs and reduce profitability, our failure
to continually enhance our hospitals with the most recent technological advances in diagnostic and
surgical equipment that may adversely affect our ability to maintain and expand our markets, our
failure to comply with extensive laws and government regulations, the significant restrictions
imposed by the Health Reform Law on hospitals that have physician owners, the potential of exposure
to liability from some of our hospitals being required to submit to the Department of Health and
Human Services (the Department) information on their relationships with physicians, expenses
incurred in connection with an appeal of the court order dismissing with prejudice the qui tam
litigation, the possibility that we may become subject to federal and state investigations in the
future, our ability to satisfy regulatory requirements with respect to our internal controls over
financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, a failure of our
information systems that would adversely affect our ability to properly manage our operations, an
economic downturn or other material change in any one of the regions in which we operate, potential
liabilities because of claims brought against our facilities, increasing insurance costs that may
reduce our cash flows and net earnings, the impact of certain factors, including severe weather
conditions and natural disasters, on operations at our hospitals, our ability to control costs at
Health Choice Arizona, Inc. (Health Choice or the Plan), the impact of any significant
alteration to the Arizona Health Care Cost Containment System (AHCCCS) payment structure of its
contracts or the amount of premiums paid to us, the possibility of Health Choices contract with
AHCCCS being discontinued, significant competition from other healthcare companies and state
efforts to regulate the sale of not-for-profit hospitals that may affect our ability to acquire
hospitals, difficulties with the integration of acquisitions that may disrupt our ongoing
operations, the significant capital expenditures that would be involved in the construction of
current projects or other new hospitals that could have an adverse effect on our liquidity, state
efforts to regulate the construction or expansion of hospitals that could impair our ability to
operate and expand our operations, our dependence on key personnel, the loss of one or more of
which could have a material adverse effect on our business, potential responsibilities and costs
under environmental laws that could lead to material expenditures or liability, the possibility of
a decline in the fair value of our reporting units that could result in a material non-cash charge
to earnings and those risks, uncertainties and other matters detailed in our Annual Report on Form
10-K for the fiscal year ended September 30, 2009, and in our subsequent filings with the
Securities and Exchange Commission (the SEC).
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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.
EXECUTIVE OVERVIEW
We are a leading owner and operator of medium-sized acute care hospitals in high-growth urban
and suburban markets. We operate our hospitals with a strong community focus by offering and
developing healthcare services targeted to the needs of the markets we serve, promoting strong
relationships with physicians and working with local managed care plans. At June 30, 2010, we owned
or leased 15 acute care hospital facilities and one behavioral health hospital facility, with a
total of 2,886 beds in service, located in six regions:
| Salt Lake City, Utah; |
| Phoenix, Arizona; |
| Tampa-St. Petersburg, Florida; |
| three cities in Texas, including San Antonio; |
| Las Vegas, Nevada; and |
| West Monroe, Louisiana. |
We also own and operate Health Choice, a Medicaid and Medicare managed health plan in Phoenix,
Arizona, that serves over 199,000 members.
Recently Enacted Health Reform Law
In March 2010, President Obama signed the Health Reform Law into law. The Health Reform Law
will change how healthcare services are covered, delivered, and reimbursed, through expanded
coverage of previously uninsured individuals and reduced government healthcare spending. In
addition, the new law reforms certain aspects of health insurance, expands existing efforts to tie
Medicare and Medicaid payments to performance and quality, and contains provisions intended to
strengthen fraud and abuse enforcement.
The Health Reform Law will decrease the number of uninsured individuals by expanding coverage
through a combination of public program expansion and private sector health insurance reforms. The
Health Reform Law expands eligibility under existing Medicaid programs by requiring states to
expand Medicaid coverage to all individuals under age 65 with incomes up to 133% of the federal
poverty level no later than January 2014, and subsidizes states that create non-Medicaid plans for
residents with incomes between 133% and 200% of the federal poverty level. The Health Reform Law
also requires states to establish health insurance exchanges to facilitate the purchase of health
insurance by individuals and small employers, and further, imposes financial penalties on
individuals who fail to carry health insurance coverage and certain employers that do not provide
health insurance coverage. The Health Reform Law establishes a number of health insurance market
reforms, including a ban on lifetime limits and pre-existing condition exclusions, new benefit
mandates, and increased dependent coverage.
The Health Reform Law contains a number of provisions designed to significantly reduce
Medicare and Medicaid program payments, including reductions in Medicare market basket updates and
Medicare and Medicaid disproportionate share funding. Further, the Health Reform Law establishes or
expands efforts to tie payments to quality and integration, including an increased emphasis on
bundling payments and programs to promote coordination of care. Additionally, the Health Reform Law
expands program integrity initiatives for federal healthcare programs, including expansion of the
Recovery Audit Contractor (RAC) program to include
Medicaid and Part C and Part D of Medicare and
increased resources to fight fraud, waste, and abuse.
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The Health Reform Law significantly narrows the Stark Laws whole hospital exception. As a
result, the Health Reform Law prohibits newly created physician-owned hospitals from billing for
services provided to Medicare patients referred by their physician owners, and effectively prevents
the formation of physician-owned hospitals after March 23, 2010. While the amended whole hospital
exception grandfathers certain existing physician-owned hospitals, including ours, it generally
prohibits a grandfathered hospital from increasing its aggregate percentage of physician ownership
beyond the aggregate level that was in place as of March 23, 2010. Further, subject to limited
exceptions, a grandfathered physician-owned hospital may not increase the number of operating
rooms, procedure rooms, and beds for which it is licensed beyond the number for which it was
licensed as of March 23, 2010. Among other things, grandfathered physician-owned hospitals must
meet additional disclosure requirements. The Health Reform Law requires grandfathered
physician-owned hospitals to comply with the new requirements by September 23, 2011, and requires
the Department to audit hospitals compliance beginning no later than November 1, 2011.
Because of the many variables involved, including the laws complexity, lack of implementing
regulations or interpretive guidance, gradual implementation, and possible amendment, the impact of
the Health Reform Law is not yet fully known. We are unable to predict the net effect of the
reductions in Medicare and Medicaid spending, the expected reimbursement received from providing
care to previously uninsured individuals, and numerous other provisions in the law that may affect
our operations. We are further unable to foresee how individuals and businesses will respond to the
choices afforded them by the Health Reform Law. Thus, we cannot predict the full impact of the
Health Reform Law at this time.
Revenue and Volume Trends
Net revenue for the quarter ended June 30, 2010, increased 6.0% to $638.0 million, compared to
$601.6 million in the prior year quarter. Net revenue for the nine months ended June 30, 2010,
increased 8.6% to $1.9 billion, compared to $1.7 billion in the prior year period. Net revenue is
comprised of acute care and premium revenue. Acute care revenue contributed $20.3 million and $62.9
million to the increase in total net revenue for the quarter and nine months ended June 30, 2010,
respectively, while premium revenue at Health Choice contributed $16.0 million and $86.6 million
for the same periods, respectively.
Acute Care Revenue
Acute care revenue is comprised of net patient revenue and other revenue. A large percentage
of our hospitals net patient revenue consists of fixed payment, discounted sources, including
Medicare, Medicaid and managed care organizations. Reimbursement for Medicare and Medicaid services
is often fixed regardless of the cost incurred or the level of services provided. Similarly, a
greater percentage of the managed care companies we contract with reimburse providers on a fixed
payment basis regardless of the costs incurred or the level of services provided. Net patient
revenue is reported net of discounts and contractual adjustments. Contractual adjustments
principally result from differences between the hospitals established charges and payment rates
under Medicare, Medicaid and various managed care plans. Additionally, discounts and contractual
adjustments result from our uninsured discount and charity care programs. Other revenue includes
medical office building rental income and other miscellaneous revenue.
Certain of our acute care hospitals receive supplemental Medicaid reimbursement, including
reimbursement from programs for participating private hospitals that enter into indigent care
affiliation agreements with public hospitals or county governments in the state of Texas. Under the
CMS approved programs, affiliated hospitals, including our Texas hospitals, have expanded the
community healthcare safety net by providing indigent healthcare services. Participation in
indigent care affiliation agreements by our Texas hospitals has resulted in an increase in acute
care revenue by virtue of the hospitals entitlement to supplemental Medicaid inpatient
reimbursement. Revenue recognized under these Texas private supplemental Medicaid reimbursement
programs for the quarter and nine months ended June 30, 2010, was $22.4 million and $60.1 million,
respectively, compared to $13.6 million and $42.2 million, respectively, in each of the same prior
year periods. It is unclear whether our revenues from these programs will be adversely affected as
the provisions of the Health Reform Law are implemented.
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Admissions decreased 1.0% and increased 1.4% for the quarter and nine months ended June 30,
2010, respectively, compared to the same prior year periods. Adjusted admissions decreased 0.3% and
increased 0.8%, for the quarter and nine months ended June 30, 2010, respectively, compared to the
same prior year periods. Our volume has been negatively impacted, in part, by an overall decline in
obstetric related services, resulting from the impact of the current economic environment, and the closures
of our neonatal intensive care unit on October 1, 2009, and our obstetrics service line on January
1, 2010, at our North Las Vegas hospital. Excluding these service line closures, admissions increased
1.4% and 3.3% for the quarter and nine months ended June 30, 2010, respectively, compared to the
same prior year periods, while adjusted admissions increased 2.1% and 2.7% for the quarter and nine
months ended June 30, 2010, respectively, compared to the same prior year periods. These volume
improvements have been driven primarily by growth in our inpatient
surgeries, as well as general medicine and psychiatric
services.
While we have experienced growth in our inpatient service lines, we believe that outpatient
volumes continue to be negatively impacted, in part, by the effect of the economic climate in our
markets, including the impact of high unemployment and patient decisions to defer or cancel
elective procedures, general primary care and other non-emergent healthcare procedures until their
conditions become more acute. The deferral of non-emergent procedures has also been facilitated by
an increase in the number of high deductible employer sponsored health plans, which ultimately
shift more of the medical cost responsibility onto the patient. As a result, these factors have contributed
to declines in both emergency room visits and outpatient surgeries.
We believe our volumes over the long-term will continue to grow as a result of our business
strategies, including the strategic deployment of capital, the expansion of our physician base and
the general aging of the population.
The following table provides the sources of our gross patient revenue by payor for the
quarters and nine months ended June 30, 2010 and 2009.
Quarter Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Medicare |
30.9 | % | 30.2 | % | 31.4 | % | 31.6 | % | ||||||||
Managed Medicare |
12.7 | % | 11.8 | % | 12.3 | % | 11.6 | % | ||||||||
Medicaid |
8.5 | % | 8.3 | % | 8.3 | % | 8.1 | % | ||||||||
Managed Medicaid |
12.2 | % | 10.8 | % | 12.2 | % | 10.6 | % | ||||||||
Managed care and other |
30.3 | % | 34.0 | % | 30.8 | % | 33.2 | % | ||||||||
Self-pay |
5.4 | % | 4.9 | % | 5.0 | % | 4.9 | % | ||||||||
Total |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Consistent with industry trends, we are currently experiencing a shift in our patient volumes
and revenue from commercial and managed care payors to Medicaid and managed Medicaid. Given the
high rate of unemployment and its impact on the economy, particularly in the markets we serve, we
expect the increase in our Medicaid and managed Medicaid payor mixes to continue until the U.S.
economy experiences an economic recovery that includes job growth and declining unemployment. Additionally, the decline in outpatient related volumes, the majority of which are typically
comprised of commercial and managed care patients, has contributed to the decline in our managed
care revenue mix.
Net patient revenue per adjusted admission increased 5.5% and 4.6% for the quarter and nine
months ended June 30, 2010, respectively, compared to the same prior year periods. Our net patient
revenue per adjusted admission has benefitted, in part, from an
overall decline in obstetric related services, which was
particularly impacted by the service line closures at our North Las Vegas
hospital, as well as continued increases in managed care rates,
additional supplemental Medicaid reimbursement associated with our
Texas market, and growth in physician practice revenue as we continue
to invest in our physician employment strategy. While our net patient revenue per adjusted admission continues to increase, the impact of
high unemployment and other industry pressures, including but not
limited to the shift in our payor mix from commercial and managed care
payors to more Medicaid and
managed Medicaid, both of which typically result in lower reimbursement on a
per adjusted admission basis, have contributed to moderating rates of
pricing growth. Additionally, the impact of state budgetary issues on Medicaid funding, which has
resulted in rate freezes and in some cases rate cuts to providers, has caused a decline in pricing
related to Medicaid and managed Medicaid volumes, which is compounded
by the impact of increasing Medicaid utilization. As states continue working through their
budgetary issues, any additional cuts to Medicaid funding would negatively impact our future
pricing.
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The
Health Reform Law provides for annual decreases to the market basket updates used to adjust Medicare reimbursement rates for hospital
services, including a 0.25%
reduction to the market basket for 2010 for discharges occurring on or after April 1, 2010. The
Health Reform Law also provides for the following reductions to the market basket update for each
of the following federal fiscal years: 0.25% in 2011, 0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in
2015 and 2016, and 0.75% in 2017, 2018, and 2019. For federal fiscal year 2012 and each subsequent
federal fiscal year, the Health Reform Law provides for the annual market basket update to be
further reduced by a productivity adjustment, based on nationwide productivity gains over the
preceding 10 years. CMS estimates that the combined market basket and productivity adjustments will
reduce Medicare payments under the inpatient prospective payment system by $112.6 billion from 2010
to 2019.
For federal fiscal year 2010,
CMS provided a 2.1% market basket update to the Medicare severity diagnosis-related group (MS-DRG) rate for
hospitals that submit certain quality patient care indicators. However, as required by the Health Reform Law, CMS
reduced the federal fiscal year 2010 market basket increase applicable to discharges occurring on or after April 1, 2010,
by 0.25% to 1.85%.
On July 30, 2010, CMS issued a final rule updating the MS-DRG rate for the federal fiscal year
2011 hospital inpatient prospective payment system by 2.35%, which includes a market basket
increase of 2.6% and, as required by the Health Reform Law, a reduction of 0.25%. In addition,
CMS has finalized a documentation and coding adjustment of negative 2.9% in federal fiscal
year 2011 to account for changes in payments unrelated to changes in patient case mix in federal
fiscal years 2008 and 2009.
This reduction
represents one-half of the documentation and coding adjustment required to recover the increase in
aggregate payments made in 2008 and 2009 during implementation of the MS-DRG system. CMS plans to
recover the remaining 2.9% and interest in federal fiscal year 2012.
When these adjustments are combined, hospitals will face a net reduction of 0.55% in payments
for inpatient services in federal fiscal year 2011. Those hospitals that do not submit certain
quality patient care indicators in federal fiscal year 2010 will receive an additional 2.0%
reduction in federal fiscal year 2011.
CMS has also announced that an additional prospective and permanent downward
adjustment of 3.9% will be needed to avoid increased Medicare spending unrelated to patient
severity of illness. CMS is not implementing this additional 3.9% reduction at this time, but has
stated that it will be required in the future.
In some cases, commercial third-party payors and other payors such as some state Medicaid
programs rely on all or portions of the MS-DRG system to determine payment rates; therefore,
adjustments that negatively impact Medicare payments may also negatively impact payments from these
other payors.
Premium Revenue
Premium revenue generated under the AHCCCS and CMS contracts with Health Choice represented
31.3% and 31.2% of our consolidated net revenue for the quarter and nine months ended June 30,
2010, respectively, compared to 30.5% and 29.0%, respectively, in the same prior year periods. Most
premium revenue at Health Choice is derived through a contract with AHCCCS to provide specified
health services to qualified Medicaid enrollees through contracted providers. AHCCCS is the state
agency that administers Arizonas Medicaid program. The contract requires Health Choice to arrange
for healthcare services for enrolled Medicaid patients in exchange for fixed monthly premiums,
based upon negotiated per capita member rates, and supplemental payments from AHCCCS. Health Choice
also contracts with CMS to provide coverage as a Medicare Advantage Prescription Drug (MAPD)
Special Needs Plan (SNP). This contract allows Health Choice to offer Medicare and Part D drug
benefit coverage to new and existing dual-eligible members (i.e., those that are eligible for
Medicare and Medicaid). Under current law, CMS authority to
designate SNPs has been extended through
December 31, 2013. Additionally, effective for this 2010 plan year, SNPs are required to meet
additional CMS requirements, including requirements relating to model of care, cost-sharing,
disclosure of information, and reporting of quality measures.
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The Health Reform Law imposes significant funding cuts on managed Medicare plans by freezing
rates for 2011 at the 2010 levels and reducing payments by
approximately $132.0 billion to $145.0 billion
over ten years, with fee adjustments based on service benchmarks and quality rankings.
As a result of increasing enrollment in the state program, primarily attributable to the
impact of high unemployment, Health Choices enrollment
through its AHCCCS contract at June 30, 2010, exceeded 199,000 members, compared to over 187,000
members at September 30, 2009 and over 181,000 members at June 30, 2009. This increased enrollment
experienced by Health Choice has been the primary driver behind the growth in premium revenue
during the recent quarters. We anticipate that enrollment levels will continue to be directly
impacted by the health of the economy in the state of Arizona.
Premiums received from AHCCCS and CMS to provide services to our members, which have been
declining on a per member per month basis, will be further affected by the significant budgetary
concerns that continue to face the state of Arizona. As Arizona continues working to eliminate its budget deficit, its recently enacted budget for fiscal year 2011 includes
additional reimbursement cuts, including elimination of Medicaid coverage for some services and a
cut of up to 5% for all Medicaid providers. In an effort to relieve some of the pressure, on May 18, 2010,
voters passed a sales tax referendum that would temporarily raise money at the state level to help
fund these budgetary shortfalls. In addition, the state of Arizona has considered budget
components that would eliminate Arizonas State Childrens Health Insurance Program (SCHIP), and
Medicaid coverage for approximately 310,000 childless adults. However, as a result of the Health
Reform Law, which requires states to maintain their Medicaid and SCHIP eligibility levels in place
as of March 23, 2010, the state has not pursued these options further, as it would currently result
in the loss of federal Medicaid funding. Despite the efforts by state officials and voters, the
state legislature may have to consider additional cuts to Medicaid funding beyond the
initial 5% that is planned for fiscal 2011, as a result of the impact of the Health Reform Law and
the uncertainty surrounding the impact of the recent extension of the federal medical assistance percentage (FMAP), which was
originally implemented in 2009 by the American Recovery and Reinvestment Act
(ARRA).
Depending upon member mix, we generally believe Health Choice could continue to experience a
decline in rates received on a per member per month basis, which may negatively impact our premium
revenue over the near-term.
Significant Industry Trends
The following sections discuss recent trends that we believe are significant factors in our
current and/or future operating results and cash flows. Certain of these trends apply to the entire
acute care hospital industry, while others may apply to us more specifically. These trends could be
short-term in nature or could require long-term attention and resources. While these trends may
involve certain factors that are outside of our control, the extent to which these trends affect
our hospitals and our ability to manage the impact, if any, of these trends play vital roles in our
current and future success. In many cases, we are unable to predict what impact these trends will
have on us.
Value-Based Reimbursement
There is a trend in the healthcare industry towards value-based purchasing of healthcare
services. These value-based purchasing programs include both public reporting and financial
incentives tied to the quality and efficiency of care provided by facilities. The Health Reform Law
recently enacted by Congress expands the use of value-based purchasing initiatives in federal
healthcare programs. We expect programs of this type to become more common in the healthcare
industry.
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Medicare requires providers to report certain quality measures in order to receive full
reimbursement increases that previously were awarded automatically. CMS has expanded, through a
series of rulemakings, the number of patient care indicators that hospitals must report. CMS
currently requires hospitals to report 46 quality measures in order to qualify for the full market
basket update to the inpatient prospective payment system for fiscal
year 2011 and will require hospitals to report 55 quality measures to qualify for the full market
basket update for fiscal year 2012. CMS will require hospitals to report 57 quality
measures in fiscal year 2011 to receive the full market basket update for fiscal year 2013.
CMS also requires
hospitals to submit quality data regarding eleven measures relating to outpatient care in order to
receive the full market basket increase under the outpatient prospective payment system in calendar
year 2011. In order to receive the full market basket update for calendar year
2012, CMS has proposed increasing the number of outpatient quality measures that must be reported to
17. We anticipate that CMS will continue to expand the number of inpatient and outpatient quality
measures. We have invested significant capital and resources in the implementation of our advanced
clinical system that assists us in monitoring and reporting these quality measures. CMS makes the
data submitted by hospitals, including our hospitals, public on its website.
Medicare no longer pays hospitals additional amounts for the treatment of certain preventable
adverse events, also known as hospital-acquired conditions (HACs), unless the condition was
present at admission. Currently, there are ten categories of conditions on the list of HACs. On
January 15, 2009, CMS announced three National Coverage Determinations that prohibit Medicare
reimbursement for erroneous surgical procedures performed on an inpatient or outpatient basis.
These three erroneous surgical procedures are in addition to the HACs designated by CMS by
regulation. The Deficit Reduction Act of 2005 provides that CMS may revise the list of HACs from
time to time. Effective July 1, 2011, the Health Reform Law will prohibit the use of federal funds
under the Medicaid program to reimburse providers for medical assistance provided to treat HACs.
Further, effective federal fiscal year 2013, hospitals with excessive readmissions for certain
conditions designated by the Department will receive reduced payments for all inpatient discharges,
not just discharges relating to the conditions subject to the excessive readmission standard.
Beginning in federal fiscal year 2015, hospitals that fall into the top 25% of national
risk-adjusted HAC rates for all hospitals in the previous year will receive a 1% reduction in their
total Medicare payments.
The Health Reform Law also requires the Department to implement a value-based purchasing
program for inpatient hospital services. Beginning in federal fiscal year 2013, the Department will
reduce inpatient hospital payments for all discharges by a percentage specified by statute ranging
from 1% to 2% and pool the total amount collected from these reductions to fund payments to reward
hospitals that meet or exceed certain quality performance standards established by the Department.
The Department will determine the amount received by each hospital that meets or exceeds the
quality performance standards from the pool of dollars created by these payment reductions.
Many large commercial payors currently require providers to report quality data. Several
commercial payors have announced that they will stop reimbursing hospitals for certain preventable
adverse events. A number of state hospital associations have also announced policies addressing the
waiver of patient bills for care related to a serious adverse event. In addition, managed care
organizations may begin programs that condition payment on performance against specified measures.
The quality measurement criteria used by commercial payors may be similar to or even more stringent
than Medicare requirements.
We expect these trends towards value-based purchasing of healthcare services by Medicare and
other payors to continue. Because of these trends, if we are unable to demonstrate quality of care
in our facilities, our operating results could be significantly impacted in the future.
Physician Integration
In an effort to meet community needs and address coverage issues, we continue to recruit and
employ physicians with primary emphasis on family practice and internal medicine, general surgery,
hospitalists, obstetrics and gynecology, cardiology, neurology and orthopedics. Our ability to
attract and retain skilled physicians to our hospitals is critical to our success and is affected
by the quality of care at our hospitals. This is one reason we have taken significant steps in
implementing our expanded quality of care initiatives. We believe intense efforts focusing on
quality of care will enhance our ability to recruit and retain the skilled physicians necessary to
make our hospitals successful.
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We experience certain risks associated with the integration of medical staffs at our
hospitals. As we continue to focus on our physician employment strategy, we face significant
competition for skilled physicians in certain of our markets as more hospital providers adopt a
physician staffing model approach, coupled with a general shortage of physicians across most
specialties. This increased competition has resulted in efforts by managed care organizations to
align with certain provider networks in the markets in which we operate. For the nine months ended
June 30, 2010, we have experienced a 32.2% increase in our employed physician base. We expect that
employing physicians should provide relief on cost pressures associated with on-call coverage and
other professional fees. However, we anticipate incurring additional labor and other start-up
related costs as we continue the integration of employed physicians.
We also face risk from competition for outpatient business. We expect to mitigate this risk
through continued focus on our physician employment strategy, our commitment to capital investment
in our hospitals, including updated technology and equipment, and our commitment to our quality of
care initiatives that some competitors, including individual physicians or physician groups, may
not be equipped to implement.
Uncompensated Care
Like others in the hospital industry, we continue to experience high levels of uncompensated
care, including charity care and bad debts. These elevated levels are driven by the number of
uninsured patients seeking care at our hospitals, increasing healthcare costs and other factors
beyond our control, such as increases in the amount of co-payments and deductibles as employers
continue to pass more of these costs on to their employees. In addition, as a result of high
unemployment and its impact on the economy, we believe that our hospitals may continue to
experience high levels of or possibly growth in bad debts and charity care. During the quarter and
nine months ended June 30, 2010, our uncompensated care as a percentage of acute care revenue was
13.3% and 12.8%, respectively, compared to 12.8% and 13.0% in the
same prior year periods.
We continue to monitor our self-pay admissions on a daily basis and continue to focus on the
efficiency of our emergency rooms, point-of-service cash collections, Medicaid eligibility
automation and process-flow improvements. While the volume of patients registered as uninsured
remains high, we continue to be successful in qualifying many of these uninsured patients for
Medicaid or other third-party coverage, which has helped to alleviate some of the pressure created
from the growth in our uncompensated care.
Our level of uncompensated care continues to be affected by the volume of under-insured
patients or patient balances after insurance. At June 30, 2010, self-pay balances after insurance
were $35.0 million, compared to $37.3 million at September 30, 2009, and $35.0 million at June 30,
2009.
We anticipate that if we experience further growth in uninsured volume and revenue over the
near-term, along with continued increases in co-payments and deductibles for insured patients, our
uncompensated care will increase and our results of operations could be adversely affected.
One purpose of the Health Reform Law is to decrease the number of uninsured individuals, which
should reduce our losses associated with providing indigent care. However, since
the Health Reform Law will be gradually implemented, with many of the provisions not taking effect
until 2014 or later, it is not possible to predict the full impact of the Health Reform Law on our
level of uncompensated care, or how soon the impact will be felt.
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The percentages of insured and uninsured gross hospital receivables (prior to allowances for
contractual adjustments and doubtful accounts) are summarized as follows:
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
Insured receivables |
63.3 | % | 62.0 | % | ||||
Uninsured receivables |
36.7 | % | 38.0 | % | ||||
Total |
100.0 | % | 100.0 | % | ||||
The percentages in the table above are calculated using gross receivable balances. Uninsured
receivables and insured receivables are net of discounts and contractual adjustments recorded at
the time of billing. The shift from uninsured to insured receivables reflects improved cash
collections on self-pay accounts, as well as our success in qualifying uninsured patients for
Medicaid or other third-party coverage. Included in insured receivables are accounts that are
pending approval from Medicaid. These receivables were 2.4% and 3.2% of gross hospital receivables
at June 30, 2010 and September 30, 2009, respectively.
The percentages of gross hospital receivables in summarized aging categories are as follows:
June 30, | September 30, | |||||||
2010 | 2009 | |||||||
0 to 90 days |
72.6 | % | 69.4 | % | ||||
91 to 180 days |
16.8 | % | 18.1 | % | ||||
Over 180 days |
10.6 | % | 12.5 | % | ||||
Total |
100.0 | % | 100.0 | % | ||||
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A summary of significant accounting policies is disclosed in Note 2 to the consolidated
financial statements included in our Annual Report on Form 10-K for the fiscal year ended September
30, 2009. Our critical accounting policies are further described under the caption Critical
Accounting Policies and Estimates in Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30,
2009. There have been no changes in the nature of our critical accounting policies or the
application of those policies since September 30, 2009.
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SELECTED OPERATING DATA
The following table sets forth certain unaudited operating data for each of the periods
presented.
Quarter Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Acute Care |
||||||||||||||||
Number of acute care hospital facilities
at end of period |
15 | 15 | 15 | 15 | ||||||||||||
Beds in service at end of period (1) |
2,886 | 2,789 | 2,886 | 2,789 | ||||||||||||
Average length of stay (days) (2) |
4.8 | 4.7 | 4.8 | 4.7 | ||||||||||||
Occupancy rates (average beds in service) |
45.9 | % | 46.2 | % | 46.9 | % | 47.5 | % | ||||||||
Admissions (3) |
24,968 | 25,229 | 76,679 | 75,628 | ||||||||||||
Adjusted admissions (4) |
42,655 | 42,780 | 127,654 | 126,615 | ||||||||||||
Patient days (5) |
120,515 | 117,378 | 369,402 | 354,332 | ||||||||||||
Adjusted patient days (4) |
198,439 | 191,157 | 593,277 | 569,299 | ||||||||||||
Net patient revenue per adjusted admission |
$ | 10,197 | $ | 9,668 | $ | 10,118 | $ | 9,671 | ||||||||
Outpatient revenue as a % of gross
patient revenue |
40.7 | % | 39.6 | % | 39.1 | % | 38.8 | % | ||||||||
Health Choice |
||||||||||||||||
Medicaid covered lives |
195,183 | 177,933 | 195,183 | 177,933 | ||||||||||||
Dual-eligible lives (6) |
4,256 | 3,580 | 4,256 | 3,580 | ||||||||||||
Medical loss ratio (7) |
87.3 | % | 87.9 | % | 87.8 | % | 85.1 | % |
(1) | Includes St. Lukes Behavioral Hospital. | |
(2) | Represents the average number of days that a patient stayed in our hospitals. | |
(3) | 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. | |
(4) | 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. | |
(5) | Represents the number of days our beds were occupied by inpatients over the period. | |
(6) | Represents members eligible for Medicare and Medicaid benefits under Health Choices contract with CMS to provide coverage as a MAPD SNP. | |
(7) | Represents medical claims expense as a percentage of premium revenue, including claims paid to our hospitals. |
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RESULTS OF OPERATIONS SUMMARY
Consolidated
The following table sets forth, for the periods presented, our results of consolidated
operations expressed in dollars and as a percentage of net revenue. Such information has been
derived from our unaudited condensed consolidated statements of operations.
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||||||||
($ in thousands) | Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | ||||||||||||||||||||||||
Net revenue |
||||||||||||||||||||||||||||||||
Acute care revenue |
$ | 438,211 | 68.7 | % | $ | 417,880 | 69.5 | % | $ | 1,300,445 | 68.8 | % | $ | 1,237,506 | 71.0 | % | ||||||||||||||||
Premium revenue |
199,777 | 31.3 | % | 183,738 | 30.5 | % | 591,022 | 31.2 | % | 504,410 | 29.0 | % | ||||||||||||||||||||
Total net revenue |
637,988 | 100.0 | % | 601,618 | 100.0 | % | 1,891,467 | 100.0 | % | 1,741,916 | 100.0 | % | ||||||||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||||||
Salaries and benefits |
170,035 | 26.7 | % | 164,879 | 27.4 | % | 514,688 | 27.2 | % | 495,387 | 28.4 | % | ||||||||||||||||||||
Supplies |
66,333 | 10.4 | % | 63,950 | 10.6 | % | 200,167 | 10.6 | % | 187,529 | 10.8 | % | ||||||||||||||||||||
Medical claims |
172,031 | 27.0 | % | 158,919 | 26.4 | % | 510,692 | 27.0 | % | 422,519 | 24.3 | % | ||||||||||||||||||||
Other operating expenses |
93,579 | 14.7 | % | 79,708 | 13.3 | % | 266,854 | 14.1 | % | 237,011 | 13.6 | % | ||||||||||||||||||||
Provision for bad debts |
49,416 | 7.7 | % | 45,594 | 7.6 | % | 142,901 | 7.6 | % | 137,892 | 7.9 | % | ||||||||||||||||||||
Rentals and leases |
10,067 | 1.6 | % | 10,008 | 1.7 | % | 30,487 | 1.6 | % | 29,221 | 1.7 | % | ||||||||||||||||||||
Interest expense, net |
16,711 | 2.6 | % | 16,334 | 2.7 | % | 50,065 | 2.7 | % | 51,129 | 2.9 | % | ||||||||||||||||||||
Depreciation and amortization |
24,007 | 3.7 | % | 24,217 | 4.0 | % | 71,909 | 3.8 | % | 73,509 | 4.2 | % | ||||||||||||||||||||
Management fees |
1,250 | 0.2 | % | 1,250 | 0.2 | % | 3,750 | 0.2 | % | 3,750 | 0.2 | % | ||||||||||||||||||||
Hurricane-related property damage |
| | | | | | 938 | 0.1 | % | |||||||||||||||||||||||
Total costs and expenses |
603,429 | 94.6 | % | 564,859 | 93.9 | % | 1,791,513 | 94.8 | % | 1,638,885 | 94.1 | % | ||||||||||||||||||||
Earnings from continuing operations before gain (loss) on disposal of assets and income taxes |
34,559 | 5.4 | % | 36,759 | 6.1 | % | 99,954 | 5.2 | % | 103,031 | 5.9 | % | ||||||||||||||||||||
Gain (loss) on disposal of assets, net |
(149 | ) | 0.0 | % | 184 | 0.0 | % | (206 | ) | 0.0 | % | 1,497 | 0.1 | % | ||||||||||||||||||
Earnings from continuing operations before income taxes |
34,410 | 5.4 | % | 36,943 | 6.1 | % | 99,748 | 5.2 | % | 104,528 | 6.0 | % | ||||||||||||||||||||
Income tax expense |
12,683 | 2.0 | % | 13,715 | 2.3 | % | 36,544 | 1.9 | % | 38,975 | 2.3 | % | ||||||||||||||||||||
Net earnings from continuing operations |
21,727 | 3.4 | % | 23,228 | 3.8 | % | 63,204 | 3.3 | % | 65,553 | 3.7 | % | ||||||||||||||||||||
Earnings (loss) from discontinued operations, net of income taxes |
(384 | ) | (0.1 | )% | 167 | 0.0 | % | (363 | ) | 0.0 | % | (333 | ) | 0.0 | % | |||||||||||||||||
Net earnings |
21,343 | 3.3 | % | 23,395 | 3.8 | % | 62,841 | 3.3 | % | 65,220 | 3.7 | % | ||||||||||||||||||||
Net earnings attributable to non-controlling interests |
(2,002 | ) | (0.3 | )% | (2,666 | ) | (0.4 | )% | (6,063 | ) | (0.3 | )% | (7,240 | ) | (0.4 | )% | ||||||||||||||||
Net earnings attributable to IASIS Healthcare LLC |
$ | 19,341 | 3.0 | % | $ | 20,729 | 3.4 | % | $ | 56,778 | 3.0 | % | $ | 57,980 | 3.3 | % | ||||||||||||||||
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Table of Contents
Acute Care
The following table and discussion sets forth, for the periods presented, the results of our
acute care operations expressed in dollars and as a percentage of
acute care revenue, prior to elimination of revenue between segments. Such
information has been derived from our unaudited condensed consolidated statements of operations.
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||||||||
($ in thousands) | Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | ||||||||||||||||||||||||
Acute care revenue |
||||||||||||||||||||||||||||||||
Acute care revenue |
$ | 438,211 | 99.5 | % | $ | 417,880 | 99.4 | % | $ | 1,300,445 | 99.4 | % | $ | 1,237,506 | 99.5 | % | ||||||||||||||||
Revenue between segments (1) |
2,319 | 0.5 | % | 2,542 | 0.6 | % | 8,331 | 0.6 | % | 6,551 | 0.5 | % | ||||||||||||||||||||
Total acute care revenue |
440,530 | 100.0 | % | 420,422 | 100.0 | % | 1,308,776 | 100.0 | % | 1,244,057 | 100.0 | % | ||||||||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||||||
Salaries and benefits |
165,169 | 37.5 | % | 159,979 | 38.1 | % | 500,283 | 38.2 | % | 480,634 | 38.6 | % | ||||||||||||||||||||
Supplies |
66,293 | 15.0 | % | 63,905 | 15.2 | % | 200,030 | 15.3 | % | 187,316 | 15.1 | % | ||||||||||||||||||||
Other operating expenses |
87,451 | 19.9 | % | 75,876 | 18.0 | % | 248,380 | 19.0 | % | 220,272 | 17.7 | % | ||||||||||||||||||||
Provision for bad debts |
49,416 | 11.2 | % | 45,594 | 10.8 | % | 142,901 | 10.9 | % | 137,892 | 11.1 | % | ||||||||||||||||||||
Rentals and leases |
9,650 | 2.2 | % | 9,635 | 2.3 | % | 29,334 | 2.2 | % | 28,038 | 2.2 | % | ||||||||||||||||||||
Interest expense, net |
16,711 | 3.8 | % | 16,334 | 3.9 | % | 50,065 | 3.8 | % | 51,129 | 4.1 | % | ||||||||||||||||||||
Depreciation and amortization |
23,115 | 5.2 | % | 23,320 | 5.6 | % | 69,240 | 5.3 | % | 70,860 | 5.7 | % | ||||||||||||||||||||
Management fees |
1,250 | 0.3 | % | 1,250 | 0.3 | % | 3,750 | 0.3 | % | 3,750 | 0.3 | % | ||||||||||||||||||||
Hurricane-related property damage |
| | | | | | 938 | 0.1 | % | |||||||||||||||||||||||
Total costs and expenses |
419,055 | 95.1 | % | 395,893 | 94.2 | % | 1,243,983 | 95.0 | % | 1,180,829 | 94.9 | % | ||||||||||||||||||||
Earnings from continuing operations before gain (loss) on disposal of assets and income taxes |
21,475 | 4.9 | % | 24,529 | 5.8 | % | 64,793 | 5.0 | % | 63,228 | 5.1 | % | ||||||||||||||||||||
Gain (loss) on disposal of assets, net |
(149 | ) | 0.0 | % | 184 | 0.0 | % | (206 | ) | 0.0 | % | 1,497 | 0.1 | % | ||||||||||||||||||
Earnings from continuing operations before income taxes |
$ | 21,326 | 4.9 | % | $ | 24,713 | 5.8 | % | $ | 64,587 | 5.0 | % | $ | 64,725 | 5.2 | % | ||||||||||||||||
(1) | Revenue between segments is eliminated in our consolidated results. |
Quarters Ended June 30, 2010 and 2009
Acute care revenue Acute care revenue from our hospital operations for the quarter ended
June 30, 2010, was $440.5 million, an increase of $20.1 million or 4.8%, compared to $420.4 million
in the prior year quarter. The increase in acute care revenue is due primarily to an increase in
net patient revenue per adjusted admission of 5.5%, offset by a 0.3% decrease in adjusted
admissions.
Net adjustments to estimated third-party payor settlements, also known as prior year
contractuals, resulted in an increase in acute care revenue of $2.2 million and $1.4 million for
the quarters ended June 30, 2010 and 2009, respectively.
Salaries and benefits Salaries and benefits expense from our hospital operations for the
quarter ended June 30, 2010, was $165.2 million, or 37.5% of acute care revenue, compared to $160.0
million, or 38.1% of acute care revenue in the prior year quarter. The improvement in our salaries
and benefits expense as a percentage of acute care revenue is the result of a 0.6% decline in
nursing contract labor as a percentage of acute care revenue, compared to the prior year quarter.
Other operating expenses Other operating expenses from our hospital operations for the
quarter ended June 30, 2010, were $87.5 million, or 19.9% of acute care revenue, compared to $75.9
million, or 18.0% of acute care revenue in the prior year quarter. Included in the current year quarter were increased professional fees
associated with our participation in the indigent care affiliation agreements in our Texas market.
Excluding the impact of these indigent care affiliation agreements, other operating expenses
as a percentage of acute care revenue were 16.9% for the quarter
ended June 30, 2010, compared to 16.3% in the prior year quarter. Additionally, we experienced a 0.2% increase
in other professional fees, a 0.2% increase in non-income taxes related to state-level provider tax programs and a 0.1% increase in purchased services primarily related to additional information technology costs.
Provision for bad debts Provision for bad debts from our hospital operations for the
quarter ended June 30, 2010, was $49.4 million, or 11.2% of acute care revenue, compared to $45.6
million, or 10.8% of acute care revenue in the prior year quarter. As a result of the current
economic environment and the related impact of high unemployment, we experienced an increase in self-pay volume and revenue.
Self-pay admissions increased 1.1% in the current quarter, as compared to the prior year quarter,
and self-pay admissions as a percentage of total admissions were 5.9%, compared to 5.8% in the
prior year quarter.
Nine Months Ended June 30, 2010 and 2009
Acute care revenue Acute care revenue from our hospital operations for the nine months
ended June 30, 2010, was $1.3 billion, an increase of $64.7 million or 5.2%, compared to $1.2
billion in the prior year period. The increase in acute care revenue is comprised of an increase in
adjusted admissions of 0.8% and an increase in net patient revenue
per adjusted admission of 4.6%.
Net adjustments to estimated third-party payor settlements, also known as prior year
contractuals, resulted in an increase in acute care revenue of $4.7 million and $3.5 million for
the nine months ended June 30, 2010 and 2009, respectively.
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Table of Contents
Salaries and benefits Salaries and benefits expense from our hospital operations for the
nine months ended June 30, 2010, was $500.3 million, or 38.2% of acute care revenue, compared to
$480.6 million, or 38.6% of acute care revenue in the prior year period. Included in the current
year period was $2.0 million of stock compensation expense incurred in connection with the
repurchase of certain equity by our parent company. Excluding all stock compensation expense,
salaries and benefits expense was 38.0% of acute care revenue for the nine months ended June 30,
2010, compared to 38.6% in the prior year period. During the current year period, we experienced a
0.3% improvement in contract labor as a percentage of acute care revenue, compared to the prior
year period. The remaining decline in salaries and benefits expense as a percentage of acute care
revenue is the result of improved productivity management leveraged against growth in acute care
revenue.
Other operating expenses Other operating expenses from our hospital operations for the nine
months ended June 30, 2010, were $248.4 million, or 19.0% of acute care revenue, compared to $220.3
million, or 17.7% of acute care revenue in the prior year period. Included in the current year
period were increased professional fees associated with our participation in the indigent care
affiliation agreements in our Texas market. Excluding the impact of
these indigent care affiliation agreements, other operating expenses
as a percentage of acute care revenue were 16.3% for the nine months
ended June 30, 2010, compared to 15.7% in the prior year period. Other operating expenses in the
current year period also included a $1.9 million reduction in insurance expense resulting from
changes in prior year actuarial estimates associated with our professional and general liability
reserves, compared to a $3.2 million reduction in the prior year period. The remaining increase in
other operating expenses as a percentage of acute care revenue in the current year period is
comprised of an increase in purchased services, primarily associated with additional information
technology costs and collection agency fees.
Provision for bad debts Provision for bad debts from our hospital operations for the nine
months ended June 30, 2010, was $142.9 million, or 10.9% of acute care revenue, compared to $137.9
million, or 11.1% of acute care revenue in the prior year period. The decrease in the
provision for bad debts as a percentage of acute care revenue reflects our success at qualifying
uninsured patients for coverage under Medicaid. As a result of the effects of a significant
economic downturn, including the impact of high unemployment and the related increase in the number
of individuals eligible for Medicaid or similar programs, we have experienced an increase in the
number of patients qualifying for such coverage.
Health Choice
The following table and discussion sets forth, for the periods presented, the results of our
Health Choice operations expressed in dollars and as a percentage of premium revenue. Such
information has been derived from our unaudited condensed consolidated statements of operations.
Quarter Ended | Quarter Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||||||||
($ in thousands) | Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | ||||||||||||||||||||||||
Premium revenue |
||||||||||||||||||||||||||||||||
Premium revenue |
$ | 199,777 | 100.0 | % | $ | 183,738 | 100.0 | % | $ | 591,022 | 100.0 | % | $ | 504,410 | 100.0 | % | ||||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||||||
Salaries and benefits |
4,866 | 2.4 | % | 4,900 | 2.6 | % | 14,405 | 2.4 | % | 14,753 | 3.0 | % | ||||||||||||||||||||
Supplies |
40 | 0.0 | % | 45 | 0.0 | % | 137 | 0.0 | % | 213 | 0.0 | % | ||||||||||||||||||||
Medical claims (1) |
174,350 | 87.3 | % | 161,461 | 87.9 | % | 519,023 | 87.8 | % | 429,070 | 85.1 | % | ||||||||||||||||||||
Other operating expenses |
6,128 | 3.1 | % | 3,832 | 2.1 | % | 18,474 | 3.2 | % | 16,739 | 3.3 | % | ||||||||||||||||||||
Rentals and leases |
417 | 0.2 | % | 373 | 0.2 | % | 1,153 | 0.2 | % | 1,183 | 0.2 | % | ||||||||||||||||||||
Depreciation and amortization |
892 | 0.5 | % | 897 | 0.5 | % | 2,669 | 0.5 | % | 2,649 | 0.5 | % | ||||||||||||||||||||
Total costs and expenses |
186,693 | 93.5 | % | 171,508 | 93.3 | % | 555,861 | 94.1 | % | 464,607 | 92.1 | % | ||||||||||||||||||||
Earnings before income taxes |
$ | 13,084 | 6.5 | % | $ | 12,230 | 6.7 | % | $ | 35,161 | 5.9 | % | $ | 39,803 | 7.9 | % | ||||||||||||||||
(1) | Medical claims paid to our hospitals of $2.3 million and $2.5 million for the quarters ended June 30, 2010 and 2009, respectively, and $8.3 million and $6.6 million for the nine months ended June 30, 2010 and 2009, respectively, are eliminated in our consolidated results. |
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Table of Contents
Quarters Ended June 30, 2010 and 2009
Premium revenue Premium revenue from Health Choice for the quarter ended June 30, 2010, was
$199.8 million, an increase of $16.0 million or 8.7%, compared to $183.7 million in the prior year
quarter. The growth in premium revenue was due to a 12.2% increase in Medicaid
member months resulting from increased enrollment in the state program, primarily attributable to
the impact of high unemployment, partially offset by a 3.5% decline
in Medicaid premium revenue on a per member per month basis.
Medical claims Medical claims expense for the quarter ended June 30, 2010, was $174.4
million, compared to $161.5 million in the prior year quarter. Medical claims expense as a
percentage of premium revenue was 87.3% for the quarter ended June 30, 2010, compared to 87.9% in
the prior year quarter. The decrease in our medical claims expense as a percentage of premium revenue
is primarily due to improvements in utilization, which have helped to reduce costs on a per member
per month basis.
Nine Months Ended June 30, 2010 and 2009
Premium revenue Premium revenue from Health Choice for the nine months ended June 30, 2010,
was $591.0 million, an increase of $86.6 million or 17.2%, compared to $504.4 million in the prior
year period. The growth in premium revenue was due to a 17.7% increase in
Medicaid member months resulting from increased enrollment in the state program, primarily
attributable to the impact of high unemployment, as well as slight gains in market share.
Medical claims Medical claims expense for the nine months ended June 30, 2010, was $519.0
million, compared to $429.1 million in the prior year period. Medical claims expense as a
percentage of premium revenue was 87.8% for the nine months ended June 30, 2010, compared to 85.1%
in the prior year period. The increase in our medical claims expense as a percentage of premium
revenue is primarily the result of an overall increase in medical costs on a per member per month
basis, compared to the prior year period, coupled with a 1.3% decline
in overall premium revenue on a per member per month basis.
Income
Taxes
The
following discussion sets forth, for the periods indicated, the
impact of income taxes on our consolidated results. Such information
has been derived from our unaudited condensed consolidated statements
of operations.
Quarters Ended June 30, 2010 and 2009
Income
tax expense Income tax expense for the quarter ended
June 30, 2010, resulted in an effective tax rate on earnings from
continuing operations of 36.9%, compared to 37.1% in the prior year
quarter.
Nine
Months Ended June 30, 2010 and 2009
Income
tax expense Income tax expense for the nine months ended
June 30, 2010, resulted in an effective tax rate on earnings from
continuing operations of 36.6%, compared to 37.3% in the prior year
period. The decrease in our effective tax rate is primarily the
result of lower valuation allowances, related to subsidiary net
operating losses, in the current year period, compared to the prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Cash Flow Activities for the Nine Months Ended June 30, 2010 and 2009
Our cash flows are summarized as follows (in thousands):
Nine Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flow from operating activities |
$ | 113,915 | $ | 172,406 | ||||
Cash flow from investing activities |
(51,559 | ) | (61,047 | ) | ||||
Cash flow from financing activities |
(138,724 | ) | (59,772 | ) |
Operating Activities
The
decrease in operating cash flows of $58.5 million for the nine months ended June 30, 2010,
compared to the prior year period, is attributable to the
delayed receipt of Health Choices
June capitation payment from AHCCCS totaling $64.7 million, in
connection with a state-wide effort in Arizona to manage the
states fiscal budget issues. The capitation payment was subsequently received
in July 2010.
At June 30, 2010, we had $215.5 million in net working capital, compared to $264.5 million at
September 30, 2009. Net accounts receivable decreased $8.9 million to $221.3 million at June 30,
2010, from $230.2 million at September 30, 2009. Our days revenue in accounts receivable at June
30, 2010, were 45, compared to 48 at September 30, 2009, and 51 at June 30, 2009.
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Table of Contents
Investing Activities
Capital expenditures for the nine months ended June 30, 2010, were $53.5 million, compared to
$66.6 million in the prior year period. During the current year
period, we have spent $13.7 million
in information technology in an effort to meet the meaningful use requirements set forth by the IT stimulus
mandate included in the ARRA. Included in the prior year period was $23.4 million related to the construction of our
two patient tower projects in our Utah market, which were completed during fiscal 2009.
Financing Activities
During the nine months ended June 30, 2010, we distributed $125.0 million, net of a $1.8
million income tax benefit, to IASIS Healthcare Corporation (IAS), our parent company, 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 our excess cash on hand. The cancellation of the rollover options, which
were associated with our 2004 recapitalization, resulted in the recognition of $2.0 million in
stock compensation expense during the nine months ended June 30, 2010.
During the nine months ended June 30, 2010, pursuant to the terms of our senior secured credit
facilities, we made net payments of $4.4 million, compared to $52.2 million in the prior year
period, which included the repayment of $47.8 million outstanding under our revolving credit
facility. Additionally, we made payments totaling $2.4 million on capital leases and other debt
obligations during the nine months ended June 30, 2010, compared to $1.5 million in the prior year
period.
Capital Resources
$854.0 Million Senior Secured Credit Facilities
The $854.0 million senior secured credit facilities include: (i) a senior secured term loan of
$439.0 million; (ii) a senior secured delayed draw term loan of $150.0 million; (iii) a senior
secured revolving credit facility of $225.0 million, with a $100.0 million sub-limit for letters of
credit; and (iv) a senior secured synthetic letter of credit facility of $40.0 million. All
facilities mature on March 15, 2014, except for the revolving credit facility, which matures on
April 27, 2013. The term loans bear interest at an annual rate of LIBOR plus 2.00% or, at our
option, the administrative agents base rate plus 1.00%. The revolving loans bear interest at an
annual rate of LIBOR plus an applicable margin ranging from 1.25% to 1.75% or, at our option, the
administrative agents base rate plus an applicable margin ranging from 0.25% to 0.75%, such rate
in each case depending on our senior secured leverage ratio. A commitment fee ranging from 0.375%
to 0.50% per annum is charged on the undrawn portion of the senior secured revolving credit
facility and is payable in arrears.
Principal under the senior secured term loan is due in 24 consecutive equal quarterly
installments in an aggregate annual amount equal to 1.0% of the original principal amount ($439.0
million) during the first six years thereof, with the balance payable in four equal installments
beginning April 2013. Principal under the senior secured delayed draw term loan is due in equal
quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount
($150.0 million) until March 31, 2013, with the balance payable in four equal installments during
the final year of the loan. The senior secured credit facilities are also subject to mandatory
prepayment under specific circumstances, including a portion of excess cash flow, a portion of the
net proceeds from an initial public offering, asset sales, debt issuances and specified casualty
events, each subject to various exceptions.
The senior secured credit facilities are (i) secured by a first mortgage and lien on our real
property and related personal and intellectual property and pledges of equity interests in the
entities that own such properties and (ii) guaranteed by certain of our subsidiaries.
The
senior secured credit facilities contain certain covenants which, among other
things, limit the incurrence of additional indebtedness, investments, dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, liens and encumbrances and other
matters customarily restricted in such agreements. The senior secured credit facilities agreement
contains a customary restricted payments covenant, which, among others restrictions, limits the
amount of dividends or other cash payments to IAS. As of
June 30, 2010, we have $183.0 million
available to expend free of any such restrictions pursuant to the restricted payment basket
provisions set forth in this covenant.
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At June 30, 2010, amounts outstanding under our senior secured credit facilities consisted of
a $424.7 million term loan and a $147.0 million delayed draw term loan. In addition, we had $39.9
million and $36.2 million in letters of credit outstanding under the synthetic letter of credit
facility and the revolving credit facility, respectively. The weighted average interest rate of
outstanding borrowings under the senior secured credit facilities was
3.4% and 3.3% for the quarter
and nine months ended June 30, 2010, respectively.
$475.0 Million 8 3/4% Senior Subordinated Notes Due 2014
We and our wholly-owned subsidiary, IASIS Capital Corporation, a holding company with no
assets or operations, as issuers, have outstanding $475.0 million aggregate principal amount of 8
3/4% notes. Our 8 3/4% notes are general unsecured
senior subordinated obligations of the issuers, are subordinated in right of payment to our
existing and future senior debt, are pari passu in right of payment with any of our future senior
subordinated debt and are senior in right of payment to any of our future subordinated debt. Our
existing domestic subsidiaries, other than certain non-guarantor subsidiaries, which include Health
Choice and our non-wholly owned subsidiaries, are guarantors of our 8 3/4%
notes. Our 8 3/4% notes are effectively subordinated to all of the issuers
and the guarantors secured debt to the extent of the value of the assets securing the debt and are
structurally subordinated to all liabilities and commitments (including trade payables and capital
lease obligations) of our subsidiaries that are not guarantors of our 8 3/4%
notes. Our 8 3/4% notes require semi-annual interest payments in June and
December. The indenture related to the 8 3/4% notes contains a customary
restricted payments covenant, which, among others restrictions, limits the amount of dividends or
other cash payments to IAS, including payments to fund the interest on the Holdings Senior
Paid-in-Kind (PIK) Loans, which becomes cash-pay in
June 2012. As of June 30, 2010, we have $99.0
million available to expend free of any such restrictions pursuant to the restricted payment basket
provisions set forth in this covenant.
Holdings Senior PIK Loans
IAS has outstanding Senior PIK Loans, which mature June 15, 2014. Proceeds were used
to repurchase certain preferred equity from the stockholders of IAS. The Senior PIK Loans
bear interest at an annual rate equal to LIBOR plus 5.25%. The Senior PIK Loans rank
behind our existing debt and will convert to cash-pay in June 2012, at which time all accrued
interest becomes payable. At June 30, 2010, the outstanding balance of the Senior PIK
Loans was $384.2 million, which includes $84.2 million of interest that has accrued to the
principal of these loans since the date of issuance, and is recorded in the financial statements of
IAS. The credit agreement related to the Senior PIK Loans
includes a restricted payments
covenant, which, among other restrictions, limits the amount of dividends that can be paid to the
stockholders of IAS. As of June 30, 2010, we have $35.0 million available to expend free of any
such restrictions pursuant to the restricted payment basket provisions set forth in this covenant.
Other
We are a party to interest rate swap agreements with Citibank, N.A. (Citibank) and Wachovia
Bank, N.A. (Wachovia), as counterparties, with notional amounts totaling $425.0 million, in an
effort to manage exposure to floating interest rate risk on a portion of our variable rate debt.
The arrangements with each counterparty include two interest rate swap agreements, one with a
notional amount of $112.5 million maturing on February 28, 2011, and one with a notional amount of
$100.0 million maturing on February 29, 2012. Under these agreements, we are required to make
monthly interest payments to our counterparties at fixed annual interest rates ranging from 1.5% to
2.0%, depending upon the agreement. Our counterparties are obligated to make monthly interest
payments to us based upon the one-month LIBOR rate in effect over the term of each agreement.
As of June 30, 2010, we provided a performance guaranty in the form of letters of credit
totaling $43.2 million for the benefit of AHCCCS to support our obligations under the Health Choice
contract to provide and pay for healthcare services. The amount of the performance guaranty is
based in part upon the membership in the plan and the related capitation revenue paid to us.
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Capital Expenditures
We plan to finance our proposed capital expenditures with cash generated from operations,
borrowings under our senior secured credit facilities and other capital sources that may become
available. We expect our capital expenditures for fiscal 2010 to be $80.0 million to $85.0 million,
including the following significant expenditures:
| $25.0 million to $28.0 million for other growth and new business projects; |
| $23.0 million to $25.0 million in replacement or maintenance related projects at our hospitals; |
| $20.0 million related to the healthcare information technology stimulus mandate; and |
| $12.0 million in hardware and software costs related to other information systems projects. |
Liquidity
We rely on cash generated from our operations as our primary source of liquidity, as well as
available credit facilities, project and bank financings and the issuance of long-term debt. From
time to time, we have also utilized operating lease transactions that are sometimes referred to as
off-balance sheet arrangements. We expect that our future funding for working capital needs,
capital expenditures, long-term debt repayments and other financing activities will continue to be
provided from some or all of these sources. Each of our existing and projected sources of cash is
impacted by operational and financial risks that influence the overall amount of cash generated and
the capital available to us. For example, cash generated by our business operations may be impacted
by, among other things, economic downturns, weather-related catastrophes and adverse industry
conditions. Our future liquidity will be impacted by our ability to access capital markets, which
may be restricted due to our credit ratings, general market conditions, and by existing or future
debt agreements. For a further discussion of risks that can impact our liquidity, see our risk
factors beginning on page 25 of our Annual Report of Form 10-K for the fiscal year ended September
30, 2009, and as updated in our Quarterly Reports on Form 10-Q for the quarters ended December 31,
2009 and March 31, 2010.
Including available cash and our senior secured credit facilities at June 30, 2010, we had
available liquidity as follows (in millions):
Cash and cash equivalents |
$ | 130.2 | ||
Available capacity under our senior secured revolving credit facility |
188.8 | |||
Net available liquidity at June 30, 2010 |
$ | 319.0 | ||
Net available liquidity assumes 100% participation from all lenders currently participating in
our senior secured revolving credit facility. On February 9, 2010, Barclays Capital assumed a $20.0
million position in our senior secured revolving credit facility, which represents approximately
8.9% of the total capacity. This position was previously held by Lehman Brothers, which we had
identified as a defaulting lender. At completion of this assumption, we had access to 100% of our
total revolver capacity.
Our net available liquidity at June 30, 2010, includes the impact of AHCCCS delaying Health
Choices June 2010 capitation premium payment totaling $64.7 million. This payment was
subsequently received in July 2010, and currently has no impact on our available liquidity.
In addition to our available liquidity, we expect to generate positive operating cash flows in
fiscal 2010. We will also utilize proceeds from our financing activities as needed.
Based upon our current level of operations and anticipated growth, we believe we have
sufficient liquidity to meet our cash requirements over the short-term (next 12 months) and over
the next three years. In evaluating the sufficiency of our liquidity for both the short-term and
long-term, we considered the expected cash flow to be generated by our operations, cash on hand and
the available borrowings under our senior secured credit facilities, compared to our anticipated
cash requirements for debt service, working capital, capital expenditures and the payment of taxes,
as well as funding requirements for long-term liabilities.
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We are unable at this time to extend our evaluation of the sufficiency of our liquidity beyond
three years. We cannot assure you, however, that our operating performance will generate sufficient
cash flow from operations or that future borrowings will be available under our senior secured
credit facilities, or otherwise, to enable us to grow our business, service our indebtedness,
including the senior secured credit facilities and the 8 3/4% senior
subordinated notes, or make anticipated capital expenditures and tax payments. For more
information, see our risk factors beginning on page 25 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2009, and as updated in our Quarterly Reports on Form 10-Q for the
quarters ended December 31, 2009 and March 31, 2010.
One element of our business strategy is to selectively pursue acquisitions and strategic
alliances in existing and new markets. Any acquisitions or strategic alliances may result in the
incurrence of, or assumption by us, of additional indebtedness. We continually assess our capital
needs and may seek additional financing, including debt or equity as considered necessary to fund
capital expenditures and potential acquisitions or for other corporate purposes. Our future
operating performance, ability to service or refinance our 8 3/4% senior
subordinated notes and ability to service and extend or refinance our senior secured credit
facilities will be subject to future economic conditions and to financial, business and other
factors, many of which are beyond our control. For more information, see our risk factors beginning
on page 25 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2009, and as
updated in our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2009 and March
31, 2010.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party to certain rent shortfall agreements, master lease agreements and other similar
arrangements with non-affiliated entities and an unconsolidated entity in the ordinary course of
business. We do not believe we have engaged in any transaction or arrangement with an
unconsolidated entity that is reasonably likely to materially affect liquidity.
We do not have any relationships with unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or special purpose entities, established for
the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. Accordingly, we are not materially exposed to any financing, liquidity, market or credit
risk that could arise if we had engaged in such relationships.
SEASONALITY
The patient volumes and acute care revenue of our healthcare operations are subject to
seasonal variations and generally are greater during the quarter ended March 31 than other
quarters. These seasonal variations are caused by a number of factors, including seasonal cycles of
illness, climate and weather conditions in our markets, vacation patterns of both patients and
physicians and other factors relating to the timing of elective procedures.
RECENT ACCOUNTING PRONOUNCEMENTS
We
have adopted the new authoritative guidance issued by the
Financial Accounting Standards Board in January 2010 requiring additional information to be
disclosed with respect to Level 3 fair value measurements, as well as transfers to and from Level 1
and Level 2 measurements. In addition, enhanced disclosures are required concerning inputs and
valuation techniques used to determine Level 2 and Level 3 fair value measurements. The new
disclosures and clarifications of existing disclosures were effective for the quarter ending March
31, 2010, with the effective date for additional Level 3 related disclosures effective for periods
beginning after December 15, 2010. The adoption of these new
provisions have not significantly impacted our disclosures, and we do
not anticipate any significant impact in periods after December 15,
2010.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk from exposure to changes in interest rates based on our
financing, investing, and cash management activities. The following components of our senior
secured credit facilities bear interest at variable rates at specified margins above either the
agent banks alternate base rate or the LIBOR rate: (i) a $439.0 million, seven-year term loan;
(ii) a $150.0 million senior secured delayed draw term loan; and (iii) a $225.0 million, six-year
senior secured revolving credit facility. As of June 30, 2010, we had outstanding variable rate
debt of $571.7 million. We have managed our market exposure to changes in interest rates by
converting $425.0 million of this variable rate debt to fixed rate debt through the use of interest
rate swap agreements. Our interest rate swaps provide for $425.0 million of fixed rate debt under
our senior secured credit facilities through February 28, 2011 and $200.0 million from March 1,
2011 through February 29, 2012, at rates ranging from 1.5% to 2.0% depending upon the terms of the
specific agreement.
Although changes in the alternate base rate or the LIBOR rate would affect the cost of funds
borrowed in the future, we believe the effect, if any, of reasonably possible near-term changes in
interest rates on our remaining variable rate debt or our consolidated financial position, results
of operations or cash flows would not be material. Holding other variables constant, including
levels of indebtedness and interest rate swaps, a 0.125% increase in interest rates would have an
estimated impact on pre-tax earnings and cash flows for the next twelve month period of $183,000.
Our interest rate swap agreements expose us to credit risk in the event of non-performance by
our counterparties, Citibank and Wachovia. However, we do not anticipate non-performance by
Citibank or Wachovia.
We have $475.0 million in senior subordinated notes due December 15, 2014, with interest
payable semi-annually at the rate of 8 3/4% per annum. At June 30, 2010, the
fair market value of the outstanding 8
3/4%
notes was $475.0 million, based
upon quoted market prices as of that date.
We currently believe we have adequate liquidity to fund operations during the near term
through the generation of operating cash flows, cash on hand and access to our revolving credit
facility. Our ability to borrow funds under our revolving credit facility is subject to the
financial viability of the participating financial institutions. While we do not anticipate any of
our current lenders defaulting on their obligations, we are unable to provide assurance that any
particular lender will not default at a future date.
Item 4. Controls and Procedures
Evaluations of Disclosure Controls and Procedures
Under the supervision and with the participation of our management team, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended, as of June 30, 2010. Based on this
evaluation, the principal executive officer and principal accounting officer concluded that our
disclosure controls and procedures are effective in timely alerting them to material information
required to be included in our periodic reports.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, there has been no change in our internal control
over financial reporting that has materially affected or is reasonably likely to materially affect
our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. Exhibits
(a) List of Exhibits:
31.1 | Certification of Principal Executive Officer Pursuant to Rule 15d-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer pursuant to Rule 15d-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
IASIS HEALTHCARE LLC |
||||
Date: August 11, 2010 | By: | /s/ John M. Doyle | ||
John M. Doyle | ||||
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit No. | Description | |||
31.1 | Certification of Principal Executive Officer Pursuant to
Rule 15d-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer pursuant to
Rule 15d-14(a) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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