Edgar Filing: TRIAD HOSPITALS INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2000

(_) 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 0-29816

Triad Hospitals, Inc.
(Exact name of registrant as specified in its charter)

Delaware 75-2816101
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

13455 Noel Road, Suite 2000
Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)

(972) 789-2700
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------

Common Stock, $.01 Par Value The Nasdaq National Market System
Preferred Stock Purchase Rights The Nasdaq National Market System

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, and (2) has been subject to such filing
requirements for the past 90 days.

YES X NO ______
---

Commission file number 333-84743

Triad Hospitals Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware 51-0389776
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

13455 Noel Road, Suite 2000
Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)

(972) 789-2700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

YES X NO _____
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K

Indicate the number of shares outstanding of each of the issuer's classes of
common stock of the latest practical date.

As of February 15, 2001, the number of shares of common stock of Triad
Hospitals, Inc. outstanding was 34,811,394. As of February 15, 2001 the
aggregate market value of the common stock held by non-affiliates was
approximately $1,006,216,548. For purposes of the foregoing calculation only,
the Registrant's directors, executive officers, and the Triad Hospitals, Inc.
Retirement Savings Plan have been deemed to be affiliates. All of the shares of
common stock of Triad Hospitals Holdings, Inc. were owned by Triad Hospitals,
Inc.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2001 Annual Meeting of
Stockholders of Triad Hospitals, Inc. are incorporated by reference into Part
III hereof.

Part I

Item 1. Business

Our Formation

Triad Hospitals, Inc. and Triad Hospitals Holdings, Inc. were incorporated
under the laws of the State of Delaware in 1999. As used herein, "Holdings"
refers to Triad Hospitals Holdings, Inc., a direct, wholly-owned subsidiary of
Triad Hospitals, Inc. The terms "we," "our," "the Company," "us" and "Triad"
refer to the business of Triad Hospitals, Inc., Holdings and their subsidiaries
as a consolidated entity, except where it is clear from the context that such
terms means only Triad Hospitals, Inc. Information regarding HCA - The
Healthcare Company, our former parent ("HCA"), in this Annual Report is derived
from reports and other information filed by HCA with the Securities and Exchange
Commission (the "Commission"). Prior to the proposed merger of Triad with Quorum
Health Group, Inc. (described below) and related financing transactions, Triad
expects to merge Holdings into Triad.

Triad provides health care services through hospitals and ambulatory surgery
centers located in small cities and selected urban markets primarily in the
southwestern, western and south-central United States. On May 11, 1999, Triad
became an independent, publicly traded company owning and operating the
healthcare service business which had comprised the Pacific Group of HCA. On
that date, Triad was spun-off from HCA through the distribution of all
outstanding shares of Triad common stock to the stockholders of HCA. On May 11,
1999, HCA also distributed to its stockholders all outstanding shares of the
common stock of LifePoint Hospitals Inc. ("LifePoint"), a newly formed company
comprising the former America Group of HCA. The common stock of Triad is quoted
on the Nasdaq National Market System (Symbol: TRIH). Information about the
distribution and certain indemnification and other arrangements entered into by
Triad and HCA in connection with the distribution is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
the consolidated financial statements.

Principal Executive Offices

Our principal executive offices are located at 13455 Noel Road, 20th Floor,
Dallas, Texas 75240, and our phone number is (972) 789-2700. Our corporate
Website address is http://www.triadhospitals.com. Information contained on our
Website is not part of this Annual Report.

General

As of December 31, 2000, Triad's facilities included 29 general, acute care
hospitals and 13 ambulatory surgery centers located in the states of Alabama,
Arkansas, Arizona, California, Kansas, Louisiana, Missouri, New Mexico,
Oklahoma, Oregon, Texas and West Virginia. Two hospitals and one surgery center
included among these facilities are operated through 50/50 joint ventures that
are not consolidated for financial reporting purposes. Triad opened one surgery
center in February 2001 and effective January 1, 2001 acquired the other 50%
interest in one of its two joint ventures.

Since the distribution, Triad's management focused on streamlining Triad's
portfolio of facilities to eliminate those with poor financial performance, weak
competitive market positions or locations in certain urban markets. As a result
of this initiative, Triad decided to divest certain of its facilities. Since
January 1, 1999, Triad has sold ten of its general, acute care hospitals, one
psychiatric hospital and three ambulatory surgery centers and ceased operations
of two general acute care hospitals and has transferred under long term leases
two hospitals and three surgery centers to an unaffiliated third party. In
addition to these divestitures, Triad opened a new hospital in May 1999 that was
operated through a 50/50 joint venture that is not consolidated for financial
reporting purposes. Effective January 1, 2001, Triad acquired the other 50%
interest in this joint venture. Triad also completed a swap of one of its
hospitals, located in Laredo, Texas for a hospital located in Victoria, Texas on
June 1, 1999 and acquired hospitals in Denton, Texas on October 1, 2000 and in
Lewisburg, West Virginia on November 1, 2000.

Triad announced on October 19, 2000 that it entered into an agreement to
acquire Quorum Health Group, Inc. ("Quorum") for approximately $2.4 billion in
cash, stock and assumption of debt. Under the terms of the agreement, Quorum
shareholders will receive $3.50 in cash and 0.4107 shares of Triad common stock
for each outstanding share of Quorum stock, plus cash in lieu of fractional
shares of Triad common stock. However, if the average closing price of a share
of Triad common stock over the 20 trading-day period ending 5 business days
prior to the date of the Quorum special meeting of stockholders is less than
$21.00, Quorum may notify Triad of its intention to terminate the merger
agreement. In that event, Triad will have the right to increase the $3.50 cash
portion of the merger consideration by the amount equal to the difference
between $21.00 and the average closing price of a share of Triad common stock
over the 20 trading-day trading period ending 5 business days prior to the
Quorum special meeting, multiplied by .4107. If Triad exercises that right,
Quorum will not be permitted to terminate the merger agreement. After the
merger, Triad will have revenues of approximately $3.0 billion, 50 hospitals, 14
ambulatory surgery centers and 9,000 licensed beds, including 282 beds that are
in joint venture hospitals and 726 beds that are in hospitals leased to third
parties.

The merger is subject to approval of each company's shareholders, antitrust
clearance and other conditions customary for transactions of this type. The
merger is also conditioned upon Triad's and HCA's receipt of an acceptable
private letter ruling from the Internal Revenue Service that the merger and
related transactions will not cause the spin-off of Triad or LifePoint from HCA
or the restructuring transactions that preceded the spin-off to fail to qualify
for the tax treatment specified in IRS private letter rulings previously issued
to HCA. The merger is further conditioned upon the receipt of necessary
financing. Triad has received a financing commitment of $1.7 billion to fund the
cash purchase price and to refinance certain existing debt of Triad and Quorum.

Upon consummation of the merger, Triad's board of directors will be increased
by the addition of two members of Quorum's current board. Triad expects that the
merger will be completed in the first half of 2001.

In addition to providing capital resources, Triad makes available a variety
of management services to its health care facilities. These services include
ethics and compliance programs, national supply and equipment purchasing and
leasing contracts, accounting, financial and clinical systems, governmental
reimbursement assistance, information systems, legal support, personnel
management and internal audit, access to regional managed care networks, and
resource management. Following the distribution, some of these services
initially were provided through transitional arrangements made with HCA and
selected services will continue to be provided by HCA over the next several
years. Triad participates and has an equity interest, along with HCA and
LifePoint, in a group purchasing organization which makes certain national
supply and equipment contracts available to Triad's facilities. See "NOTE 13 -
AGREEMENTS WITH HCA" in the consolidated financial statements for a more
detailed description of such arrangements.

Triad's Markets

Most of Triad's facilities are located in two distinct types of markets
primarily in the southwestern, western and south-central United States. Three-
quarters of Triad's hospitals are located in small cities, generally with
populations of less than 150,000 residents and located more than 60 miles from a
major urban center. Triad's hospitals are usually either the only hospital or
one of two or three hospitals in the community. The remainder of Triad's 29
hospitals are located in four larger urban areas. The urban areas where Triad
operates are typically characterized by a high rate of population growth, such
as Phoenix and Tucson, Arizona. Over half of Triad's facilities are located in
the states of Arizona and Texas.

Small Cities

Triad believes that the small cities of the southwestern, western and south-
central United States are attractive to health care service providers as a
result of favorable demographic and economic trends. Twenty-two of the 29
general, acute care hospitals that Triad operated as of December 31, 2000 were
located in these markets. Of these hospitals, 12 hospitals were located in
communities where they were the sole hospital and 10 hospitals were located in
communities where they were one of only two or three hospitals.

While Triad's hospitals located in these small cities are more likely to face
direct competition than facilities located in smaller non-urban markets, that
competition usually is limited to a single competitor in the relevant market.
Triad believes that the smaller populations and relative strength of the one or
two acute care hospitals in these markets also limit the entry of alternate non-
hospital providers, such as outpatient surgery centers or rehabilitation or
diagnostic imaging centers, as well as managed care plans.

Larger Urban Markets

Seven of the 29 general, acute care hospitals that Triad operated as of
December 31, 2000 are located in larger urban markets of the southwestern,
western and south-central United States.

In addition to the direct competition Triad faces from other health care
providers in its markets, there are higher levels of managed care penetration in
the larger urban markets (a higher relative proportion of the market population
enrolled in managed care programs such as HMOs and PPOs.)

Business Strategy

Triad's primary objectives are to provide quality health care services and to
enhance its financial performance by increasing utilization of its facilities
and improving operating efficiencies, using the following strategies:

. Develop and Maintain Strong Physician Relations. Triad is committed to
developing and maintaining strong relationships with the physicians in its
communities because Triad believes physicians are of vital importance to
Triad's long-term success. Triad believes that hospitals and physicians, by
working cooperatively, can develop a model for effective health care service
delivery that results in improved quality of care and improved performance
for both sets of providers. Triad has established a Physician Leadership
Group made up of leading physicians practicing at its hospitals who work with
corporate and hospital management to establish local priorities. Corporate
objectives are addressed by a national Physician Leadership Group consisting
of representatives of local Physician Leadership Groups and members of Triad
management. To further improve communication with its physicians, Triad has
appointed a senior manager, who is an experienced physician, to oversee
physician relations.

. Maximize Community Involvement. Triad's community philosophy is a simple one:
Triad's shareholders generally own the bricks and mortar, but the hospitals
and surgery centers effectively "belong" to the communities Triad serves.
Triad seeks to have each community embrace its hospital or surgery center as
a local asset in order to make the facility successful. To this end, Triad
has strengthened its local Boards of Trustees with the addition and inclusion
of more community leaders. Triad has also empowered each local Board of
Trustees to take responsibility for strategic planning, assessment of capital
needs, and overall supervision of the care provided in the community.

. Increase Volume by Adding Services and Physicians. (a) Expand Specialty
Services - Triad believes that many of its small city and selected urban
markets are large enough to support additional specialty services, such as
women's centers, orthopedic facilities, oncology centers and neurology care,
and intends to selectively increase these services in order to reduce patient
outmigration to urban hospitals. To support this expansion of specialty
services, Triad is actively recruiting additional specialists to certain of
its facilities. (b) Expand Outpatient Services - Triad believes that the
shift from inpatient to outpatient care recently experienced by the health
care industry is likely to continue. Triad is continuing to enhance the
access to and the convenience of its outpatient service capabilities by
improving its free-standing ambulatory surgery centers, restructuring its
hospital facilities and surgery capacities to better accommodate outpatient
treatment, and improving its emergency room facilities. (c) Recruit Primary
Care Physicians - Triad continues to actively recruit additional primary care
physicians. Triad believes that a primary care physician is frequently the
first contact point for a patient.

. Improve Operating Margins. Triad has initiated several measures to improve
the financial performance of its facilities through greater control of
operating expenses. Triad continues to focus on optimizing the efficiency and
productivity of its human resources, the largest component of operating
expenses. Triad has instituted a

financial training program for its hospital managers to teach effective
management of hospital revenues and expenses.

. Grow Through Same-Facility Expansion, New Facility Development and Selective
Acquisitions. Triad is identifying expansion opportunities in areas where
management perceives that demand is not being adequately met due to rapid
population growth or insufficient existing health care services. Triad is
selectively expanding its existing hospitals by adding clinical facilities or
medical office buildings. Triad will begin construction of a new hospital in
2001 and has completed construction of an ambulatory surgery center during
2000 and is nearing completion of another. Triad has made two acquisitions in
2000 and may seek to make additional acquisitions in select markets. Triad
believes that potential acquisition opportunities may arise when other health
care providers choose to divest facilities or when independent hospitals
believe that they can benefit from becoming part of a larger hospital
company.

Triad believes that as a result of its efforts to strengthen its asset base,
it is especially well positioned to continue to build upon its portfolio of
facilities in the southwestern, western and south-central United States,
particularly in small cities and selected urban markets similar to the ones
served by Triad's existing facilities. Triad believes that small city and
urban markets can support increased specialty services which produce
relatively higher revenues than other health care services. In addition, in
small city markets managed care penetration is generally lower than in urban
areas, and Triad believes that it is in a better position to negotiate more
favorable managed care contracts in these markets. In evaluating its
opportunities for new developments or acquisitions, both in small cities or
in selected urban markets, Triad places a high priority on having a strong,
competitive market position, either on its own or in conjunction with a
compatible partner such as another hospital provider. Triad has a number of
relationships with other provider organizations which it believes are
mutually beneficial and it will continue to seek other such opportunities,
including those with quality, not-for-profit providers.

As discussed previously, Triad announced that it entered into a merger
agreement with Quorum. The merger will create the third largest publicly
owned hospital company in the United States, with approximately 50 hospitals
and 9,000 licensed beds, and a leading hospital company focused on small city
and selected urban markets. Because of the complementary geographic fit of
the hospitals of Triad and Quorum, the combined company will have a broader,
more geographically diverse asset base, with facilities in 17 states.

Operations

Triad's general, acute care hospitals typically provide a full range of
services commonly available in hospitals, such as internal medicine, general
surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well
as diagnostic and emergency services. These hospitals also generally provide
outpatient and ancillary health care services such as outpatient surgery,
laboratory, radiology, respiratory therapy, cardiology and physical therapy.
Outpatient services also are provided by ambulatory surgery centers operated by
Triad. In addition, certain of Triad's general, acute care hospitals have a
limited number of licensed psychiatric beds.

Each of Triad's hospitals is governed by a Board of Trustees, which generally
includes members of the hospital's medical staff as well as members of the
community served by the hospital. The Board of Trustees establishes policies
concerning the medical, professional and ethical practices at the hospitals,
monitors such practices, and is responsible for ensuring that these practices
conform to established standards. Triad maintains quality assurance programs to
support and monitor quality of care standards and to meet accreditation and
regulatory requirements. Patient care evaluations and other quality of care
assessment activities are monitored on a continuing basis.

Services and Utilization

Hospital revenues depend upon inpatient occupancy levels, the volume of
outpatient procedures and the charges or negotiated payment rates for such
services. Charges and reimbursement rates for inpatient routine

services vary significantly depending on the type of service, such as
medical/surgical, intensive care or psychiatric, the payer and the geographic
location of the hospital.

Triad believes that important factors relating to the overall utilization of
a hospital include the quality and market position of the hospital and the
number, quality and specialties of physicians providing patient care within the
facility. Generally, Triad believes that the ability of a hospital to meet the
health care needs of its community is determined by its breadth of services,
level of technology, emphasis on quality of care and convenience for patients
and physicians. Other factors which impact utilization include the growth in
local population, local economic conditions, market penetration of managed care
programs and the availability of reimbursement programs such as Medicare and
Medicaid. Utilization across the industry also is being affected by improved
treatment protocols as a result of advances in medical technology and
pharmacology.

The following table sets forth certain operating statistics for hospitals
owned by Triad for each of the past five years. Medical/surgical hospital
operations are subject to certain seasonal fluctuations, including decreases in
patient utilization during holiday periods and increases in patient utilization
during the cold weather months.

Years ended December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------

Number of hospitals at end of period (a)........ 29 30 39 39 39
Number of licensed beds at end of period (b).... 3,533 3,722 5,902 5,859 5,872
Weighted average licensed beds (c).............. 3,633 4,745 5,905 5,860 5,882
Admissions (d).................................. 128,645 145,889 169,590 172,926 171,265
Adjusted admissions (e)......................... 220,590 241,547 276,771 275,125 266,660
Average length of stay (days) (f)............... 4.4 4.5 4.9 4.9 5.0
Average daily census (g)........................ 1,532 1,818 2,263 2,326 2,338
Occupancy rate (h).............................. 49% 55% 44% 44% 46%

(a) Number of hospitals for 2000 and 1999 includes two facilities which are
leased to a third party and two hospitals not consolidated for financial
reporting purposes. This table does not include any operating statistics for
these facilities.
(b) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(c) Represents the average number of licensed beds weighted based on periods
owned.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to Triad's hospitals and is used by management
and certain investors as a general measure of inpatient volume.
(e) Adjusted admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Adjusted
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The adjusted
admissions computation "adjusts" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in Triad's
hospitals. Average length of stay has declined due to the continuing
pressures from managed care and other payers to restrict admissions and
reduce the number of days that are covered by the payers for certain
procedures, and by technological and pharmaceutical improvements.
(g) Represents the average number of patients in Triad's hospital beds each day.
(h) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.

Triad's hospitals have experienced shifts from inpatient to outpatient care
as well as decreases in average lengths of inpatient stay, primarily as a result
of improvements in technology and clinical practices and hospital payment
changes by Medicare, insurance carriers and self-insured employers. These
hospital payment changes generally encourage the utilization of outpatient,
rather than inpatient, services whenever possible, and shortened lengths of stay
for inpatient care. Triad has responded to the outpatient trend by enhancing its
hospitals' outpatient service capabilities, including:

(1) dedicating resources to its freestanding ambulatory surgery centers at
or near certain of its hospital facilities,
(2) reconfiguring certain hospitals to more effectively accommodate
outpatient treatment by, among other things, providing more convenient
registration procedures and separate entrances, and
(3) restructuring existing surgical capacity to allow a greater number and
range of procedures to be performed on an outpatient basis.

Although Triad's inpatient growth exceeded its outpatient growth in 2000,
Triad expects the growth in outpatient services to continue in the future.
Triad's facilities will continue to emphasize those outpatient services that can
be provided on a quality, cost-effective basis and that Triad believes will
experience increased demand.

Sources of Revenue

Triad receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, HMOs, PPOs and other private insurers as well as directly
from patients. The approximate percentages of net patient revenues from
continuing operations of Triad's facilities from such sources during the periods
specified below were as follows:

Years Ended December 31,
-------------------------
2000 1999 1998
----- ----- -----

Medicare..................................................................... 29.6% 31.9% 35.2%
Medicaid..................................................................... 6.4 6.9 6.6
Managed care plans........................................................... 31.0 32.7 27.0
Other sources................................................................ 33.0 28.5 31.2
----- ----- -----
Total........................................................................ 100.0% 100.0% 100.0%
===== ===== =====

Medicare is a federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a federal-state program administered
by the states which provides hospital benefits to qualifying individuals who are
unable to afford care. All of Triad's hospitals are certified as providers of
Medicare and Medicaid services. Amounts received under the Medicare and Medicaid
programs are generally significantly less than the hospital's customary charges
for the services provided. See "Reimbursement".

To attract additional volume, most of Triad's hospitals offer discounts from
established charges to certain large group purchasers of health care services,
including private insurance companies, employers, HMOs, PPOs and other managed
care plans. These discount programs limit Triad's ability to increase charges in
response to increasing costs. See "Competition."

Patients are generally not responsible for any difference between customary
hospital charges and amounts reimbursed for such services under Medicare,
Medicaid, some private insurance plans, HMOs or PPOs, but are responsible for
services not covered by such plans, exclusions, deductibles or co-insurance
features of their coverage. The amount of such exclusions, deductibles and co-
insurance has generally been increasing each year. Collection of amounts due
from individuals is typically more difficult than from governmental or business
payers. For more information on the reimbursement programs on which Triad's
revenues are dependent, see "Reimbursement."

Competition

The competition among hospitals and other health care providers for patients
has intensified in recent years as hospital occupancy rates have declined.
Triad's strategies are designed, and management believes that its hospitals are
positioned, to be competitive under these changing circumstances.

Twelve of the general, acute care hospitals operated by Triad as of December
31, 2000, including one of the hospitals operated through a joint venture, are
located in geographic areas where they are currently the sole provider of
general, acute care hospital services in their communities. While these
hospitals face less direct competition in their immediate service areas than
would be expected in larger communities, they do face competition from other
hospitals, including larger tertiary care centers. Although these competing
hospitals may be as far as 30 to 50 miles away, patients in these markets
increasingly may migrate to these competing facilities as a result of local
physician referrals, managed care incentives or personal choice.

Seventeen of the general, acute care hospitals are located in geographic
areas where they compete with at least one other hospital. Some of these
competing facilities offer services, including extensive medical research and
medical education programs, which are not offered by Triad's facilities. Some
of the hospitals that compete with

Triad are owned or operated by tax-supported governmental bodies or by private
not-for-profit entities supported by endowments and charitable contributions
which can finance capital expenditures on a tax-exempt basis and are exempt from
sales, property and income taxes. In some of these markets, Triad also faces
competition from other providers such as outpatient surgery and diagnostic
centers.

One of the most significant factors in the competitive position of a hospital
is the number and quality of physicians affiliated with the hospital. Although
physicians may at any time terminate their affiliation with a hospital operated
by Triad, Triad's hospitals seek to retain physicians of varied specialties on
the hospitals' medical staffs and to attract other qualified physicians. Triad
believes that physicians refer patients to a hospital primarily on the basis of
the quality of services it renders to patients and physicians, the quality of
other physicians on the medical staff, the location of the hospital and the
quality of the hospital's facilities, equipment and employees. Accordingly,
Triad strives to maintain high ethical and professional standards and quality
facilities, equipment, employees and services for physicians and their patients.

Another major factor in the competitive position of a hospital is
management's ability to negotiate service contracts with purchasers of group
health care services. HMOs and PPOs attempt to direct and control the use of
hospital services through managed care programs and to obtain discounts from
hospitals' established charges. In addition, employers and traditional health
insurers are increasingly interested in containing costs through negotiations
with hospitals for managed care programs and discounts from established charges.
Generally, hospitals compete for service contracts with group health care
service purchasers on the basis of price, market reputation, geographic
location, quality and range of services, quality of the medical staff and
convenience. The importance of obtaining contracts with managed care
organizations varies from market to market depending on the market strength of
such organizations.

State Certificate of Need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, may also
have the effect of restricting competition. Alabama and West Virginia are the
only states where Triad operates that have CON laws affecting acute care
services. The application process for approval of covered services, facilities,
changes in operations and capital expenditures in those states is highly
competitive. In those states which have no CON laws or which set relatively high
thresholds before expenditures become reviewable by state authorities,
competition in the form of new services, facilities and capital spending is more
prevalent. Triad has not experienced, and does not expect to experience, any
material adverse effects from state CON requirements or from the imposition,
elimination or relaxation of such requirements. See "Government Regulation and
Other Factors."

Triad, and the health care industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payers. As both private and government payers
reduce the scope of what may be reimbursed and reduce reimbursement levels for
what is covered, federal and state efforts to reform the health care system may
further impact reimbursement rates. Changes in medical technology, existing and
future legislation, regulations and interpretations and competitive contracting
for provider services by private and government payers may require changes in
Triad's facilities, equipment, personnel, rates and/or services in the future.

The hospital industry and Triad's hospitals continue to have significant
unused capacity. Inpatient utilization, average lengths of stay and average
occupancy rates continue to be negatively affected by payer-required pre-
admission authorization, utilization review and payer pressure to maximize
outpatient and alternative health care delivery services for less acutely ill
patients. Admissions constraints, payer pressures and increased competition are
expected to continue. Triad endeavors to meet these challenges by expanding many
of its facilities to include outpatient centers, offering discounts to private
payer groups, upgrading facilities and equipment and offering new programs and
services.

Employees and Medical Staff

At December 31, 2000, Triad had approximately 15,500 employees, including
approximately 4,200 part-time employees. Employees at one hospital are currently
represented by a labor union. Triad considers its employee relations to be good.
While Triad's non-union hospitals experience union organizational activity from
time to time,

Triad does not expect such efforts to materially affect its future operations.
Triad's hospitals, like most hospitals, have experienced labor costs rising
faster than the general inflation rate, primarily in nursing. There can be no
assurance as to future availability and cost of qualified medical personnel.

Triad's hospitals are staffed by licensed physicians who have been admitted
to the medical staff of individual hospitals. With certain exceptions,
physicians generally are not employees of Triad's hospitals. However, some
physicians provide services in Triad's hospitals under contracts, which
generally describe a term of service, provide and establish the duties and
obligations of such physicians, require the maintenance of certain performance
criteria and fix compensation for such services. Any licensed physician may
apply to be admitted to the medical staff of any of Triad's hospitals, but
admission to the staff must be approved by the hospital's medical staff and the
appropriate governing board of the hospital in accordance with established
credentialing criteria. Members of the medical staffs of Triad's hospitals
located in areas where there are other hospitals often also serve on the medical
staffs of other hospitals and may terminate their affiliation with a hospital at
any time.

Triad's Ethics and Compliance Program

It is Triad's policy that its business be conducted with integrity and in
compliance with the law. Triad has developed a corporate-wide ethics and
compliance program, which focuses on all areas of policy and regulatory
compliance, including physician recruitment, reimbursement and cost reporting
practices and laboratory operations.

This ethics and compliance program is intended to assure that high standards
of conduct are maintained in the operation of Triad's business and to help
assure that policies and procedures are implemented so that employees act in
full compliance with all applicable laws, regulations and company policies.
Under the ethics and compliance program, Triad provides initial and periodic
legal compliance and ethics training to every employee, reviews various areas of
Triad's operations, and develops and implements policies and procedures designed
to foster compliance with the law. Triad regularly monitors its ongoing
compliance efforts. The program also includes a mechanism for employees to
report, without fear of retaliation, any suspected legal or ethical violations
to their supervisors or designated compliance officers in Triad's hospitals, as
well as a national "hotline" to which employees can report, on an anonymous
basis if preferred, any suspected violations.

Reimbursement

Medicare. Under the Medicare program, acute care hospitals receive
reimbursement under a prospective payment system ("PPS") for inpatient hospital
services. Psychiatric, long-term care, rehabilitation, specially designated
children's hospitals and certain designated cancer research hospitals, as well
as psychiatric or rehabilitation units that are distinct parts of a hospital and
meet the Health Care Financing Administration ("HCFA") criteria for exemption,
are currently exempt from PPS and are reimbursed on a cost-based system, subject
to certain cost limits known as TEFRA limits.

Under PPS, fixed payment amounts per inpatient discharge are established
based on the patient's assigned diagnosis related group ("DRG"). DRGs classify
treatments for illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal diagnosis. DRG rates have
been established for each hospital participating in the Medicare program and are
based upon a statistically normal distribution of severity. When treatments for
certain patients fall well outside the normal distribution, providers receive
additional payments. DRG payments do not consider a specific hospital's costs,
but are adjusted for area wage differentials. The majority of capital costs for
acute care facilities are reimbursed on a prospective payment system based on
DRG weights times a federal rate adjusted for a geographic rate.

DRG rates are updated and re-calibrated annually and have been affected by
several recent federal enactments. The index used to adjust the DRG rates, known
as the "market basket index," gives consideration to the inflation experienced
by hospitals and entities outside of the health care industry in purchasing
goods and services. However, for several years the percentage increases to the
DRG rates have been lower than the percentage increases in the costs of goods
and services purchased by hospitals. This was, in part, the result of previous
legislation enacted by Congress such as the Balanced Budget Act, which was
enacted August 5, 1997. The Benefits Improvement Protection Act of 2000 ("BIPA")
has updated the rates hospitals receive so that hospitals generally will receive
the

full market basket index for federal fiscal year 2001 market basket index minus
1.1% for discharges occurring on or after October 1, 2000 and before March 31,
2001 and plus 1.1% for discharges occurring on or after April 1, 2001 and before
October 1, 2001. Triad currently estimates an additional $3.0 to $5.0 million of
reimbursement will result from BIPA. The DRG rates are adjusted each federal
fiscal year, which begins on October 1. The historical DRG rate increases were
1.5%, 2.0%, 0.5%, 1.1% and 3.4% for federal fiscal years 1996, 1997, 1999, 2000
and 2001, respectively. For federal fiscal year 1998, there was no increase. The
budgeted updates for federal fiscal years 2002 and 2003 are market basket index
minus 0.55%. For Federal fiscal year 2004, hospitals generally will receive the
full market basket index. Future legislation may decrease the future rate of
increase for DRG payments, but we are not able to predict the amount of the
reduction.

Outpatient services provided at general, acute care hospitals typically are
reimbursed by Medicare at the lower of customary charges or approximately 82% of
actual cost, subject to additional limits on the reimbursement of certain
outpatient services. The Balanced Budget Act contains provisions that affect
outpatient hospital services, including a requirement that HCFA adopt a PPS for
outpatient hospital services to begin January 1, 1999. However, implementation
of PPS was delayed because of Year 2000 systems concerns, until August 1, 2000.
Outpatient PPS reimbursement rates were based on the rates that would have been
in effect on January 1, 1999, updated by the rate of increase in the hospital
market basket minus one percentage point. The effect of the new payment system
reduced current outpatient reimbursement by approximately $0.8 million in 2000.
Triad currently estimates that the reductions will be $2.0 million annually. The
fiscal intermediaries have had some difficulties processing payments timely and
accurately under outpatient PPS. HCFA identified certain information system
issues relating to the processing of payments for outpatient PPS claims. Based
on provisions of BIPA, the fee schedule is to be updated by the market basket
minus 0.8% and 1.0% for federal fiscal years 2001 and 2002, respectively, and
market basket for federal fiscal years 2003 and beyond. Similarly, effective
January 1, 1999, therapy services rendered by hospitals to outpatients and
inpatients not reimbursed under Medicare are reimbursed according to the
Medicare physician fee schedule.

The Balanced Budget Act mandates a prospective payment system for skilled
nursing facility services for Medicare cost reporting periods commencing after
June 30, 1998, hospital outpatient services beginning January 1, 1999, home
health services for Medicare cost reporting periods beginning after September
30, 1999, and inpatient rehabilitation hospital services for Medicare cost
reporting periods beginning after April 1, 2001. Prior to the commencement of
the prospective payment systems, payment constraints will be applied to PPS-
exempt hospitals and units for Medicare cost reporting periods beginning on or
after October 1, 1997. For the year ended December 31, 2000, Triad had 48 units
and one hospital that were reimbursed under this methodology.

Payments to PPS-exempt hospitals and units, such as inpatient psychiatric,
rehabilitation and long-term hospital services, are based upon reasonable cost,
subject to a cost per discharge target. These limits are updated annually by a
market basket index. For federal fiscal year 1996, 1997, 1999, 2000 and 2001,
the market basket index rate of increase was 3.4%, 2.5%, 2.5%, 2.9% and 3.4%,
respectively. For federal fiscal year 1998, there was no increase. The update
for cost reporting periods from October 1, 1999 to September 30, 2000 is the
market basket index less a percentage point between 0% and 2.4% depending on the
hospital's or unit's costs in relation to the ceiling. Furthermore, limits have
been established for the cost per discharge target at the 75th percentile for
each category of PPS-exempt hospitals and hospital units, such as psychiatric,
rehabilitation and long-term hospitals. For federal fiscal year 1999, these
limits were $10,787, $19,562 and $38,593 per discharge, respectively. For
federal fiscal year 2000, these limits are $11,100, $20,129 and $36,712 per
discharge, respectively. In addition, the cost per discharge for new
hospitals/hospital units cannot exceed 110% of the national median target rate
for hospitals in the same category. For federal fiscal year 1999, these amounts
were $8,686, $17,077 and $22,000 per discharge for psychiatric, rehabilitation
and long-term hospital services, respectively. For federal fiscal year 2000,
these amounts are $8,938, $17,573 and $22,649 per discharge, respectively.

Payments for Medicare skilled nursing facility services and home health
services historically have been paid based on costs, subject to certain
adjustments and limits. Although BBA mandates a PPS system for skilled nursing
facility services, home health services, and inpatient rehabilitation hospital
services, BIPA has made adjustments to the PPS payments for these health care
service providers. Specifically, for skilled nursing facilities, BBA set the
annual inflation update at the market basket index minus 1.0 percent for 2001
and 2002. However, BIPA adjusts

the update to the full market basket index in 2001 and the market basket index
minus 0.5 percent in 2002 and 2003. In addition to the creation of a PPS system
for skilled nursing, the BBA also institutes consolidated billing for skilled
nursing facility services, under which payments for most non-physician services
for beneficiaries no longer eligible for skilled nursing facility care will be
made to the facility, regardless of whether the item or service was furnished by
the facility, by others under arrangement, or under any other contracting or
consulting arrangement. Consolidation billing is being implemented on a
transition basis. As of December 31, 2000, 18 of Triad's hospitals operated
skilled nursing facilities.

Currently, physicians are paid by Medicare according to the physician fee
schedule. However, physicians working in rural health clinics, such as those
maintained by Triad, are reimbursed for their professional and administrative
services through the rural health clinic subject to per visit limits unless the
rural health clinic is based at a rural hospital with less than 50 beds. There
are 20 rural health clinics affiliated with Triad hospitals.

Medicare has special payment provisions for "sole community hospitals." A
sole community hospital is generally the only hospital in at least a 35-mile
radius. Eight of Triad's facilities qualify as sole community hospitals under
Medicare regulations. Special payment provisions related to sole community
hospitals include a higher reimbursement rate, which is based on a blend of
hospital-specific costs and the national reimbursement rate, and a 90% payment
"floor" for capital costs which guarantees the sole community hospital capital
reimbursement equal to 90% of capital cost. In addition, the TRICARE program has
special payment provisions for hospitals recognized as sole community hospitals
for Medicare purposes.

On November 19, 1999, Congress passed the Balanced Budget Refinement Act of
1999 (the "Refinement Act") to reduce certain of the perceived adverse effects
of the Balanced Budget Act on various health care providers. Among other things,
the Refinement Act did reduce certain outpatient PPS reimbursement reductions
proposed by the HCFA as a part of its implementation of a PPS for outpatient
hospital services by attempting to limit certain losses sustained through the
implementation of such system during the first three years of implementation.
The Refinement Act also provided certain reimbursement increases for certain
skilled nursing facilities, in part by allowing such facilities the option of
choosing to be reimbursed at the new federal PPS rate for certain cost reporting
periods beginning after December 15, 1999, as opposed to the three-year phase-in
described above. Triad received approximately $1.0 million in additional
reimbursement from the Refinement Act in 2000 and estimates total annual effect
to be approximately $2.0 million to $3.0 million in additional reimbursement in
the future.

Medicaid. Most state Medicaid payments are made under a PPS or under programs
which negotiate payment levels with individual hospitals. Medicaid reimbursement
is often less than a hospital's cost of services. Medicaid is currently funded
jointly by the state and the federal governments. The federal government and
many states are currently considering significant reductions in the level of
Medicaid funding while at the same time expanding Medicaid benefits, which could
adversely affect future levels of Medicaid reimbursement received by the
hospitals of Triad.

On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991, which limit the amount of
voluntary contributions and provider-specific taxes that can be used by states
to fund Medicaid and require the use of broad-based taxes for such funding. As a
result of enactment of these amendments, certain states in which Triad operates
have adopted broad-based provider taxes to fund their Medicaid programs. The
impact of these new taxes upon Triad has not been materially adverse. However,
Triad cannot predict whether any additional broad-based provider taxes will be
adopted by the states in which it operates and, accordingly, it is not able to
assess the effect of such additional taxes on its results of operations or
financial position.

Annual Cost Reports. All hospitals participating in the Medicare program,
whether paid on a reasonable cost basis or under PPS, are required to meet
certain financial reporting requirements. Federal regulations require submission
of annual cost reports covering medical costs and expenses associated with the
services provided by each hospital to Medicare beneficiaries. Review of
previously submitted annual cost reports and the cost report preparation process
are areas included in ongoing government investigations of HCA. The
investigations,

actions and claims affecting HCA relate to HCA and its subsidiaries, including
subsidiaries that, prior to the spin-off of Triad from HCA, owned facilities now
owned by Triad. It is too early to predict the outcome of these investigations,
but if Triad, or any of its facilities, were found to be in violation of federal
or state laws relating to Medicare, Medicaid or similar programs, they could be
subject to substantial monetary fines, civil and criminal penalties and
exclusion from participation in the Medicare and Medicaid programs. Any such
sanctions could have a material adverse effect on the financial position and
results of operations of Triad. HCA has agreed to indemnify Triad in respect of
losses arising from such government investigations. See "Government Regulation
and Other Factors--Governmental Investigation of HCA and Related Litigation" for
more information regarding such arrangement.

Annual cost reports required under the Medicare and Medicaid programs are
subject to routine audits, which may result in adjustments to the amounts
ultimately determined to be due to Triad under these reimbursement programs.
These audits often require several years to reach the final determination of
amounts earned under the programs. Providers also have rights of appeal, and it
is common to contest issues raised in audits of prior years' reports. Pursuant
to the terms of the distribution agreement, Triad will be responsible for the
Medicare, Medicaid and Blue Cross cost reports, and associated receivables and
payables, for its facilities for all periods ending after the distribution date.
HCA has agreed to indemnify Triad for any payments which it is required to make
with respect to the Medicare, Medicaid and Blue Cross cost reports for the
facilities distributed to it by HCA relating to periods ending on or prior to
the distribution date and Triad agreed to indemnify HCA for and pay to HCA any
payments received by it relating to such cost reports under periods ending on or
prior to the distribution date.

Managed Care. Pressures to control the cost of health care have resulted in a
7% increase in admissions attributable to managed care payers. The percentage of
Triad's net revenues attributable to managed care payers were 32.7% for the year
ended December 31, 1999 and 31.0% for the year ended December 31, 2000,
respectively. Triad expects that the trend toward increasing volumes related to
managed care payers will continue in the future. Triad generally receives lower
payments from managed care payers than from traditional commercial/indemnity
insurers; however, as part of its business strategy, Triad intends to take steps
to improve its managed care position. See "Business Strategy" for a more
detailed discussion of such strategy.

Commercial Insurance. Triad hospitals provide services to some individuals
covered by private health care insurance. Private insurance carriers make direct
payments to such hospitals or, in some cases, reimburse their policy holders,
based upon the particular hospital's established charges and the particular
coverage provided in the insurance policy.

Commercial insurers are continuing efforts to limit the payments for hospital
services by adopting discounted payment mechanisms, including prospective
payment or DRG based payment systems, for more inpatient and outpatient
services. To the extent that such efforts are successful and reduce the
insurers' reimbursement to hospitals and the costs of providing services to
their beneficiaries, such reduced levels of reimbursement may have a negative
impact on the operating results of the hospitals of Triad.

Government Regulation and Other Factors

Licensure, Certification and Accreditation. Health care facility construction
and operation is subject to federal, state and local regulations relating to the
adequacy of medical care, equipment, personnel, operating policies and
procedures, fire prevention, rate-setting and compliance with building codes and
environmental protection laws. Facilities are subject to periodic inspection by
governmental and other authorities to assure continued compliance with the
various standards necessary for licensing and accreditation. All of the health
care facilities of Triad are properly licensed under appropriate state laws. All
of the hospitals affiliated with Triad are certified under the Medicare and
Medicaid programs and all are accredited by the Joint Commission on
Accreditation of Healthcare Organizations, the effect of which is to permit the
facilities to participate in the Medicare and Medicaid programs. Certain of
Triad's psychiatric facilities do not participate in these programs. Should any
facility lose its accreditation by this Joint Commission, or otherwise lose its
certification under the Medicare program, the facility would be unable to
receive reimbursement from the Medicare and Medicaid programs. The facilities of
Triad are in substantial compliance with current applicable federal, state,
local and

independent review body regulations and standards. The requirements for
licensure, certification and accreditation are subject to change and, in order
to remain qualified, it may be necessary for Triad to effect changes in their
facilities, equipment, personnel and services.

Certificates of Need. The construction of new facilities, the acquisition of
existing facilities, and the addition of new beds or services may be subject to
review by state regulatory agencies under a CON program. Triad operates two
hospitals in states (Alabama and West Virginia) that require CON approval to
expand acute care hospital services. Such laws generally require appropriate
state agency determination of public need and approval prior to the addition of
beds or services or certain other capital expenditures. Failure to obtain
necessary state approval can result in the inability to expand facilities, add
services, complete an acquisition or change ownership. Further, violation of
such laws may result in the imposition of civil sanctions or the revocation of a
facility's license.

State Rate Review. The state of Arizona adopted legislation mandating rate or
budget review for hospitals. In the aggregate, state rate or budget review and
indigent tax provisions have not materially adversely affected the results of
operations of Triad. Triad is not able to predict whether any additional state
rate or budget review or indigent tax provisions will be adopted and,
accordingly, is not able to assess the effect thereof on its results of
operations or financial condition.

Utilization Review. Federal law contains numerous provisions designed to
ensure that services rendered by hospitals to Medicare and Medicaid patients
meet professionally recognized standards, are medically necessary and that
claims for reimbursement are properly filed. These provisions include a
requirement that a sampling of admissions of Medicare and Medicaid patients must
be reviewed by peer review organizations, which review the appropriateness of
Medicare and Medicaid patient admissions and discharges, the quality of care
provided, the validity of DRG classifications and the appropriateness of cases
of extraordinary length of stay or cost. Peer review organizations may deny
payment for services provided, may assess fines and also have the authority to
recommend to the Department of Health and Human Services ("HHS") that a provider
which is in substantial noncompliance with the standards of the peer review
organization be excluded from participation in the Medicare program. Utilization
review is also a requirement of most non-governmental managed care
organizations.

Medicare Regulations and Fraud and Abuse. Participation in the Medicare
program is heavily regulated by federal statute and regulation. If a hospital
provider fails substantially to comply with the numerous conditions of
participation in the Medicare program or performs certain prohibited acts, such
hospital's participation in the Medicare program may be terminated or civil or
criminal penalties may be imposed upon it under certain provisions of the Social
Security Act. Prohibited acts include:

. making false claims to Medicare, including claims for services not rendered,
misrepresenting actual services rendered in order to obtain higher
reimbursement or cost report fraud;

. making claims for items or services that are not "medically necessary";

. routinely waiving co-payments or deductibles to induce patients to order
items or services from a specific provider;

. contracting with individuals that a provider knows or should know have been
excluded from participation in a federal healthcare program;

. offering, paying or receiving any remuneration (including kickbacks, bribes
or rebates) in return for referrals or purchasing items or services
reimbursable under a federal health program;

. failing to assess and stabilize any individual who comes to a hospital's
emergency room with an "emergency medical condition," within the scope of
services available by the facility; and

. transferring any stabilized patient to another health care facility before
the other facility has agreed to the transfer of the patient, if the other
facility does not have sufficient room and staff to treat the patient,
without the patient's emergency department medical records, or without
appropriate life support equipment.

The provisions of the Anti-Kickback Statute prohibit providers and others
from soliciting, receiving, offering or paying, directly or indirectly, any
remuneration in return for either making a referral for a service or item
covered by a federal healthcare program or ordering any covered service or item.
Violations of this statute may be punished by a fine of up to $50,000 or
imprisonment for each violation and damages up to three times the total amount
of remuneration. In addition, the Medicare Patient and Program Protection Act of
1987, as amended by the Health Insurance Portability and Accountability Act of
1996 ("HIPAA") and the Balanced Budget Act (as so amended, the "Protection Act")
imposes penalties for a violation of these prohibitions, including exclusion
from participation in federal healthcare programs such as Medicare and Medicaid.

HHS has issued regulations which describe some of the conduct and business
relationships immune from prosecution under the Anti-Kickback Statute. The fact
that a given business arrangement does not fall within one of these "safe
harbor" provisions does not render the arrangement illegal. However, business
arrangements of health care service providers that fail to satisfy the
applicable safe harbor criteria risk increased scrutiny by enforcement
authorities.

Triad has a variety of financial relationships with physicians who refer
patients to its hospitals. Triad has contracts with physicians providing
services under a variety of financial arrangements such as employment contracts,
leases, and professional service agreements. Triad also provides financial
incentives, including loans and minimum revenue guarantees, to recruit
physicians into the communities served by their hospitals. Several of the
freestanding surgery centers affiliated with Triad have physician investors.
Some of Triad's arrangements with physicians do not expressly meet requirements
for safe harbor protection. It cannot be assured that regulatory authorities
that enforce the Anti-Kickback Statute will not determine that any of these
arrangements violate the Anti-Kickback Statute or other federal or state laws. A
determination that the anti-kickback laws or other federal laws were violated
could subject Triad to liability under the Social Security Act, including:

. criminal penalties;

. civil sanctions, including civil monetary penalties; and

. exclusion from participation in government programs such as Medicare and
Medicaid or other federal health care programs.

HIPAA, which became effective on January 1, 1997, amends, among other things,
Title XI (42 U.S.C. (S) 1301 et seq.) to broaden the scope of certain fraud and
abuse laws to include all health care services, whether or not they are
reimbursed under a federal program, and creates new enforcement mechanisms to
combat fraud and abuse, including an incentive program under which individuals
can receive up to $1,000 for providing information on Medicare fraud and abuse
that leads to the recovery of at least $100 of Medicare funds. Under HIPAA,
health care fraud, now defined as knowingly and willfully executing or
attempting to execute a "scheme or device" to defraud any health care benefit
program, is made a federal criminal offense. In addition, for the first time,
federal enforcement officials will have the ability to exclude from Medicare and
Medicaid any investors, officers and managing employees associated with business
entities that have committed health care fraud, even if the investor, officer or
employee had no knowledge of the fraud. HIPAA also establishes a new violation
for the payment of inducements to Medicare or Medicaid beneficiaries in order to
influence those beneficiaries to order or receive services from a particular
provider or practitioner. The Balanced Budget Act also allows civil monetary
penalties to be imposed on a provider contracting with individuals or entities
that the provider knows or should know is excluded from a federal healthcare
program.

The Office of the Inspector General ("OIG") at HHS is responsible for
identifying and eliminating fraud, abuse and waste in HHS programs and for
promoting efficiency and economy in HHS departmental operations. The OIG carries
out this mission through a nationwide program of audits, investigations and
inspections. In order to

provide guidance to health care providers, the OIG has from time to time issued
"fraud alerts" which, although they do not have the force of law, identify
features of transactions, which may indicate that the transaction could violate
the Anti-Kickback Statute or other federal healthcare laws. The OIG has
identified the following incentive arrangements as potential violations:

. "gainsharing" or the practice of giving physicians a percentage share of any
reduction in the hospital's costs for patient care attributable in part to
the physician's efforts;

. payment of any sort of incentive by the hospital each time a physician refers
a patient to the hospital;

. the use of free or significantly discounted office space or equipment (in
facilities usually located close to the hospital);

. provision of free or significantly discounted billing, nursing or other staff
services;

. free training for a physician's office staff in areas such as management
techniques and laboratory techniques;

. guarantees which provide that, if the physician's income fails to reach a
predetermined level, the hospital will supplement the remainder up to a
certain amount;

. low-interest or interest-free loans, or loans which may be forgiven if a
physician refers patients (or some number of patients) to the hospital;

. payment of the costs of a physician's travel and expenses for conferences;

. coverage on the hospital's group health insurance plans at an inappropriately
low cost to the physician;

. payment for services (which may include consultations at the hospital) which
require few, if any, substantive duties by the physician, or payment for
services in excess of the fair market value of services rendered; or

. the payments of excessive rents to, or the other leasing of unnecessary
premises from, a physician.

The OIG has encouraged persons having information about hospitals who offer
the above types of incentives to physicians to report such information to the
OIG.

Section 1877 of the Social Security Act, commonly known as the "Stark Law",
prohibits referrals of Medicare and Medicaid patients by physicians to entities
with which the physician has a financial relationship and which provide certain
"designated health services" which are reimbursable by Medicare or Medicaid.
"Designated health services" include, among other things, clinical laboratory
services, physical and occupational therapy services, radiology services,
durable medical equipment, home health services, and inpatient and outpatient
hospital services. Sanctions for violating the Stark Law include civil money
penalties up to $15,000 per prohibited service provided, assessments equal to
twice the dollar value of each such service provided and exclusion from the
Medicare and Medicaid programs. There are a number of exceptions to the self-
referral prohibition, including an exception if the physician has an ownership
interest in the entire hospital. In addition, a physician may have an ownership
interest in and refer patients to an entity providing designated health services
if the entity is located in a rural area. The requirements of the "rural
provider" exception are:

(1) the provider is located in an area that is not considered a metropolitan
statistical area, and
(2) at least 75 percent of the patients served by the facility reside in a
rural area.

Proposed regulations implementing the Stark Law, as amended, have not been
implemented. Triad cannot predict the final form that such regulations will take
or the effect that the Stark Law or the regulations promulgated thereunder will
have on Triad.

Triad provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. Although HHS has recently issued a safe harbor for certain physician
recruitment, such safe harbor may not apply to certain physician recruitment
undertaken by Triad. Additionally, physicians who are in a position to generate
referrals hold investment interests in several of Triad's surgery centers. The
ownership structure of some of these facilities may not be protected by a safe
harbor. Triad also enters into certain independent contractor agreements,
employment agreements, leases and other agreements with physicians. On January
4, 2001, HCFA issued final regulations subject to comment intended to clarify
parts of the Stark Law and some of the exceptions to it. These regulations are
considered Phase I of a two-phase process, with the remaining regulations to be
published at an unknown future date. Phase I of the regulations become effective
January 4, 2002, or in the case of some of the provisions relating to home
health agencies became effective February 5, 2001. HCFA is accepting comments on
Phase I of the regulations until April 4, 2001, which may lead to further
changes. Upon taking office, the Bush Administration temporarily postponed the
effective date of regulations that had been published at the end of the Clinton
Administration but which had not become effective. This action might affect
these regulations. Some of Triad's arrangements with physicians do not expressly
meet the requirements for safe harbor protection. There can be no assurance that
regulatory authorities who enforce such laws will not determine that such
activities or other physician arrangements violate the Anti-Kickback Statute or
other applicable laws. Such a determination could subject Triad to liabilities
under the Social Security Act, including criminal penalties, civil monetary
penalties and/or exclusion from participation in Medicare, Medicaid or other
federal health care programs, any of which could have a material adverse effect
on the business, financial condition or results of operations of Triad. Such a
determination could also cause Triad's business reputation to suffer
significantly.

Evolving interpretations of current, or the adoption of new, federal or state
laws or regulations could affect many of the arrangements entered into by
Triad's hospitals. There is increasing scrutiny by law enforcement authorities,
HHS, OIG, the courts and Congress of arrangements between health care providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.

The Social Security Act also imposes criminal and civil penalties for
submitting false claims to Medicare and Medicaid. False claims include, but are
not limited to, billing for services not rendered, misrepresenting actual
services rendered in order to obtain higher reimbursement, billing for services
not "medically necessary" and cost report fraud. Like the Anti-Kickback Statute,
these statutory provisions are very broad. Careful and accurate coding and
documentation of claims for reimbursement, including cost reports, must be
performed to avoid liability under the false claims statutes.

The Administrative Simplification Provisions of HIPAA require the use of
uniform electronic data transmission standards for healthcare claims and payment
transactions submitted or received electronically. On August 7, 2000, HCFA
published final regulations establishing electronic data transmission standards
that all healthcare providers must use when submitting or receiving certain
healthcare transactions electronically. Compliance with these regulations is
required by October 2002. Currently, Triad cannot predict the impact on the
financial condition or results of operations due to compliance with these
regulations.

HIPAA also requires HCFA to adopt standards to protect the security and
privacy of health-related information. Regulations were proposed on August 12,
1998, but have not yet been finalized. As proposed, the regulations would
require healthcare providers to implement organizational and technical practices
to protect the security of electronically maintained or transmitted health-
related information. In addition, HCFA released final regulations containing
privacy standards in December 2000 which require compliance by February 2003.
These privacy regulations could be further amended or delayed. Upon taking
office, the Bush Administration temporarily postponed the effective date of
regulations that had been published at the end of the Clinton Administration but
which had not become effective, which may affect these regulations. However, if
they become effective as currently drafted, the privacy regulations will
extensively regulate the use and disclosure of individually identifiable health-
related information. The security regulations, as proposed, and the privacy
regulations, if they become

effective, could impose significant costs on Triad in order to comply with these
standards. Violations of the Administration Simplification Provisions could
result in civil penalties of up to $25,000 per type of violation in each
calendar year and criminal penalties of up to $250,000 per violation.

Many of the states in which Triad operates also have adopted, or are
considering adopting, laws that prohibit payments to physicians in exchange for
referrals similar to the Anti-Kickback Statute, some of which apply regardless
of the source of payment for care. These statutes typically provide criminal and
civil penalties as well as loss of licensure. Many states also have passed self-
referral legislation similar to the Stark Law, prohibiting the referral of
patients to entities with which the physician has a financial relationship
regardless of the source of payment for care. Little precedent exists for the
interpretation or enforcement of these state laws.

Corporate Practice of Medicine. Some of the states in which Triad operates
have laws that prohibit corporations and other entities from employing
physicians or that prohibit certain direct and indirect payments or fee-
splitting arrangements between health care providers. In addition, some states
restrict certain business relationships between physicians and pharmacies.
Possible sanctions for violation of these restrictions include loss of a
physician's license and civil and criminal penalties. These statutes vary from
state to state, are often vague and have seldom been interpreted by the courts
or regulatory agencies. Although Triad exercises care to structure its
arrangements with health care providers to comply with the relevant state law,
and believes such arrangements comply with applicable laws in all material
respects, there can be no assurance that governmental officials charged with
responsibility for enforcing these laws will not assert that Triad, or certain
transactions in which it is involved, is in violation of such laws, or that such
laws ultimately will be interpreted by the courts in a manner consistent with
the interpretations of Triad.

Health Care Reform. Health care, as one of the largest industries in the
United States, continues to attract much legislative interest and public
attention. In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state legislatures that
would effect major changes in the health care system, either nationally or at
the state level. Proposals that have been considered include cost controls on
hospitals, insurance market reforms to increase the availability of group health
insurance to small businesses, patients' bills of rights and requirements that
all businesses offer health insurance coverage to their employees. The costs of
certain proposals would be funded in significant part by reductions in payments
by governmental programs, including Medicare and Medicaid, to health care
providers such as hospitals. There can be no assurance that future health care
legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on the
business, financial condition or results of operations of Triad.

Conversion Legislation. Many states have enacted or are considering enacting
laws affecting sales, leases or other transactions in which control of not-for-
profit hospitals is acquired by for-profit corporations. These laws, in general,
include provisions relating to state attorney general approval, advance
notification and community involvement. In addition, state attorneys general in
states without specific legislation governing these transactions may exercise
authority based upon charitable trust and other existing law. The increased
legal and regulatory review of these transactions involving the change of
control of not-for-profit entities may increase the costs required, or limit
Triad's ability, to acquire not-for-profit hospitals.

Revenue Ruling 98-15. During March 1998, the IRS issued guidance regarding
the tax consequences of joint ventures between for-profit and not-for-profit
hospitals. Triad has not determined the impact of the tax ruling on the
development of future ventures. The tax ruling could limit joint venture
development with not-for-profit hospitals, and could influence the exercise of
"put agreements"--agreements that require the purchase of the partner's interest
in the joint venture--by Triad's existing joint venture partner.

Environmental Matters. Triad is subject to various federal, state and local
statutes and ordinances regulating the discharge of materials into the
environment. Triad does not expect that it will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.

Insurance. As is typical in the health care industry, Triad is subject to
claims and legal actions by patients in the ordinary course of business. To
cover these claims, Triad maintains professional malpractice liability insurance
and general liability insurance in amounts which it believes to be sufficient
for its operations, although some claims may exceed the scope of the coverage in
effect. Triad also maintains umbrella coverage. At various times in the past,
the cost of malpractice and other liability insurance has risen significantly.
Therefore, there can be no assurance that such insurance will continue to be
available at reasonable prices which will allow Triad to maintain adequate
levels of coverage. Substantially all losses in periods prior to the
distribution are insured through a wholly-owned insurance subsidiary of HCA and
excess loss policies maintained by HCA. HCA has agreed to indemnify Triad in
respect of claims covered by such insurance policies and workers compensation
claims arising prior to the distribution. From the distribution until December
31, 1999, Triad had first dollar insurance coverage on a claims incurred basis
from HCA's wholly owned insurance subsidiary. Beginning January 1, 2000, Triad
changed its general and professional liability insurance coverage to a self-
insured plan, with excess loss policies.

No reserves were recorded at December 31, 1999 because substantially all
liability for general and professional liability claims incurred prior to that
date was insured through a wholly-owned insurance subsidiary of HCA. Triad has a
reserve for general and professional liability risks of $9.5 million at December
31, 2000. Any losses incurred in excess of amounts maintained under such
insurance will be funded from working capital. There can be no assurance that
the cash flow of Triad will be adequate to provide for professional and general
liability claims in the future. See "NOTE 2 - ACCOUNTING POLICIES -General and
Professional Liability Risks" in the consolidated financial statements for a
more detailed discussion of such arrangements.

Governmental Investigation of HCA and Related Litigation. HCA is currently
the subject of several Federal investigations into certain of its business
practices, as well as governmental investigations by various states. HCA is
cooperating in these investigations and understands, through written notice and
other means, that it is a target in these investigations. Given the breadth of
the ongoing investigations, HCA expects additional subpoenas and other
investigative and prosecutorial activity to occur in these and other
jurisdictions in the future. HCA is the subject of a formal order of
investigation by the SEC. HCA understands that the SEC's investigation includes
the anti-fraud, insider trading, periodic reporting and internal accounting
control provisions of the Federal securities laws.

HCA is a defendant in several qui tam actions, or actions brought by private
parties, known as relators, on behalf of the United States of America, which
have been unsealed and served on HCA. The actions allege, in general, that HCA
and certain subsidiaries and/or affiliated partnerships violated the False
Claims Act, 31 U.S.C. (S) 3729 et seq., by submitting improper claims to the
government for reimbursement. The lawsuits seek three times the amount of
damages caused to the United States by the submission of any Medicare or
Medicaid false claims presented by the defendants to the Federal government,
civil penalties of not less than $5,000 nor more than $10,000 for each such
Medicare or Medicaid claim, attorneys' fees and costs. HCA has disclosed that,
to its knowledge, the government has elected to intervene in, or join, six qui
tam actions in which HCA is a defendant. HCA has also disclosed that it is aware
of additional qui tam actions that remain under seal and believes that there may
be other sealed qui tam cases of which it is unaware.

The investigations, actions and claims affecting HCA relate to HCA and its
subsidiaries, including subsidiaries that, prior to the distribution, owned
facilities now owned by Triad. On May 5, 2000, Triad was advised that one of the
qui tam cases which had recently been unsealed listed three of Triad's hospitals
as defendants. This qui tam action alleges various violations arising out of the
relationship between Curative Health Services and the other defendants,
including allegations of false claims relating to contracts with Curative Health
Services for the management of certain wound care centers and excessive and
unreasonable management fees paid to Curative Health Services and submitted for
reimbursement. Two of the three Triad hospitals named as defendants terminated
their relationship with Curative Health Services prior to the distribution and
the third hospital continues to maintain an ongoing relationship with Curative
Health Services. Additionally, in early 2001 approximately thirteen of Triad's
current and former hospitals received Notices of Reopening for cost reporting
periods between 1993 and 1998, which are prior to the distribution. These
notices indicate that reviews of the applicable cost reports will be conducted
at HCFA's direction.

In July 1999, Olsten Corporation and its subsidiary, Kimberly Home
Health(neither of which is affiliated with HCA), announced that they would pay
$61 million to settle allegations that both companies defrauded the Medicare
program. Kimberly pled guilty to three separate felony charges (conspiracy, mail
fraud and violating the Medicare Anti-Kickback statute) filed by the U.S.
Attorneys in the Middle and Southern Districts of Florida and the Northern
District of Georgia. While HCA was not specifically named in these guilty pleas,
the guilty pleas refer to the involvement of a "Company A" or a "company not
named as a defendant." HCA has disclosed that it believes these references refer
to HCA or its subsidiaries.

HCA is a defendant in a number of other suits, which allege, in general,
improper and fraudulent billing, overcharging, coding and physician referrals,
as well as other violations of law. Certain of the suits have been conditionally
certified as class actions. Since April 1997, numerous securities class action
and derivative lawsuits have been filed in the United States District Court for
the Middle District of Tennessee against HCA and a number of its current and
former directors, officers and/or employees. Several derivative actions have
been filed in state court by certain purported stockholders of HCA against
certain of its current and former officers and directors alleging breach of
fiduciary duty, and failure to take reasonable steps to ensure that HCA did not
engage in illegal practices thereby exposing it to significant damages.

On May 18, 2000, HCA announced that it had reached an understanding with
attorneys of the Civil Division of the Department of Justice to recommend an
agreement to settle, subject to certain conditions, the civil claims actions
against HCA relating to diagnosis related group coding, outpatient laboratory
billing and home health issues. The understanding with the Department of Justice
attorneys would require HCA to pay $745 million in compensation to the
government, with interest accruing at a fixed rate of 6.5% per annum (beginning
May 18, 2000), and would reduce HCA's existing letter of credit agreement with
the government from $1 billion to $250 million at the time of the payment of the
settlement. On December 14, 2000, HCA announced that it had entered into a
settlement agreement with the Civil Division of the Department of Justice and
that payment of the amounts required by the settlement agreement would be made
upon court approval of the settlement, which HCA expects will occur in the first
quarter of 2001. HCA also entered into a corporate integrity agreement with the
OIG. HCA is in continuing discussions with the government regarding civil issues
relating to cost reporting and physician relations.

On December 14, 2000, HCA also announced that it had signed an agreement with
the Criminal Division of the Department of Justice to resolve all pending
Federal criminal actions against HCA relating to health care billing issues. As
part of the criminal agreement, HCA paid the government $95 million and will
enter certain pleas in respect of the criminal actions. The criminal agreement
is conditional upon entry of the pleas in Federal district court and necessary
court approvals, which HCA expects will occur in the first quarter of 2001. HCA
also stated that representatives of state attorneys general have agreed to
recommend to state officials that HCA be released from corresponding criminal
liability in all states in which it conducts business.

The agreements announced on December 14, 2000 relate only to conduct that was
the subject of the Federal investigations resolved in the agreements, and HCA
has stated publicly that it continues to discuss civil claims relating to cost
reporting and physician relations with the government. These agreements with the
government do not resolve various qui tam actions filed by private parties
against HCA, or any pending state actions. In addition to other claims not
covered by these agreements, the government also reserved its rights under these
agreements to pursue any claims it may have for:

. any civil, criminal or administrative liability under the Internal Revenue
Code;

. any other criminal liability;

. any administrative liability, including mandatory exclusion from Federal
health care programs;

. any liability to the United States (or its agencies) for any conduct other
than the conduct covered in the government's investigation;

. any express or implied warranty claims or other claims for defective or
deficient products or services, including quality of goods and services,
provided by HCA;

. any claims for personal injury or property damage or for other similar
consequential damages arising from the conduct subject to the
investigation; and

. any civil or administrative claims of the United States against
individuals.

Triad is unable to predict the effect or outcome of any of the ongoing
investigations or qui tam and other actions, or whether any additional
investigations or litigation will be commenced. In connection with the
distribution, Triad entered into a distribution agreement with HCA. The terms
of the distribution agreement provide that HCA will indemnify Triad for any
losses (other than consequential damages) which it may incur as a result of
proceedings described above. HCA has also agreed to indemnify Triad for any
losses (other than consequential damages) which it may incur as a result of
proceedings which may be commenced by government authorities or by private
parties in the future that arise from acts, practices or omissions engaged in
prior to the date of the distribution and that relate to the proceedings
described above. HCA has also agreed that, in the event that any hospital owned
by Triad at the time of the distribution is permanently excluded from
participation in the Medicare and Medicaid programs as a result of the
proceedings described above, then HCA will make a cash payment to Triad, in an
amount (if positive) equal to five times the excluded hospital's 1998 income
from continuing operations before depreciation and amortization, interest
expense, management fees, impairment of long-lived assets, minority interests
and income taxes, as set forth on a schedule to the distribution agreement, less
the net proceeds of the sale or other disposition of the excluded hospital.
Triad has agreed that, in connection with the government investigations
described above, it will participate with HCA in negotiating one or more
compliance agreements setting forth each of HCA's and Triad's agreements to
comply with applicable laws and regulations.

HCA will not indemnify Triad under the distribution agreement for losses
relating to any acts, practices or omissions engaged in by Triad after the
distribution, whether or not Triad is indemnified for similar acts, practices
and omissions occurring prior to the distribution. If indemnified matters were
asserted successfully against Triad or any of its facilities, and HCA failed to
meet its indemnification obligations, then this event could have a material
adverse effect on Triad's business, financial condition, or results of
operations.

The extent to which Triad may or may not continue to be affected by the
ongoing investigations of HCA and the initiation of additional investigations,
if any, cannot be predicted. These matters could have a material adverse effect
on Triad's business, financial condition, or results of operations in future
periods.

Item 2. Properties

The following table lists the hospitals owned, except as otherwise indicated,
by Triad as of December 31, 2000.

Facility Name City State Licensed Beds
------------- ---- ----- -------------

Crestwood Medical Center.............................................. Huntsville AL 120
Medical Center of South Arkansas(1)................................... El Dorado AR 166
Medical Park Hospital................................................. Hope AR 91
Paradise Valley Hospital.............................................. Phoenix AZ 159
El Dorado Hospital.................................................... Tucson AZ 166
Northwest Hospital.................................................... Tucson AZ 166
San Leandro Hospital.................................................. San Leandro CA 122
Overland Park Regional Medical Center(2).............................. Overland Park KS ---
Women & Children's Hospital........................................... Lake Charles LA 80
Independence Regional Health Center(2)................................ Independence MO ---
Medical Center of Carlsbad............................................ Carlsbad NM 127
Lea Regional Hospital................................................. Hobbs NM 250
Claremore Regional Hospital........................................... Claremore OK 89
SouthCrest Hospital(3)................................................ Tulsa OK 116
Willamette Valley Medical Center...................................... McMinnville OR 80
Alice Regional Hospital............................................... Alice TX 114
Brownwood Regional Medical Center..................................... Brownwood TX 218

College Station Medical Center........................................ College Station TX 119
Navarro Regional Hospital............................................. Corsicana TX 162
Denton Community Hospital............................................. Denton TX 122
Longview Regional Hospital............................................ Longview TX 164
Woodland Heights Medical Center....................................... Lufkin TX 137
Medical Center of Pampa............................................... Pampa TX 107
San Angelo Community Medical Center................................... San Angelo TX 162
Medical Center at Terrell(4).......................................... Terrell TX 130
DeTar Hospital........................................................ Victoria TX 211
Victoria Regional Medical Center...................................... Victoria TX 156
Gulf Coast Medical Center............................................. Wharton TX 161
Greenbrier Valley Medical Center...................................... Lewisburg WV 107
Closed:
Mission Bay Memorial Hospital(5)...................................... San Diego CA ---
Douglas Medical Center (6)............................................ Roseburg OR ---

(1) Triad holds a fifty percent equity interest in a non-consolidated joint
venture which owns and operates this facility.
(2) Triad continues to own the assets related to these hospitals, but has
transferred the exclusive rights to use and control the hospitals'
operations to a separate, independent entity pursuant to a long-term lease
agreement effective as of January 1, 1999.
(3) At December 31, 2000, Triad held a fifty percent equity interest in a non-
consolidated joint venture which owned and operated this facility.
Effective January 1, 2001, Triad acquired the other fifty percent interest
in this joint venture.
(4) Triad currently leases this hospital pursuant to a long-term lease which
provides that it has the exclusive right to use and control the hospital
operations.
(5) Triad ceased operations of this facility on November 30, 2000.
(6) Triad ceased operations of this facility on February 11, 2000.

In addition to the hospitals listed in the table above, as of December 31,
2000, Triad operated 13 ambulatory surgery centers, including three surgery
centers that are operated by an unaffiliated third party pursuant to a long-term
lease. Medical office buildings also are operated in conjunction with its
hospitals. These office buildings are primarily occupied by physicians who
practice at Triad's hospitals.

Triad's headquarters are located in approximately 45,000 square feet of
space in one office building in Dallas, Texas. Triad sub-leases this space from
HCA. See "NOTE 13-AGREEMENTS WITH HCA" in the consolidated financial statements
for a more detailed description of such arrangement. Triad is currently
inquiring about additional office space at its headquarters for additional
employees that will be necessary due to the Quorum acquisition.

Triad's hospitals and other facilities are suitable for their respective
uses and are, in general, adequate for Triad's present needs.

Item 3. Legal Proceedings

On October 20, 2000, a class action lawsuit was filed against Triad and the
Board of Directors of Quorum in the Circuit Court of Davidson County, Tennessee,
on behalf of all public stockholders of Quorum. The complaint alleges that
Quorum's directors breached their fiduciary duties of loyalty and due care by
failing to implement reasonable procedures designed to maximize shareholder
value and to obtain the highest price reasonably available for Quorum's
shareholders. The complaint alleges that Triad aided and abetted Quorum's
directors' breach of their fiduciary duties. The complaint seeks an injunction
preventing consummation of the acquisition, or Quorum's business combination
with any third party, until Quorum adopts and implements a procedure or process,
such as an auction, to obtain the highest possible price for Quorum.
Alternatively, the complaint seeks compensatory damages in the event the
acquisition is consummated. The complaint also seeks an award of costs and
attorneys' fees. Triad believes the claims are without merit and will vigorously
defend the action.

Triad is, from time to time, subject to claims and suits arising in the
ordinary course of business, including claims for damages for personal injuries,
breach of management contracts or for wrongful restriction of or

interference with physician's staff privileges. In certain of these actions,
claimants have asked for punitive or other damages against Triad that may not be
covered by insurance. Triad is currently not a party to any such proceeding
which, in management's opinion, would have a material adverse effect on Triad's
business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

Part II.

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters

Triad's common stock commenced trading on the Nasdaq Stock Market National
Market, on May 11, 1999 (symbol "TRIH"). The table below set forth, for the
calendar quarters indicated, the high and low reported closing sales prices per
share reported on by Nasdaq for Triad's common stock since commencement of
trading.

1999 High Low
---- ------ ------

Second Quarter................................................................ $13.50 $ 9.38
Third Quarter................................................................. 13.00 9.75
Fourth Quarter................................................................ 15.13 9.38
2000
----
First Quarter................................................................. $18.75 $13.44
Second Quarter................................................................ 25.00 14.88
Third Quarter................................................................. 33.00 21.94
Fourth Quarter................................................................ 34.38 25.44

At the close of business on February 15, 2001, there were approximately
11,650 holders of record of Triad's common stock.

Triad has not paid any dividends on its shares of common stock and is
restricted from paying dividends by certain bank indebtedness covenants. See
Item 7. "Management Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources".

Item 6. Selected Financial Data

The following consolidated selected financial data as of and for the years
ended December 31, 2000, 1999, 1998 and 1997 and for the year ended December 31,
1996 has been derived from Triad's audited consolidated financial statements and
as of December 31, 1996 has been derived from Triad's unaudited consolidated
financial statements. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Triad's consolidated financial statements and related notes to
the consolidated financial statements, which are included herein.

Years Ended December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in millions, except per share amounts)

Summary of Operations:
Revenues................................................. $1,235.5 $1,329.1 $1,588.7 $1,609.3 $1,600.5
Income (loss) from continuing operations................. 4.4 (95.6) (85.5) (19.0) 68.3
Net income (loss) (a).................................... 4.4 (95.6) (87.1) (19.8) 74.7
Basic earnings (loss) per share:
Income (loss) from continuing operations............... $ 0.14 $ (3.12) $ (2.80) $ (0.62) $ 2.23
Net income (loss)...................................... $ 0.14 $ (3.12) $ (2.85) $ (0.65) $ 2.44
Shares used in computing basic earnings
(loss) per share (in millions)......................... 31.7 30.6 30.6 30.6 30.6
Diluted earnings (loss) per share:
Income (loss) from continuing operations............... $ 0.13 $ (3.12) $ (2.80) $ (0.62) $ 2.21
Net income (loss)...................................... $ 0.13 $ (3.12) $ (2.85) $ (0.65) $ 2.42
Shares used in computing diluted earnings (loss)
per share (in millions)................................ 34.1 30.6 30.6 30.6 30.9

Financial Position:
Assets................................................... $1,400.5 $1,341.1 $1,371.3 $1,410.5 $1,426.3
Long-term debt, including amounts due within one year.... 590.7 555.4 14.3 15.4 17.1
Intercompany balances payable to HCA..................... --- --- 613.7 525.0 521.7
Working capital.......................................... 191.9 187.6 184.9 150.3 156.5
Capital expenditures..................................... 94.4 132.7 114.9 120.1 94.4

Operating Data:
EBITDA(b)................................................ $ 174.0 $ 124.5 $ 149.0 $ 187.8 $ 294.5
Number of hospitals at end of period(c).................. 29 30 39 39 39
Number of licensed beds at end of period(d).............. 3,533 3,722 5,902 5,859 5,872
Weighted average licensed beds (e)....................... 3,633 4,745 5,905 5,860 5,882
Number of available beds at end of period(f)............. 3,146 3,280 5,199 5,230 5,052
Admissions(g)............................................ 128,645 145,889 170,159 172,926 171,265
Adjusted admissions(h)................................... 220,590 241,547 276,771 275,125 266,660
Average length of stay (days)(i)......................... 4.4 4.5 4.9 4.9 5.0
Average daily census(j).................................. 1,532 1,818 2,263 2,326 2,338
Occupancy rate (k)....................................... 49% 55% 44% 44% 46%
Selected Ratios:
Ratio of earnings to fixed charges (l)................... 1.3x --- --- --- 3.0x

(a) Includes charges related to impairment of long-lived assets of $8.0 million
($4.7 million after tax benefit), $69.2 million ($55.8 million after tax
benefit), $55.1 million ($32.9 million after tax benefit) and $13.7 million
($8.2 million after tax benefit) for the years ended December 31, 2000,
1999, 1998 and 1997, respectively.
(b) EBITDA is defined as income (loss) from continuing operations before
depreciation and amortization, interest expense, ESOP expense, management
fees, gain on sales of assets, impairment of long-lived assets, minority
in earnings of consolidated entities and income taxes. EBITDA is
commonly used as an analytical indicator within the health care industry,
and also serves as a measure of leverage capacity and debt service ability.
EBITDA should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from
EBITDA should not be considered in isolation or as an alternative to net
income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the consolidated
financial statements as an indicator of financial performance or liquidity.
Because EBITDA is not a measurement determined in accordance with generally
accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(c) Number of hospitals includes two facilities which are leased to a third
party and two hospitals not consolidated for financial reporting purposes
for 2000 and 1999. This table does not include any operating statistics for
these facilities.

(d) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(e) Represents the average number of licensed beds, weighted based on periods
owned.
(f) Available beds are those beds a facility actually has in use.
(g) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to Triad's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(h) Adjusted admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Adjusted
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The adjusted
admissions computation "adjusts" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general
measure of combined inpatient and outpatient volume.
(i) Represents the average number of days admitted patients stay in Triad's
hospitals. Average length of stay has declined due to the continuing
pressures from managed care and other payers to restrict admissions and
reduce the number of days that are covered by the payers for certain
procedures, and by technological and pharmaceutical improvements.
(j) Represents the average number of patients in Triad's hospital beds each
day.
(k) Represents the percentage of hospital available beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.
(l) Triad's earnings were insufficient to cover fixed charges for the years
ended December 31, 1999, 1998 and 1997 by $112.4 million, $115.6 million
and $15.1 million, respectively.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

Triad owns and operates the health care service business which comprised
the Pacific Group of HCA until the distribution by HCA to its shareholders of
all of the shares of outstanding common stock of Triad. The distribution, which
occurred on May 11, 1999, marked the beginning of Triad's operations as an
independent, publicly-traded company. As such, the historical financial
statements prior to the distribution of Triad may not be indicative of Triad's
future performance, nor do they necessarily reflect what the financial position
and results of operations of Triad would have been if it had operated as a
separate, stand-alone entity during the entire periods presented.

During 1999, Triad sold ten hospitals and two ambulatory surgery centers
and opened one new hospital, which is accounted for using the equity method.
During 2000, Triad ceased operations of two hospitals, sold one hospital and
purchased two hospitals.

The above described events significantly affect the comparability of the
results of operations for the years ended December 31, 2000, 1999 and 1998.

Forward-Looking Statements

This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains disclosures which are "forward-looking
statements." Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can be identified by the use
of words such as "may," "believe," "will," "expect," "project," "estimate,"
"anticipate," "plan" or "continue." These forward-looking statements are based
on the current plans and expectations of Triad and are subject to a number of
uncertainties and risks that could significantly affect current plans and
expectations and the future financial condition and results of Triad. These
factors include, but are not limited to,

. the highly competitive nature of the health care business,

. the efforts of insurers, health care providers and others to contain health
care costs,

. possible changes in the Medicare and Medicaid programs that may further
limit reimbursements to health care providers and insurers,

. changes in federal, state or local regulation affecting the health care
industry,

. the possible enactment of federal or state health care reform,

. the ability to attract and retain qualified management and personnel,
including physicians,

. the departure of key executive officers from Triad,

. claims and legal actions relating to professional liabilities and other
matters,

. fluctuations in the market value of Triad common stock,

. changes in accounting practices,

. changes in general economic conditions,

. future divestitures which may result in additional charges,

. the ability to enter into managed care provider arrangements on acceptable
terms,

. the availability and terms of capital to fund the expansion of Triad,

. changes in business strategy on development plans,

. timeliness of reimbursement payments received under government programs, and

. other risk factors described herein.

As a consequence, current plans, anticipated actions and future financial
condition and results may differ from those expressed in any forward-looking
statements made by or on behalf of Triad. You are cautioned not to unduly rely
on such forward-looking statements when evaluating the information presented in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Results of Operations

Revenue/Volume Trends

During the years ended December 31, 2000 and 1999, Triad experienced
declines in revenue and volumes. Management believes the following factors have
contributed to the declines in revenue during the years ended December 31, 2000
and 1999:

. the announced divestitures of hospitals in certain markets;

. the disposition of ten acute care hospitals and two surgery centers during
1999;

. the transfer pursuant to a long-term lease to an unaffiliated third party of
two acute care hospitals and three ambulatory surgery centers;

. the cessation of operations of two hospitals during 2000;

. the impact of reductions in Medicare payments mandated by the Balanced
Budget Act; and

. the continuing trend toward the conversion of more services to an outpatient
basis.

In the healthcare industry, operations are subject to certain seasonal
fluctuations, including decreases in patient utilization during holiday periods
and increases in patient utilization during the cold weather months.

Triad's revenues continue to be affected by an increasing proportion of
revenue being derived from fixed payment, higher discount sources, including
Medicare, Medicaid and managed care plans. In addition, insurance companies,
government programs, other than Medicare, and employers purchasing health care
services for their employees are also negotiating discounted amounts that they
will pay health care providers rather than paying standard prices. Triad expects
patient volumes from Medicare and Medicaid to continue to increase due to the
general aging of the population and expansion of state Medicaid programs.
However, under the Balanced Budget

Act, Triad's reimbursement from the Medicare and Medicaid programs was reduced
in 2000 and 1999 and will be further reduced as some reductions in reimbursement
levels are phased in over the next year, although certain of the reductions will
be reduced by the Refinement Act. In December 2000, Congress passed BIPA which
will further offset reductions from the Balanced Budget Act, which Triad
currently estimates to an additional $3-$5 million of reinbursement annually.
The Balanced Budget Act has accelerated a shift, by certain Medicare
beneficiaries, from traditional Medicare coverage to medical coverage that is
provided under managed care plans. Triad generally receives lower payments per
patient under managed care plans than under traditional indemnity insurance
plans. With an increasing proportion of services being reimbursed based upon
fixed payment amounts, where the payment is based upon the diagnosis, regardless
of the cost incurred or level of service provided, revenues, earnings and cash
flows are being significantly reduced. As part of the Balanced Budget Act, HCFA
implemented outpatient PPS on August 1, 2000 which reduced reimbursement in 2000
slightly. Net patient revenues related to Medicare and Medicaid patients were
36.0% and 38.8% of total net patient revenues for the years ended December 31,
2000 and 1999, respectively. Net patient revenues related to managed care plan
patients were 31.0% and 32.7% of total net patient revenues for the years ended
December 31, 2000 and 1999, respectively. Net patient revenues from capitation
arrangements, or prepaid health service agreements, are less than 1% of net
patient revenues in each period presented. See Item I "Business -Reimbursement."

As discussed previously, management of Triad has focused on streamlining its
portfolio of facilities to eliminate those with poor financial performance, weak
competitive market positions or locations in certain urban markets. During the
year ended December 31, 1999, Triad and HCA sold ten hospitals and during the
year ended December 31, 2000, Triad sold one hospital and ceased operations of
two hospitals. Net revenues for these facilities were $54.1 million and $249.9
million and losses before impairment charges, gain on sale, and income tax
benefit of $11.6 million and $51.5 million for the years ended December 31, 2000
and 1999, respectively.

Triad's revenues also continue to be affected by the trend toward certain
services being performed more frequently on an outpatient basis. Growth in
outpatient services is expected to continue in the health care industry as
procedures performed on an inpatient basis are converted to outpatient
procedures through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an outpatient basis is
also influenced by pressures from payers to perform certain procedures as
outpatient care rather than inpatient care. Net outpatient revenues for
facilities that remain after sales and closures were 44.9% in the year ended
December 31, 2000 compared to 45.3% in the comparable period in 1999.

Reductions in the rate of increase in Medicare and Medicaid reimbursement,
increasing percentages of the patient volume being related to patients
participating in managed care plans and continuing trends toward more services
being performed on an outpatient basis are expected to present ongoing
challenges. The challenges presented by these trends are magnified by Triad's
inability to control these trends and the associated risks. To maintain and
improve its operating margins in future periods, Triad must increase patient
volumes while controlling the costs of providing services. If Triad is not able
to achieve reductions in the cost of providing services through operational
efficiencies, and the trend toward declining reimbursements and payments
continues, results of operations and cash flows will deteriorate.

Management believes that the proper response to these challenges includes the
delivery of a broad range of quality health care services to physicians and
patients with operating decisions being made by the local management teams and
local physicians.

In connection with the distribution, HCA agreed to indemnify Triad for any
payments which it is required to make in respect of Medicare, Medicaid and Blue
Cross cost reports for former HCA facilities owned by Triad at the time of the
spin-off from HCA relating to periods ending on or prior to the date of the
distribution, and Triad agreed to indemnify HCA for and pay to HCA any payments
received by it relating to such cost reports relating to periods ending on or
prior to the date of the distribution. Triad will be responsible for the filing
of these cost reports and any terminating cost reports. Triad has recorded a
receivable from HCA relating to the indemnification of $27.7 million as of
December 31, 2000.

Operating Results Summary

Following are comparative summaries of results from continuing operations
for the years ended December 31, 2000, 1999 and 1998. Dollars are in millions,
except per share amounts and ratios.

Years Ended December 31,
----------------------------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Amount Percentage Amount Percentage Amount Percentage
--------- ---------- --------- ---------- --------- ----------

Revenues................................................. $1,235.5 100.0 $1,329.1 100.0 $1,588.7 100.0

Salaries and benefits.................................... 511.1 41.4 570.9 42.9 700.5 44.1
Supplies................................................. 185.6 15.0 200.1 15.0 241.6 15.2
Other operating expenses................................. 259.8 21.0 301.5 22.7 362.6 22.8
Provision for doubtful accounts.......................... 103.6 8.4 129.0 9.7 138.4 8.7
Depreciation and amortization............................ 83.2 6.7 98.5 7.4 109.6 6.9
Interest expense allocated from HCA...................... --- --- 22.5 1.7 66.2 4.2
Interest expense, net.................................... 57.3 4.6 42.7 3.2 2.7 0.1
ESOP expense............................................. 7.1 0.6 3.7 0.3 --- ---
Management fees allocated from HCA....................... --- --- 8.9 0.7 29.3 1.9
Gain on sale of assets................................... (7.9) (0.6) (8.6) (0.6) --- ---
Impairment of long-lived assets.......................... 8.0 0.7 69.2 5.2 55.1 3.5
-------- ----- -------- ----- -------- -----
1,207.8 97.8 1,438.4 108.2 1,706.0 107.4
-------- ----- -------- ----- -------- -----
Income (loss) from continuing operations before minority.
interests, equity in earnings and income tax benefit... 27.7 2.2 (109.3) (8.2) (117.3) (7.4)
Minority interests in earnings of consolidated entities.. (9.0) (0.7) (8.7) (0.7) (11.0) (0.7)
Equity in earnings (loss) of non-consolidating entities.. (1.4) (0.1) (3.1) (0.2) 3.4 0.2
-------- ----- -------- ----- -------- -----
Income (loss) from continuing operations before income
tax (provision) benefit................................. 17.3 1.4 (121.1) (9.1) (124.9) (7.9)
Income tax (provision) benefit........................... (12.9) (1.0) 25.5 1.9 39.4 2.5
-------- ----- -------- ----- -------- -----
Income (loss) from continuing operations................. $ 4.4 0.4 $ (95.6) (7.2) $ (85.5) (5.4)
======== ===== ======== ===== ======== =====

Income (loss) per common share from continuing operation
Basic.................................................... $ 0.14 $ (3.12) $ (2.80)
Diluted.................................................. $ 0.13 $ (3.12) $ (2.80)
EBITDA (a)............................................... $ 174.0 $ 124.5 $ 149.0
Number of hospitals at end of period (b)
Owned and managed.................................... 25 26 38
Joint ventures....................................... 2 2 1
Leased to others..................................... 2 2 ---
-------- -------- --------
Total................................................ 29 30 39
Ongoing operations(c)
Licensed beds at end of period (d)....................... 3,533 3,316 3,356
Available beds at end of period (e)...................... 3,146 2,925 2,922
Admissions (f)
Owned and managed.................................... 122,457 115,827 109,176
Joint ventures....................................... 11,718 7,774 5,937
-------- -------- --------
Total................................................ 134,175 123,601 115,113
Adjusted admissions (g).................................. 209,681 197,186 181,960
Outpatient visits........................................ 817,058 796,973 596,669
Surgeries................................................ 202,575 186,768 169,099
Average length of stay (h)............................... 4.3 4.4 4.6
Outpatient revenue percentage............................ 44.9% 45.3% 49.0%
Inpatient revenue per admission.......................... 5,125 4,949 4,091
Outpatient revenue per outpatient visits................. 417 400 485
Patient revenue per adjusted admission................... 5,436 5,311 4,808

(a) EBITDA is defined as income (loss) from continuing operations before
depreciation and amortization, interest expense, ESOP expense, management
fees, gain on sales of assets, impairment of long-lived assets, minority
interests in earnings of consolidated entities and income taxes. EBITDA is
commonly used as an analytical indicator within the health care industry,
and also serves as a measure of leverage capacity and debt service ability.
EBITDA should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from
EBITDA are significant components in understanding and assessing financial
performance. EBITDA should not be considered in isolation or as an
alternative to net income, cash flows generated by operating, investing or
financing activities or other financial statement data presented in the
consolidated financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is

thus susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies.
(b) This table does not include any operating statistics for facilities leased
to others and, except for admissions, the joint ventures.
(c) Ongoing operations exclude facilities that were sold or closed.
(d) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(e) Available beds are those beds a facility actually has in use.
(f) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to Triad's facilities and is used by
management and certain investors as a general measure of inpatient volume.
(g) Adjusted admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Adjusted
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The adjusted
admissions computation "adjusts" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general
measure of combined inpatient and outpatient volume.
(h) Represents the average number of days an admitted patient stays in Triad's
hospitals. Average length of stay has declined due to the continuing
pressures from managed care and other payers to restrict admissions and
reduce the number of days that are covered by the payers for certain
procedures, and by technological and pharmaceutical improvements.

Years Ended December 31, 2000 and 1999

Income before income taxes increased to $17.3 million in the year ended
December 31, 2000 from a loss of $121.1 million in the year ended December 31,
1999. The increase in pretax income was attributable to impairment charges of
$69.2 million in the year ended December 31, 1999 compared to $8.0 million in
the year ended December 31, 2000. Other factors contributing to the increase
were decreased losses before impairment charges of $36.1 million in the
facilities that were divested and improvement in the operations of the
facilities that comprise ongoing operations of $23.5 million. In addition,
there were $8.6 million of favorable prior year cost report settlements and
contractual estimates during the year ended December 31, 2000 and $3.7 million
increases in equity in earnings, primarily due to one non-consolidating entity
which opened in May 1999. These increases were partially offset during the year
ended December 31, 2000 by $5.2 million of unfavorable contractual adjustments
at one facility, $1.1 million of unfavorable adjustments at one facility from
write-offs of certain expenses that were previously capitalized and other
adjustments and $1.1 million of unfavorable adjustments in equity in earnings at
a non-consolidating entity from various changes of estimates and other
adjustments.

Revenues decreased 7.0% to $1,235.5 million in the year ended December 31,
2000 compared to $1,329.1 million in the year ended December 31, 1999. Revenues
declined primarily as a result of the facilities that were sold or closed. In
the year ended December 31, 1999, these facilities had revenues of $249.9
million compared to $54.1 million in the year ended December 31, 2000. For the
year ended December 31, 2000, revenues in the facilities that were sold or
closed included $3.5 million in favorable prior year cost report settlements and
contractual estimates. The decrease in revenues was partially offset by a 9.5%
increase for the facilities that comprise ongoing operations. Revenues for
ongoing operations included $19.3 million from the acquisition of two facilities
in the fourth quarter of 2000. For the year ended December 31, 2000 compared to
the year ended December 31, 1999, admissions for the ongoing operations
increased 5.7%, adjusted admissions from ongoing operations increased 6.3%, and
revenues per adjusted admissions from ongoing operations increased 2.4%.
Additionally, outpatient visits increased 2.5%, outpatient revenues per visit
increased 4.2% and surgeries increased 8.5%. Another factor was $4.8 million in
favorable prior year cost report settlements and contractual estimates during
the year ended December 31, 2000. The increases were partially offset by an
unfavorable $5.2 million change in estimate for contractual discounts at one
facility.

Salaries and benefits, as a percentage of revenues, decreased to 41.4% in
the year ended December 31, 2000 from 42.9% in the year ended December 31, 1999.
For the year ended December 31, 2000 and 1999, salaries and benefits for the
facilities sold or closed were $35.9 million and $133.3 million, respectively.
The salaries and

benefits for the sold and closed facilities during the year ended December 31,
2000 included severance costs associated with the closure of two facilities of
$2.6 million. Salaries and benefits for ongoing operations decreased to 40.2% as
a percentage of revenue in the year ended December 31, 2000 compared to 40.6% in
the year ended December 31, 1999. Salaries and benefits decreased due to $2.8
million from a favorable adjustment relating to Triad's retirement plan
contributions during the year ended December 31, 2000 and increases in labor
productivity. These decreases were partially offset by a 1.4% increase in costs
per full time equivalent in the year ended December 31, 2000 compared to the
year ended December 31, 1999 and the addition of corporate staff after the
distribution. Salaries and benefits for ongoing operations included $7.0 million
from the acquisition of two facilities in the fourth quarter of 2000.

Supply costs remained constant as a percentage of revenues in the year
ended December 31, 2000 compared to the year ended December 31, 1999. For the
year ended December 31, 1999, supplies for the facilities sold or closed were
$39.1 million compared to $7.6 million in the year ended December 31, 2000.
Supplies for ongoing operations increased 0.2% as a percentage of revenue in the
year ended December 31, 2000 compared to the year ended December 31, 1999. This
increase was attributable to higher patient acuity, price increases and $3.2
million from the acquisition of two facilities in the fourth quarter of 2000.
Additionally, an unfavorable adjustment of $1.1 million was recorded at one
facility from write-offs of certain expenses that were previously capitalized
during the year ended December 31, 2000.

Other operating expenses (primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes), decreased as a percentage of revenues to 21.0%
in the year ended December 31, 2000 compared to 22.7% in the year ended December
31, 1999. For the year ended December 31, 1999, other operating expenses for the
facilities sold or closed were $72.8 million compared to $16.5 million in the
year ended December 31, 2000. Other operating expenses for ongoing operations
decreased 0.6% as a percentage of revenue in the year ended December 31, 2000
compared to the year ended December 31, 1999. This decrease was due primarily to
the increase in revenues. This was partially offset by $4.3 million from the
acquisition of two facilities in the fourth quarter of 2000.

Provision for doubtful accounts, as a percentage of revenues, decreased to
8.4% in the year ended December 31, 2000 compared to 9.7% in the year ended
December 31, 1999. Provision for doubtful accounts for the facilities sold or
closed were $36.6 million in the year ended December 31, 1999 compared to $4.9
million in the year ended December 31, 2000. Provision for doubtful accounts for
ongoing operations decreased 0.2% as a percentage of revenue in the year ended
December 31, 2000 compared to the year ended December 31, 1999 due to improved
collections and refinement of the estimation process for allowances for doubtful
accounts of approximately $2.0 million. Days in accounts receivable decreased
two days in the year ended December 31, 2000 compared to the year ended December
31, 1999. This decrease was offset partially by $3.0 million from the
acquisition of two facilities in the fourth quarter of 2000.

Depreciation and amortization decreased as a percentage of revenues to 6.8%
in the year ended December 31, 2000 from 7.4% in the year ended December 31,
1999, primarily due to $19.9 million in 1999 depreciation for the facilities
sold or closed.

Interest expense allocated from HCA, which was represented by interest
incurred on the net intercompany balance with HCA, was $22.5 million in the year
ended December 31, 1999. The intercompany balances were eliminated at the
distribution.

Interest expense, which is offset by $4.9 million and $2.5 million of
interest income in the year ended December 31, 2000 and 1999, respectively,
increased to $57.3 million in the year ended December 31, 2000 from $42.7
million in the year ended December 31, 1999 due to the assumption of additional
debt from HCA in the distribution.

Management fees allocated from HCA were $8.9 million during the year ended
December 31, 1999. No management fees were allocated during the year ended
December 30, 2000 due to the distribution from HCA.

Gain on sale of assets was $7.9 million during the year ended December 31,
2000 primarily due to the sale of one hospital facility and Triad's partnership
interest in a rehabilitation hospital during 2000. Gain on sale of

assets was $8.6 million during the year ended December 31, 1999 due primarily to
the sale of ten facilities during the period.

Impairments on long-lived assets were $8.0 million and $69.2 million during
the years ended December 31, 2000 and 1999, respectively. The impairments during
2000 were due primarily to the carrying value of the long-lived assets related
to one hospital closed being reduced to fair value, based on estimated disposal
value. The impairments during 1999 were due to reductions of the book value of
certain facilities that Triad divested during 1999 to fair value, based on
estimates of selling values.

Minority interests, which are primarily related to one joint venture in
Arizona that includes 9 ambulatory surgery centers, as a percentage of revenues
remained relatively unchanged in the year ended December 31, 2000 compared to
the year ended December 31, 1999.

Equity in earnings (loss) of affiliates was $(1.4) million for the year
ended December 31, 2000 compared to $(3.1) million for the year ended December
31, 1999. This was due to reduction in losses of $3.7 million for one non-
consolidating entity which opened in May 1999. This was offset by $1.1 million
of unfavorable adjustments for various changes of estimates and other
adjustments at one non-consolidating entity during the year ended December 31,
2000.

Years Ended December 31, 1999 and 1998

Losses from continuing operations before income tax benefit decreased to
$121.1 million in the year ended December 31, 1999 from $124.9 million in the
year ended December 31, 1998. The decrease in pretax loss was primarily
attributable to gain on sales of ten hospitals in the year ended December 31,
1999 of $8.6 million. Additional factors contributing to the decrease in pretax
loss were $16.7 million of lease income from the leased facilities, a $10.8
million reduction in interest expense and corporate overhead compared to the
allocation of interest expense and management fees from HCA and $30.9 million
improvement in the operations of facilities that will remain after planned
divestitures. These were partially offset by an increase in impairment charges
of $69.2 million recorded in the year ended December 31, 1999 compared to $55.1
million in the year ended December 31, 1998 due to the management reassessment
of the facilities that would not be part of Triad's core markets. Additional
offsetting factors included a reduction in the operations of $26.7 million
relating to the leased facilities in the Kansas City, Missouri area, a $26.4
million reduction in the operations of the facilities which were sold during
1999, $3.0 million of favorable cost report settlements in 1998 and $6.5 million
reduction in equity in earnings of non-consolidating entities due to the start
up of operations of a hospital that opened in May 1999.

Revenues decreased 16.3% to $1,329.1 million in the year ended December 31,
1999 compared to $1,588.7 million in the year ended December 31, 1998. Inpatient
admissions decreased 13.0% and adjusted admissions, adjusted to reflect combined
inpatient and outpatient volume, decreased 13.0% in the year ended December 31,
1999 compared to the year ended December 31, 1998. Revenues, admissions and
adjusted admissions declined primarily as a result of the facilities that were
leased in January 1999 and the facilities that were sold during 1999. The leased
facilities had revenues of $216.6 million, admissions of 18,134 and adjusted
admissions of 30,562 during year ended December 31, 1998. The ten hospitals sold
had net revenues of $189.7 million and $330.3 million, admissions of 22,821 and
38,280 and adjusted admissions of 33,277 and 55,381 during the years ended
December 31, 1999 and 1998, respectively. Additionally, $3.0 million of
favorable cost report settlements were received in 1998. These were partially
offset by $16.7 million of lease income from the leased facilities in the year
ended December 31, 1999 and increases in net revenues of $85.7 million,
admissions of 7,691 and adjusted admissions of 13,443 in the facilities that
will remain after divestitures. Revenues have been decreasing over the past
several years due to several additional factors. These factors include decreases
in Medicare rates of reimbursement mandated by the Balanced Budget Act which
became effective October 1, 1997; such rates lowered revenues by approximately
$12.0 million and $17.0 million during the years ended December 31, 1999 and
1998, respectively, and continued increases in discounts from the growing number
of managed care payers; managed care as a percent of net revenues increased to
32.7% compared to 27.0% during the year ended December 31, 1999 and 1998,
respectively.

Salaries and benefits, as a percentage of revenues, decreased to 42.9% in the
year ended December 31, 1999 from 44.1% in the year ended December 31, 1998.
Salaries and benefits per adjusted admissions decreased 6.6% during 1999
compared to 1998. The decrease was primarily attributable to the leased
facilities, which had a higher percentage of salaries and benefits to net
revenue.

Supply costs decreased as a percentage of revenues to 15.0% in the year ended
December 31, 1999 from 15.2% in the year ended December 31, 1998. Supply costs
per adjusted admissions decreased 4.8% during 1999 compared to 1998. This was
primarily due to the leased facilities having a higher percentage of supply
costs to net revenue. This decrease was partially offset by the purchases of
higher cost items due to higher acute care patients and increases in prices.

Other operating expenses, primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes, as a percentage of revenues, decreased to 22.7%
in the year ended December 31, 1999 from 22.8% in the year ended December 31,
1998 due primarily to a reduction in the use of outside contract vendors. This
was partially offset by collection fees relating to collection efforts on the
remaining accounts receivable of the leased facilities in 1999.

Provision for doubtful accounts, as a percentage of revenues, increased to
9.7% in the year ended December 31, 1999 from 8.7% in the year ended December
31, 1998 due primarily to additional reserves necessary on the accounts
receivables retained at the sold facilities because Triad would not have a
presence in the local markets to facilitate collections. Additionally, a $2.0
million adjustment was made at one facility in the first quarter of 1999 to
reflect deterioration in accounts receivable and the uncertain status of the
sold facilities while the sales process was ongoing contributed to the increase.

Depreciation and amortization increased as a percentage of revenues to 7.4%
in the year ended December 31, 1999 from 6.9% in the year ended December 31,
1998, primarily due to increased capital expenditures during 1999 and to the
decrease in net revenues.

Interest expense allocated from HCA, which was represented by interest
incurred on the net intercompany balance with HCA, decreased to $22.5 million in
the year ended December 31, 1999 compared to $66.2 million in the year ended
December 31, 1998 due to the distribution which eliminated the intercompany
balances.

Interest expense, which is net of $2.5 million of interest income in 1999,
increased to $42.7 million in the year ended December 31, 1999 from $2.7 million
in the year ended December 31, 1998 due to the assumption of debt from HCA in
the distribution.

Management fees allocated from HCA decreased to $8.9 million from $29.3
million during the year ended December 31, 1999 compared to the year ended
December 31, 1998, due to the distribution from HCA.

Impairments on long-lived assets were $69.2 million during the year ended
December 31, 1999 compared to $55.1 million during the year ended December 31,
1998 due to management's reassessment of certain facilities that would not be
part of the core markets that Triad would go forward with after the
distribution. Management determined that the potential sales prices of these
facilities would not cover the book value of the facilities and a write down
would be necessary.

Minority interests, which are primarily related to one ambulatory surgery
center joint venture in Arizona, were 0.7% as a percentage of net revenues in
both the years ended December 31, 1999 and 1998.

Gain on sale of assets were $8.6 million during the year ended December 31,
1999 from the sale of ten facilities during 1999.

Liquidity and Capital Resources

Cash provided by operating activities was $71.6 million in the year ended
December 31, 2000 compared to $155.2 million in the year ended December 31,
1999. The decrease was due to a decrease in accounts payable and other current
liabilities, increase in inventories and other assets and a larger increase in
accounts receivable in 2000 than in 1999.

Cash used in investing activities increased to $172.9 million in the year
ended December 31, 2000 from $57.7 million in the year ended December 31, 1999.
This was due primarily to $118.8 million paid for acquisitions during 2000.
Additionally, $20.7 million in proceeds from sales of assets was received in
2000 compared to $117.8 million received during 1999. This was partially offset
by a decrease in capital expenditures of $38.3 million in the year ended
December 31, 2000 compared to the year ended December 31, 1999 and investments
in a new hospital during 1999 of $52.4 million, which is not consolidated for
financial reporting purposes, which opened in May 1999. Triad expects to expend
approximately $120 million in capital expenditures ($90 million for expansion)
in 2001.

Cash provided by financing activities was $37.1 million in the year ended
December 31, 2000 compared to cash used in financing activities of $26.6 million
in the year ended December 31, 1999. This increase was due to $51.0 million
proceeds from a new delay draw loan in 2000. This was offset by $75.0 million
payoff of the asset bridge loan, which was required from the asset sale
proceeds, and $33.0 million in payments on other bank indebtedness in 1999. This
was partially offset by changes in the intercompany balances with HCA prior to
the distribution.

Triad received loan repayments from one of its hospital joint ventures of
$37.0 million on February 28, 2000 and $3.7 million on April 11, 2000.

On March 31, 2000, Triad sold its limited partnership interest in a
rehabilitation hospital located in Tucson, Arizona for $4.0 million. A gain of
$4.2 million was recognized on the sale.

On April 28, 2000, Triad purchased 28.7 acres of land for $2.5 million in Las
Cruces, New Mexico for future development. This project is expected to commence
in early 2001 with projected costs of approximately $60 million over an 18-month
period. The project will be funded with either operating cash flows or existing
credit facilities.

On June 1, 2000, Triad's partner in an ambulatory surgery center joint
venture in Arizona contributed the assets of an ambulatory surgery center to the
joint venture. Triad purchased a majority interest in these assets for $0.6
million.

On June 23, 2000, Triad signed a definitive purchase agreement to acquire
hospitals in Denton, Texas and Lewisburg, West Virginia from NetCare Health
Systems, Inc. for a cash price of approximately $107.0 million plus
approximately $10.0 million in working capital. The definitive agreement
included the acquisition of a hospital in Statesville, North Carolina, but Triad
assigned the rights to acquire this hospital to a third party in a simultaneous
closing. On September 29, 2000, Triad completed the closing of the Denton, Texas
hospital. The effective date of the Denton, Texas acquisition was October 1,
2000. Triad paid $69.0 million at the closing as a partial payment on the
acquisition of the Denton, Texas and Lewisburg, West Virginia hospitals. On
October 31, 2000, Triad paid $48.0 million as the final payment on the
acquisition and closed on the Lewisburg, West Virginia hospital. The final
closing was funded by operating cash and a $24.0 million draw on its new term
loan described below. For the periods prior to the acquisition, these facilities
had net revenues of $72.7 million and pretax income of $10.3 million. For the
year ended December 31, 1999, these facilities had net revenues of $88.1 million
and pretax income of $14.0 million.

On July 27, 2000, Triad purchased 47 acres of undeveloped land in Sherman,
Texas for $2.0 million. This land was not included in the sale of the hospital
described below. Triad is currently in process of selling this land.

In January 1999, Triad entered into a 15-year lease with an unaffiliated
party for the operations of two acute care hospitals and three ambulatory
surgery centers, with lease payments of approximately $17.0 million per year.
The lessee has an option to purchase the facilities exercisable annually
beginning in January 2001 for approximately $130.0 million in January 2001. The
lessee did not exercise its option in January 2001, although it may do so in the
future.

On February 11, 2000, Triad closed its acute care hospital in Roseberg,
Oregon. An impairment charge of $6.8 million on this facility was recognized
during the year ended December 31, 1999. As of December 31, 2000, the carrying
value of this facility after impairment charge was $3.9 million. For the years
ended December 31, 2000 and 1999, this facility had net revenues of $1.9 million
and $21.8 million, respectively, and pre-tax losses before impairment charges
and income taxes of $4.7 million and $5.6 million, respectively. Triad continues
to pursue a lawsuit against another hospital in the market, seeking damages for
various causes of action, including breach of fiduciary duties, interference
with business advantage, and breach of contract and it expects ultimately to
sell the facility for real estate value.

On November 30, 2000, Triad closed its acute care hospital in San Diego,
California. An impairment charge of $7.1 million on this facility was recognized
during the year ended December 31, 2000. As of December 31, 2000 the carrying
value of this facility after impairment charge was $8.3 million. For the years
ended December 31, 2000 and 1999, this facility had net revenue of $22.1 million
and $26.0 million, respectively, and income (losses) before impairment charges
and income taxes of $(8.9) million and $0.1 million, respectively.

On December 14, 2000, Triad sold its hospital in Sherman, Texas, which was
designated as held for sale, for $16.0 million. A gain on the sale of $2.0
million was recognized during the year ended December 31, 2000. For the years
ended December 31, 2000 and 1999, this facility had net revenue of $27.6 million
and $28.7 million, respectively, and income (losses) before impairment charges
and income taxes of $1.4 million and $(1.6) million, respectively.

On February 5, 2001, Triad acquired the remaining 50% interest in the joint
venture that owns SouthCrest Hospital in Tulsa, Oklahoma, which opened in May
1999, from its not-for-profit partner, Hillcrest Healthcare System
("Hillcrest"), for $44.6 million, the amount of Hillcrest's investment in the
venture. The acquisition consolidated 100% ownership and control of the hospital
in Triad effective January 1, 2001. Triad has an option to acquire an adjacent
26-acre parcel of land from Hillcrest for future expansion and a right of first
refusal on certain other real estate. SouthCrest Hospital will continue to
participate in Hillcrest's joint contracting network that includes other
Hillcrest hospitals in Tulsa. Under certain conditions and for a limited time,
Hillcrest will have an option to repurchase a 49% interest in SouthCrest
Hospital at then fair market value, subject to minimum valuations and minimum
returns on investment to Triad; if Hillcrest were to exercise the option, Triad
would retain governance of the facility and continue consolidating it for
financial reporting. The purchase was funded with a draw on Triad's delay draw
loan. For the years ended December 31, 2000 and 1999, this facility had net
revenue of $56.1 million and $16.6 million, respectively, and losses before
income taxes of $6.8 million and $12.9 million, respectively. Triad recorded
equity in earnings (loss) of affiliate of $(2.7) million and $(6.4) million for
the years ended December 31, 2000 and 1999, respectively, related to this joint
venture.

On September 28, 2000, Triad's bank credit facility was amended to add a $200
million delayed draw term loan, which can be drawn upon in up to ten advances
from the date of the amendment until one year after the amendment. Principal
payments on amounts outstanding at the end of the delay draw term period are due
quarterly beginning February 2002 until May 2005. The delay draw term loan bears
interest at LIBOR plus 3.0%. Advances of $51.0 million were made as of December
31, 2000. The amendment also modifies the requirements under certain financial
ratios and tests and the restrictions on assets sales and capital expenditures.
In conjunction with the amendment, Triad paid $1.5 million in debt issue costs,
which will be amortized over the life of the loan.

Triad has a $125.0 million line of credit which bears interest at LIBOR plus
3.0%, of which approximately $2.0 million has been allocated to letters of
credit securing certain lease obligations. No amounts were outstanding under the
revolving credit facility at December 31, 2000.

Triad announced on October 19, 2000 that it entered into an agreement to
acquire Quorum for approximately $2.4 billion in cash, stock and assumption of
debt. Under the terms of the agreement, Quorum shareholders will receive $3.50
in cash and 0.4107 shares of Triad common stock for each outstanding share of
Quorum stock, plus cash in lieu of fractional shares of Triad common stock.
However, if the average closing price of a share of Triad common stock over the
20 trading-day period ending 5 business days prior to the date of the Quorum
special meeting of stockholders is less than $21.00, Quorum may notify Triad of
its intention to terminate the merger agreement. In that event, Triad will have
the right to increase the $3.50 cash portion of the merger consideration by the
amount equal to the difference between $21.00 and the average closing price of a
share of Triad common stock over the 20 trading-day trading period ending 5
business days prior to the Quorum special meeting, multiplied by .4107. If Triad
exercises that right, Quorum will not be permitted to terminate the merger
agreement. After the transaction Triad will have revenues of approximately $3.0
billion, 50 hospitals, 14 ambulatory surgery centers and 9,000 licensed beds,
including 282 beds that are in joint venture hospitals and 726 beds that are in
hospitals leased to third parties.

The transaction is subject to approval of each company's shareholders,
antitrust clearance and other conditions customary for transactions of this
type. The transaction is also conditioned upon Triad's and HCA's receipt of an
acceptable private letter ruling from the Internal Revenue Service that the
merger and related transactions will not cause the spin-off of Triad or
LifePoint from HCA or the restructuring transactions that preceded the spin-off
to fail to qualify for the tax treatment specified in IRS private letter rulings
previously issued to HCA. The merger is further conditioned upon the receipt of
necessary financing. Triad has received a financing commitment of $1.7 billion
from its investment banker to fund the cash purchase price and to refinance
certain existing debt of Triad and Quorum.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which was required to be adopted in years
beginning after June 15, 1999. In May 1999, the effective date of SFAS 133 was
deferred until years beginning after June 15, 2000. Because of Triad's minimal
use of derivatives, management does not anticipate that the adoption of the new
statement will have a significant effect on the results of operations or the
financial position of Triad.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"), which was required to be adopted in the first quarter of years beginning
after December 15, 1999. In June 2000, the effective date of SAB 101 was delayed
until the fourth quarter of 2000 for years beginning after December 15, 1999.
The application of SAB 101 did not have a significant effect on the results of
operations or the financial position of Triad.

In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25" ("FIN 44"), which became effective on July 1, 2000 covering transactions
occurring after December 15, 1998. FIN 44 clarifies the application of APB
Opinion No. 25 relating to the definition of an employee, criteria for
determining whether a plan qualifies as a noncompensatory plan, accounting
consequences of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. The application of FIN 44 did not have a significant
effect on the results of operations or the financial position of Triad.

Contingencies

alleges that Quorum's directors breached their fiduciary duties of loyalty and
due care by failing to implement reasonable procedures designed to maximize
shareholder value and to obtain the highest price reasonably available for
Quorum's shareholders. The complaint alleges that Triad aided and abetted
Quorum's directors' breach of their fiduciary duties. The complaint seeks an
injunction preventing consummation of the merger, or Quorum's business
combination with any third party, until Quorum adopts and implements a procedure
or process, such as an auction, to obtain the highest possible price for Quorum.
Alternatively, the complaint seeks compensatory damages in the event the
acquisition is consummated. The complaint also seeks an award of costs and
attorneys' fees. Triad believes the claims are without merit and will vigorously
defend the action.

HCA is currently the subject of several Federal investigations into certain
of its business practices, as well as governmental investigations by various
states. HCA is cooperating in these investigations and understands, through
written notice and other means, that it is a target in these investigations.
Given the breadth of the ongoing investigations, HCA expects additional
subpoenas and other investigative and prosecutorial activity to occur in these
and other jurisdictions in the future. HCA is the subject of a formal order of
investigation by the SEC. HCA understands that the SEC's investigation includes
the anti-fraud, insider trading, periodic reporting and internal accounting
control provisions of the Federal securities laws.

In July 1999, Olsten Corporation and its subsidiary, Kimberly Home Health
(neither of which is affiliated with HCA), announced that they would pay $61
million to settle allegations that both companies defrauded the Medicare
program. Kimberly pled guilty to three separate felony charges (conspiracy, mail
fraud and violating the Medicare Anti-Kickback statute) filed by the U.S.
Attorneys in the Middle and Southern Districts of Florida and the Northern
District of Georgia. While HCA was not specifically named in these guilty pleas,
the guilty pleas refer to the involvement of a "Company A" or a "company not
named as a defendant." HCA has disclosed that it believes these references refer
to HCA or its subsidiaries.

court by certain purported stockholders of HCA against certain of its current
and former officers and directors alleging breach of fiduciary duty, and failure
to take reasonable steps to ensure that HCA did not engage in illegal practices
thereby exposing it to significant damages.

On December 14, 2000, HCA also announced that it had signed an agreement with
the Criminal Division of the Department of Justice to resolve all pending
Federal criminal actions against HCA relating to health care billing issues. As
part of the criminal agreement, HCA paid the government $95 million and will
enter certain pleas in respect of the criminal actions. The criminal agreement
is conditional upon entry of certain guilty pleas in Federal district court and
necessary court approvals, which HCA expects will occur in the first quarter of
2001. HCA also stated that representatives of state attorneys general have
agreed to recommend to state officials that HCA be released from corresponding
criminal liability in all states in which it conducts business.

. any civil, criminal or administrative liability under the Internal Revenue
Code;

. any other criminal liability;

. any administrative liability, including mandatory exclusion from Federal
health care programs;

. any liability to the United States (or its agencies) for any conduct other
than the conduct covered in the government's investigation;

. any express or implied warranty claims or other claims for defective or
deficient products or services, including quality of goods and services,
provided by HCA;

. any claims for personal injury or property damage or for other similar
consequential damages arising from the conduct subject to the
investigation; and

. any civil or administrative claims of the United States against
individuals.

distribution and that relate to the proceedings described above. HCA has also
agreed that, in the event that any hospital owned by Triad at the time of the
distribution is permanently excluded from participation in the Medicare and
Medicaid programs as a result of the proceedings described above, then HCA will
make a cash payment to Triad, in an amount (if positive) equal to five times the
excluded hospital's 1998 income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of long-lived
assets, minority interests and income taxes, as set forth on a schedule to the
distribution agreement, less the net proceeds of the sale or other disposition
of the excluded hospital. Triad has agreed that, in connection with the
government investigations described above, it will participate with HCA in
negotiating one or more compliance agreements setting forth each of HCA's and
Triad's agreements to comply with applicable laws and regulations.

Triad is subject to claims and suits arising in the ordinary course of
business, including claims for personal injuries or wrongful restriction of, or
interference with, physicians' staff privileges. In certain of these actions the
claimants may seek punitive damages against Triad, which are usually not covered
by insurance. It is management's opinion that the ultimate resolution of these
pending claims and legal proceedings will not have a material adverse effect on
Triad's results of operations or financial position.

Effects of Inflation and Changing Prices

Various federal, state and local laws have been enacted that, in certain
cases, limit Triad's ability to increase prices. Revenues for acute care
hospital services rendered to Medicare patients are established under the
federal government's prospective payment system. Net Medicare revenues
approximated 29.6% in 2000, 31.9% in 1999 and 35.2% in 1998.

Management believes that hospital industry operating margins have been, and
may continue to be, under significant pressure because of deterioration in
pricing flexibility and payer mix, and growth in operating expenses in excess of
the increase in prospective payments under the Medicare program. Although
Medicare prospective payments will increase in 2001, management expects that the
average rate of increase in Medicare prospective payments will decline slightly
in 2002 and 2003 not withstanding the enactment of the Refinement Act and BIPA.
In addition, as a result of increasing regulatory and competitive pressures,
Triad's ability to maintain operating margins through price increases to non-
Medicare patients is limited.

Health Care Reform

In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures that would
significantly affect the services provided by and reimbursement to health care
providers in Triad's markets. The cost of certain proposals would be funded in
significant part by reduction in payments by government programs, including
Medicare and Medicaid, to health care providers, similar to the reductions
incurred as part of the Balanced Budget Act as previously discussed. Future
health care legislation or other changes in the administration or interpretation
of governmental health care programs may have a material adverse effect on
Triad's business, financial condition, results of operations or prospects.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Triad is exposed to market risk related to changes in interest rates. No
derivatives are currently used to alter the interest rate characteristics of
Triad's debt instruments.

With respect to Triad's interest-bearing liabilities, approximately $267.1
million of long-term debt at December 31, 2000 is subject to variable rates of
interest, while the remaining balance in long-term debt of $323.6 million at
December 31, 2000 is subject to fixed rates of interest. The estimated fair
value of Triad's total long-term debt was $615.0 million at December 31, 2000.
The estimates of fair value are based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities. Based on a
hypothetical 1% increase in interest rates, the potential annualized losses in
future pretax earnings would be approximately $2.7 million. The impact of such a
change in interest rates on the carrying value of long-term debt would not be
significant. The estimated changes to interest expense and the fair value of
long-term debt are determined considering the impact of hypothetical interest
rates on Triad's borrowing cost and long-term debt balances. These analyses do
not consider the effects, if any, of the potential changes in Triad's credit
ratings or the overall level of economic activity. Further, in the event of a
change of significant magnitude, management would expect to take actions
intended to further mitigate its exposure to such change.

Item 8. Financial Statements and Supplementary Data

Information with respect to this Item is contained in Triad's consolidated
financial statements indicated in the Index on Page F-1 of this Annual Report on
Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Previously reported in Triad's current reports on Form 8-K filed November 23,
1999 and November 28, 2000.

Part III

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item is set forth under the headings
"Election of Directors" and "Named Executive Officers Who Are Not Directors" in
the definitive proxy materials of Triad to be filed in connection with its 2001
Annual Meeting of Stockholders. The information required by this Item to be
contained in such definitive proxy materials is incorporated herein by
reference.

Item 11. Executive Compensation

The information required by this Item is set forth under the heading
"Executive Compensation" in the definitive proxy materials of Triad to be filed
in connection with its 2001 Annual Meeting of Stockholders, which information is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is set forth under the heading "Stock
Ownership of Certain Beneficial Owners and Management" in the definitive proxy
materials of Triad to be filed in connection with its 2001 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is set forth under the heading "Certain
Transactions" in the definitive proxy materials of Triad to be filed in
connection with its 2001 Annual Meeting of Stockholders, which information is
incorporated herein by reference.

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of the report:

1. Financial Statements - The accompanying index to financial statements
on page F-1of this Annual Report on From 10-K is provided in response
to this item.

2. List of Financial Statement Schedules - All schedules are omitted
because the required information is not present, not present in
material amounts or presented within the financial statements.

3. List of Exhibits

(a) Exhibits

Exhibit
No. Description
--- -----------
2.1 Distribution Agreement dated May 11, 1999 by and among
Columbia/HCA, Triad Hospitals, Inc. and LifePoint Hospitals,
Inc., incorporated by reference form Exhibit 2.1 to Triad
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
2.2 Agreement and Plan of Merger, dated as of October 18, 2000,
by and between Quorum HealthGroup, Inc. and Triad Hospitals,
Inc. (the "Merger Agreement"), incorporated by reference
from Triad Hospitals' Current Report on Form 8-K dated
October 18, 2000.
3.1 Certificate of Incorporation of Triad, incorporated by
reference from Exhibit 3.1 to Triad Hospitals' Quarterly
Report on Form 10-Q, for the quarter ended March 31, 1999.
3.2 Bylaws of Triad Hospitals as amended February 18, 2000.
3.3 Certificate of Incorporation of Triad Holdings, incorporated
by reference from Triad Hospitals' Annual Report on Form 10-
K for the year ended December 31, 1999.
3.4 Bylaws of Triad Holdings, incorporated by reference from
Triad Hospitals' Annual Report on Form 10-K for the year
ended December 31, 1999.
4.1 Indenture (including form of 11% Senior Subordinated Notes
due 2009) dated as of May 11, 1999 , between Healthtrust and
Citibank N.A. as Trustee, incorporated by reference from
Exhibit 4.2(a) to Triad Hospitals' Quarterly Report on Form
10-Q, for the quarter ended March 31, 1999.
4.2 Form of 11% Senior Subordinated Notes due 2009 (filed as
part of Exhibit 4.1).
4.3 Registration Rights Agreement dated as of May 11, 1999
between Healthtrust and the Initial Purchasers named
therein, incorporated by reference from Exhibit 4.4 (a) to
Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999 .
4.4 Triad Assumption Agreement dated May 11, 1999 between
Healthtrust and Triad Hospitals, incorporated by reference
from Exhibit 4.4(b) to Triad Hospitals' Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1999.
4.5 Holdings Assumption Agreement dated May 11, 1999 between
Triad Hospitals, Inc. and Triad Holdings, incorporated by
reference form Exhibit 4.4(c) to Triad Hospitals' Quarterly
Report on Form 10-Q, for the quarter ended March 31, 1999.
4.6 Guarantor Assumption Agreements dated May 11, 1999 between
Triad Holdings and the Guarantors signatory thereto,
incorporated by reference from Exhibit 4.4 (d) to Triad
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
10.1 Tax Sharing and Indemnification Agreement, dated May 11,
1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from

Exhibit 10.1 to Triad Hospitals' Quarterly Report on Form
10-Q, for the quarter ended March 31, 1999.
10.2 Benefits and Employment Matters Agreement, dated May 11,
1999 by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.2
to Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.3 Insurance Allocation and Administration Agreement, dated May
11, 1999, by and among Columbia/HCA, LifePoint Hospitals and
Triad Hospitals, incorporated by reference from Exhibit 10.3
to Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.4 Transitional Services Agreement dated May 11, 1999 by and
between Columbia/HCA and Triad Hospitals, incorporated by
reference from Exhibit 10.4 to Triad Hospitals' Quarterly
Report on Form 10-Q, for the quarter ended March 31, 1999.
10.5 Computer and Data Processing Services Agreement dated May
11, 1999 by and between Columbia Information Systems, Inc.
and Triad Hospitals, incorporated by reference from Exhibit
10.5 to Triad Hospitals' Quarterly Report on Form 10-Q, for
the quarter ended March 31, 1999.
10.6 Agreement to Share Telecommunications Services dated May 11,
1999 by and between Columbia Information Systems, Inc. and
Triad Hospitals, incorporated by reference from Exhibit 10.6
to Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.7 Year 2000 Professional Services Agreement dated May 11, 1999
by and between CHCA Management Services, L.P. and Triad
Hospitals, incorporated by reference from Exhibit 10.7 to
Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.8 Sub-Lease Agreement dated May 11, 1999 by and between Med-
Point LLC and Triad Hospitals, incorporated by reference
from Exhibit 10.8 to Triad Hospitals' Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1999.
10.9 Sub-Lease Agreement dated May 11, 1999 by and between
Healthtrust and Triad Hospitals, incorporated by reference
from Exhibit 10.9 to Triad Hospitals' Quarterly Report on
Form 10-Q, for the quarter ended March 31, 1999.
10.10 Triad Hospitals, Inc. 1999 Long-Term Incentive Plan,
incorporated by reference from Exhibit 10.10 to Triad
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
10.11 Triad Hospitals, Inc. Executive Stock Purchase Plan,
incorporated by reference from Exhibit 10.11 to Triad
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
10.12 Triad Hospitals, Inc. Management Stock Purchase Plan,
incorporated by reference from Exhibit 10.12 to Triad
Hospitals' Quarterly Report on Form 10-Q, for the quarter
ended March 31, 1999.
10.13 Triad Hospitals, Inc. Outside Directors Stock and Incentive
Compensation Plan, incorporated by reference from Exhibit
10.13 to Triad Hospitals' Quarterly Report on Form 10-Q, for
the quarter ended March 31, 1999.
10.14 Credit Agreement, dated as of May 11, 1999 among
Healthtrust, Inc. - The Hospital Company and certain
subsidiaries from time to time party thereto, as Borrower,
the several lenders from time to time thereto, Citicorp USA,
Inc. and The Chase Manhattan Bank as syndication agents,
Credit Lyonnais New York Branch and Societe Generale as co-
agents, Bank of America National Trust and Savings
Association as administrative agent and NationsBanc
Montgomery Securities, LLC as lead arranger and sole book
manager, incorporated by reference from Exhibit 10.14 to
Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.15 Assumption Agreement dated as of May 11, 1999 by and between
Bank of America National Trust and Savings Association and
Triad Hospitals, incorporated by reference from Exhibit
10.15 to Triad Hospitals' Quarterly Report on Form 10-Q, for
the quarter ended March 31, 1999.

10.16 Assumption Agreement dated as of May 11, 1999 by and between
Bank of America National Trust and Savings Association and
Triad Holdings, incorporated by reference from Exhibit 10.16
to Triad Hospitals' Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1999.
10.17 Amendment No. 1 dated as of September 28, 2000, to the
Credit Agreement, dated as of May 11, 1999 among
Healthtrust, Inc. - The Hospital Company and certain
subsidiaries from time to time party thereto, as Borrower,
the several lenders from time to time thereto, Citicorp USA,
Inc. and The Chase Manhattan Bank as syndication agents,
Credit Lyonnais New York Branch and Societe Generale as co-
agents, Bank of America National Trust and Savings
Association as administrative agent and Nations Banc
Montgomery Securities, LLC as lead arranger and sale back
manager, incorporated by reference from Exhibit 10.1 to
Triad Hospitals' Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
16.1 Statement re: Change in Certifying Accountant, incorporated
by reference from Exhibit 16.1 to Triad Hospitals' Report on
Form 8-K dated November 23, 1999.
16.2 Statement re: Change in Certifying Accountant, incorporated
by reference from Exhibit 16.1 to Triad Hospitals' Report on
Form 8-K dated November 30, 2000.
21.1 List of the Subsidiaries of Triad Holdings incorporated by
reference from Exhibit 21.1 to Amendment No. 1 to Triad
Holdings, Registration Statement on Form S-4 October 22,
1999.
23.1 Consent of Ernst & Young LLP.

(b) Reports on Form 8-K

On October 18, 2000, Triad reported that they had entered
into a merger agreement with Quorum.

On October 31, 2000, Triad reported that they had issued a
press release of its third quarter earnings.

On November 28, 2000, Triad reported a change in certifying
accountants.

On December 6, 2000, Triad reported that they had received
an amended and restated credit facilities commitment letter
to provide debt contemplated in the merger agreement with
Quorum.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Triad Hospitals, Inc.
By: /s/ JAMES D. SHELTON
----------------------
James D. Shelton
Chairman, President and Chief Executive
Officer

Dated: February 28, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JAMES D. SHELTON Chairman of the Board, February 28, 2001
-------------------------------
James D. Shelton President and Chief Executive
Officer; Director (Principal
Executive Officer)

/s/ MICHAEL J. PARSONS Executive Vice President February 28, 2001
-------------------------------
Michael J. Parsons and Chief Operating Officer;
Director

/s/ BURKE W. WHITMAN Executive Vice President and February 28, 2001
-------------------------------
Burke W. Whitman Chief Financial Officer and
Treasurer (Principal Accounting
Officer)

/s/ THOMAS F. FRIST, III Director February 28, 2001
-------------------------------
Thomas F. Frist, III

/s/ DALE V. KESLER Director February 28, 2001
-------------------------------
Dale V. Kesler

/s/ THOMAS G. LOEFFLER, Esq. Director February 28, 2001
-------------------------------
Thomas G. Loeffler, Esq.

/s/ UWE E. REINHARDT, Ph.D Director February 28, 2001
-------------------------------
Uwe E. Reinhardt, Ph.D

/s/ MARVIN RUNYON Director February 28, 2001
-------------------------------
Marvin Runyon

/s/ GALE SAYERS Director February 28, 2001
-------------------------------
Gale Sayers

/s/ DONALD B. HALVERSTADT, M.D. Director February 28, 2001
-------------------------------
Donald B. Halverstadt, M.D.

/s/ BARBARA A. DURAND, Ed.D. Director February 28, 2001
-------------------------------
Barbara A. Durand, Ed.D.

Pursuant to the requirements of Section 13 or15(d) 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.

Triad Hospitals Holdings, Inc.

By: /s/ BURKE W. WHITMAN
----------------------
Burke W. Whitman
Director

Dated: February 28, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JAMES D. SHELTON President (Principal Executive Officer) February 28, 2001
-----------------------------
James D. Shelton

/s/ BURKE W. WHITMAN Treasurer; Director (Principal Financial and February 28, 2001
-----------------------------
Burke W. Whitman Accounting Officer)

/s/ DONALD P. FAY Executive Vice President and Secretary; Director February 28, 2001
-----------------------------
Donald P. Fay

/s/ W. STEPHEN LOVE Director February 28, 2001
-----------------------------
W. Stephen Love

INDEX TO FINANCIAL STATEMENTS

TRIAD HOSPITALS, INC. CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors................................................................. F-2

Consolidated Statements of Operations - for the years ended December 31, 2000, 1999 and 1998... F-3

Consolidated Balance Sheets--December 31, 2000 and 1999........................................ F-4

Consolidated Statements of Equity--for the years ended December 31, 2000, 1999 and 1998........ F-5

Consolidated Statements of Cash Flows - for the years ended December 31, 2000, 1999
and 1998.................................................................................... F-6

Notes to Consolidated Financial Statements..................................................... F-7

F-1

Report of Independent Auditors

To the Board of Directors and Stockholders
Triad Hospitals, Inc.

We have audited the accompanying consolidated balance sheets of Triad
Hospitals, Inc. (see Note 1) as of December 31, 2000 and 1999 and the related
consolidated statements of operations, equity and cash flows for each of the
three years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of management of Triad Hospitals, Inc. (the
"Company"). Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Triad
Hospitals, Inc. at December 31, 2000 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.

Dallas, Texas
February 14, 2001

F-2

TRIAD HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31 2000, 1999 AND 1998
(dollars in millions, except per share amounts)

2000 1999 1998
-------- -------- --------

Revenues............................................................. $1,235.5 $1,329.1 $1,588.7

Salaries and benefits................................................ 511.1 570.9 700.5
Supplies............................................................. 185.6 200.1 241.6
Other operating expenses............................................. 259.8 301.5 362.6
Provision for doubtful accounts...................................... 103.6 129.0 138.4
Depreciation......................................................... 76.1 89.8 99.0
Amortization......................................................... 7.1 8.7 10.6
Interest expense allocated from HCA.................................. --- 22.5 66.2
Interest expense..................................................... 62.2 45.2 2.7
Interest income...................................................... (4.9) (2.5) ---
ESOP expense......................................................... 7.1 3.7 ---
Management fees allocated from HCA................................... --- 8.9 29.3
Gain on sales of assets.............................................. (7.9) (8.6) ---
Impairments of long-lived assets..................................... 8.0 69.2 55.1
-------- -------- --------
1,207.8 1,438.4 1,706.0
-------- -------- --------
Income (loss) from continuing operations before minority interests,
equity in earnings (loss) and income taxes.......................... 27.7 (109.3) (117.3)
Minority interests in earnings of consolidated entities.............. (9.0) (8.7) (11.0)
Equity in earnings (loss) of affiliates.............................. (1.4) (3.1) 3.4
-------- -------- --------
Income (loss) from continuing operations before income taxes......... 17.3 (121.1) (124.9)
Income tax (provision) benefit....................................... (12.9) 25.5 39.4
-------- -------- --------
Income (loss) from continuing operations............................. 4.4 (95.6) (85.5)
Discontinued operations:
Loss from operations, net of income tax benefit of $0.7.......... --- --- (1.6)
-------- -------- --------
Net income (loss).................................................... $ 4.4 $ (95.6) $ (87.1)
======== ======== ========
Basic loss per share:
Income (loss) from continuing operations........................... $ 0.14 $ (3.12) $ (2.80)
Loss from discontinued operations.................................. --- --- (0.05)
-------- -------- --------
Net income (loss)............................................... $ 0.14 $ (3.12) $ (2.85)
======== ======== ========
Diluted loss per share:
Income (loss) from continuing operations........................... $ 0.13 $ (3.12) $ (2.80)
Loss from discontinued operations.................................. --- --- (0.05)
-------- -------- --------
Net income (loss)............................................... $ 0.13 $ (3.12) $ (2.85)
======== ======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-3

TRIAD HOSPITALS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(dollars in millions)

2000 1999
-------- --------

ASSETS
Current assets:
Cash and cash equivalents......................................... $ 6.7 $ 70.9
Accounts receivable, less allowances for doubtful accounts of
$122.9 and $156.7 at December 31, 2000 and 1999, respectively.. 171.1 150.6
Inventories....................................................... 34.7 32.5
Deferred income taxes............................................. 40.5 46.5
Prepaid expenses.................................................. 9.2 4.6
Other............................................................. 66.0 48.3
-------- --------
328.2 353.4
Property and equipment, at cost:
Land.............................................................. 71.9 63.4
Buildings and improvements........................................ 540.7 485.8
Equipment......................................................... 662.2 626.5
Construction in progress (estimated cost to complete and
equip after December 31, 2000--$58.2).......................... 51.1 44.8
-------- --------
1,325.9 1,220.5
Accumulated depreciation.......................................... (572.9) (520.8)
-------- --------
753.0 699.7
Intangible assets, net of accumulated amortization of $61.1 and
$53.8 at December 31, 2000 and 1999, respectively.................... 227.8 175.9
Investment in and advances to affiliates................................ 79.4 103.0
Other................................................................... 12.1 9.1
-------- --------
Total assets............................................................ $1,400.5 $1,341.1
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................................. $ 67.4 $ 57.7
Accrued salaries.................................................. 31.8 32.1
Current portion of long-term debt................................. 9.0 18.3
Other current liabilities......................................... 28.1 57.7
-------- --------
136.3 165.8
Long-term debt.......................................................... 581.7 537.1
Other liabilities....................................................... 9.6 0.7
Deferred taxes.......................................................... 49.2 30.6
Commitments and contingencies........................................... --- ---
Minority interests in equity of consolidated entities................... 50.0 47.0
Stockholders' equity:
Common stock .01 par value: 90,000,000 shares authorized,
34,783,816 and 33,943,282 shares issued and outstanding at
December 31, 2000 and 1999, respectively....................... 0.4 0.3
Additional paid-in capital........................................ 659.3 653.4
Unearned ESOP compensation and stockholder notes receivable....... (36.7) (40.1)
Accumulated deficit............................................... (49.3) (53.7)
-------- --------
Total stockholders' equity........................................ 573.7 559.9
-------- --------
Total liabilities and stockholders' equity.............................. $1,400.5 $1,341.1
======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

F-4

TRIAD HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(dollars in millions)

Unearned
ESOP Equity
Common Additional Compensation Investments Total
Stock Paid-in and Stockholder Accumulated by Stockholders'
-----
Shares Amount Capital Notes Receivable Deficit HCA Equity
------ ------ ------- --------------- ------- --- ------

Balance January 1, 1998................ --- $ --- $ --- $ --- $ --- $ 587.8 $ 587.8
Net loss............................. --- --- --- --- --- (87.1) (87.1)
---------- ------ -------- ------- -------- ------- -------
Balance December 31, 1998.............. --- --- --- --- --- 500.7 $ 500.7
Elimination of intercompany balances
and other equity transactions...... --- --- --- --- --- 800.1 800.1
Assumption of long-term debt
(net of discount).................. --- --- --- --- --- (649.0) (649.0)
Spin-off of Triad shares to HCA
shareholders....................... 29,898,688 0.3 609.6 --- 41.9 (651.8) ---
Issuance of common stock for
Executive Stock Purchase Plan
loans.............................. 970,000 --- 9.1 (9.1) --- --- ---
Issuance of common stock under
employee plans..................... 74,594 --- --- --- --- --- ---
Issuance of common shares for ESOP
note receivable.................... 3,000,000 --- 34.5 (34.5) --- --- ---
ESOP compensation earned............. --- --- 0.2 3.5 --- --- 3.7
Net loss............................. --- --- --- --- (95.6) --- (95.6)
---------- ------ -------- ------- -------- ------- -------
Balance December 31, 1999.............. 33,943,282 0.3 653.4 (40.1) (53.7) --- 559.9
Issuance of common stock under
employee plans..................... 219,609 --- 2.8 --- --- --- 2.8
Stock options exercised.............. 620,925 0.1 7.0 --- --- --- 7.1
Income tax benefit from stock
options exercised.................. --- --- (1.1) --- --- --- (1.1)
ESOP compensation earned............. --- --- 3.7 3.4 --- --- 7.1
Stock compensation expense........... --- --- 0.9 --- --- --- 0.9
Spin-off transactions with HCA....... --- --- (7.4) --- --- --- (7.4)
Net income........................... --- --- --- --- 4.4 --- 4.4
---------- ------ -------- ------- -------- ------- -------
Balance December 31, 2000.............. 34,783,816 $ 0.4 $ 659.3 $ (36.7) $ (49.3) $ --- $ 573.7
========== ====== ======== ======= ======== ======= =======

The accompanying notes are an integral part of the consolidated financial
statements.

F-5

TRIAD HOSPITALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(dollars in millions)

2000 1999 1998
----- ---- ----

Cash flows from operating activities:
Net income (loss).......................................................... $ 4.4 $ (95.6) $ (87.1)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for doubtful accounts......................................... 103.6 129.0 138.4
Depreciation and amortization........................................... 83.2 98.5 109.6
ESOP expense............................................................ 7.1 3.7 ---
Minority interests...................................................... 9.0 8.7 11.0
Equity in (earnings) loss of affiliates................................. 1.4 3.1 (3.4)
Gain on sales of assets................................................. (7.9) (8.6) ---
Deferred income tax provision (benefit)................................. 11.8 (27.3) (24.6)
Impairment of long-lived assets......................................... 8.0 69.2 55.1
Loss (income) from discontinued operations.............................. --- --- 1.6
Increase (decrease) in cash from operating assets and liabilities (net
of acquisitions):
Accounts receivable.................................................. (116.9) (94.1) (145.9)
Inventories and other assets......................................... (22.0) 14.4 (2.1)
Accounts payable and other current liabilities....................... (19.9) 56.3 (18.9)
Other................................................................ 9.7 (2.1) (0.1)
------- ------- -------
Net cash provided by operating activities......................... 71.6 155.2 33.6
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment........................................ (94.4) (132.7) (114.9)
Investment in and advances to affiliates................................... 22.7 (54.7) 0.7
Proceeds received on sale of assets........................................ 20.7 117.8 ---
Payments for acquisitions.................................................. (118.8) --- ---
Other...................................................................... (3.1) 11.9 5.9
------- ------- -------
Net cash used in investing activities............................. (172.9) (57.7) (108.3)
------- ------- -------
Cash flows from financing activities:
Payments of long-term debt................................................. (17.5) (114.2) (0.9)
Proceeds from long-term debt............................................... 51.0 --- ---
Proceeds from issuance of common stock..................................... 9.9 --- ---
Distributions to minority partners......................................... (6.3) (18.6) (13.1)
Increase in intercompany balances with HCA, net............................ --- 106.2 88.7
------- ------- -------
Net cash provided by (used in) financing activities............... 37.1 (26.6) 74.7
------- ------- -------
Change in cash and cash equivalents........................................... (64.2) 70.9 ---
Cash and cash equivalents at beginning of period.............................. 70.9 --- ---
------- ------- -------
Cash and cash equivalents at end of period.................................... $ 6.7 $ 70.9 $ ---
======= ======= =======

Cash paid for:
Interest...................................................................... $ 60.5 $ 59.2 $ 69.4
Income tax (refunds), net..................................................... $ 2.6 $ --- $ (15.9)

The accompanying notes are an integral part of the consolidated financial
statements.

F-6

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SPIN-OFF OF TRIAD HOSPITALS, INC.

On May 11, 1999, HCA Healthcare Corporation ("HCA") completed the spin-off of
Triad Hospitals, Inc. ("Triad") to its shareholders (the "Spin-off") by a pro
rata distribution of 29,898,688 shares of common stock.

On the Spin-off date, Triad became an independent, publicly owned company
encompassing the operations of what had comprised the Pacific Group of HCA. At
the Spin-off, the common shares of Triad were distributed to the record date
holders of HCA at a ratio of one share for every nineteen outstanding HCA
shares. Following the Spin-off, HCA had no ownership in Triad.

As of December 31, 2000, Triad's facilities included 29 general, acute care
hospitals and 13 ambulatory surgery centers located in the states of Alabama,
Arizona, Arkansas, California, Kansas, Louisiana, Missouri, New Mexico,
Oklahoma, Oregon, Texas and West Virginia. Two hospitals and one surgery center
included among these facilities are operated through 50/50 joint ventures that
are not consolidated for financial reporting purposes.

Triad has entered into separation and other related agreements (see NOTE 13)
governing the Spin-off transaction and Triad's subsequent relationship with HCA.
These agreements provide certain indemnifications for the parties, and provide
for the allocation of tax and other assets, liabilities and obligations arising
from periods prior to the Spin-off.

NOTE 2--ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements present Triad's financial
position, results of operations and cash flows as if Triad had been an
independent, publicly owned company for all periods presented. Certain
allocations of previously unallocated HCA's expenses, as well as computations of
separate tax provisions, have been made to facilitate such presentation. The
accompanying financial statements for the periods prior to the Spin-off were
prepared on the push down basis of the historical cost to HCA and represent the
combined financial position, results of operations and cash flows of Triad for
those periods.

The consolidated financial statements include the accounts of Triad and all
affiliated subsidiaries and entities controlled by Triad through Triad's direct
or indirect ownership of a majority voting interest. All intercompany
transactions have been eliminated. Investments in entities which Triad does not
control, but in which it has a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.

Use of Estimates

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

Reclassification

Certain prior year amounts have been reclassified to conform to the current
presentation.

F-7

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--ACCOUNTING POLICIES (continued)

Equity

Equity for the years ended December 31, 2000 and 1999 includes certain Spin-
off related transactions, such as elimination of intercompany balances with HCA
as of the Spin-off, reclassification of HCA's net investment in Triad to
additional paid in capital and certain post Spin-off settlements with HCA.

Equity as of December 31, 1998 represented the net investment in Triad by
HCA. It includes common stock, additional paid-in-capital and net earnings.

Revenues

Triad's health care facilities have entered into agreements with third-party
payers, including government programs and managed care health plans, under which
the facilities are paid based upon established charges, the cost of providing
services, predetermined rates per diagnosis, fixed per diem rates or discounts
from established charges.

Revenues are recorded at estimated net amounts due from patients, third-party
payers and others for health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as adjustments become known or as years are no longer subject to audit, review
or investigation. Laws and regulations governing the Medicare and Medicaid
programs are extremely complex and subject to interpretation. As a result, there
is at least a reasonable possibility that recorded estimates will change by a
material amount in the near term. The net adjustments to estimated settlements
resulted in increases to revenues of $8.6 million for the year ended December
31, 2000, decreases to revenues of $1.7 million for the year ended December 31,
1999 and increases to revenues of $3.0 million for the year ended December 31,
1998.

In association with ongoing federal investigations into certain of HCA's
business practices, applicable governmental agencies ceased the settlement of
cost reports. The settlement of cost reports started to resume during 1999. Due
to the cost reports not being settled, Triad is not receiving all of the updated
information which has historically been the basis used to adjust estimated
settlement amounts. At this time, Triad cannot predict when, or if, the
historical cost report settlement process will be completed. Management believes
that adequate provisions have been made for adjustments that may result from
final determination of amounts earned under these programs. The estimated net
cost report settlements as of December 31, 2000 and 1999 of approximately $41.1
and $35.9 million, respectively and are included as a reduction to accounts
receivable in the accompanying balance sheet. In connection with the Spin-off,
HCA agreed to indemnify Triad for any payments which it is required to make in
respect of Medicare, Medicaid and Blue Cross cost reports relating to periods
ending on or prior to the Spin-off, and Triad agreed to indemnify HCA for and
pay to HCA any payments received by it relating to such cost reports relating to
periods ending on or prior to the Spin-off. Triad will be responsible for the
filing of these cost reports and any terminating cost reports. Triad has
recorded a net receivable from HCA relating to the indemnification of $27.7 and
$28.0 million as of December 31, 2000 and 1999, respectively (See NOTE 13).

Triad provides care without charge to patients who are financially unable to
pay for the health care services they receive. Because Triad does not pursue
collection of amounts determined to qualify as charity care, they are not
reported in revenues.

F-8

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--ACCOUNTING POLICIES (continued)

Cash and Cash Equivalents

Cash equivalents consist of all investments with an original maturity of
three months or less.

Accounts Receivable

Accounts receivable are recorded at the estimated net realizable amounts from
federal and state agencies (under the Medicare, Medicaid and TRICARE programs),
managed care health plans, commercial insurance companies, employers and
patients. During the years ended December 31, 2000, 1999 and 1998, approximately
29.6%, 31.9% and 35.2%, respectively, of Triad's net revenues related to
patients participating in the Medicare program. Triad recognizes that revenues
and receivables from government agencies are significant to its operations, but
it does not believe that there are significant credit risks associated with
these government agencies. During the years ended December 31, 2000, 1999 and
1998 approximately 31.0%, 32.7% and 27.0%, respectively, of Triad's net revenues
related to patients in various managed care plans. Approximately half of Triad's
facilities are located in the states of Arizona and Texas. Triad does not
believe that there are any other significant concentrations of revenues from any
particular payer or geographic area that would subject it to any significant
credit risks in the collection of its accounts receivable

Inventories

Inventories of supplies are stated at the lower of cost (first-in, first-out)
or market.

Long-Lived Assets

(a) Property and Equipment

Property and equipment are stated at cost. Routine maintenance and repairs
are charged to expense as incurred. Expenditures that increase capacities or
extend useful lives are capitalized.

Depreciation expense, computed using the straight-line method, was $76.1
million, $89.8 million and $99.0 million for the years ended December 31, 2000,
1999, and 1998, respectively. Buildings and improvements are depreciated over
estimated useful lives ranging from 10 to 40 years. Equipment is depreciated
over estimated useful lives ranging from 3 to 10 years.

(b) Intangible Assets

Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities. These costs of $227.0 million and
$174.5 million at December 31, 2000 and 1999, respectively, are amortized using
the straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions and periods ranging from 5 to 20 years for physician
practice and clinic acquisitions. During the year ended December 31, 2000, these
costs were increased by $58.4 million from the acquisition of two facilities
(See NOTE 3). During the year ended December 31, 1999, these costs were reduced
by $83.7 million from sales of facilities and impairments of long-lived assets
(See NOTE 4 and 6). Noncompete agreements and debt issuance costs are amortized
based upon the terms of the respective contracts or loans. Amortization expense
was $7.1 million, $8.7 million and $10.6 million for the years ended December
31, 2000, 1999 and 1998, respectively.

F-9

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--ACCOUNTING POLICIES (continued)

When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, Triad prepares projections of the undiscounted future
cash flows expected to result from the use of the assets and their eventual
disposition. If the projections indicate that the recorded amounts are not
expected to be recoverable, such amounts are reduced to estimated fair value.

Income Taxes

Triad accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax (provision) benefit
consists of Triad's current (provision) benefit for federal and state income
taxes and the change in Triad's deferred income tax assets and liabilities.

For periods prior to the Spin-off, HCA filed consolidated federal and state
income tax returns which included all of its eligible subsidiaries, including
Triad. The provisions for income taxes (benefits) in the consolidated statements
of operations for all periods presented were computed on a separate return basis
(i.e., assuming Triad had not been included in a consolidated income tax return
with HCA).

General and Professional Liability Risks

HCA assumed the liability for all general and professional liability claims
incurred through the Spin-off. Subsequent to the Spin-off through December 31,
1999, Triad obtained first dollar insurance coverage on a claims incurred basis
from HCA's captive insurance company. On January 1, 2000, Triad changed its
general and professional liability insurance coverage to a self insured plan,
with excess loss policies. The cost of general and professional liability
coverage was determined by HCA's captive insurance company based on actuarially
determined estimates. The cost for the years ended December 31, 2000, 1999, and
1998 was approximately $22.2 million, $23.2 million and $27.0 million,
respectively. Reserve for general and professional liability risks are
actuarially determined, discounted using an interest rate of 6%. The reserve
was $9.5 million at December 31, 2000.

For periods after the Spin-off, Triad instituted its own self-insured
programs for workers compensation and health insurance. Prior to the Spin-off,
Triad participated in self-insured programs for workers' compensation and health
insurance administered by HCA. HCA retained sole responsibility for all workers'
compensation and health claims incurred prior to the Spin-off. The cost for
these programs is based upon claims paid, plus an actuarially determined amount
for claims incurred but not reported. Reserves for workers compensation were
$3.0 million and $3.3 million at December 31, 2000 and 1999, respectively. The
reserve for health claim liability risk of $4.6 million was funded as of
December 31, 2000. Reserves for health claim liability risk were $3.6 million
at December 31, 1999.

F-10

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--ACCOUNTING POLICIES (continued)

Management Fees

Prior to the Spin-off, corporate overhead expenses relating to various HCA
corporate general and administrative expenses were allocated to Triad based on
net revenues. In the opinion of HCA management, this allocation method was
reasonable.

Fair Value of Financial Instruments

SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
are reflected in the consolidated financial statements at fair value because of
the short-term maturity of these instruments. The fair value of long-term debt
was determined by using quoted market prices, when available, or discounted cash
flows to calculate these fair values.

Recent Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"), which was required to be adopted in the first quarter of years beginning
after December 15, 1999. In June 2000, the effective date of SAB 101 was
delayed until the fourth quarter of 2000 for years beginning after December 15,
1999. The application of SAB 101 did not have a significant effect on the
results of operations or the financial position of Triad.

NOTE 3--AQUISITIONS

F-11

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--AQUISITIONS (continued)

price of a share of Triad common stock over the 20 trading-day trading period
ending 5 business days prior to the Quorum special meeting, multiplied by .4107.
If Triad exercises that right, Quorum will not be permitted to terminate the
merger agreement.

The merger is subject to approval for each company's shareholders, antitrust
clearance and various other conditions generally customary for transactions of
this type. The merger is also conditioned upon Triad's and HCA's receipt of an
acceptable private letter ruling from the Internal Revenue Service that the
merger and related transactions will not cause the spin-off of Triad or
LifePoint Hospitals, Inc. from HCA or the restructuring transactions that
preceded the spin-off of Triad and LifePoint Hospitals, Inc. fail to qualify for
the tax treatment specified in IRS private letter rulings previously issued to
HCA. The merger is further conditioned upon the receipt of necessary financing.
Triad has received a financing commitment of $1.7 billion to fund the cash
purchase price and to refinance certain existing debt of Triad and Quorum.

Upon consummation of the transaction, Triad's board of directors will be
increased by the addition of two members of Quorum's current board. Triad
expects that the transaction will be completed in the first half of 2001. For
the years ended June 30, 2000, 1999 and 1998, Quorum had revenues of $1.8
billion, $1.7 billion and $1.6 billion, respectively, and net income of $55.5
million, $38.9 million and $86.7 million, respectively.

On June 23, 2000, Triad signed a definitive purchase agreement to acquire
hospitals in Denton, Texas and Lewisburg, West Virginia from NetCare Health
Systems, Inc. for a cash price of approximately $107.0 million plus
approximately $10.0 million in working capital. The definitive agreement also
included the acquisition of a hospital in Statesville, North Carolina, but Triad
assigned the rights to acquire this hospital to a third party in a simultaneous
closing. On September 29, 2000, Triad completed the closing of the Denton,
Texas hospital. The effective date of the Denton, Texas acquisition was October
1, 2000. Triad paid $69.0 million at the closing as a partial payment on the
acquisition of the Denton, Texas and Lewisburg, West Virginia hospitals. On
October 31, 2000, Triad paid $48.0 million as the final payment on the
acquisition and closed on the Lewisburg, West Virginia hospital. Triad also
incurred $0.3 million of acquisition costs for the two facilities.

The acquisition was recorded under the purchase method of accounting and,
therefore, the purchase price has been allocated to assets acquired and
liabilities assumed based on estimated fair values. The results of operations
of the acquired facilities were included in Triad's consolidated results of
operations from the acquisition dates. The estimated fair values of the assets
acquired and liabilities assumed relating to the acquisition is summarized below
(in millions):

F-12

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--AQUISITIONS (continued)

Working capital............ $ 8.3
Property and equipment..... 50.6
Goodwill................... 58.4
------
Purchase price allocation.. $117.3
======

Goodwill related to the acquisition is being amortized on a straight-line basis
over 40 years.

The following unaudited pro forma data summarizes the results of operations
of the periods indicated as if the acquisition had been completed as of the
beginning of the periods presented. The pro forma data gives effect to actual
operating results prior to the acquisition, adjusted to include the pro forma
effect of interest expense, amortization of goodwill and income taxes. The pro
forma results do not purport to be indicative of the results that would have
actually been obtained if the acquisition occurred as of the beginning of the
periods presented or that may be obtained in the future.

For the years ended December 31,
2000 1999
---- ----
Revenues............................. $ 1,308.2 $ 1,417.2
Net income (loss).................... $ 9.1 $ (89.9)
Income (loss) per share:
Basic.............................. $ 0.29 $ (2.93)
Diluted............................ $ 0.27 $ (2.93)

On June 1, 2000, Triad's partner in an ambulatory surgery center joint
venture in Arizona contributed the assets of an ambulatory surgery center to the
joint venture. Triad paid its partner $0.6 million for a majority interest in
these assets.

On February 5, 2001, Triad acquired the remaining 50% interest in the joint
venture that owns SouthCrest Hospital in Tulsa, Oklahoma from its not-for-profit
partner, Hillcrest Healthcare System ("Hillcrest"), for $44.6 million, the
amount of Hillcrest's investment in the venture. The acquisition consolidated
100% ownership and control of the hospital in Triad effective January 1, 2001.
Triad has an option to acquire an adjacent 26-acre parcel of land from Hillcrest
for future expansion. SouthCrest Hospital will continue to participate in
Hillcrest's joint contracting network that includes other Hillcrest hospitals in
Tulsa. Under certain conditions and for a limited time, Hillcrest will have an
option to repurchase a 49% interest in SouthCrest Hospital at the fair market
value, subject to minimum valuations and minimum returns on investment to Triad;
if Hillcrest were to exercise the option, Triad would retain governance of the
facility and continue consolidating it for financial reporting.

Summarized financial information for SouthCrest Hospital is as follows:

December 31,
------------
Summarized Balance Sheets 2000 1999
------------------------- ---- ----
Current assets $ 18.2 $ 14.5
Non-current assets 78.6 75.6
------ -------
Total assets $ 96.8 $ 90.1
====== =======

Current liabilities $ 5.9 $ 6.6
Non-current liabilities 17.6 96.4
------ -------
Total liabilities $ 23.5 $ 103.0
====== =======

F-13

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--AQUISITIONS (continued)

For the years ended December 31,
--------------------------------
Summarized Statement of Operations 2000 1999 1998
---------------------------------- ---- ---- ----

Revenues $ 56.1 $ 16.6 $ ---
Loss from continuing operations (6.8) (12.9) ---
Net income (6.8) (12.9) ---

NOTE 4--SALES AND CLOSURES

On December 14, 2000, Triad sold its hospital in Sherman, Texas, which was
designated as held for sale in 1999, for $16.0 million. A gain on the sale of
$2.0 million was recorded during the year ended December 31, 2000. For the year
ended December 31, 2000, 1999, and 1998, this facility had net revenues of $27.6
million, $28.7 million, and $26.3 million, respectively, and income (losses)
before impairment charges and income taxes of $1.4 million, $(1.6) million, and
$(7.0) million, respectively.

Triad closed its acute care hospital in San Diego, California on November 30,
2000. As of December 31, 2000, the carrying value of this facility was $8.3
million. For the year ended December 31, 2000, 1999, and 1998, this facility
had net revenue of $22.1 million, $26.0 million, and $23.0 million,
respectively, and income (losses) before impairment charges and income taxes of
$(8.9) million, $0.1 million, and $(0.5) million, respectively.

On March 31, 2000, Triad sold its limited partnership interest in a
rehabilitation hospital located in Tucson, Arizona for $4.0 million. A gain of
$4.2 million was recognized on the sale.

On February 11, 2000, Triad closed its acute care hospital in Roseburg,
Oregon, which was designated as held for sale. As of December 31, 2000, the
carrying value of this facility was $3.9 million. For the year ended December
31, 2000, 1999, and 1998, this facility had net revenues of $1.9 million, $21.8
million, and $21.5 million, respectively, and losses before impairment charges
and income taxes of $4.7 million, $5.6 million, and $6.6 million, respectively.

Triad sold the assets of its acute care hospital in DeQueen, Arkansas for
approximately $4.0 million plus approximately $0.5 million of assumed
liabilities on November 30, 1999. A loss on the sale of $0.5 million was
recorded during the year ended December 31, 1999. Triad retained the accounts
receivable and certain liabilities with a book value at December 31, 2000 and
1999 of $(0.8) million and $1.6 million, respectively. For the years ended
December 31, 1999 and 1998, this facility had net revenues of $11.5 million and
$14.1 million, respectively, and pre-tax losses before loss on sale of assets
and impairment charges of $4.2 million and $1.8 million, respectively.

Triad sold a majority of the assets of its acute care hospital in Phoenix,
Arizona for $29.2 million on November 30, 1999. Gains (losses) on the sale of
$1.3 million and $(3.8) million was recorded during the years ended December 31,
2000 and 1999, respectively. Triad retained the accounts receivable and certain
liabilities with a book value at December 31, 2000 and 1999 of $1.8 million and
$(0.8) million, respectively. For the years ended December 31, 1999 and 1998,
this facility had net revenues of $35.4 million and $65.4 million, respectively,
and pre-tax losses before loss on sale of assets and impairment charges of $21.5
million and $13.5 million, respectively.

On October 31, 1999 Triad sold its stock interest in a psychiatric hospital
in Kansas City, Missouri for $4.3 million. A gain on the sale of $0.6 million
was recorded during the year ended December 31, 1999. For the years ended
December 31, 1999 and 1998, this facility had net revenues of $8.0 million and
$10.2 million, respectively, and pre-tax income before gain on sale of assets
and impairment charges of $0.0 million and $0.4 million, respectively.

F-14

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SALES AND CLOSURES (continued)

Triad sold its acute care hospitals in Beaumont, Texas and Silsbee, Texas and
its interest in an ambulatory surgery center in Beaumont, Texas on September 30,
1999 for $13.7 million. Triad retained the accounts receivable and certain
liabilities with a net book value of $(0.5) million and $(1.7) million at
December 31, 2000 and 1999, respectively. A loss on the sale of $2.9 million was
recorded during the year ended December 31, 1999. For the years ended December
31, 1999 and 1998, these facilities had net revenues of $36.4 million and $59.6
million, respectively, and pre-tax losses before loss on sale of assets and
impairment charges of $15.1 million and $12.5 million, respectively.

Triad sold all of its assets in its acute care hospitals in Anaheim,
California and Huntington Beach, California and its interest in an ambulatory
surgery center in Anaheim, California on September 3, 1999 for $43.3 million. A
gain of $1.4 million on the sale was recorded during the year ended December 31,
1999. For the years ended December 31, 1999 and 1998, these facilities had net
revenues of $67.1 million and $95.8 million, respectively, and pre-tax losses
before gain on sale of assets and impairment charges of $3.5 million and $8.3
million, respectively.

Triad sold its joint venture facility in Amarillo, Texas on September 1, 1999
and received $23.1 million in net proceeds. A gain on the sale of $14.2 million
was recorded during the year ended December 31, 1999. Triad retained the
accounts receivable and certain liabilities with a net book value of $(0.3)
million at December 31, 1999. For the years ended December 31, 1999 and 1998,
this facility had net revenues of $6.6 million and $10.9 million, respectively,
and pre-tax income before gain on sale of assets and impairment charges of $0.3
million and $2.1 million, respectively.

On June 1, 1999, Triad completed the exchange of one hospital located in
Laredo, Texas for one hospital located in Victoria, Texas and $4.4 million in
cash.

Triad used the proceeds of the sales in 1999 to retire certain outstanding
indebtedness (see NOTE 8).

NOTE 5--INCOME TAXES

The income tax (provision) benefit for the years ended December 31, 2000,
1999 and 1998 consists of the following (dollars in millions):

2000 1999 1998
------ ------ ------

Current:
Federal................................................... $ --- $ --- $12.5
State..................................................... (1.1) (1.8) 2.3
Deferred:
Federal................................................... (9.7) 24.8 20.8
State..................................................... (2.1) 2.5 3.8
------ ----- -----
$(12.9) $25.5 $39.4
====== ===== =====

F-15

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--INCOME TAXES (continued)

A reconciliation of the federal statutory rate to the effective income tax
rate follows:

2000 1999 1998
---- ---- ----

Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 4.8 2.8 3.1
Non-deductible intangible assets............................ --- --- (6.5)
Non-deductible goodwill amortization........................ 13.1 (2.5) ---
Non-deductible impairment charges........................... 11.3 (11.5) ---
Non-deductible ESOP expense................................. 8.1 (0.1) ---
Other items, net............................................ 2.2 (2.6) (0.2)
---- ----- -----
Effective income tax rate................................... 74.5% 21.1% 31.4%
==== ===== =====

A summary of the items comprising the deferred tax assets and liabilities at
December 31 follows (dollars in millions):

2000 1999
----------------- ------------------
Assets Liabilities Assets Liabilities
---------- ----------- --------- -----------

Depreciation and fixed asset basis differences....................... $ --- $51.8 $--- $34.7
Accounts and other receivables....................................... 26.2 --- 33.4 ---
Net operating loss carryforwards..................................... 7.5 --- 9.7 ---
Compensation reserves................................................ 8.0 --- 6.1 ---
Other................................................................ 2.4 --- 2.3 ---
----- ----- ----- -----
44.1 51.8 51.5 34.7
Valuation allowances................................................. (1.0) --- (1.0) ---
----- ----- ----- -----
$43.1 $51.8 $50.5 $34.7
===== ===== ===== =====

As part of the Spin-off, HCA and Triad entered into a tax sharing and
indemnification agreement (See NOTE 13). The tax sharing and indemnification
agreement will not have an impact on the realization of deferred tax assets or
the payment of deferred tax liabilities of Triad except to the extent that the
temporary differences giving rise to such deferred tax assets and liabilities as
of the Spin-off are adjusted as a result of final tax settlements after the
Spin-off. In the event of such adjustments, the tax sharing and indemnification
agreement will provide for certain payments between HCA and Triad as
appropriate.

Deferred income taxes of $40.5 million and $46.5 million at December 31, 2000
and 1999, respectively, are included in current assets. Noncurrent deferred
income tax liabilities totaled $49.2 million and $30.6 million at December 31,
2000 and 1999, respectively. Current and noncurrent deferred taxes totaled $8.7
million net tax deferred liability and $15.8 million net tax deferred asset at
December 31, 2000 and 1999, respectively.

At December 31, 2000, state net operating loss carryforwards (expiring in
years 2001 through 2020) available to offset future taxable income approximated
$29.5 million. A significant portion of this net operating loss expires in 2014.
Utilization of net operating loss carryforwards in any one year may be limited
and, in certain cases, result in a reduction of deferred tax assets. Based on
available evidence, it is more likely than not that some portion of the state
net operating loss carryforwards will not be realized, therefore, a valuation
allowance of $1.0 million has been reflected as of December 31, 2000 and 1999.

At December 31, 2000, the federal net operating loss available to offset
future taxable income approximated $21 million. The federal operating loss
carryforward will expire in the year 2019. Pursuant to the tax sharing and
indemnification agreement, Triad is entitled to the tax benefit of such losses.

F-16

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--IMPAIRMENT OF LONG-LIVED ASSETS

Triad follows the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121 addresses accounting for the
impairment of long-lived assets and long-lived assets to be disposed of, certain
identifiable intangibles and goodwill related to those assets, and provides
guidance for recognizing and measuring impairment losses. The statement requires
that the carrying amount of impaired assets be reduced to fair value.

During the year ended December 31, 2000, Triad entered into negotiations to
cancel one of its physician management contracts, which was substantially
completed by December 31, 2000. Accordingly, the carrying value of the long-
lived assets associated with this contract of approximately $1.0 million was
reduced to fair value, based on estimated disposal value, resulting in a non-
cash charge of $0.9 million. For the year ended December 31, 2000, 1999 and
1998, this entity contributed revenues of $3.1 million, $3.5 million, and $3.9
million, respectively, and losses before impairment charges and income taxes of
$2.8 million, $3.9 million and $2.7 million, respectively.

During the year ended December 31, 2000, the carrying value of the long-lived
assets related to one facility that was closed on November 30, 2000 of $15.5
million, was reduced to fair value, based on the estimated selling value, for a
non-cash charge of $7.1 million. This facility had net revenues of $22.1
million, $26.0 million and $23.0 million, respectively, and income (losses)
before impairment charges and income taxes of $(8.9) million, $0.1 million and
$(0.5) million for the years ended December 31, 2000, 1999 and 1998,
respectively.

During the year ended December 31, 1999, Triad sold nine hospitals and one
psychiatric hospital (See NOTE 4). Triad decided to sell two general, acute care
hospitals that were identified as not compatible with Triad's operating plans,
based upon management's review of all facilities, and after giving consideration
to current and expected competition in each market, expected population trends
in each market and the current and expected capital needs in each market. During
the year ended December 31, 1999, the carrying values of the long-lived assets
related to five of the facilities sold and the two facilities to be sold, were
reduced to fair value, based on estimated selling values, for a total non-cash
charge of $66.1 million. These facilities had net revenues of approximately
$131.3 million and $168.9 million for the years ended December 31, 1999 and
1998, respectively. These facilities also contributed losses from continuing
operations before income tax benefit, gain on sale of assets and the asset
impairment charge of approximately $30.7 million and $34.1 million, for the
years ended December 31, 1999 and 1998, respectively. At December 31, 1999, the
carrying value of the long-lived assets relating to the remaining facilities to
be sold was $16.6 million. Triad closed one facility on February 11, 2000 and
sold the other of these facilities on December 14, 2000.

During the year ended December 31, 1999, Triad recorded further impairment
losses of $3.1 million related to one hospital facility where the recorded
intangible asset values were not deemed to be fully recoverable based upon the
operating results, trends and projected future cash flows. These assets will
continue to be used and are now recorded at estimated fair value, based upon
discounted, estimated future cash flows.

During the third and fourth quarters of 1998 Triad decided to sell certain
hospital facilities and surgery centers that were identified as not compatible
with Triad's operating plans, based upon management's review of all facilities,
and giving consideration to current and expected competition in each market,
expected population trends in each market and the current and expected capital
needs in each market. The carrying value of the long-lived assets related to
certain of these facilities (4 hospital facilities and one surgery center), of
approximately $75.7 million, was reduced fair value, based on estimates of
selling values, for a total non-cash charge of $31.1 million. For the year ended
December 31, 1998, these facilities to be divested had net revenues of
approximately $91.8 million and incurred losses from continuing operations
before income tax benefits and the asset impairment charge of approximately
$30.4 million. Triad completed the sales of these facilities during 1999.

F-17

TRIAD HOSPITALS, INC

.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--IMPAIRMENT OF LONG-LIVED ASSETS (continued)

Triad recorded, during the fourth quarter of 1998, impairment losses of
approximately $24.0 million related to one hospital facility in 1998, where the
recorded asset values were not deemed to be fully recoverable based upon the
operating results trends and projected future cash flows. These assets being
held and used are now recorded at estimated fair value, based upon discounted,
estimated future cash flows.

NOTE 7--DISCONTINUED OPERATIONS

During the fourth quarter of 1998, HCA and Triad completed the divestiture of
their home health businesses and received proceeds of approximately $3.9
million, which approximated the carrying value of the net assets of discontinued
operations. HCA and Triad implemented plans to sell the home health businesses
during the third quarter of 1997. The consolidated financial statements reflect
the results of operations and net assets of the home health businesses as
discontinued operations.

Triad recorded a loss from discontinued operations of $1.6 million (net of
tax benefits) in 1998. Triad was not able to reasonably estimate, at the time
the decision was made to sell the home health businesses, whether these
businesses would incur losses during the period they were being held for sale.
The ability to estimate operating results during the period these businesses
were being held for sale was negatively impacted by certain changes in Medicare
reimbursement rates, and the need to obtain certain regulatory approvals.

Revenues for the home health businesses disposed of were approximately $38.3
million for the year ended December 31, 1998.

NOTE 8--LONG-TERM DEBT

Components of long term debt at December 31 (in millions):

Carrying Amount Fair Value
--------------- ----------
2000 1999 2000 1999
---- ---- ---- ----

Tranche A term loan....................................... $ 21.5 $ 35.4 $ 21.5 $ 35.4
Tranche B term loan....................................... 194.6 196.6 194.6 196.6
Senior Subordinated Debt.................................. 316.9 315.9 341.3 339.6
Delay Draw................................................ 51.0 --- 51.0 ---
Other..................................................... 6.7 7.5 6.6 7.5
------ ------ ------ ------
590.7 555.4 $615.0 $579.1
====== ======
Less current portion...................................... (9.0) (18.3)
------ ------
$581.7 $537.1
====== ======

In connection with the Spin-off, Triad assumed principal balances totaling
$673.8 million of debt financing from HCA. The debt consisted originally of a
$75.0 million asset sale bridge loan bearing interest at LIBOR plus 3.25% due
May 11, 2000, which Triad has repaid with proceeds received from the sale of
assets (see NOTE 4), a $65.0 million Tranche A term loan bearing interest at
LIBOR plus 3.25% (9.62% per annum at December 31, 2000) with principal amounts
due beginning in 1999 through 2004, a $200.0 million Tranche B term loan bearing
interest at LIBOR plus 4% (10.62% per annum at December 31, 2000) with principal
amounts due through 2005, and $315.2 million senior subordinated notes with a
face value of $325.0 million bearing interest at 11% due in 2009 with interest
payments due semi-annually. The accretion of the discount relating to the senior
subordinated notes was $1.0 million and $0.7 million for the years ended
December 31, 2000 and 1999, respectively. Triad also assumed various
indebtedness of HCA related to specific hospitals in the aggregate amount of
$8.8 million with interest rates averaging 5.7% per annum maturing over five
years.

F-18

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--LONG-TERM DEBT (continued)

Triad's bank debt is collateralized by a pledge of substantially all of its
assets. The debt agreements require that Triad comply with various financial
ratios and tests and have restrictions on new indebtedness, asset sales and use
of proceeds therefrom, capital expenditures and dividends.

On September 28, 2000, Triad's bank credit facility was amended to include a
new $200 million delayed draw term loan which can be drawn upon in up to ten
advances from the date of the amendment until one year after the amendment.
Principal payments on amounts outstanding at the end of the delay draw period
are due quarterly beginning February 2002 until May 2005. The delay draw term
loan bears interest at LIBOR plus 3.0% (9.39% per annum of December 31, 2000).
The amendment also modifies the requirements under certain financial ratios and
tests and the restrictions on assets sales and capital expenditures.

Triad also assumed a $125.0 million revolving line of credit bearing interest
at LIBOR plus 3.25% due in 2004, of which approximately $2.0 million has been
allocated to letters of credit securing certain leased obligations. No amounts
were outstanding as of December 31, 2000.

Triad uses varying methods and significant assumptions to estimate fair
values of long-term debt (see NOTE 2).

A five-year maturity schedule is as follows (in millions):

2001................................................................ $ 9.0
2002................................................................ 23.8
2003................................................................ 26.3
2004................................................................ 112.1
2005................................................................ 102.5
Thereafter.......................................................... 325.1
------
598.8

Less unamortized debt discount - Senior Subordinated Notes.......... (8.1)
------
$590.7
======

During the year ended December 31, 1999, Triad recorded approximately $6.2
million in related debt issue costs, which are being amortized using the
effective interest method over the lives of the related debt. In conjunction
with the amendment to the bank credit facility, Triad paid an additional $1.5
million in debt issue costs, which will be amortized over the life of the loan.
Accumulated amortization of the debt issue costs was $3.0 million and $2.0
million at December 31, 2000 and 1999, respectively.

Triad Hospital Holdings Inc.'s senior subordinated notes were guaranteed by
all operating subsidiaries of Triad (the "Subsidiary Guarantors"). Triad
Hospitals Holding, Inc. is a subsidiary of Triad. The guarantee obligations of
the Subsidiary Guarantors are full, unconditional and joint and several. Triad
does not wholly own certain Subsidiary Guarantors, although all assets,
liabilities, equity and earnings of these entities fully, unconditionally and
jointly and severally guarantee the senior subordinated notes.

The percentages of these entities owned by Triad range from 70% to 95%. On
June 26, 2000, Triad obtained a release of the guarantee of one of the non-
wholly owned Subsidiary Guarantors (the "Non-Guarantor Subsidiary"). Separate
financial statements of the non-wholly owned Subsidiary Guarantors have not been
presented because management has determined that they are inconsequential.

F-19

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8-- LONG-TERM DEBT (continued)

Condensed unaudited consolidating financial statements for Triad and its
subsidiaries including the financial statements of Triad Hospitals, Inc. (parent
only), Triad Hospitals Holdings, Inc., the combined Guarantor Subsidiaries and
the Non-Guarantor Subsidiary are as follows:

Condensed Consolidating Statements of Operations
For the year ended December 31, 2000
Unaudited
(dollars in millions)

Non-
Triad Triad Hospitals Guarantor Guarantor
Hospitals, Inc. Holdings, Inc. Subsidiaries Subsidiary Eliminations Consolidated
--------------- -------------- ------------ ---------- ------------ ------------

Revenues............................... $ --- $ --- $ 1,183.2 $ 52.4 $ (0.1) $ 1,235.5

Salaries and benefits.................. 0.9 --- 496.4 13.8 --- 511.1
Supplies............................... --- --- 173.0 12.6 --- 185.6
Other operating expenses............... --- --- 252.0 7.8 --- 259.8
Provision for doubtful accounts........ --- --- 102.3 1.3 --- 103.6
Depreciation........................... --- --- 74.2 1.9 --- 76.1
Amortization........................... --- --- 6.6 0.5 --- 7.1
Interest expense allocated............. --- --- --- (0.3) 0.3 ---
Interest expense, net.................. --- 63.1 (5.8) --- --- 57.3
ESOP expense........................... 7.1 --- --- --- --- 7.1
Management fees........................ --- --- --- 0.4 (0.4) ---
Gain on sale of assets................. --- --- (7.9) --- --- (7.9)
Impairment of long lived assets........ --- --- 8.0 --- --- 8.0
--------------- -------------- ------------- ---------- ------------ ------------
Total operating expenses............... 8.0 63.1 1,098.8 38.0 (0.1) 1,207.8
--------------- -------------- ------------- ---------- ------------ ------------

Income (loss) before minority interest,
equity in earnings and income tax
provision........................... (8.0) (63.1) 84.4 14.4 --- 27.7
Minority interests..................... --- --- (9.0) --- --- (9.0)
Equity in earnings of affiliates....... 12.4 88.4 13.0 --- (115.2) (1.4)
--------------- -------------- ------------- ---------- ------------ ------------

Income (loss) before income tax
provision........................... 4.4 25.3 88.4 14.4 (115.2) 17.3

Income tax provision................... --- (12.9) --- --- --- (12.9)
--------------- -------------- ------------- ---------- ------------ ------------

Net income (loss)...................... $ 4.4 $ 12.4 $ 88.4 $ 14.4 $ (115.2) $ 4.4
=============== ============== ============= ========== ============ ============

F-20

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Statements of Operations
For the year ended December 31, 1999
Unaudited
(dollars in millions)

Revenues............................... $ --- $ --- $ 1,278.9 $ 47.9 $ 2.3 $ 1,329.1

Salaries and benefits.................. --- --- 558.4 12.5 --- 570.9
Supplies............................... --- --- 189.5 10.6 --- 200.1
Other operating expenses............... --- --- 293.3 8.2 --- 301.5
Provision for doubtful accounts........ --- --- 128.1 0.9 --- 129.0
Depreciation........................... --- --- 87.3 2.6 --- 89.9
Amortization........................... --- --- 8.0 0.6 --- 8.6
Interest expense allocated............. --- --- 23.5 (3.5) 2.5 22.5
Interest expense, net.................. --- 44.1 (1.4) --- --- 42.7
ESOP expense........................... 3.7 --- --- --- --- 3.7
Management fees........................ --- --- 9.4 (0.3) (0.2) 8.9
Gain on sale of assets................. --- --- (8.6) --- --- (8.6)
Impairment of long lived assets........ --- --- 66.1 3.1 --- 69.2
-------------- ------------- ---------- ------- -------- ----------
Total operating expenses............... 3.7 44.1 1,353.5 34.8 2.3 1,438.4
-------------- ------------- ---------- ------- -------- ----------

Income (loss) before minority interest,
equity in earnings and income tax
benefit............................. (3.7) (44.1) (74.6) 13.1 --- (109.3)
Minority interests..................... --- --- (8.7) --- --- (8.7)
Equity in earnings (loss) of
affiliates....................... (56.0) (37.4) 10.0 --- 80.3 (3.1)
-------------- ------------- ---------- ------- -------- ----------

Income (loss) before income tax
benefit............................. (59.7) (81.5) (73.3) 13.1 80.3 (121.1)

Income tax benefit..................... --- 25.5 --- --- --- 25.5
-------------- ------------- ---------- ------- -------- ----------

Net income (loss)...................... $ (59.7) $ (56.0) $ (73.3) $ 13.1 $ 80.3 $ (95.6)
============== ============= ========== ======= ======== ==========

F-21

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Statements of Operations
For the year ended December 31, 1998
Unaudited
(dollars in millions)

Triad Non-
Triad Hospitals Guarantor Guarantor
Hospitals, Inc. Holdings, Inc. Subsidiaries Subsidiary Eliminations Consolidated
--------------- -------------- ------------ ---------- ------------ ------------

Revenues................................. $ --- $ --- $ 1,539.6 $ 49.1 $ --- $ 1,588.7

Salaries and benefits.................... --- --- 687.6 12.9 --- 700.5
Supplies................................. --- --- 230.1 11.5 --- 241.6
Other operating expenses................. --- --- 355.3 7.3 --- 362.6
Provision for doubtful accounts.......... --- --- 137.3 1.1 --- 138.4
Depreciation............................. --- --- 96.8 2.2 --- 99.0
Amortization............................. --- --- 3.6 7.0 --- 10.6
Interest expense allocated............... --- --- 68.0 (1.8) --- 66.2
Interest expense, net.................... --- --- 2.7 --- --- 2.7
ESOP expense............................. --- --- --- --- --- ---
Management fees.......................... --- --- 28.9 0.4 --- 29.3
Gain on sale of assets................... --- --- --- --- --- ---
Impairment of long lived assets.......... --- --- 55.1 --- --- 55.1
-------------- ------------ ---------- ------- -------- ---------
Total operating expenses................. --- --- 1,665.3 40.7 --- 1,706.0
-------------- ------------ ---------- ------- -------- ---------

Income (loss) before minority interests,
equity in earnings and income tax
benefit............................... --- --- (125.7) 8.4 --- (117.3)
Minority interests....................... --- --- (11.0) --- --- (11.0)
Equity in earnings (loss) of affiliates.. --- --- 11.8 --- (8.4) 3.4
-------------- ------------ ---------- ------- -------- ---------

Income (loss) before income tax
benefit............................... --- --- (124.9) 8.4 (8.4) (124.9)
Income tax benefit....................... --- --- 39.4 --- --- 39.4
-------------- ------------ ---------- ------- -------- ---------

Net income (loss)........................ $ --- $ --- $ (85.5) $ 8.4 $ (8.4) $ (85.5)
============== ============ ========== ======= ======== =========

F-22

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Balance Sheets
December 31, 2000
Unaudited
(dollars in millions)

Assets
Current assets
Cash and cash equivalents............ $ --- $ --- $ 6.4 $ 0.3 $ --- $ 6.7
Accounts receivable, net............. --- --- 163.2 7.9 --- 171.1
Other current assets................. --- 41.9 107.1 1.4 --- 150.4
------------- ----------- ---------- --------- ---------- ---------
Total current assets.................... --- 41.9 276.7 9.6 --- 328.2

Net property and equipment, at cost..... --- --- 743.8 9.2 --- 753.0

Investments in subsidiaries............. 563.0 1,326.7 133.7 --- (1,944.0) 79.4
Due from affiliates..................... 10.7 --- 133.0 27.3 (171.0) ---
Other assets............................ --- 4.7 223.4 11.8 --- 239.9
------------- ----------- ---------- --------- ---------- ---------

Total assets............................ $ 573.7 $ 1,373.3 $ 1,510.6 $ 57.9 $ (2,115.0) $ 1,400.5
============= =========== ========== ========= ========== =========

Liabilities and Equity
Current liabilities..................... $ --- $ 13.4 $ 121.5 $ 1.4 $ --- $ 136.3
Due to affiliates....................... --- 171.0 --- --- (171.0) ---
Long-term debt.......................... --- 576.7 5.0 --- --- 581.7
Deferred taxes and other liabilities.... --- 49.2 7.4 2.2 --- 58.8
Minority interests in equity of
consolidated entities................ --- --- 50.0 --- --- 50.0
Equity.................................. 573.7 563.0 1,326.7 54.3 (1,944.0) 573.7
------------- ----------- ---------- --------- ---------- ---------

Total liabilities and equity............ $ 573.7 $ 1,373.3 $ 1,510.6 $ 57.9 $ (2,115.0) $ 1,400.5
============= =========== ========== ========= ========== =========

F-23

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Balance Sheets
December 31, 1999
Unaudited
(dollars in millions)

Assets
Current assets
Cash and cash equivalents.......... $ --- $ --- $ 70.8 $ 0.1 $ --- $ 70.9
Accounts receivable, net........... --- --- 144.3 6.3 --- 150.6
Other current assets............... --- 46.3 84.3 1.3 --- 131.9
--------------- --------------- ------------ ---------- ------------ ------------
Total current assets................... --- 46.3 299.4 7.7 --- 353.4

Net property and equipment, at cost.... --- --- 692.3 7.4 --- 699.7

Investments in subsidiaries............ 559.1 1,236.0 152.7 --- (1,844.8) 103.0
Due from affiliates.................... 0.8 --- 115.0 27.0 (142.8) ---
Other assets........................... --- 4.1 170.2 10.7 --- 185.0
--------------- --------------- ------------ ---------- ------------ ------------
Total assets........................... $ 559.9 $ 1,286.4 $ 1,429.6 $ 52.8 $ (1,987.6) $ 1,341.1
=============== =============== ============ ========== ============ ============

Liabilities and Equity
Current liabilities.................... $ --- $ 23.0 $ 140.4 $ 2.4 $ --- $ 165.8
Due to affiliates...................... --- 142.8 --- --- (142.8) ---
Long-term debt......................... --- 530.9 6.2 --- --- 537.1
Deferred taxes and other liabilities... --- 30.6 --- 0.7 --- 31.3
Minority interests in equity of
consolidated entities.............. --- --- 47.0 --- --- 47.0
Equity................................. 559.9 559.1 1,236.0 49.7 (1,844.8) 559.9
--------------- --------------- ------------ ---------- ------------ ------------
Total liabilities and equity........... $ 559.9 $ 1,286.4 $ 1,429.6 $ 52.8 $ (1,987.6) $ 1,341.1
=============== =============== ============ ========== ============ ============

F-24

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 2000
Unaudited
(dollars in millions)

Net cash provided by (used in) operating
activities............................. $ --- $ (61.0) $ 118.4 $ 14.2 $ --- $ 71.6
Cash flows from investing activities
Purchases of property and equipment.... --- --- (91.1) (3.3) --- (94.4)
Payments for acquisitions.............. --- --- (118.2) (0.6) --- (118.8)
Investment in and advances to
affiliates.......................... --- (2.4) 34.9 (9.8) --- 22.7
Proceeds received on sale of assets.... --- --- 20.7 --- --- 20.7
Other.................................. --- --- (3.1) --- --- (3.1)
--------------- ------------- ------------ ---------- ------------ -----------
Net cash used in investing activities...... --- (2.4) (156.8) (13.7) --- (172.9)
Cash flows from financing activities
Payments of long-term debt............. --- (15.8) (1.7) --- --- (17.5)
Proceeds from issuance of long-term
debt................................ --- 51.0 --- --- --- 51.0
Proceeds from issuance of common
stock............................... 9.9 --- --- --- --- 9.9
Distributions to minority partners..... --- --- (6.3) --- --- (6.3)
Net change in due to (from) affiliate.. (9.9) 28.2 (18.0) (0.3) --- ---
--------------- ------------- ------------ ---------- ------------ -----------
Net cash provided by (used in) financing
activities............................. --- 63.4 (26.0) (0.3) --- 37.1
--------------- ------------- ------------ ---------- ------------ -----------
Change in cash and cash equivalents........ --- --- (64.4) 0.2 --- (64.2)
Cash and cash equivalents at beginning
of period.............................. --- --- 70.8 0.1 --- 70.9
--------------- ------------- ------------ ---------- ------------ -----------
Cash and cash equivalents at end of
period................................. $ --- $ --- $ 6.4 $ 0.3 $ --- $ 6.7
================ ======= ===== ============ ========== ============ ===========

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 1999
Unaudited
(dollars in millions)

Net cash provided by (used in) operating
activities............................. $ --- $ (34.8) $ 170.5 $ 19.5 $ --- $ 155.2
Cash flows from investing activities
Purchases of property and equipment.... --- --- (129.8) (2.9) --- (132.7)
Investment in and advances to
affiliates............................ 0.8 --- (38.9) (16.6) --- (54.7)
Proceeds received on sale of assets.... --- --- 117.8 --- --- 117.8
Other.................................. --- --- 12.1 (0.2) --- 11.9
------------ ------------ --------- ------ --------- --------
Net cash provided by (used in) investing
activities............................. 0.8 --- (38.8) (19.7) --- (57.7)
Cash flows from financing activities
Payments of long-term debt............. --- (108.0) (6.2) --- --- (114.2)
Distributions to minority partners..... --- --- (18.6) --- --- (18.6)
Net change in due to (from) affiliate.. (0.8) 142.8 (36.1) 0.3 --- 106.2
------------ ------------ --------- ------ --------- --------
Net cash provided by (used in) financing
activities............................. (0.8) 34.8 (60.9) 0.3 --- (26.6)
------------ ------------ --------- ------ --------- --------
Change in cash and cash equivalents...... --- --- 70.8 0.1 ---
Cash and cash equivalents at beginning
of period.............................. --- --- --- --- --- ---
------------ ------------ --------- ------ --------- --------
Cash and cash equivalents at end of
period................................. $ --- $ --- $ 70.8 $ 0.1 $ --- $ 70.9
============ ============ ========= ====== ========= ========

F-25

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT (continued)

Condensed Consolidating Statements of Cash Flows
For the year ended December 31, 1998
Unaudited
(dollars in millions)

Net cash provided by (used in) operating
activities............................. $ --- $ --- $ 17.3 $ 16.3 $ --- $ 33.6
Cash flows from investing activities
Purchases of property and equipment.... --- --- (112.4) (2.5) --- (114.9)
Investment in and advances to
affiliates........................... --- --- 14.8 (14.1) --- 0.7
Proceeds received on sale of assets.... --- --- --- --- --- ---
Other.................................. --- --- 5.9 --- --- 5.9
-------------- ------------- --------- --------- -------- --------
Net cash provided by (used in) investing
activities............................. --- --- (91.7) (16.6) --- (108.3)
Cash flows from financing activities
Payments of long-term debt............. --- --- (0.9) --- --- (0.9)
Distributions to minority partners..... --- --- (13.1) --- --- (13.1)
Net change in due to (from) affiliate.. --- --- 88.3 0.4 --- 88.7
-------------- ------------- --------- --------- -------- --------
Net cash provided by (used in) financing
activities........................... --- --- (74.3) 0.4 --- 74.7
-------------- ------------- --------- --------- -------- --------
Change in cash and cash equivalents...... --- --- (0.1) 0.1 --- ---
Cash and cash equivalents at beginning
of period............................ --- --- --- --- --- ---
-------------- ------------- --------- --------- -------- --------
Cash and cash equivalents at end of
period............................... $ --- $ --- $ (0.1) $ 0.1 $ --- $ ---
============== ============= ========= ========= ======== ========

NOTE 9 - LEASES

Triad leases real estate properties, equipment and vehicles under cancelable
and non-cancelable leases. Rental expense for the years ended December 31, 2000,
1999 and 1998 was $31.0 million, $33.6 million and $40.6 million, respectively.
Future minimum operating and capital lease payments are as follows at December
31, 2000:

Operating Capital
--------- -------

2001................................................................ $ 21.9 $ 0.2
2002................................................................ 18.0 0.2
2003................................................................ 15.3 0.2
2004................................................................ 13.5 0.1
2005................................................................ 11.4 0.1
Thereafter.......................................................... 39.1 0.2
------ -----
Total minimum payments.............................................. $119.2 $ 1.0
======
Less amounts representing interest.................................. (0.1)
-----
Present value of minimum lease payments............................. $ 0.9
=====

The following summarizes amounts related to equipment leased by Triad under
capital leases at December 31:

2000 1999
---- ----
Equipment.......................................... $ 1.4 $ 0.4
Accumulated amortization........................... (0.6) (0.1)
----- -----
Net book value..................................... $ 0.8 $ 0.3
===== =====

F-26

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9--LEASES (continued)

On January 1, 1999, Triad transferred two acute care hospitals and three
ambulatory surgery centers to an unaffiliated third party pursuant to a long-
term lease. Lease income of $16.9 million and $16.7 million was recorded in the
years ended December 31, 2000 and 1999, respectively. The following summarizes
the assets leased at December 31, 2000 and 1999 (dollars in million):

2000 1999
---- ----

Land........................................................ $ 7.7 $ 7.7
Buildings................................................... 53.0 53.3
Equipment................................................... 67.7 70.3
------- -------
128.4 131.3
Accumulated depreciation.................................... (80.3) (74.0)
------- -------
$ 48.1 $ 57.3
======= =======

The following is a schedule of minimum future lease income on these leases as
of December 31, 2000 (dollars in millions):

2001........................................................... $ 17.7
2002........................................................... 18.0
2003........................................................... 18.2
2004........................................................... 18.5
2005........................................................... 18.8
Thereafter..................................................... 160.8
-------
Total minimum payments......................................... $ 252.0
=======

NOTE 10--STOCK BENEFIT PLANS

In connection with the Spin-off, Triad adopted the 1999 Long-Term Incentive
Plan, for which 5,350,000 shares of Triad's common stock have been reserved for
issuance. The 1999 Long-Term Incentive Plan authorizes the grant of stock
options, stock appreciation rights and other stock based awards to officers and
employees of Triad. On the Spin-off date, 574,804 stock options were granted
under this plan, relating to pre-existing vested HCA options. The vested HCA
stock options were converted into a combination of Triad stock options in a
manner that preserves the pre-spin-off intrinsic value and the pre-spin-off
ratio of the exercise prices to the underlying market value of the related
common stock. On June 10, 1999, 2,867,049 stock options were granted under this
plan with an exercise price equal to the market price on the date of the grant.
On February 18, 2000, Triad granted 1,009,000 stock options under this plan with
an exercise price equal to the market price on the date of the grant. On April
28, 2000, Triad granted 900,056 stock options under this plan with an exercise
price of $17.07, which was the market price of the common stock on the effective
date of grant, contingent on shareholder approval of an amendment to the 1999
Long-Term Incentive Plan increasing the numbers of shares available to
6,500,000. Shareholder approval was granted on May 23, 2000. Compensation
expense of $0.9 million was recognized in the year ended December 31, 2000 based
on the different between market price of the common stock on the date of
shareholder approval and the market price of the common stock on date of grant
amortized over the vesting period. On September 8, 2000, 80,000 stock options
were granted under the 1999 Long-Term Incentive Plan with an exercise price
equal to the market price at the date of the grant. All options are exercisable
beginning in part from the date of grant to four years after the grant. All
options granted under this plan expire in 10 years from date of grant.

Triad has also adopted the Executive Stock Purchase Plan, for which 1,000,000
shares of Triad's common stock were reserved for issuance. The Executive Stock
Purchase Plan granted to specified executives of Triad a right to purchase
shares of common stock from Triad. Triad loaned each participant in the plan
approximately 100% of the purchase price of Triad's common stock bearing
interest at 5.15% per annum, on a full recourse basis. The principal and
interest of the loans will mature on the fifth anniversary following the
purchase of the shares,

F-27

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--STOCK BENEFIT PLANS (continued)

termination of the participants' employment or bankruptcy of the participant. In
addition, Triad has granted to such executives stock options equal to three-
quarters of a share for each share purchased. The exercise price of these stock
options is equal the purchase price of the shares and the options expire in 10
years. 970,000 shares were purchased by participants in the plan and options to
purchase an additional 727,500 shares were issued in connection with such
purchased shares. The options are exercisable 50% on the grant date and 50% two
years from grant date. The total amount which has been loaned to participants to
purchase shares under the plan is $9.1 million which was recorded as a reduction
to equity.

Triad adopted various other plans for which 500,000 shares of Triad's common
stock have been reserved for issuance. On June 10, 1999, Triad granted under
such plans 120,000 options to non-employee directors, with the exercise price
equal to the market price at the date of grant and which are exercisable over a
four year period. Triad also granted 340,000 options to HCA executives with the
exercise price equal to market price on the date of grant and which were
exercisable on the date of grant. HCA paid Triad $1.5 million in exchange for
the issuance of these options. All of these options expire 10 years after grant.
On November 18, 1999, Triad granted 24,750 options to certain non-employees with
an exercise price equal to the market price on the date of grant. Triad granted
76,000 stock options to non-employee directors on May 23, 2000 with an exercise
price equal to the market price at the date of grant. On September 8, 2000,
Triad granted 37,500 options to certain non-employees with an exercise price
equal to the market price on the date of grant. All of these options are
exercisable over a four-year period and expire 10 years from the date of grant.

Information regarding these options for 2000 and 1999 is summarized below:

Stock Option Price Weighted Average
Options Per Share Exercise Price
------- --------- --------------

Balances, December 31, 1998 --- --- ---
Granted....................................... 4,654,103 $ 0.07 - $18.84 $ 11.29
Exercised..................................... (8,667) $ 0.07 - $12.64 $ 8.30
Cancelled..................................... (194,828) $ 0.19 - $18.84 $ 12.08
---------
Balances, December 31, 1999...................... 4,450,608 $ 0.07 - $18.84 $ 11.26
Granted....................................... 2,102,556 $16.50 - $27.69 $ 17.48
Exercised..................................... (618,456) $ 0.07 - $18.84 $ 11.52
Cancelled..................................... (267,922) $ 0.07 - $27.69 $ 13.62
---------
Balances, December 31, 2000...................... 5,666,786 $ 0.07 - $27.69 $ 13.43
=========

The weighted-average fair value of stock options granted to Triad employees
during the year ended December 31, 2000, and 1999, was $9.64 and $4.22 per
option, respectively. At December 31, 2000 and 1999, there were 1,337,085 and
1,401,650 options exercisable, respectively. There were 466,506 and 2,118,225
stock options available for grant at December 31, 2000 and 1999, respectively.

F-28

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--STOCK BENEFIT PLANS (continued)

The following table summarizes information regarding the options outstanding
at December 31, 2000:

Options Outstanding Options Exercisable
---------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
at 12/31/00 Life Price at 12/31/00 Price
------------ ------------- ----------- ----------- ----------

Range of Exercise Prices
$0.07 to $5.95................................. 68,697 9 years $ 4.09 68,697 $ 4.09
$6.07 to $9.44................................. 725,928 9 years $ 9.35 369,678 $ 9.31
$10.19 to $15.65............................... 2,763,581 9 years $11.59 793,686 $11.81
$16.02 to $18.84............................... 105,024 9 years $18.07 105,024 $18.07
$16.50 to $27.69............................... 2,003,556 10 years $17.52 --- ---
--------- ------ --------- ------
5,666,786 $13.43 1,337,085 $11.21
========= ====== ========= ======

Triad has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, but continues to measure stock-based compensation cost in
accordance with Accounting Principles Board Opinion No. 25 and its related
interpretations. If Triad had measured compensation cost for the stock options
granted to its employees under the fair value based method prescribed by SFAS
123, the net loss for the years ended December 31 would have been changed to
the pro forma amounts set forth below (dollars in millions):

2000 1999
---- ----

Net income (loss)
As reported..................................................... $ 4.4 $ (95.6)
Pro forma....................................................... $ 0.8 $ (100.5)
Basic income (loss) per share:
As reported..................................................... $ 0.14 $ (3.12)
Pro forma....................................................... $ 0.03 $ (3.28)
Diluted income (loss) per share:
As reported..................................................... $ 0.13 $ (3.12)
Pro forma....................................................... $ 0.02 $ (3.28)

The fair values of stock options granted to Triad's employees used to compute
pro forma net loss disclosures were estimated on the date of grant using the
Black-Scholes option-pricing model based on the following weighted average
assumptions for the years ended December 31:

2000 1999
---- ----

Risk free interest rate.......................................... 5.84% 5.85%
Expected life.................................................... 5 years 5 years
Expected volatility.............................................. 43.51% 31.72%
Expected dividend yield.......................................... --- ---

F-29

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--STOCK BENEFIT PLANS (continued)

Triad entered into a stock option pledge agreement with a charitable
corporation granting 100,000 stock options on July 11, 2000 subject to approval
by the Internal Revenue Service (the "IRS"). The exercise price of these stock
options are equal to the market price on the grant date. The stock options are
immediately vested upon receipt of the IRS approval and expire 10 years from
that date. Compensation expense will be recorded under Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation" using the
fair value of these options at the time IRS approval is received.

Triad has an Employee Stock Purchase Plan ("ESPP") which provides an
opportunity to purchase shares of its common stock at a discount (through
payroll deductions over six month intervals) to substantially all employees.
Shares of common stock issued to employees through the ESPP were 147,023 and
65,982 during the years ended December 31, 2000 and 1999, respectively.

Triad has a Management Stock Purchase Plan ("MSPP") which provides certain
members of management an opportunity to purchase shares of common stock at a
discount through payroll deductions over six month intervals. 72,586 shares were
issued through the MSPP during the year ended December 31, 2000. 20,710 shares
were issued through the MSPP subsequent to December 31, 2000.

NOTE 11 - RETIREMENT PLANS

In connection with the Spin-off, Triad established an Employee Stock
Ownership Plan ("ESOP") for substantially all of its employees. The ESOP
purchased from Triad, at fair market value, 3,000,000 shares of Triad's common
stock. The purchase was primarily financed by the ESOP issuing a promissory note
to Triad, which will be repaid annually in equal installments over a 10-year
period beginning December 31, 1999. Triad makes contributions to the ESOP which
the ESOP uses to repay the loan. Triad's stock acquired by the ESOP is held in a
suspense account and will be allocated to participants at market value from the
suspense account as the loan is repaid.

The loan to the ESOP is recorded in unearned ESOP compensation and
stockholders notes receivable in the consolidated balance sheets. Reductions are
made to unearned ESOP compensation as shares are committed to be released to
participants at cost. Recognition of ESOP expense is based on the average market
price of shares committed to be released to participants. Shares are deemed to
be committed to be released ratably during each period as the employees perform
services. The difference between average market price and cost of the shares are
shown as a change in additional paid-in capital. As the shares are committed to
be released, the shares become outstanding for earnings per share calculations.
Triad recognized ESOP expense of $7.1 million and $3.7 million during the years
ended December 31, 2000 and 1999, respectively, and the unearned ESOP
compensation was $27.6 million and $31.0 million at December 31, 2000 and 1999,
respectively.

The ESOP shares as of December 31, 2000 were as follows:

Shares released.............................................. 300,000
Shares committed to be released.............................. 300,000
Unreleased shares............................................ 2,400,000
---------
Total ESOP shares............................................ 3,000,000
=========

Fair value of unreleased shares.............................. $78.2 million

F-30

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - RETIREMENT PLANS (continued)

Triad has instituted a defined contribution retirement plan which covers
substantially all employees. Benefits are determined primarily as a percentage
of a participant's annual income, less contributions to the ESOP. These benefits
are vested over specific periods of employee service. Triad recorded retirement
plan expense under this plan of $4.1 million and $11.3 million for the years
ended December 31, 2000 and 1999, respectively and recorded reductions of
estimates of prior year retirement plan accruals of $5.0 million and $3.4
million for the years ended December 31, 2000 and 1999, respectively. Prior to
the Spin-off, Triad participated in HCA's defined contribution retirement plans,
which covered substantially all employees. Benefits were determined primarily as
a percentage of a participant's earned income and are vested over specific
periods of employee service. Retirement plan expense under this plan was $16.2
million for the year ended December 31, 1998. Amounts approximately equal to
retirement plan expense are funded annually.

After the Spin-off, Triad instituted a contributory benefit plan which is
available to employees who meet certain minimum requirements. The plan requires
that Triad match 50% of a participant's contribution up to certain maximum
levels. The cost of these plans totaled $0.2 million and $0.4 million for the
years ended December 31, 2000 and 1999, respectively. Triad contributions are
funded periodically during each year.

NOTE 12 - INCOME (LOSS) PER SHARE

Income (loss) per common share is based on the weighted average number of
shares outstanding adjusted for the shares issued to the ESOP. The weighted
average number of shares outstanding for the year ended December 31, 1999
assumes the shares issued at the Spin-off were outstanding at the beginning of
1999. Diluted weighted average shares outstanding is calculated by adjusting
basic weighted average shares outstanding by all potentially dilutive stock
options. Stock options outstanding of 4,385,100 as of December 31, 1999 were
not included for diluted loss per share calculations since the impact was
antidilutive. Weighted average shares for the years ended December 31, 2000 and
1999 are as follows:

For the years ended December 31,
-------------------------------------
2000 1999
---- ----

Weighted average shares exclusive of unreleased ESOP shares....... 31,593,403 30,484,778
ESOP shares committed to be released.............................. 150,000 150,000
---------- ----------

Basic weighted average shares outstanding......................... 31,743,403 30,634,778

Effect of dilutive securities - employee stock options............ 2,390,007 ---
---------- ----------
Diluted weighted average shares outstanding....................... 34,133,410 30,634,778
========== ==========

Loss per common share for the year ended December 31, 1998 is presented as if
the weighted average shares for the year ended December 31, 1999 had been
outstanding.

NOTE 13--AGREEMENTS WITH HCA

As described below, Triad has entered into several agreements with HCA to
facilitate an orderly change after the Spin-off.

HCA and Triad entered into a distribution agreement providing for certain
arrangements among HCA and Triad subsequent to the date of the Spin-off. The
distribution agreement generally provides that Triad will be financially
responsible for liabilities arising out of or in connection with the assets and
entities that constitute Triad. The distribution agreement provides, however,
that HCA will indemnify Triad for any losses, which it incurs arising from the
pending governmental investigations of certain of HCA's business practices. The
distribution agreement

F-31

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13--AGREEMENTS WITH HCA (continued)

further provides that HCA will indemnify Triad for any losses which it may incur
arising from stockholder actions and other legal proceedings related to the
governmental investigations which are currently pending against HCA, and from
proceedings which may be commenced by governmental authorities or by private
parties in the future that arise from acts, practices or omissions engaged in
prior to the date of the Spin-off and related to such proceedings. HCA has also
agreed that, in the event that any hospital owned by Triad as of the date of the
Spin-off is permanently excluded from participation in the Medicare and Medicaid
programs as a result of the proceedings described above, then HCA will make a
cash payment to Triad in an amount (if positive) equal to five times the
excluded hospital's 1998 income from continuing operations before depreciation
and amortization, interest expense, management fees, impairment of long-lived
assets, minority interests and income taxes less the net proceeds of the sale or
other disposition of the excluded hospital. HCA will not indemnify Triad for
losses relating to any acts, practices and omissions engaged in by Triad after
the date of the Spin-off, whether or not Triad is indemnified for similar acts,
practices and omissions occurring prior to the date of the Spin-off.

HCA is negotiating one or more compliance agreements setting forth certain
agreements to comply with applicable laws and regulations. Triad is obligated
to participate with HCA in these negotiations.

In connection with the Spin-off, HCA also agreed to indemnify Triad for any
payments which it is required to make in respect to Medicare, Medicaid and Blue
Cross cost reports relating to the cost report periods ending on or prior to the
date of the Spin-off, and Triad agreed to indemnify HCA for and pay to HCA any
payments received by it relating to such cost reports. Triad will be responsible
for the filing of these cost reports and any terminating cost reports.

HCA and Triad entered into a tax sharing and indemnification agreement, which
allocates tax liabilities among HCA and Triad, and addresses certain other tax
matters such as responsibility for filing tax returns, control of and
cooperation in tax litigation and qualification of the Spin-off as a tax-free
transaction. Generally, HCA will be responsible for taxes that are allocable to
periods prior to the Spin-off, and HCA and Triad will each be responsible for
its own tax liabilities (including its allocable share of taxes shown on any
consolidated, combined or other tax return filed by HCA) for periods after the
Spin-off. The tax sharing and indemnification agreement prohibits Triad from
taking actions that could jeopardize the tax treatment of either the Spin-off or
the internal restructuring of HCA that preceded the Spin-off, and requires Triad
to indemnify HCA for any taxes or other losses that result from any such
actions.

Prior to the date of the Spin-off, HCA maintained various insurance policies
for the benefit of Triad. In connection with the Spin-off, HCA and Triad entered
into an agreement relating to insurance matters which provides that any claims
against insurers outstanding at the Spin-off will be for the benefit of the
party who will own the asset which is the basis for the claim, or, in the case
of liability claim, which is the owner of the facility at which the activity
which is the subject of the claim occurred. HCA will pay Triad any portion of
such a claim that is unpaid by an insurer to satisfy deductible, co-insurance or
self-insurance amounts (unless such amounts were paid to or accounted for by the
affected entity prior to the Spin-off). HCA and Triad have ensured that all of
the insurance policies in effect after the Spin-off provided the same coverage
to Triad that were available prior to the Spin-off. Triad purchased continuous
coverage under extensions or renewals of existing, or new, policies issued by
Health Care Indemnity, Inc., a subsidiary of HCA. Any retroactive rate
adjustments for periods ending on or before the Spin-off, in respect of such
insurance policies, will be paid or received by HCA.

HCA's wholly owned subsidiary Columbia Information Services, Inc. ("CIS"),
entered into a computer and data processing services agreement with Triad.
Pursuant to this agreement, CIS will provide computer installation, support,
training, maintenance, data processing and other related services to Triad. The
initial term of the

F-32

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13--AGREEMENTS WITH HCA (continued)

agreement is seven years, which will be followed by a wind-down period of up to
one year. CIS charges Triad approximately $19.0 million per year for services
provided under this agreement. In the event the agreement is terminated by
Triad, it will be required to pay a termination fee equal to the first month's
billed fees, multiplied by the remaining number of months in the agreement. CIS
did not warrant that the software and hardware used by CIS in providing services
to Triad would be Year 2000 ready, although Triad did not experienced any
significant Year 2000 problems in respect of such software. Pursuant to a Year
2000 professional services agreement, HCA continued its ongoing program of
inspecting medical equipment at Triad's hospitals to assure Year 2000
compliance. Under such agreement, Triad remained solely responsible for any lack
of Year 2000 compliance. No Year 2000 problems occurred relating to any medical
equipment. The agreement terminated on April 30, 2000.

HCA and Triad entered into an agreement relating to benefit and employment
matters which allocates responsibilities for employment compensation, benefits,
labor, benefit plan administration and certain other employment matters on and
after the date of the Spin-off. The agreement generally provides that Triad
assumed responsibility for its employees from and after the date of the Spin-
off, and that HCA retained the liabilities with respect to former employees
associated with the facilities and operations of Triad who terminated employment
on or prior to the date of the Spin-off. Benefit plans established by Triad
generally recognize past service with HCA.

HCA also entered into an agreement with Triad, pursuant to which Triad sub-
leases from HCA its principal executive offices (at the same price per square
foot as is payable under the existing HCA lease). Triad's sub-lease will
terminate on January 31, 2003.

HCA also entered into a transitional service agreement with Triad pursuant to
which HCA furnished various administrative services to Triad. These services
include support in various aspects of payroll processing and tax reporting for
employees of Triad, real estate design and construction management, legal, human
resources, insurance and accounting matters on an as needed basis. Each
agreement terminated on December 31, 2000.

The agreements provide that Triad's fees to HCA for services provided are
based on HCA's costs incurred in providing such services.

Triad is a partner along with HCA in a group purchasing organization which
makes certain national supply and equipment contracts available to their
respective facilities.

HCA entered into agreements with Triad whereby HCA will share
telecommunications services with Triad under HCA's agreements with its
telecommunications services provider and whereby HCA will make certain account
collection services available to Triad.

NOTE 14 -- SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash investing and financing activities:

2000 1999 1998
---- ---- ----

Investing activities:
Swap of Laredo/Victoria facilities
Transfer of Laredo facility............................................... --- (38.1) ---
Recording of Victoria facility............................................ --- 33.9 ---
Escrow establishment in connection with the sale of Phoenix Medical Center... --- 4.4 ---
Sale of facilities prior to Spin-off......................................... --- 3.3 ---

F-33

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15--CONTINGENCIES

HCA Investigations

HCA is a defendant in several qui tam actions, or actions brought by private
parties, known as relators, on behalf of the United States of America, which
have been unsealed and served on HCA. The actions allege, in general, that HCA
and certain subsidiaries and/or affiliated partnerships violated the False
Claims Act, 31 U.S.C. (S) 3729 et seq., by submitting improper claims to the
government for reimbursement. The lawsuits seek three times the amount of
damages caused to the United States by the submission of any Medicare or
Medicaid false claims presented by the defendants to the Federal government,
civil penalties of not less than $5,000 nor more than $10,000 for each such
Medicare or Medicaid claim, attorneys' fees and costs. HCA has disclosed that,
to its knowledge, the government has elected to intervene in, or join, six qui
tam actions in which HCA is a defendant. HCA has also disclosed that it is
aware of additional qui tam actions that remain under seal and believes that
there may be other sealed qui tam cases of which it is unaware.

The investigations, actions and claims affecting HCA relate to HCA and its
subsidiaries, including subsidiaries that, prior to the distribution, owned
facilities now owned by Triad. On May 5, 2000, Triad was advised that one of
the qui tam cases which had recently been unsealed listed three of Triad's
hospitals as defendants. This qui tam action alleges various violations arising
out of the relationship between Curative Health Services and the other
defendants, including allegations of false claims relating to contracts with
Curative Health Services for the management of certain wound care centers and
excessive and unreasonable management fees paid to Curative Health Services and
submitted for reimbursement. Two of the three Triad hospitals named as
defendants terminated their relationship with Curative Health Services prior to
the distribution and the third hospital continues to maintain an ongoing
relationship with Curative Health Services. Additionally, in early 2001
approximately thirteen of Triad's current and former hospitals received Notices
of Reopening for cost reporting periods between 1993 and 1998, which are prior
to the distribution. These notices indicate that reviews of the applicable cost
reports will be conducted at HCFA's direction

In July 1999, Olsten Corporation and its subsidiary, Kimberly Home Health
(neither of which is affiliated with HCA), announced that they would pay $61
million to settle allegations that both companies defrauded the Medicare
program. Kimberly pled guilty to three separate felony charges (conspiracy,
mail fraud and violating the Medicare Anti-Kickback statute) filed by the U.S.
Attorneys in the Middle and Southern Districts of Florida and the Northern
District of Georgia. While HCA was not specifically named in these guilty
pleas, the guilty pleas refer to the involvement of a "Company A" or a "company
not named as a defendant." HCA has disclosed that it believes these references
refer to HCA or its subsidiaries.

HCA is a defendant in a number of other suits, which allege, in general,
improper and fraudulent billing, overcharging, coding and physician referrals,
as well as other violations of law. Certain of the suits have been
conditionally certified as class actions. Since April 1997, numerous securities
class action and derivative lawsuits have been filed in the United States
District Court for the Middle District of Tennessee against HCA and a number of
its current and former directors, officers and/or employees. Several derivative
actions have been filed in state court by certain purported stockholders of HCA
against certain of its current and former officers and directors

F-34

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15--CONTINGENCIES (continued)

alleging breach of fiduciary duty, and failure to take reasonable steps to
ensure that HCA did not engage in illegal practices thereby exposing it to
significant damages.

On May 18, 2000, HCA announced that it had reached an understanding with
attorneys of the Civil Division of the Department of Justice to recommend an
agreement to settle, subject to certain conditions, the civil claims actions
against HCA relating to diagnosis related group coding, outpatient laboratory
billing and home health issues. The understanding with the Department of
Justice attorneys would require HCA to pay $745 million in compensation to the
government, with interest accruing at a fixed rate of 6.5% per annum (beginning
May 18, 2000), and would reduce HCA's existing letter of credit agreement with
the government from $1 billion to $250 million at the time of the payment of the
settlement. On December 14, 2000, HCA announced that it had entered into a
settlement agreement with the Civil Division of the Department of Justice and
that payment of the amounts required by the settlement agreement would be made
upon court approval of the settlement, which HCA expects will occur in the first
quarter of 2001. HCA also entered into a corporate integrity agreement with the
OIG. HCA is in continuing discussions with the government regarding civil
issues relating to cost reporting and physician relations.

The agreements announced on December 14, 2000 relate only to conduct that was
the subject of the Federal investigations resolved in the agreements, and HCA
has stated publicly that it continues to discuss civil claims relating to cost
reporting and physician relations with the government. These agreements with
the government do not resolve various qui tam actions filed by private parties
against HCA, or any pending state actions. In addition to other claims not
covered by these agreements, the government also reserved its rights under these
agreements to pursue any claims it may have for:

. any civil, criminal or administrative liability under the Internal Revenue
Code;

. any other criminal liability;

. any administrative liability, including mandatory exclusion from Federal
health care programs;

. any liability to the United States (or its agencies) for any conduct other
than the conduct covered in the government's investigation;

. any express or implied warranty claims or other claims for defective or
deficient products or services, including quality of goods and services,
provided by HCA;

. any claims for personal injury or property damage or for other similar
consequential damages arising from the conduct subject to the
investigation; and

. any civil or administrative claims of the United States against
individuals.

F-35

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15--CONTINGENCIES (continued)

that HCA will indemnify Triad for any losses (other than consequential damages)
which it may incur as a result of proceedings described above. HCA has also
agreed to indemnify Triad for any losses (other than consequential damages)
which it may incur as a result of proceedings which may be commenced by
government authorities or by private parties in the future that arise from acts,
practices or omissions engaged in prior to the date of the distribution and that
relate to the proceedings described above. HCA has also agreed that, in the
event that any hospital owned by Triad at the time of the distribution is
permanently excluded from participation in the Medicare and Medicaid programs as
a result of the proceedings described above, then HCA will make a cash payment
to Triad, in an amount (if positive) equal to five times the excluded hospital's
1998 income from continuing operations before depreciation and amortization,
interest expense, management fees, impairment of long-lived assets, minority
interests and income taxes, as set forth on a schedule to the distribution
agreement, less the net proceeds of the sale or other disposition of the
excluded hospital. Triad has agreed that, in connection with the government
investigations described above, it will participate with HCA in negotiating one
or more compliance agreements setting forth each of HCA's and Triad's agreements
to comply with applicable laws and regulations.

General Liability Claims

It is management's opinion that the ultimate resolution of these pending
claims and legal proceedings will not have a material adverse effect on Triad's
results of operations, financial position or cash flows.

NOTE 16--SEGMENT AND GEOGRAPHIC INFORMATION

Triad operates in one line of business which is operating hospitals and
related health care entities. During the years ended December 31, 2000, 1999,
and 1998, approximately 29.6%, 31.9%, and 35.2%, respectively, of Triad's
revenues related to patients participating in the Medicare program.

Triad has structured its operations into five divisions. Included in these
five divisions are the East Division, West Division and Central Division, which
are comprised of eleven, eight and eight general acute care hospitals. The
Ambulatory Surgery Center group include Triad's free standing ambulatory surgery
centers. These divisions are segregated for operating performance review by
management. The Sold and Held for Sale group includes twelve general acute care
hospitals that have either been sold or closed during 1999 or 2000 (See NOTE 4).
Triad's facilities are located primarily in the southern, western and south-
central United States.

F-36

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16--SEGMENT AND GEOGRAPHIC INFORMATION (continued)

The distribution of Triad's revenues, EBITDA (which is used by management for
operating performance review, see (a)) and assets are summarized in the
following tables (dollars in millions):

For the year ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----

Revenues:
East Division.......................................................... $ 483.2 $ 443.6 $ 406.6
West Division.......................................................... 266.8 277.1 266.5
Central Division....................................................... 362.2 305.3 285.9
Ambulatory Surgery Centers............................................. 52.4 49.1 48.4
Sold and Held for Sale................................................. 53.6 239.9 370.8
Corporate and other.................................................... 17.2 14.1 210.5
-------- -------- --------
$1,235.5 $1,329.1 $1,588.7
======== ======== ========

2000 1999 1998
---- ---- ----

EBITDA (a):
East Division.......................................................... $ 79.4 $ 76.2 $ 61.7
West Division.......................................................... 37.0 39.1 24.7
Central Division....................................................... 47.3 31.2 29.8
Ambulatory Surgery Centers............................................. 16.1 15.7 15.0
Sold and Held for Sale................................................. (9.0) (21.5) 10.0
Corporate and other.................................................... 3.2 (16.2) 7.8
------ ------ ------
$174.0 $124.5 $149.0
====== ====== ======

December 31,
------------
2000 1999
---- ----

Assets:
East Division................................................................ $ 526.5 $ 503.9
West Division................................................................ 280.9 267.2
Central Division............................................................. 384.6 349.3
Ambulatory Surgery Centers................................................... 53.6 84.1
Sold and Held for Sale....................................................... 18.1 15.3
Corporate and other.......................................................... 136.8 121.3
-------- --------
$1,400.5 $1,341.1
======== ========

(a) EBITDA is defined as income from continuing operations before depreciation
and amortization, interest expense, interest income, management fees, gain
on sale of assets, impairment of long-lived assets, minority interest and
income taxes. EBITDA is commonly used as an analytical indicator within the
health care industry, and also serves as a measure of leverage capacity and
debt service ability. EBITDA should not be considered as a measure of
financial performance under generally accepted accounting principles, and
the items excluded from EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operating, investing
or financing activities or other financial statement data presented in the
consolidated financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is thus susceptible to
varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.

F-37

TRIAD HOSPITALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17--OTHER CURRENT LIABILITIES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

A summary of other current liabilities as of December 31 follows (in
millions):

2000 1999
----- -----

Due to HCA.............................................................................. $ 0.6 $19.5
Employee benefit plans.................................................................. 0.8 10.6
Taxes, other than income................................................................ 9.2 9.1
Accrued interest........................................................................ 5.7 6.0
Self insured employee benefit programs.................................................. 3.0 6.9
Current portion of professional liability risk.......................................... 1.0 ---
Other................................................................................... 7.8 5.6
----- -----
$28.1 $57.7
===== =====

A summary of activity in Triad's allowances for doubtful accounts follows (in
millions):

Additions Accounts
Balances at Charged Written off, Balances at
Beginning of to Net of End of
Period Expense Recoveries Period
------ -------- ---------- ------

Allowances for doubtful accounts:
Year ended December 31, 1998.................................. $ 136.9 $ 138.4 $ (119.4) $ 155.9
Year ended December 31, 1999.................................. $ 155.9 $ 129.0 $ (128.2) $ 156.7
Year ended December 31, 2000.................................. $ 156.7 $ 103.6 $ (137.4) $ 122.9

NOTE 18--UNAUDITED QUARTERLY FINANCIAL INFORMATION

The quarterly interim financial information shown below has been prepared by
Triad's management and is unaudited. It should be read in conjunction with the
audited consolidated financial statements appearing herein (dollars in millions,
except per share amounts).

2000
First Second Third Fourth
------ ------ ----- ------

Revenues................................................. $ 311.6 $ 302.5 $ 301.3 $ 320.1
Net income (loss)........................................ $ 8.0(a) $ 1.1 $ (1.0) $ (3.7)(b)
Basic net income (loss) per share........................ $ 0.26(a) $ 0.03 $ (0.03) $ (0.11)(b)
Diluted net income (loss) per share...................... $ 0.25(a) $ 0.03 $ (0.03) $ (0.11)(b)

1999
First Second Third Fourth
----- ------ ----- ------

Revenues................................................. $ 367.6 $ 340.1 $ 321.3 $ 300.1
Net income (loss)........................................ $ (35.9)(c) $ (9.5) $ 1.8(d) $ (52.0)(e)
Basic and diluted net income (loss) per share............ $ (1.20)(c) $ (0.31) $ 0.06(d) $ (1.68)(e)

(a) During the first quarter of 2000, Triad recorded a $0.9 million pretax
charge related to the impairment of certain long-lived assets and a $4.2
million gain on sale of assets.

(b) During the fourth quarter of 2000, Triad recorded a $7.1 million pretax
charge related to the impairment of certain long-lived assets and a $3.3
million gain on sale of assets.

(c) During the first quarter of 1999, Triad recorded a $33.9 million pretax
charge related to the impairment of certain long-lived assets

(d) During the third quarter of 1999, Triad recorded a $16.8 million gain on
sale of assets and a $4.5 million pretax charge related to the impairment
of certain long-lived assets.

(e) During the fourth quarter of 1999, Triad recorded a $8.2 million loss on
sale of assets and a $30.8 million pretax charge related to the impairment
of certain long-lived assets.

F-38