##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to    Commission file number
    333-144337
   United Surgical Partners
    International, Inc.
 (Exact name of registrant as
    specified in its charter)
   Delaware

75-2749762(State or other jurisdiction
    of
    incorporation or organization)

(IRS Employer
    Identification Number)15305 Dallas Parkway, Suite 1600
    Addison, Texas(Address of principal
    executive offices)

75001(Zip
    Code)   (972) 713-3500
 (Registrants telephone number, including area code)
   o þ
   Regulation S-T o o
   12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o    Rule 12b-2 o þ
   The number of shares of Common Stock of the Registrant
    outstanding at November 9, 2010 was 100.




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##### 



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  INDEX
   
 PART I.

Financial Information


3Item 1.

Financial Statements:


3Review Report of Independent Registered Public
    Accounting Firm


3Consolidated Balance Sheets (unaudited)


4Consolidated Statements of Income (unaudited)


5Consolidated Statements of Comprehensive Income
    (unaudited)


7Consolidated Statements of Changes in Equity
    (unaudited)


8Consolidated Statements of Cash Flows
    (unaudited)


10Notes to Consolidated Financial Statements
    (unaudited)


11Item 2.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


29Item 3.

Quantitative and Qualitative Disclosures About
    Market Risk


50Item 4.

Controls and Procedures


51PART II.

Other Information


51Item 1.

Legal Proceedings


51Item 6.

Exhibits


51Signatures


52EX-31.1EX-31.2EX-32.1EX-32.2     2




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  ITEM 1.
    Financial
    Statements Report of
    Independent Registered Public Accounting Firm           KPMG
    LLP
    3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Balance
    Sheets
  September 30,


December 31,2010


2009(Unaudited)(In thousands  except sharedata)ASSETSCash and cash equivalents

$
60,726


$
34,890Accounts receivable, net of allowance for doubtful accounts of
    $8,422 and $8,160, respectively


48,087



54,237Other receivables


20,140



15,246Inventories of supplies


8,951



8,789Deferred tax asset, net


11,101



16,400Prepaids and other current assets


10,593



14,382Total current assets


159,598



143,944Property and equipment, net


215,753



198,506Investments in unconsolidated affiliates


347,120



355,499Goodwill


1,278,615



1,279,291Intangible assets, net


323,210



322,896Other assets


26,363



25,256Total assets

$
2,350,659


$
2,325,392LIABILITIES AND EQUITYAccounts payable

$
21,701


$
23,475Accrued salaries and benefits


22,654



33,015Due to affiliates


109,175



129,296Accrued interest


18,673



8,784Current portion of long-term debt


29,014



23,337Other current liabilities


50,214



39,053Total current liabilities


251,431



256,960Long-term debt, less current portion


1,036,647



1,048,191Other long-term liabilities


27,206



32,466Deferred tax liability, net


135,314



125,907Total liabilities


1,450,598



1,463,524Noncontrolling interests  redeemable (Note 3)


71,995



63,865Commitments and contingencies (Note 11)Equity:United Surgical Partners International, Inc. (USPI)
    stockholders equity:Common stock, $0.01 par value; 100 shares authorized,
    issued and outstanding






Additional paid-in capital


784,867



789,505Accumulated other comprehensive loss


(62,929
)


(58,845
)Retained earnings


66,188



27,292Total USPI stockholders equity


788,126



757,952Noncontrolling interests  nonredeemable (Note 3)


39,940



40,051Total equity


828,066



798,003Total liabilities and equity

$
2,350,659


$
2,325,392    4




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statements of
    Income
 Three Months


Three MonthsEnded


EndedSeptember 30,


September 30,2010


2009(Unaudited  in thousands)Revenues:Net patient service revenues

$
126,061


$
129,588Management and contract service revenues


21,012



19,521Other revenues


1,717



3,272Total revenues


148,790



152,381Equity in earnings of unconsolidated affiliates


17,247



14,913Operating expenses:Salaries, benefits, and other employee costs


42,763



44,223Medical services and supplies


24,347



25,451Other operating expenses


28,926



21,210General and administrative expenses


9,626



9,609Provision for doubtful accounts


2,032



2,674Depreciation and amortization


8,294



8,745Total operating expenses


115,988



111,912Operating income


50,049



55,382Interest income


212



520Interest expense


(17,333
)


(17,589
)Other, net


476



(8,925
)Total other expense, net


(16,645
)


(25,994
)Income before income taxes


33,404



29,388Income tax (expense) benefit (Note 7)


(7,247
)


24,123Net income


26,157



53,511Less: Net income attributable to noncontrolling interests


(14,309
)


(14,807
)Net income attributable to USPIs common stockholder

$
11,848


$
38,704    5




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statements of Income
  Nine Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009(Unaudited  in thousands)Revenues:Net patient service revenues

$
377,477


$
396,979Management and contract service revenues


61,232



57,573Other revenues


5,135



11,335Total revenues


443,844



465,887Equity in earnings of unconsolidated affiliates


49,754



43,110Operating expenses:Salaries, benefits, and other employee costs


124,226



130,089Medical services and supplies


74,203



76,019Other operating expenses


76,817



69,904General and administrative expenses


27,295



29,708Provision for doubtful accounts


6,351



7,553Depreciation and amortization


25,080



26,610Total operating expenses


333,972



339,883Operating income


159,626



169,114Interest income


638



2,261Interest expense


(53,069
)


(53,384
)Other, net (Note 3)


304



(19,145
)Total other expense, net


(52,127
)


(70,268
)Income before income taxes


107,499



98,846Income tax (expense) benefit (Note 7)


(24,674
)


9,504Net income


82,825



108,350Less: Net income attributable to noncontrolling interests


(43,079
)


(47,207
)Net income attributable to USPIs common stockholder

$
39,746


$
61,143    6




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statements of
    Comprehensive Income
  Three Months


Three MonthsEnded


EndedSeptember 30,


September 30,2010


2009(Unaudited  in thousands)Net income

$
26,157


$
53,511Other comprehensive income (loss):Foreign currency translation adjustments


11,857



(6,538
)Unrealized gain on interest rate swaps, net of tax


792



2,277Total other comprehensive income (loss)


12,649



(4,261
)Comprehensive income


38,806



49,250Less: Comprehensive income attributable to noncontrolling
    interests


(14,309
)


(14,807
)Comprehensive income attributable to USPIs common
    stockholder

$
24,497


$
34,443   Nine Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009(Unaudited  in thousands)Net income

$
82,825


$
108,350Other comprehensive income (loss):Foreign currency translation adjustments


(6,294
)


19,625Unrealized gain on interest rate swaps, net of tax


2,210



3,179Total other comprehensive income (loss)


(4,084
)


22,804Comprehensive income


78,741



131,154Less: Comprehensive income attributable to noncontrolling
    interests


(43,079
)


(47,207
)Comprehensive income attributable to USPIs common
    stockholder

$
35,662


$
83,947    7




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statement of Changes
    in EquityFor the Three Months and Nine Months Ended
    September 30, 2010
  USPIs Common StockholderAccumulatedAdditional


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


InterestsTotal


Income (Loss)


Shares


Par Value


Capital


Income (Loss)


Earnings


Nonredeemable(Unaudited  in thousands, except share amounts)Balance, December 31, 2009

$
798,003


$




100


$



$
789,505


$
(58,845
)

$
27,292


$
40,051Distributions to noncontrolling interests


(1,702
)


























(1,702
)Purchases of noncontrolling interests


(88
)














(28
)










(60
)Sales of noncontrolling interests


(2,797
)














(2,950
)










153Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


532















532











Comprehensive income (loss):Net income


13,518



12,011



















12,011



1,507Other comprehensive loss:Unrealized gain on interest rate swaps, net of tax


300



300















300







Foreign currency translation adjustments


(14,588
)


(14,588
)














(14,588
)






Other comprehensive loss


(14,288
)


(14,288
)






















Comprehensive income (loss)


(770
)

$
(2,277
)






















1,507Balance, March 31, 2010


793,178







100







787,059



(73,133
)


39,303



39,949Distributions to noncontrolling interests


(1,450
)


























(1,450
)Purchases of noncontrolling interests


(142
)














(115
)










(27
)Sales of noncontrolling interests


(919
)














(1,496
)










577Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


452















452











Dividend to USPI Holdings/USPI Group Holdings


(850
)






















(850
)


Comprehensive income:Net income


17,058



15,887



















15,887



1,171Other comprehensive loss:Unrealized gain on interest rate swaps, net of tax


1,118



1,118















1,118







Foreign currency translation adjustments


(3,563
)


(3,563
)














(3,563
)






Other comprehensive income


(2,445
)


(2,445
)






















Comprehensive income


14,613


$
13,442























1,171Balance, June 30, 2010


804,882







100







785,900



(75,578
)


54,340



40,220Distributions to noncontrolling interests


(1,565
)


























(1,565
)Purchases of noncontrolling interests


(75
)














(283
)










208Sales of noncontrolling interests


(1,279
)














(1,228
)










(51
)Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


478















478











Comprehensive income:Net income


12,976



11,848



















11,848



1,128Other comprehensive income:Unrealized gain on interest rate swaps, net of tax


792



792















792







Foreign currency translation adjustments


11,857



11,857















11,857







Other comprehensive income


12,649



12,649























Comprehensive income


25,625


$
24,497























1,128Balance, September 30, 2010

$
828,006







100


$



$
784,867


$
(62,929
)

$
66,188


$
39,940    8




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statement of Changes in EquityFor the Three Months and Nine Months Ended
    September 30, 2009
  USPI Common StockholderAccumulatedAdditional


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


Interests Total


Income (Loss)


Shares


Par Value


Capital


Income (Loss)


Earnings


Nonredeemable(Unaudited  in thousands, except share amounts)Balance, December 31, 2008

$
805,964


$




100


$



$
801,902


$
(84,008
)

$
46,243


$
41,827Distributions to noncontrolling interests


(605
)


























(605
)Purchases of noncontrolling interests


(668
)














(453
)










(215
)Sales of noncontrolling interests


(2,146
)














(2,142
)










(4
)Deconsolidation of subsidiaries


(5,852
)


























(5,852
)Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


462















462











Comprehensive income:Net income


6,915



5,687



















5,687



1,228Other comprehensive loss:Unrealized loss on interest rate swaps, net of tax


(63
)


(63
)














(63
)






Foreign currency translation adjustments


(4,480
)


(4,480
)














(4,480
)






Other comprehensive loss


(4,543
)


(4,543
)






















Comprehensive income


2,372


$
1,144























1,228Balance, March 31, 2009


799,527







100







799,769



(88,551
)


51,930



36,379Distributions to noncontrolling interests


(962
)


























(962
)Purchases of noncontrolling interests


(288
)














(270
)










(18
)Sales of noncontrolling interests


(1,904
)














(1,953
)










49Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


495















495











Comprehensive income:Net income


18,314



16,752



















16,752



1,562Other comprehensive loss:Unrealized gain on interest rate swaps, net of tax


965



965















965







Foreign currency translation adjustments


30,643



30,643















30,643







Other comprehensive income


31,608



31,608























Comprehensive income


49,922


$
48,360























1,562Balance, June 30, 2009


846,790







100







798,041



(56,943
)


68,682



37,010Distributions to noncontrolling interests


(1,557
)


























(1,557
)Purchases of noncontrolling interests


(34
)














(30
)










(4
)Sales of noncontrolling interests


(1,767
)














(1,770
)










3Deconsolidation of subsidiaries


(876
)


























(876
)Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


467















467











Comprehensive income:Net income


39,789



38,704



















38,704



1,085Other comprehensive loss:Unrealized gain on interest rate swaps, net of tax


2,277



2,277















2,277







Foreign currency translation adjustments


(6,538
)


(6,538
)














(6,538
)






Other comprehensive loss


(4,261
)


(4,261
)






















Comprehensive income


35,528


$
34,443























1,085Balance, September 30, 2009

$
878,551







100


$



$
796,708


$
(61,204
)

$
107,386


$
35,661    9




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statements of Cash
    Flows
  Nine Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009(Unaudited  in thousands)Cash flows from operating activities:Net income

$
82,825


$
108,350Adjustments to reconcile net income to net cash provided by
    operating activities:Provision for doubtful accounts


6,351



7,553Depreciation and amortization


25,080



26,610(Gain) loss on sale of equity interests and other


(519
)


12,778Loss on impairment of intangible assets


1,004



4,370Amortization of debt issue costs and discount


2,429



2,517Deferred income tax expense (benefit)


14,054



(16,795
)Equity in earnings of unconsolidated affiliates, net of
    distributions received


7,633



(4,499
)Equity-based compensation


1,383



1,463Increases (decreases) in cash from changes in operating assets
    and liabilities, net of effects from purchases of new businesses:Accounts receivable


(168
)


(5,832
)Other receivables


(181
)


2,330Inventories of supplies, prepaids and other current assets


2,711



(1,607
)Accounts payable and other current liabilities


(1,852
)


6,563Long-term liabilities


1,387



1,378Net cash provided by operating activities


142,137



145,179Cash flows from investing activities:Purchases of new businesses and equity interests, net of cash
    received


(15,266
)


(12,855
)Proceeds from sale of equity interests


9,953



2,091Purchases of property and equipment


(29,173
)


(17,016
)Returns of capital from unconsolidated affiliates


870



2,613Increase in deposits and notes receivable


(1,132
)


(3,686
)Net cash used in investing activities


(34,748
)


(28,853
)Cash flows from financing activities:Proceeds from long-term debt


13,032



761Payments on long-term debt


(29,615
)


(20,404
)(Decrease) increase in cash held on behalf of unconsolidated
    affiliates and other


(21,248
)


55,887Sales of noncontrolling interests, net


1,228



1,791Distributions to noncontrolling interests


(45,133
)


(47,435
)Net cash used in financing activities


(81,736
)


(9,400
)Effect of exchange rate changes on cash


183



182Net increase in cash and cash equivalents


25,836



107,108Cash and cash equivalents at beginning of period


34,890



49,435Cash and cash equivalents at end of period

$
60,726


$
156,543Supplemental information:Interest paid

$
42,624


$
43,771Income taxes paid


7,521



6,556Non-cash transactions:Assets acquired under capital lease obligations

$
12,562


$
1,863Receipt of note receivable for sale of equity interests






980    10




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESNotes to Consolidated Financial Statements (Unaudited)
  (1)
    Basis of
    Presentation  (a)
    Description
    of Business  not-for-profit not-for-profit
      Form 10-K.
    (2)
    Investments
    in Unconsolidated Affiliates and Business Combinations  not-for-profit
   11




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Unconsolidated facilities operated at period-end


114



106



114



106Income statement information:Revenues

$
328,879


$
293,207


$
948,350


$
852,679Operating expenses:Salaries, benefits, and other employee costs


77,875



71,391



224,641



204,485Medical services and supplies


76,520



68,086



222,362



194,973Other operating expenses


78,592



68,718



224,055



200,531Depreciation and amortization


13,813



12,645



40,636



37,474Total operating expenses


246,800



220,840



711,694



637,463Operating income


82,079



72,367



236,656



215,216Interest expense, net


(6,431
)


(6,041
)


(19,090
)


(18,312
)Other, net


(46
)


838



1,805



2,177Income before income taxes

$
75,602


$
67,164


$
219,371


$
199,081Balance sheet information:Current assets

$
261,874


$
237,086


$
261,874


$
237,086Noncurrent assets


439,402



405,547



439,402



405,547Current liabilities


146,095



153,621



146,095



153,621Noncurrent liabilities


305,316



288,629



305,316



288,629     Effective Date

Facility Location

AmountInvestmentsApril 2010

Destin, Florida(1)

$
1.3 millionApril 2010

St. Louis, Missouri(2)


0.4 millionMay 2010

Mansfield, Texas(3)


0.6 millionJuly 2010

Carrollton, Texas(3)


0.8 millionJuly 2010

Sacramento, California(4)


1.5 millionVarious

Various(5)


4.0 million8.6 millionSalesJune 2010

Cincinnati, Ohio(6)


7.9 millionTotal



$
0.7 million  12




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    (1)
    
    Acquisition of an additional noncontrolling interest in a
    surgical facility in which the Company already held an
    investment. This facility is jointly owned with local physicians.(2)
    
    Acquisition of a noncontrolling interest in a surgical facility
    in which the Company already provided management services. This
    facility is jointly owned with one of the Companys
    hospital partners and local physicians.(3)
    
    Acquisition of the right to manage a surgical facility in which
    the Company previously had no involvement. Concurrent with this
    transaction, an unconsolidated investee the Company jointly owns
    with a hospital partner used cash on hand to acquire an equity
    interest in this facility, resulting in the Company having an
    indirect ownership interest in the facility. The remainder of
    this facility is owned by local physicians.(4)
    
    Acquisition of a noncontrolling interest in and right to manage
    a surgical facility in which the Company previously had no
    involvement. This facility is jointly owned with one of the
    Companys hospital partners and local physicians.(5)
    
    Represents the net purchase of additional ownership and equity
    contributions in various other unconsolidated affiliates,
    including $3.1 million paid for additional ownership in
    four centers the Company already operated.(6)
    
    Sale of a portion of the Companys equity ownership in one
    facility to a hospital partner.    (3)
    Noncontrolling
    Interests     13




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    Three Months


Nine Months


Three Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2010


2010


2009


2009Net income attributable to USPIs common stockholder

$
11,848


$
39,746


$
38,704


$
61,143Transfers to the noncontrolling interests:Decrease in USPIs additional paid-in capital for sales of
    subsidiaries equity interests


(1,228
)


(5,674
)


(1,770
)


(5,865
)Decrease in USPIs additional paid-in capital for purchases
    of subsidiaries equity interests


(283
)


(426
)


(30
)


(753
)Net transfers to noncontrolling interests


(1,511
)


(6,100
)


(1,800
)


(6,618
)Change in equity from net income attributable to USPI and
    transfers to noncontrolling interests

$
10,337


$
33,646


$
36,904


$
54,525   not-for-profit not-for-profit
       14




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    2010NoncontrollingInterests RedeemableBalance, December 31, 2009

$
63,865Net income attributable to noncontrolling interests


12,128Distributions to noncontrolling interests


(12,452
)Purchases of noncontrolling interests


(195
)Sales of noncontrolling interests


3,708Deconsolidation of noncontrolling interests and other


75Balance, March 31, 2010


67,129Net income attributable to noncontrolling interests


13,964Distributions to noncontrolling interests


(13,881
)Purchases of noncontrolling interests


(229
)Sales of noncontrolling interests


1,923Purchase of new business


2,455Balance, June 30, 2010


71,361Net income attributable to noncontrolling interests


13,180Distributions to noncontrolling interests


(14,085
)Purchases of noncontrolling interests


(443
)Sales of noncontrolling interests


1,982Balance, September 30, 2010

$
71,995   15




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  2009NoncontrollingInterests RedeemableBalance, December 31, 2008

$
51,961Net income attributable to noncontrolling interests


15,054Distributions to noncontrolling interests


(13,359
)Purchases of noncontrolling interests


(594
)Sales of noncontrolling interests


3,117Deconsolidation of noncontrolling interests and other


(2,189
)Balance, March 31, 2009


53,990Net income attributable to noncontrolling interests


14,544Distributions to noncontrolling interests


(14,780
)Purchases of noncontrolling interests


(345
)Sales of noncontrolling interests


2,926Deconsolidation of noncontrolling interests and other


(239
)Balance, June 30, 2009


56,096Net income attributable to noncontrolling interests


13,722Distributions to noncontrolling interests


(15,913
)Purchases of noncontrolling interests


248Sales of noncontrolling interests


3,491Deconsolidation of noncontrolling interests and other


(182
)Balance, September 30, 2009

$
57,462   (4)  Other
    Investments
     16




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
      (5)
    Interest
    Rate Swaps         17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
            (6)
    Fair
    Value Measurements       18




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    (7)
    Income
    Taxes        (8)
    Equity-Based
    Compensation     19




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    Three Months


Nine Months


Three Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2010


2010


2009


2009Salaries, benefits and other employee costs

$
175


$
540


$
210


$
594General and administrative expenses


285



843



257



738Other operating expenses














131Expense before income tax benefit


460



1,383



467



1,463Income tax benefit


(92
)


(287
)


(98
)


(287
)Total equity-based compensation expense, net of tax

$
368


$
1,096


$
369


$
1,176     Three Months


Nine Months


Three Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2010


2010


2009


2009Share awards

$
332


$
993


$
304


$
889Stock options


128



390



163



443Warrants














131Expense before income tax benefit


460



1,383



467



1,463Income tax benefit


(92
)


(287
)


(98
)


(287
)Total equity-based compensation expense, net of tax

$
368


$
1,096


$
369


$
1,176   1 2
  (9)
    Segment
    Disclosures   20




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    United


UnitedThree Months Ended September 30, 2010

States


Kingdom


TotalNet patient service revenues

$
100,948


$
25,113


$
126,061Other revenues


22,729







22,729Total revenues

$
123,677


$
25,113


$
148,790Depreciation and amortization

$
6,442


$
1,852


$
8,294Operating income


46,222



3,827



50,049Net interest expense


(16,552
)


(569
)


(17,121
)Income tax expense


(6,441
)


(806
)


(7,247
)Total assets


2,018,663



331,996



2,350,659Capital expenditures


11,891



7,326



19,217   United


UnitedNine Months Ended September 30, 2010

States


Kingdom


TotalNet patient service revenues

$
301,202


$
76,275


$
377,477Other revenues


66,367







66,367Total revenues

$
367,569


$
76,275


$
443,844Depreciation and amortization

$
19,827


$
5,253


$
25,080Operating income


147,643



11,983



159,626Net interest expense


(49,991
)


(2,440
)


(52,431
)Income tax expense


(22,258
)


(2,416
)


(24,674
)Total assets


2,018,663



331,996



2,350,659Capital expenditures


23,363



18,372



41,735   United


UnitedThree Months Ended September 30, 2009

States


Kingdom


TotalNet patient service revenues

$
102,438


$
27,150


$
129,588Other revenues


22,793







22,793Total revenues

$
125,231


$
27,150


$
152,381Depreciation and amortization

$
6,921


$
1,824


$
8,745Operating income


50,844



4,538



55,382Net interest expense


(16,530
)


(539
)


(17,069
)Income tax benefit (expense)


25,209



(1,086
)


24,123Total assets


2,071,602



319,168



2,390,770Capital expenditures


3,123



3,097



6,220   21




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  United


UnitedNine Months Ended September 30, 2009

States


Kingdom


TotalNet patient service revenues

$
319,076


$
77,903


$
396,979Other revenues


68,908







68,908Total revenues

$
387,984


$
77,903


$
465,887Depreciation and amortization

$
21,606


$
5,004


$
26,610Operating income


153,473



15,641



169,114Net interest expense


(50,224
)


(899
)


(51,123
)Income tax expense


13,658



(4,154
)


9,504Total assets


2,071,602



319,168



2,390,770Capital expenditures


11,664



7,215



18,879   (10)  Related
    Party Transactions
    (11)
    Commitments
    and Contingencies      (12)
    Subsequent
    Events   22




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
      (13)
    Condensed
    Consolidating Financial Statements    7 8 1 4 Form S-4
 23




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Condensed
    Consolidating Balance Sheets:
  Non-Participating


Consolidation


ConsolidatedAs of September 30, 2010

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
48,434


$
12,292


$



$
60,726Accounts receivable, net






48,087







48,087Other receivables


49,642



40,401



(69,903
)


20,140Inventories of supplies


573



8,378







8,951Prepaids and other current assets


18,952



2,742







21,694Total current assets


117,601



111,900



(69,903
)


159,598Property and equipment, net


15,134



200,457



162



215,753Investments in unconsolidated affiliates


981,681







(634,561
)


347,120Goodwill and intangible assets, net


894,223



352,321



355,281



1,601,825Other assets


94,884



3,429



(71,950
)


26,363Total assets

$
2,103,523


$
668,107


$
(420,971
)

$
2,350,659LIABILITIES AND EQUITYLiabilities and EquityCurrent liabilities:Accounts payable

$
1,498


$
20,203


$



$
21,701Accrued expenses and other


213,131



55,884



(68,299
)


200,716Current portion of long-term debt


5,502



23,424



88



29,014Total current liabilities


220,131



99,511



(68,211
)


251,431Long-term debt, less current portion


942,739



102,412



(8,504
)


1,036,647Other long-term liabilities


152,527



10,199



(206
)


162,520Parents equity


788,126



434,187



(434,187
)


788,126Noncontrolling interests






21,798



90,137



111,935Total liabilities and equity

$
2,103,523


$
668,107


$
(420,971
)

$
2,350,659   24




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Non-Participating


Consolidation


ConsolidatedAs of December 31, 2009

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
27,430


$
7,460


$



$
34,890Accounts receivable, net






54,202



35



54,237Other receivables


46,975



45,776



(77,505
)


15,246Inventories of supplies


428



8,361







8,789Prepaids and other current assets


26,264



4,518







30,782Total current assets


101,097



120,317



(77,470
)


143,944Property and equipment, net


16,197



181,857



452



198,506Investments in unconsolidated affiliates


1,027,814







(672,315
)


355,499Goodwill and intangible assets, net


857,802



353,212



391,173



1,602,187Other assets


96,205



2,213



(73,162
)


25,256Total assets

$
2,099,115


$
657,599


$
(431,322
)

$
2,325,392LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
1,396


$
22,079


$



$
23,475Accrued expenses and other


235,904



50,200



(75,956
)


210,148Current portion of long-term debt


5,480



20,116



(2,259
)


23,337Total current liabilities


242,780



92,395



(78,215
)


256,960Long-term debt, less current portion


952,311



118,892



(23,012
)


1,048,191Other long-term liabilities


146,072



13,122



(821
)


158,373Parents equity


757,952



412,362



(412,362
)


757,952Noncontrolling interests






20,828



83,088



103,916Total liabilities and equity

$
2,099,115


$
657,599


$
(431,322
)

$
2,325,392  25




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Condensed
    Consolidating Statements of Income:
  Non-Participating


Consolidation


ConsolidatedFor the Nine Months Ended September 30, 2010

Guarantors


Investees


Adjustments


TotalRevenues

$
71,220


$
389,041


$
(16,417
)

$
443,844Equity in earnings of unconsolidated affiliates


96,522



1,744



(48,512
)


49,754Operating expenses, excluding depreciation and amortization


56,324



269,030



(16,462
)


308,892Depreciation and amortization


5,422



19,502



156



25,080Operating income


105,996



102,253



(48,623
)


159,626Interest expense, net


(45,826
)


(6,515
)


(90
)


(52,431
)Other income (expense), net


383



(738
)


659



304Income from before income taxes


60,553



95,000



(48,054
)


107,499Income tax expense


(20,807
)


(3,867
)






(24,674
)Net income


39,746



91,133



(48,054
)


82,825Less: Net income attributable to noncontrolling interests






(8,571
)


(34,508
)


(43,079
)Net income attributable to Parent

$
39,746


$
82,562


$
(82,562
)

$
39,746   Non-Participating


Consolidation


ConsolidatedFor the Nine Months Ended September 30, 2009

Guarantors


Investees


Adjustments


TotalRevenues

$
72,396


$
410,190


$
(16,699
)

$
465,887Equity in earnings of unconsolidated affiliates


97,831



1,580



(56,301
)


43,110Operating expenses, excluding depreciation and amortization


54,909



275,095



(16,731
)


313,273Depreciation and amortization


5,408



20,905



297



26,610Operating income


109,910



115,770



(56,566
)


169,114Interest expense, net


(45,365
)


(6,067
)


309



(51,123
)Other income (expense), net


(19,053
)


141



(233
)


(19,145
)Income from before income taxes


45,492



109,844



(56,490
)


98,846Income tax benefit (expense)


15,651



(6,147
)






9,504Net income


61,143



103,697



(56,490
)


108,350Less: Net income attributable to noncontrolling interests






(7,634
)


(39,573
)


(47,207
)Net income attributable to Parent

$
61,143


$
96,063


$
(96,063
)

$
61,143  26




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Condensed
    Consolidating Statements of Cash Flows:
  Non-Participating


Consolidation


ConsolidatedNine Months Ended September 30, 2010

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
39,746


$
91,133


$
(48,054
)

$
82,825Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


27,302



24,998



7,012



59,312Net cash provided by operating activities


67,048



116,131



(41,042
)


142,137Cash flows from investing activities:Purchases of property and equipment, net


(3,288
)


(25,885
)






(29,173
)Purchases and sales of businesses and equity interests, net


(5,313
)










(5,313
)Other items, net


(3,775
)


4,353



(840
)


(262
)Net cash provided by (used in) investing activities


(12,376
)


(21,532
)


(840
)


(34,748
)Cash flows from financing activities:Long-term borrowings, net


(8,949
)


(8,782
)


1,148



(16,583
)Purchases and sales of noncontrolling interests, net


880



348







1,228Distributions to noncontrolling interests






(86,175
)


41,042



(45,133
)Decrease in cash held on behalf of noncontrolling interest
    holders and other


(25,599
)


4,659



(308
)


(21,248
)Net cash provided by (used in) financing activities


(33,668
)


(89,950
)


41,882



(81,736
)Effect of exchange rate changes on cash






183







183Net increase in cash


21,004



4,832







25,836Cash at the beginning of the period


27,430



7,460







34,890Cash at the end of the period

$
48,434


$
12,292


$



$
60,726   27




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Non-Participating


Consolidation


ConsolidatedNine Months Ended September 30, 2009

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
61,143


$
103,697


$
(56,490
)

$
108,350Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


(30
)


20,162



16,697



36,829Net cash provided by operating activities


61,113



123,859



(39,793
)


145,179Cash flows from investing activities:Purchases of property and equipment, net


(3,966
)


(13,050
)






(17,016
)Purchases and sales of businesses and equity interests, net


(8,862
)


(1,902
)






(10,764
)Other items, net


(1,495
)


(6,886
)


7,308



(1,073
)Net cash used in investing activities


(14,323
)


(21,838
)


7,308



(28,853
)Cash flows from financing activities:Long-term borrowings, net


(6,434
)


(14,314
)


1,105



(19,643
)Purchases and sales of noncontrolling interests, net


1,791











1,791Distributions to noncontrolling interests






(87,228
)


39,793



(47,435
)Increase in cash held on behalf of noncontrolling interest
    holders and other


62,773



1,527



(8,413
)


55,887Net cash provided by (used in) financing activities


58,130



(100,015
)


32,485



(9,400
)Effect of exchange rate changes on cash






182







182Net increase in cash


104,920



2,188







107,108Cash at the beginning of the period


42,025



7,410







49,435Cash at the end of the period

$
146,945


$
9,598


$



$
156,543  28




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##### Table of Contents



ITEM 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q.
  Forward-Looking
    Statements
  Form 10-Q, Form 10-Q.
  Overview
  not-for-profit
     29




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
   30




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##### Table of Contents



Acquisitions,
    Equity Investments and Development Projects
      Effective Date

Facility Location

AmountInvestmentsApril 2010

Destin, Florida(1)

$
1.3 millionApril 2010

St. Louis, Missouri(2)


0.4 millionMay 2010

Mansfield, Texas(3)


0.6 millionJuly 2010

Carrollton, Texas(3)


0.8 millionJuly 2010

Sacramento, California(4)


1.5 millionVarious

Various(5)


4.0 million8.6 millionSalesJune 2010

Cincinnati, Ohio(6)


7.9 millionTotal



$
0.7 million     (1)
    
    Acquisition of an additional noncontrolling interest in a
    surgical facility in which we already held an investment. This
    facility is jointly owned with local physicians.(2)
    
    Acquisition of a noncontrolling interest in a surgical facility
    in which we already provided management services. This facility
    is jointly owned with one of our hospital partners and local
    physicians.(3)
    
    Acquisition of the right to manage a surgical facility in which
    we previously had no involvement. Concurrent with this
    transaction, an unconsolidated investee the we jointly own with
    a hospital partner used cash on hand to acquire an equity
    interest in this facility, resulting in our having an indirect
    ownership interest in the facility. The remainder of this
    facility is owned by local physicians.(4)
    
    Acquisition of a noncontrolling interest in and right to manage
    a surgical facility in which we previously had no involvement.
    This facility is jointly owned with one of our hospital partners
    and local physicians. 31




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##### Table of Contents



(5)
    
    Represents the net purchase of additional ownership and equity
    contributions in various other unconsolidated affiliates,
    including $3.1 million paid for additional ownership in
    four centers we already operated.(6)
    
    Sale of a portion of our equity ownership in one facility to a
    hospital partner.    Deconsolidations
  not-for-profit
      Sources
    of Revenue
    
    net patient service revenues of the facilities that we
    consolidate for financial reporting purposes, which are
    typically those facilities in which we have ownership interests
    of greater than 50% or otherwise maintain effective control.
    management and contract service revenues, consisting of the fees
    that we earn from managing the facilities that we do not
    consolidate for financial reporting purposes and the fees we
    earn from providing certain consulting and administrative
    services to physicians and hospitals. Our consolidated revenues
    and expenses do not include the management fees we earn from
    operating the facilities that we consolidate for financial
    reporting purposes as those fees are charged to subsidiaries and
    thus eliminate in consolidation. 32




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##### Table of Contents



Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Net patient service revenues


85
%


85
%


85
%


85
%Management and contract service revenues


14



13



14



13Other revenues


1



2



1



2Total revenues


100
%


100
%


100
%


100
%       Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009Management of surgical facilities

$
13,236


$
11,527


$
38,855


$
34,194Contract services provided to hospitals, physicians and related
    entities


7,776



7,994



22,377



23,379Total management and contract service revenues

$
21,012


$
19,521


$
61,232


$
57,573       Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2010


2009


2010


2009United States


83
%


82
%


83
%


83
%United Kingdom


17



18



17



17Total


100
%


100
%


100
%


100
%    33




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##### Table of Contents



Results
    of Operations
    Three Months


Nine MonthsEnded September 30,


Ended September 30,USPI

2010


2009


2010


2009Total revenues


100.0
%


100.0
%


100.0
%


100.0
%Equity in earnings of unconsolidated affiliates


11.6



9.8



11.2



9.3Operating expenses, excluding depreciation and amortization


(72.4
)


(67.7
)


(69.5
)


(67.2
)Depreciation and amortization


(5.6
)


(5.8
)


(5.7
)


(5.8
)Operating income


33.6



36.3



36.0



36.3Interest and other expense, net


(11.2
)


(17.0
)


(11.7
)


(15.1
)Income from before income taxes


22.4



19.3



24.3



21.2Income tax (expense) benefit


(4.8
)


15.8



(5.6
)


2.0Net income


17.6



35.1



18.7



23.2Less: Net income attributable to noncontrolling interests


(9.6
)


(9.7
)


(9.7
)


(10.1
)Net income attributable to USPIs common stockholder


8.0
%


25.4
%


9.0
%


13.1
%   not-for-profit
  Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,USPIs Unconsolidated Affiliates

2010


2009


2010


2009Total revenues


100.0
%


100.0
%


100.0
%


100.0
%Operating expenses, excluding depreciation and amortization


(70.8
)


(71.0
)


(70.8
)


(70.4
)Depreciation and amortization


(4.2
)


(4.3
)


(4.2
)


(4.4
)Operating income


25.0



24.7



25.0



25.2Interest and other expense, net


(2.0
)


(1.8
)


(1.8
)


(1.9
)Income before income taxes


23.0



22.9



23.2



23.3Income tax expense


(0.6
)


(0.6
)


(0.6
)


(0.5
)Net income


22.4
%


22.3
%


22.6
%


22.8
%   Executive
    Summary
     34




---



##### Table of Contents



year-over-year
    year-to-date year-over-year year-to-date
  year-over-year
  year-over-year year-to-date
 35




---



##### Table of Contents



Our
    Business and Key Measures
  not-for-profit day-to-day
  
    our share of each facilitys net income or loss, which is
    computed by multiplying the facilitys net income or loss
    times the percentage of each facilitys equity interests
    owned by us.
    management services revenues, computed as a percentage of each
    facilitys net revenues (often net of bad debt
    expense); and  day-to-day
      
    equity in earnings of unconsolidated affiliates: our share of
    the net income of each facility, which is based on the
    facilities net income or loss and the percentage of the
    facilitys outstanding equity interests owned by
    us; and
    management and administrative services revenues: income we earn
    in exchange for managing the
    day-to-day
    operations of each facility, usually quantified as a percentage
    of each facilitys net revenues less bad debt expense.    
    The results of operations of USPIs unconsolidated
    affiliates
    USPIs average ownership share in the facilities we
    operate; and
    Facility operating indicators, such as systemwide revenue
    growth, same store revenue growth, and same store operating
    margins 36




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##### Table of Contents



Our
    Consolidated and Unconsolidated Results
    Three Months Ended September 30,2010


2009


Variance to Prior YearUSPI as





USPI as





USPI asReported





Reported





ReportedUnder


Unconsolidated


Under


Unconsolidated


Under


UnconsolidatedGAAP


Affiliates


GAAP


Affiliates


GAAP


AffiliatesRevenues:Net patient service revenues

$
126,061


$
328,153


$
129,588


$
292,800


$
(3,527
)

$
35,353Management and administrative services revenues


21,012







19,521







1,491



Other income


1,717



726



3,272



407



(1,555
)


319Total revenues


148,790



328,879



152,381



293,207



(3,591
)


35,672Equity in earnings of unconsolidated affiliates


17,247







14,913







2,334



Operating expenses:Salaries, benefits and other employee costs


42,763



77,875



44,223



71,391



(1,460
)


6,484Medical services and supplies


24,347



76,520



25,451



68,086



(1,104
)


8,434Other operating expenses


28,926



69,665



21,210



60,808



7,716



8,857General and administrative expenses


9,626







9,609







17



Provision for doubtful accounts


2,032



8,927



2,674



7,910



(642
)


1,017Depreciation and amortization


8,294



13,813



8,745



12,645



(451
)


1,168Total operating expenses


115,988



246,800



111,912



220,840



4,076



25,960Operating income


50,049



82,079



55,382



72,367



(5,333
)


9,712Interest income


212



88



520



89



(308
)


(1
)Interest expense


(17,333
)


(6,519
)


(17,589
)


(6,130
)


256



(389
)Other, net


476



(46
)


(8,925
)


838



9,401



(884
)Total other expenses, net


(16,645
)


(6,477
)


(25,994
)


(5,203
)


9,349



(1,274
)Income before income taxes


33,404



75,602



29,388



67,164



4,016



8,438Income tax (expense) benefit


(7,247
)


(1,993
)


24,123



(1,708
)


(31,370
)


(285
)Net income


26,157


$
73,609



53,511


$
65,456



(27,354
)

$
8,153Less: Net income attributable to noncontrolling interests


(14,309
)






(14,807
)






498Net income attributable to USPIs common stockholder

$
11,848






$
38,704






$
(26,856
)USPIs equity in earnings of unconsolidated affiliates





$
17,247






$
14,913






$
2,334   37




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##### Table of Contents



Nine Months Ended September 30,2010


2009


Variance to Prior YearUSPI as





USPI as





USPI asReported





Reported





ReportedUnder


Unconsolidated


Under


Unconsolidated


Under


UnconsolidatedGAAP


Affiliates


GAAP


Affiliates


GAAP


AffiliatesRevenues:Net patient service revenues

$
377,477


$
946,521


$
396,979


$
849,849


$
(19,502
)

$
96,672Management and administrative services revenues


61,232







57,573







3,659



Other income


5,135



1,829



11,335



2,830



(6,200
)


(1,001
)Total revenues


443,844



948,350



465,887



852,679



(22,043
)


95,671Equity in earnings of unconsolidated affiliates


49,754







43,110







6,644



Operating expenses:Salaries, benefits and other employee costs


124,226



224,641



130,089



204,485



(5,863
)


20,156Medical services and supplies


74,203



222,362



76,019



194,973



(1,816
)


27,389Other operating expenses


76,817



200,652



69,904



180,631



6,913



20,021General and administrative expenses


27,295







29,708







(2,413
)


Provision for doubtful accounts


6,351



23,403



7,553



19,900



(1,202
)


3,503Depreciation and amortization


25,080



40,636



26,610



37,474



(1,530
)


3,162Total operating expenses


333,972



711,694



339,883



637,463



(5,911
)


74,231Operating income


159,626



236,656



169,114



215,216



(9,488
)


21,440Interest income


638



281



2,261



364



(1,623
)


(83
)Interest expense


(53,069
)


(19,371
)


(53,384
)


(18,676
)


315



(695
)Other, net


304



1,805



(19,145
)


2,177



19,449



(372
)Total other expenses, net


(52,127
)


(17,285
)


(70,268
)


(16,135
)


18,141



(1,150
)Income before income taxes


107,499



219,371



98,846



199,081



8,653



20,290Income tax (expense) benefit


(24,674
)


(5,149
)


9,504



(4,806
)


(34,178
)


(343
)Net income


82,825


$
214,222



108,350


$
194,275



(25,525
)

$
19,947Less: Net income attributable to noncontrolling interests


(43,079
)






(47,207
)






4,128Net income attributable to USPIs common stockholder

$
39,746






$
61,143






$
(21,397
)USPIs equity in earnings of unconsolidated affiliates





$
49,754






$
43,110






$
6,644  38




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##### Table of Contents



Three Months Ended

Nine Months EndedSeptember 30,

September 30,2010

2009

2010

2009Long-term debt

$
290,230


$
280,217


$
290,230


$
280,217USPIs imputed weighted average ownership percentage based
    on affiliates pre-tax income(1)


22.8
%


22.2
%


22.7
%


21.7
%USPIs imputed weighted average ownership percentage based
    on affiliates debt(2)


25.3
%


25.0
%


25.3
%


25.0
%Unconsolidated facilities operated at period end


114



106



114



106     (1)
    
    Our weighted average percentage ownership in our unconsolidated
    affiliates is calculated as USPIs equity in earnings of
    unconsolidated affiliates divided by the total net income of
    unconsolidated affiliates for each respective period. This is a
    non-GAAP measure but management believes it provides further
    useful information about its involvement in equity method
    investments.(2)
    
    Our weighted average percentage ownership in our unconsolidated
    affiliates is calculated as the total debt of each
    unconsolidated affiliate, multiplied by the percentage ownership
    USPI held in the affiliate as of the end of each respective
    period, divided by the total debt of all of the unconsolidated
    affiliates as of the end of each respective period. This is a
    non-GAAP measure but management believes it provides further
    useful information about its involvement in equity method
    investments.  year-to-date
  Our
    Ownership Interests in the Facilities We Operate
    Nine Months Ended

Year Ended

Nine Months EndedSeptember 30, 2010

December 31, 2009

September 30, 2009Equity method facilities(1)


22.7
%


21.5
%


21.7
%Consolidated facilities(2)


47.5
%


48.1
%


48.7
%Total(3)


29.4
%


29.4
%


30.2
%     (1)
    
    Computed for unconsolidated facilities by dividing (a) our
    total equity in earnings of unconsolidated affiliates by
    (b) the aggregate net income of U.S. surgical facilities we
    account for under the equity method. 39




---



##### Table of Contents



(2)
    
    Computed for consolidated facilities by dividing (a) the
    aggregate net income of U.S. surgical facilities we operate less
    our total noncontrolling interests in income of consolidated
    subsidiaries by (b) the aggregate net income of our
    consolidated U.S. surgical facilities.(3)
    
    Computed in total by dividing our share of the facilities
    net income, defined as the sum of (a) in footnotes
    (1) and (2), by the aggregate net income of our U.S.
    surgical facilities, defined as the sum of (b) in footnotes
    (1) and (2).  not-for-profit
    Revenues
    Three Months EndedSeptember 30, 2010USPI as Reported


UnconsolidatedUnder GAAP


AffiliatesTotal revenues, three months ended September 30, 2009

$
152,381


$
293,207Add: Revenue from acquired facilities


2,432



10,468Less: Revenue of disposed facilities






(2,449
)Less: Revenue of deconsolidated facilities


(1,925
)


1,925Impact of exchange rate


(1,440
)


Adjusted base period


151,448



303,151(Decrease) increase from operations


(2,907
)


23,969Non-facility based revenue


249



1,759Total revenues, three months ended September 30, 2010

$
148,790


$
328,879   40




---



##### Table of Contents



Nine Months EndedSeptember 30, 2010USPI as Reported


UnconsolidatedUnder GAAP


AffiliatesTotal revenues, nine months ended September 30, 2009

$
465,887


$
852,679Add: Revenue from acquired facilities


5,839



26,297Less: Revenue of disposed facilities






(9,848
)Less: Revenue of deconsolidated facilities


(13,035
)


13,035Impact of exchange rate


(304
)


Adjusted base period


458,387



882,163(Decrease) increase from operations


(13,546
)


62,975Non-facility based revenue


(997
)


3,212Total revenues, nine months ended September 30, 2010

$
443,844


$
948,350     Facility
    Growth
    year-over-year
  year-to-date
 41




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##### Table of Contents



Three Months

Nine MonthsEnded

EndedSeptember 30,

September 30,2010

2010United States facilities:Net revenue


5
%


4
%Surgical cases



%


(1
)%Net revenue per case(1)


6
%


5
%United Kingdom facilities:Adjusted admissions


(8
)%


(6
)%Net revenue using actual exchange rates


(8
)%


(2
)%Net revenue using constant exchange rates(2)


(3
)%


(2
)%All same store facilities:Net revenue using actual exchange rates


5
%


4
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    for the three and nine months ended September 30, 2010, was
    favorably impacted by the 10% growth at our thirteen same store
    hospitals, which on average perform more complex cases and thus
    earn a higher average net revenue per case than ambulatory
    surgery centers. The net revenue per case growth at our
    ambulatory surgery centers was 3% during the third quarter of
    2010.(2)
    
    Calculated using 2010 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business.  Joint
    Ventures With
    Not-For-Profit
    Hospitals
    not-for-profit
 42




---



##### Table of Contents



September 30,2010


2009United States facilities(1):With a hospital partner


117



103Without a hospital partner


53



60Total U.S. facilities


170



163United Kingdom facilities


4



4Total facilities operated


174



167Change from September 30, 2009:De novo (newly constructed)


4Acquisition


8Disposals(2)


(5
)Total increase in number of facilities


7     (1)
    
    At September 30, 2010, physicians own a portion of all of
    these facilities.(2)
    
    We sold our ownership interests in facilities in Baton Rouge,
    Louisiana and Oxnard, California. We merged two of our surgery
    centers into one location in Dallas, Texas and also merged two
    of our surgery centers into one location in Ohio.  Facility
    Operating Margins
  year-over-year not-for-profit
  ramp-up not-for-profit
   43




---



##### Table of Contents



year-over-year
  Three Months Ended



Nine Months EndedSeptember 30, 2010

(Decrease)

September 30, 2010

(Decrease)United States facilities:With a hospital partner


25.4
%


 bps



25.2
%


(80) bpsWithout a hospital partner


30.5
%


(140) bps



31.2
%


(150) bpsTotal U.S. facilities


26.4
%


(30) bps



26.4
%


(110) bpsUnited Kingdom facilities(2)


21.7
%


(100) bps



23.5
%


(110) bps     (1)
    
    Operating margin is calculated as operating income divided by
    total revenues. This table aggregates all of the same store
    facilities we operate using 100% of their results. This does not
    represent the overall margin for USPIs operations in
    either the U.S. or the U.K. because we have a variety of
    ownership levels in the facilities we operate, and facilities
    open for less than a year are excluded from same store
    calculations.(2)
    
    Calculated using 2010 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business. In addition, the
    $1.0 million unfavorable impact of a payment of value-added
    tax in the first quarter of 2010 has been excluded from U.K.
    same store facility operating margins. The favorable impact of
    this value-added tax recorded in the second quarter of 2009 was
    also excluded.  Three
    Months Ended September 30, 2010 Compared to Three Months
    Ended September 30, 2009
         44




---



##### Table of Contents



year-over-year
  Nine
    Months Ended September 30, 2010 Compared to Nine Months
    Ended September 30, 2009
         45




---



##### Table of Contents



year-over-year year-over-year
  Liquidity
    and Capital Resources
  Cash
    Flows
       46




---



##### Table of Contents



Debt
        Senior
    secured credit facility
  sub-facility, sub-facility;
      Senior
    subordinated notes
  7 8 1 4
 47




---



##### Table of Contents



payment-in-kind 1 4
  United
    Kingdom borrowings
       48




---



##### Table of Contents



Contractual
    Cash Obligations
    Payments Due by PeriodWithin


Years


Years


BeyondContractual Cash Obligations

Total


1 Year


2 and 3


4 and 5


5 Years(In thousands)Long-term debt obligations:Senior secured credit facility(1)

$
509,761


$
5,265


$
10,530


$
493,966


$
Senior subordinated notes, due 2017(1)


240,000















240,000Senior subordinated toggle notes, due 2017(1)


197,515















197,515U.K. credit facility(1)


57,755



10,462



47,293







Other debt at operating subsidiaries(1)


30,314



6,227



8,177



11,754



4,156Interest on long-term debt obligations(2)


336,709



61,254



119,559



89,489



66,407Capitalized lease obligations(3)


49,367



7,960



11,633



7,394



22,380Operating lease obligations


82,739



14,474



24,406



16,013



27,846Total contractual cash obligations

$
1,504,160


$
105,642


$
221,598


$
618,616


$
558,304     (1)
    
    Scheduled principal payments(2)
    
    Represents interest due on long-term debt obligations. For
    variable rate debt, the interest is calculated using the
    September 30, 2010 rates applicable to each debt instrument
    and also gives effect to the interest rate swaps designated in a
    cash flow hedging relationship against portions of the U.K.
    credit facility and senior secured credit facility in the U.S.(3)
    
    Includes related principal and interest.  Debt
    at Operating Subsidiaries
     49




---



##### Table of Contents



Related
    Party Transactions
    ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  variable-to-fixed
         50




---



##### Table of Contents



ITEM 4.
    Controls
    and Procedures  Form 10-Q.
 PART II 
    OTHER INFORMATION  ITEM 1.
    Legal
    Proceedings    ITEM 6.
    Exhibits  3
.1

Amended and Restated Certificate of Incorporation (previously
    filed as an exhibit to the Companys Registration Statement
    on Form S-4 (No. 333-144337) and incorporated herein by
    reference).3
.2

Amended and Restated Bylaws (previously filed as an exhibit to
    the Companys Registration Statement on Form S-4 (No.
    333-144337) and incorporated herein by reference).4
.1

Indenture governing
    87/8% Senior
    Subordinated Notes due 2017 and 9
    1/4%/10% Senior
    Subordinated Toggle Notes due 2017, among the Company, the
    Guarantors named therein and U.S. Bank National Association, as
    trustee (previously filed as an exhibit to the Companys
    Registration Statement on Form S-4
    (No. 333-144337)
    and incorporated herein by reference).4
.2

Form of
    87/8% Senior
    Subordinated Note due 2017 and 9
    1/4%/10% Senior
    Subordinate Toggle Note due 2017 (previously filed as an exhibit
    to the Companys Registration Statement on Form S-4
    (No. 333-144337)
    and incorporated herein by reference).31
.1*

Certification of Chief Executive Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.31
.2*

Certification of Chief Financial Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.32
.1*

Certification of Chief Executive Officer pursuant Section 906 of
    the Sarbanes-Oxley Act of 2002.32
.2*

Certification of Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     *
    
    Filed herewith 51




---



##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser   Executive Vice President
 and Chief Financial Officer
 (Principal Financial Officer)
    By:
    /s/  J.
    Anthony Martin   Vice President, Corporate Controller,
 and Chief Accounting Officer
 (Principal Accounting Officer)
 52




---



##### Table of Contents



Exhibit Index
  3
.1

Amended and Restated Certificate of Incorporation (previously
    filed as an exhibit to the Companys Registration Statement
    on Form S-4 (No. 333-144337) and incorporated herein by
    reference).3
.2

Amended and Restated Bylaws (previously filed as an exhibit to
    the Companys Registration Statement on Form S-4 (No.
    333-144337) and incorporated herein by reference).4
.1

Indenture governing
    87/8% Senior
    Subordinated Notes due 2017 and
    91/4%/10% Senior
    Subordinated Toggle Notes due 2017, among the Company, the
    Guarantors named therein and U.S. Bank National Association, as
    trustee (previously filed as an exhibit to the Companys
    Registration Statement on Form S-4
    (No. 333-144337)
    and incorporated herein by reference).4
.2

Form of
    87/8% Senior
    Subordinated Note due 2017 and
    91/4%/10% Senior
    Subordinate Toggle Note due 2017 (previously filed as an exhibit
    to the Companys Registration Statement on Form S-4
    (No. 333-144337)
    and incorporated herein by reference).31
.1*

Certification of Chief Executive Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.31
.2*

Certification of Chief Financial Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.32
.1*

Certification of Chief Executive Officer pursuant Section 906 of
    the Sarbanes-Oxley Act of 2002.32
.2*

Certification of Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith. 53