##### 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, 2008oro

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

75001(Zip Code)(Address of principal executive
    offices)   (972) 713-3500
 (Registrants telephone
    number, including area code)
   þ o
  Rule 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 4, 2008 was 100.




---



##### 





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


3Item 1.

Review Report of Independent Registered Public
    Accounting Firm


3Consolidated Balance Sheets (unaudited)


4Consolidated Statements of Operations
    (unaudited)


5Consolidated Statements of Comprehensive Income
    (Loss) (unaudited)


7Consolidated Statements of Cash Flows
    (unaudited)


8Notes to Consolidated Financial Statements
    (unaudited)


9Item 2.

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


28Item 3.

Quantitative and Qualitative Disclosures About
    Market Risk


49Item 4T

Controls and Procedures


50PART II. Other Information


50Item 1.

Legal Proceedings


50Item 6.

Exhibits


50Signatures


51EX-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
               3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Balance Sheets
    (except share data)
  September 30,


December 31,2008


2007(In thousands)(Unaudited)ASSETSCash and cash equivalents

$
123,914


$
76,758Accounts receivable, net of allowance for doubtful accounts of
    $11,789 and $12,721, respectively


56,756



59,557Other receivables


13,446



8,974Inventories of supplies


9,082



9,495Prepaids and other current assets


17,705



20,056Total current assets


220,903



174,840Property and equipment, net


217,233



229,039Investments in affiliates


285,098



267,357Goodwill and intangible assets, net


1,601,298



1,590,820Other assets


14,463



15,337Total assets

$
2,338,995


$
2,277,393LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable

$
23,456


$
22,982Accrued salaries and benefits


25,528



24,671Due to affiliates


98,563



62,500Accrued interest


19,616



13,436Current portion of long-term debt


24,078



25,311Other current liabilities


37,827



38,509Total current liabilities


229,068



187,409Long-term debt, less current portion


1,086,033



1,072,751Other long-term liabilities


17,506



17,950Deferred tax liability, net


121,083



109,414Total liabilities


1,453,690



1,387,524Minority interests


82,733



83,063Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 100 shares authorized;
    issued and outstanding






Additional paid-in capital


801,539



799,562Accumulated other comprehensive loss


(29,321
)


(1,485
)Retained earnings


30,354



8,729Total stockholders equity


802,572



806,806Total liabilities and stockholders equity

$
2,338,995


$
2,277,393    4




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Operations
  Three Months


Three MonthsEnded


EndedSeptember 30,


September 30,2008


2007(Unaudited  in thousands)Revenues:Net patient service revenues

$
134,469


$
137,146Management and contract service revenues


17,757



16,267Other revenues


1,437



1,256Total revenues


153,663



154,669Equity in earnings of unconsolidated affiliates


11,420



6,561Operating expenses:Salaries, benefits, and other employee costs


45,172



44,095Medical services and supplies


27,338



27,239Other operating expenses


25,188



25,605General and administrative expenses


9,766



9,339Provision for doubtful accounts


2,146



2,582Depreciation and amortization


8,856



10,990Total operating expenses


118,466



119,850Operating income


46,617



41,380Interest income


685



1,090Interest expense


(21,159
)


(24,429
)Other, net


(708
)


(361
)Total other expense, net


(21,182
)


(23,700
)Income before minority interests


25,435



17,680Minority interests in income of consolidated subsidiaries


(11,915
)


(13,866
)Income from continuing operations before income taxes


13,520



3,814Income tax expense


(6,073
)


(3,867
)Income (loss) from continuing operations


7,447



(53
)Loss from discontinued operations, net of tax


(6
)


(123
)Net income (loss)

$
7,441


$
(176
)    5




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statements of Operations
  Successor



PredecessorPeriod from



Period fromNine Months


April 19



January 1Ended


through



throughSeptember 30,


September 30,



April 18,2008


2007



2007(Unaudited  in thousands)Revenues:Net patient service revenues

$
424,081


$
254,195



$
170,598Management and contract service revenues


53,915



29,332




19,142Other revenues


3,969



2,287




1,615Total revenues


481,965



285,814




191,355Equity in earnings of unconsolidated affiliates


32,563



13,805




9,906Operating expenses:Salaries, benefits, and other employee costs


138,820



79,559




53,871Medical services and supplies


85,183



49,792




34,308Other operating expenses


81,391



46,179




31,744General and administrative expenses


29,933



17,898




39,277Provision for doubtful accounts


5,956



5,463




3,297Depreciation and amortization


27,702



19,740




12,426Total operating expenses


368,985



218,631




174,923Operating income


145,543



80,988




26,338Interest income


2,509



1,841




933Interest expense


(65,111
)


(43,645
)



(9,521
)Loss on early retirement of debt











(2,435
)Other, net


(463
)


(234
)



798Total other expense, net


(63,065
)


(42,038
)



(10,225
)Income before minority interests


82,478



38,950




16,113Minority interests in income of consolidated subsidiaries


(41,264
)


(28,117
)



(18,866
)Income (loss) from continuing operations before income taxes


41,214



10,833




(2,753
)Income tax expense


(18,687
)


(6,544
)



(4,145
)Income (loss) from continuing operations


22,527



4,289




(6,898
)Loss from discontinued operations, net of tax


(902
)


(317
)



(251
)Net income (loss)

$
21,625


$
3,972



$
(7,149
)    6




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Comprehensive Income (Loss)
  SuccessorThree Months


Three MonthsEnded


EndedSeptember 30,


September 30,2008


2007(Unaudited  in thousands)Net income (loss)

$
7,441


$
(176
)Other comprehensive income (loss):Foreign currency translation adjustments


(28,696
)


2,400Unrealized loss on interest rate swaps, net of tax


(862
)


Other comprehensive income (loss)


(29,558
)


2,400Comprehensive income (loss)

$
(22,117
)

$
2,224   Successor



PredecessorPeriod from



Period fromNine Months


April 19



January 1Ended


through



throughSeptember 30,


September 30,



April 18,2008


2007



2007(Unaudited  in thousands)Net income (loss)

$
21,625


$
3,972



$
(7,149
)Other comprehensive income (loss):Foreign currency translation adjustments


(27,796
)


3,017




2,169Unrealized loss on interest rate swaps, net of tax


(40
)







Other comprehensive income


(27,836
)


3,017




2,169Comprehensive income (loss)

$
(6,211
)

$
6,989



$
(4,980
)    7




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##### Table of Contents



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



PredecessorPeriod from



Period fromNine Months


April 19



January 1Ended


through



throughSeptember 30,


September 30,



April 18,2008


2007



2007(Unaudited  in thousands)Cash flows from operating activities:Net income (loss)

$
21,625


$
3,972



$
(7,149
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Loss on discontinued operations


902



317




251Provision for doubtful accounts


5,956



5,463




3,297Depreciation and amortization


27,702



19,740




12,426Loss on early retirement of debt











2,435Loss (gain) on sale of equity interests


1,863



565




(897
)Amortization of debt issue costs and discount


2,133



1,214




202Deferred income tax expense


11,126



3,463




1,328Equity in earnings of unconsolidated affiliates, net of
    distributions received


(5,291
)


1,015




4,335Minority interests in income of consolidated subsidiaries, net
    of distributions paid


(687
)


965




468Equity-based compensation


1,876



936




17,100Increases (decreases) in cash from changes in operating assets
    and liabilities, net of effects from purchases of new businesses:Accounts receivable


(5,789
)


(1,849
)



(973
)Other receivables


(6,513
)


(1,088
)



509Inventories of supplies, prepaids and other current assets


1,214



3,891




919Accounts payable and other current liabilities


10,305



15,330




12,060Long-term liabilities


(591
)


836




(1,390
)Tax benefit related to increase in value of equity awards











(15,822
)Net cash provided by operating activities


65,831



54,770




29,099Cash flows from investing activities:Purchases of new businesses and equity interests, net of cash
    received


(62,885
)


(78,534
)



(26,705
)Proceeds from sale of businesses and equity interests


12,151



5,879




15,916Purchases of property and equipment


(26,526
)


(8,117
)



(6,172
)Returns of capital from unconsolidated affiliates


2,374



987




556Decrease (increase) in deposits and notes receivable


722



8,665




(9,084
)Net cash used in investing activities


(74,164
)


(71,120
)



(25,489
)Cash flows from financing activities:Proceeds from long-term debt, net of debt issuance costs


43,026



910,429




20,684Payments on long-term debt


(22,203
)


(216,293
)



(7,424
)Proceeds from issuances of common stock











6,135Net equity contribution from USPI Group Holdings, Inc.


8



779,279




Tax benefit related to increase in value of equity awards











15,822Payments to repurchase common stock






(1,430,879
)



Increase (decrease) in cash held on behalf of unconsolidated
    affiliates


35,999



(3,597
)



13,895Expenses paid on behalf of USPI Group Holdings, Inc.






(7,862
)



Returns of capital to minority interest holders


(1,444
)


(1,686
)



(943
)Net cash provided by financing activities


55,386



29,391




48,169Cash flows of discontinued operations:Operating cash flows


160



534




(761
)Investing cash flows


(76
)


(100
)



(827
)Financing cash flows


(34
)


60




1,379Net cash provided by (used in) discontinued operations


50



494




(209
)Effect of exchange rate changes on cash


53



27




(113
)Net increase in cash and cash equivalents


47,156



13,562




51,457Cash and cash equivalents at beginning of period


76,758



83,197




31,740Cash and cash equivalents at end of period

$
123,914


$
96,759



$
83,197Supplemental information:Interest paid

$
56,689


$
19,612



$
9,861Income taxes paid


5,665



3,314




1,909Non-cash transactions:Assets acquired under capital lease obligations

$
1,089


$
3,418



$
1,677Receipt of note receivable for sale of minority interest


601








Predecessor rollover equity






18,192




    8




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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        Form 10-K
  Form 10-K.
   9




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    (2)
    Discontinued
    Operations and Other Dispositions    Date

Facility Location

Proceeds


Gain (Loss)July 2008

Manitowoc, Wisconsin(1)

$
0.8 million



July 2008

Orlando, Florida(1)

$
0.5 million


$
(0.4 million
)June 2008

Cleveland, Ohio(2)

$
1.6 million


$
(1.0 million
)April 2008

Los Angeles, California(1)






February 2008

Sarasota, Florida(1)

$
0.5 million



December 2007

Houston, Texas(2)





$
(0.6 million
)December 2007

Decatur, Alabama(2)

$
0.3 million


$
(2.2 million
)November 2007

Canton, Mississippi(2)





$
(0.9 million
)September 2007

Atlanta, Georgia(1)

$
1.8 million


$
0.7 millionSeptember 2007

Baltimore, Maryland(1)





$
(1.2 million
)     (1)
    
    Because these investments were accounted for under the equity
    method, the results of operations of these facilities are not
    reported as discontinued operations. The gain (loss) on the
    disposal of these facilities is recorded in other income
    (expense) in the accompanying consolidated statements of
    operations.(2)
    
    In accordance with the requirements of Statement of Financial
    Accounting Standards (SFAS) No. 144, Accounting for the
    Impairment or Disposal of Long-Lived Assets, the Company has
    reclassified its historical results of operations to remove the
    operations of these facilities from the Companys revenues
    and expenses on the accompanying consolidated statements of
    operations, collapsing the income (loss) related to these
    facilities operations and the Companys disposal of
    them into a single line, Loss from discontinued
    operations, net of tax. The table below summaries certain
    amounts related to the Companys discontinued operations
    for the periods presented (in thousands).  Successor



PredecessorPeriod from



Period fromThree Months


Nine Months


Three Months


April 19



January 1Ended


Ended


Ended


through



throughSeptember 30,


September 30,


September 30,


September 30,



April 18,2008


2008


2007


2007



2007Revenues

$



$
3,108


$
3,262


$
6,023



$
3,693Income (loss) from discontinued operations before income taxes

$
(10
)

$
97


$
(188
)

$
(488
)


$
(386
)Income tax (expense) benefit


4



(34
)


65



171




135Income (loss) from discontinued operations

$
(6
)

$
63


$
(123
)

$
(317
)


$
(251
)Loss on sale of discontinued operations before income taxes

$



$
(965
)

$



$




$
Income tax benefit



















Loss on sale of discontinued operations

$



$
(965
)

$



$




$
  10




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##### Table of Contents



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

Facility Location

Proceeds


Gain (Loss)July 2008

Beaumont, Texas

$
1.2 million


$
(0.5 million
)June 2008

Dallas, Texas(1)

$
2.3 million


$
(0.9 million
)June 2008

Houston, Texas(2)

$
0.6 million



March 2008

Redding, California(3)

$
1.7 million



April 2007

Corpus Christi, Texas(4)

$
6.1 million


$
0.9 million     (1)
    
    The hospital partner already had an ownership interest in the
    facility and acquired a controlling interest from the Company in
    this transaction. Additionally, this hospital partner is a
    related party (Note 8).(2)
    
    Because the Company is considered the primary beneficiary of
    this entity under FASB Interpretation No. 46,
    Consolidation of Variable Interest Entities (as amended),the Company consolidates the entity, and continues to
    ultimately consolidate the facilitys operating results.
    The sales price of $0.6 million was paid in the form of a
    note receivable from the buyer.(3)
    
    The Company sold a controlling interest in two facilities and
    gained a noncontrolling interest in a third facility in Redding.(4)
    
    The Company sold a controlling interest in two facilities.  (3)
    Acquisitions
    and Equity Method Investments    Effective Date

Facility Location

Purchase PriceSeptember 2008

St. Louis, Missouri(1)

$
18.0 millionSeptember 2008

St. Louis, Missouri(2)

$
15.8 millionAugust 2008

St. Louis, Missouri(2)

$
3.0 millionJune 2008

Dallas, Texas(3)

$
3.9 millionApril 2008

St. Louis, Missouri(4)

$
14.1 million     (1)
    
    The Company acquired additional ownership in two of its existing
    facilities.(2)
    
    The Company had no previous investment in this facility.(3)
    
    The Company purchased all of a healthcare systems
    ownership interests in an entity it co-owned with the Company.
    This entity has ownership in and manages five facilities in the
    Dallas/Fort Worth area (Note 8). This holding company
    was already a subsidiary of the Company and is now wholly owned
    by the Company.(4)
    
    The Company acquired additional ownership in three of its
    existing facilities. 11




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##### Table of Contents



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



PredecessorPeriod from



Period fromThree Months


Nine Months


Three Months


April 19



January 1Ended


Ended


Ended


Through



ThroughSeptember 30,


September 30,


September 30,


September 30,



April 18,2008


2008


2007


2007



2007Net revenues

$
155,605


$
489,602


$
157,547


$
290,389



$
193,620Income (loss) from continuing operations


8,110



25,830



1,426



6,940




(5,538
)       
    Receipt of $3.6 million from a not-for-profit hospital
    partner that obtained additional ownership in a facility in the
    Kansas City, Missouri area;
    Investment of $1.1 million in a joint venture with one of
    the Companys not-for-profit hospital partners which the
    joint venture used to acquire ownership in a facility in the Las
    Vegas, Nevada, area;
    Investment of $1.4 million in a surgical facility in
    Knoxville, Tennessee, jointly owned with one of the
    Companys not-for-profit hospital partners; and
    Net payment of approximately $0.8 million related to
    various other purchases and sales of equity interests and
    contributions of cash to equity method investees.   12




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##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2008


2007


2008


2007Unconsolidated facilities operated at period-end


98



91



98



91Income statement information:Revenues

$
246,890


$
197,042


$
716,013


$
565,541Operating expenses:Salaries, benefits, and other employee costs


62,370



55,258



179,106



150,416Medical services and supplies


52,568



42,492



150,939



118,567Other operating expenses


62,310



52,331



182,563



148,145Depreciation and amortization


11,839



10,535



36,490



28,804Total operating expenses


189,087



160,616



549,098



445,932Operating income


57,803



36,426



166,915



119,609Interest expense, net


(6,105
)


(5,826
)


(18,311
)


(14,672
)Other, net


865



1,542



2,301



643Income before income taxes

$
52,563


$
32,142


$
150,905


$
105,580Balance sheet information:Current assets

$
209,722


$
181,389


$
209,722


$
181,389Noncurrent assets


400,456



381,113



400,456



381,113Current liabilities


132,137



109,004



132,137



109,004Noncurrent liabilities


283,048



280,640



283,048



280,640   (4)
    Long-Term
    Debt  (a)
    Senior
    secured credit facility  and/or
    (b)
    United
    Kingdom borrowings   13




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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    Accounting for
    Derivative Instruments and Hedging Activities
         14




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
    (6)
    Equity-Based
    Compensation  Share-Based Payment
         15




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##### Table of Contents



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



PredecessorPeriod from



Period fromThree Months


Nine Months


Three Months


April 19



January 1Ended


Ended


Ended


through



throughSeptember 30,


September 30,


September 30,


September 30,



April 18,2008


2008


2007


2007



2007Equity in earnings of unconsolidated affiliates

$



$



$



$




$
20Salaries, benefits and other employee costs


182



790












959General and administrative expenses


246



750



120



594




16,144Other operating expenses






336



342



342




Minority interests in income of consolidated subsidiaries



















(23
)Expense before income tax benefit


428



1,876



462



936




17,100Income tax
    benefit(1)


(93
)


(371
)


(61
)


(117
)



(5,366
)Total equity-based compensation expense, net of tax

$
335


$
1,505


$
401


$
819



$
11,734     Successor



PredecessorPeriod from



Period fromThree Months


Nine Months


Three Months


April 1



January 1Ended


Ended


Ended


through



throughSeptember 30,


September 30,


September 30,


September 30,



April 18,2008


2008


2007


2007



2007Share awards

$
286


$
884


$
124


$
472



$
13,202Stock options


142



656



(4
)


122




3,797Warrants






336



342



342




ESPP



















101Expense before income tax benefit


428



1,876



462



936




17,100Income tax
    benefit(1)


(93
)

$
(371
)


(61
)


(117
)



(5,366
)Total equity-based compensation expense, net of tax

$
335


$
1,505


$
401


$
819



$
11,734    (1)
    
    There is a tax benefit related to portions of the Companys
    equity-based compensation. However, the realizability of this
    and other deductions is affected by the Company generating net
    operating losses in its overall U.S. tax computations since the
    merger. As the Company does not consider it more likely than not
    that these losses will be used to offset future taxable income,
    the Successors overall tax computations include a full
    valuation allowance against its U.S. net operating loss
    carryforwards and other deferred tax assets.  (7)
    Segment
    Disclosures  Disclosures About Segments of an
    Enterprise and Related Information,
 16




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##### Table of Contents



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

United


UnitedThree Months Ended September 30, 2008

States


Kingdom


TotalNet patient service revenues

$
103,386


$
31,083


$
134,469Other revenues


19,194







19,194Total revenues

$
122,580


$
31,083


$
153,663Depreciation and amortization

$
7,085


$
1,771


$
8,856Operating income


39,910



6,707



46,617Net interest expense


(19,168
)


(1,306
)


(20,474
)Income tax expense


(4,552
)


(1,521
)


(6,073
)Total assets


1,996,992



342,003



2,338,995Capital expenditures


4,595



2,020



6,615   Successor

United


UnitedNine Months Ended September 30, 2008

States


Kingdom


TotalNet patient service revenues

$
327,755


$
96,326


$
424,081Other revenues


57,884







57,884Total revenues

$
385,639


$
96,326


$
481,965Depreciation and amortization

$
22,343


$
5,359


$
27,702Operating income


124,932



20,611



145,543Net interest expense


(58,402
)


(4,200
)


(62,602
)Income tax expense


(13,951
)


(4,736
)


(18,687
)Total assets


1,996,992



342,003



2,338,995Capital expenditures


13,109



14,506



27,615   Successor

United


UnitedThree Months Ended September 30, 2007

States


Kingdom


TotalNet patient service revenues

$
107,213


$
29,933


$
137,146Other revenues


17,523







17,523Total revenues

$
124,736


$
29,933


$
154,669Depreciation and amortization

$
7,868


$
3,122


$
10,990Operating income


37,359



4,021



41,380Net interest expense


(21,696
)


(1,643
)


(23,339
)Income tax (expense) benefit


(4,242
)


375



(3,867
)Total assets


2,001,047



280,333



2,281,380Capital expenditures


4,444



2,436



6,880   17




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##### Table of Contents



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

United


UnitedPeriod From April 19 through September 30, 2007

States


Kingdom


TotalNet patient service revenues

$
200,636


$
53,559


$
254,195Other revenues


31,619







31,619Total revenues

$
232,255


$
53,559


$
285,814Depreciation and amortization

$
14,185


$
5,555


$
19,740Operating income


73,308



7,680



80,988Net interest expense


(38,908
)


(2,896
)


(41,804
)Income tax (expense) benefit


(6,641
)


97



(6,544
)Total assets


2,001,047



280,333



2,281,380Capital expenditures


7,564



3,971



11,535   Predecessor

United


UnitedPeriod from January 1 through April 18, 2007

States


Kingdom


TotalNet patient service revenues

$
136,865


$
33,733


$
170,598Other revenues


20,757







20,757Total revenues

$
157,622


$
33,733


$
191,355Depreciation and amortization

$
9,487


$
2,939


$
12,426Operating income


20,929



5,409



26,338Net interest expense


(7,150
)


(1,438
)


(8,588
)Income tax expense


(2,795
)


(1,350
)


(4,145
)Total assets


1,114,429



209,279



1,323,708Capital expenditures


5,224



2,625



7,849   (8)
    Related
    Party Transactions      Dallas/Fort Worth
 18




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
      (9)
    Commitments
    and Contingencies    Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others,
  (10)
    New
    Accounting Pronouncements  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
 19




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Disclosures about Derivative Instruments and Hedging
    Activities, an amendment of FASB Statement No. 133
  No. 142-3, Determination of the Useful Life of Intangible Assets FSP 142-3 Goodwill and Other Intangible
    Assets FSP 142-3 Business Combinations FSP 142-3 FSP 142-3
  The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present
    Fairly in Conformity With Generally Accepted Accounting
    Principles, The
    Meaning of Present Fairly in Conformity with Generally Accepted
    Accounting Principles
  (11)
    Subsequent
    Events      (12)
    Condensed
    Consolidating Financial Statements   20




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##### Table of Contents



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


Consolidation


ConsolidatedAs of September 30, 2008

Guarantors


Investees


Adjustments


TotalAssetsCurrent assets:Cash and cash equivalents

$
117,518


$
6,396


$



$
123,914Accounts receivable, net






56,714



42



56,756Other receivables


32,748



48,943



(68,245
)


13,446Inventories of supplies


40



9,042







9,082Prepaids and other current assets


15,048



2,698



(41
)


17,705Total current assets


165,354



123,793



(68,244
)


220,903Property and equipment, net


16,795



199,907



531



217,233Investments in affiliates


1,053,368



72



(768,342
)


285,098Goodwill and intangible assets, net


767,510



337,878



495,910



1,601,298Other assets


86,392



889



(72,818
)


14,463Total assets

$
2,089,419


$
662,539


$
(412,963
)

$
2,338,995Liabilities and Stockholders EquityCurrent liabilities:Accounts payable

$
1,827


$
21,625


$
4


$
23,456Accrued expenses and other


197,986



48,852



(65,304
)


181,534Current portion of long-term debt


4,284



21,213



(1,419
)


24,078Total current liabilities


204,097



91,690



(66,719
)


229,068Long-term debt, less current portion


955,056



143,018



(12,041
)


1,086,033Other long-term liabilities


127,694



12,014



(1,119
)


138,589Minority interests






11,935



70,798



82,733Stockholders equity


802,572



403,882



(403,882
)


802,572Total liabilities and stockholders equity

$
2,089,419


$
662,539


$
(412,963
)

$
2,338,995   21




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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, 2007

Guarantors


Investees


Adjustments


TotalAssetsCurrent assets:Cash and cash equivalents

$
66,665



10,093


$



$
76,758Accounts receivable, net






59,796



(239
)


59,557Other receivables


26,616



43,019



(60,661
)


8,974Inventories of supplies






9,597



(102
)


9,495Prepaids and other current assets


17,696



2,473



(113
)


20,056Total current assets


110,977



124,978



(61,115
)


174,840Property and equipment, net


15,452



212,149



1,438



229,039Investments in affiliates


951,129



1,565



(685,337
)


267,357Goodwill and intangible assets, net


834,711



378,619



377,490



1,590,820Other assets


93,703



1,102



(79,468
)


15,337Total assets

$
2,005,972


$
718,413


$
(446,992
)

$
2,277,393Liabilities and Stockholders EquityCurrent liabilities:Accounts payable

$
1,607


$
21,535


$
(160
)

$
22,982Accrued expenses and other


152,649



46,282



(59,815
)


139,116Current portion of long-term debt


3,787



22,831



(1,307
)


25,311Total current liabilities


158,043



90,648



(61,282
)


187,409Long-term debt, less current portion


926,519



156,725



(10,493
)


1,072,751Other long-term liabilities


114,604



14,054



(1,294
)


127,364Minority interests






14,061



69,002



83,063Stockholders equity


806,806



442,925



(442,925
)


806,806Total liabilities and stockholders equity

$
2,005,972


$
718,413


$
(446,992
)

$
2,277,393  22




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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 Operations:
  Nine Months Ended September 30, 2008




Non-Participating


Consolidation


ConsolidatedSuccessor

Guarantors


Investees


Adjustments


TotalRevenues

$
68,716


$
430,980


$
(17,731
)

$
481,965Equity in earnings of unconsolidated affiliates


81,410



1,948



(50,795
)


32,563Operating expenses, excluding depreciation and amortization


56,788



302,222



(17,727
)


341,283Depreciation and amortization


5,082



22,219



401



27,702Operating income


88,256



108,487



(51,200
)


145,543Interest expense, net


(52,951
)


(9,673
)


22



(62,602
)Other income (expense), net


(636
)


405



(232
)


(463
)Income (loss) before minority interests


34,669



99,219



(51,410
)


82,478Minority interests in income of consolidated subsidiaries






(5,203
)


(36,061
)


(41,264
)Income (loss) from continuing operations before income taxes


34,669



94,016



(87,471
)


41,214Income tax expense


(12,142
)


(6,547
)


2



(18,687
)Income (loss) from continuing operations


22,527



87,469



(87,469
)


22,527Loss from discontinued operations, net of tax


(902
)










(902
)Net income (loss)

$
21,625


$
87,469


$
(87,469
)

$
21,625   Period from January 1 through April 18, 2007




Non-Participating


Consolidation


ConsolidatedPredecessor

Guarantors


Investees


Adjustments


TotalRevenues

$
26,714


$
173,575


$
(8,934
)

$
191,355Equity in earnings of unconsolidated affiliates


28,137



158



(18,389
)


9,906Operating expenses, excluding depreciation and amortization


51,244



120,371



(9,118
)


162,497Depreciation and amortization


2,219



9,408



799



12,426Operating income


1,388



43,954



(19,004
)


26,338Interest expense, net


(4,996
)


(3,592
)






(8,588
)Loss on early retirement of debt


(2,435
)










(2,435
)Other income (expense), net


917



(718
)


599



798Income (loss) before minority interests


(5,126
)


39,644



(18,405
)


16,113Minority interests in income of consolidated subsidiaries






(4,855
)


(14,011
)


(18,866
)Income (loss) from continuing operations before income taxes


(5,126
)


34,789



(32,416
)


(2,753
)Income tax expense


(1,772
)


(2,375
)


2



(4,145
)Income (loss) from continuing operations


(6,898
)


32,414



(32,414
)


(6,898
)Loss from discontinued operations, net of tax


(251
)










(251
)Net income (loss)

$
(7,149
)

$
32,414


$
(32,414
)

$
(7,149
)  23




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Period from April 19 through September 30, 2007




Non-Participating


Consolidation


ConsolidatedSuccessor

Guarantors


Investees


Adjustments


TotalRevenues

$
39,838


$
259,263


$
(13,287
)

$
285,814Equity in earnings of unconsolidated affiliates


42,590



108



(28,893
)


13,805Operating expenses, excluding depreciation and amortization


32,790



179,615



(13,514
)


198,891Depreciation and amortization


3,864



15,544



332



19,740Operating income


45,774



64,212



(28,998
)


80,988Interest expense, net


(35,776
)


(6,035
)


7



(41,804
)Other income (expense), net


(300
)


207



(141
)


(234
)Income before minority interests


9,698



58,384



(29,132
)


38,950Minority interests in income of consolidated subsidiaries






(4,711
)


(23,406
)


(28,117
)Income from continuing operations before income taxes


9,698



53,673



(52,538
)


10,833Income tax expense


(5,409
)


(1,336
)


201



(6,544
)Income from continuing operations


4,289



52,337



(52,337
)


4,289Loss from discontinued operations, net of tax


(317
)










(317
)Net income

$
3,972


$
52,337


$
(52,337
)

$
3,972  24




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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:
  Nine Months Ended September 30, 2008




Non-Participating


Consolidation


ConsolidatedSuccessor

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income (loss)

$
21,625


$
87,469


$
(87,469
)

$
21,625Loss from discontinued operations


902











902Changes in operating and intercompany assets and liabilities and
    noncash items included in net income (loss)


11,247



31,888



169



43,304Net cash provided by operating activities


33,774



119,357



(87,300
)


65,831Cash flows from investing activities:Purchases of property and equipment, net


(3,859
)


(22,667
)






(26,526
)Purchases of new businesses and equity interests, net


(50,627
)


(107
)






(50,734
)Other items, net


3,559



(5,120
)


4,657



3,096Net cash used in investing activities


(50,927
)


(27,894
)


4,657



(74,164
)Cash flows from financing activities:Long-term borrowings, net


28,284



(8,186
)


733



20,831Other items, net


39,672



(87,027
)


81,910



34,555Net cash provided by (used in) financing activities


67,956



(95,213
)


82,643



55,386Net cash provided by discontinued operations


50











50Effect of exchange rate changes on cash






53







53Net increase (decrease) in cash


50,853



(3,697
)






47,156Cash at the beginning of the period


66,665



10,093







76,758Cash at the end of the period

$
117,518


$
6,396


$



$
123,914   25




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Period from January 1 through April 18, 2007




Non-Participating


Consolidation


ConsolidatedPredecessor

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income (loss)

$
(7,149
)

$
32,414


$
(32,414
)

$
(7,149
)Loss from discontinued operations


251











251Changes in operating and intercompany assets and liabilities and
    noncash items included in net income (loss)


35,733



21,989



(21,725
)


35,997Net cash provided by operating activities


28,835



54,403



(54,139
)


29,099Cash flows from investing activities:Purchases of property and equipment, net


(576
)


(5,596
)






(6,172
)Purchases and sales of new businesses and equity interests, net


(10,789
)










(10,789
)Other items, net


(4,490
)


(8,411
)


4,373



(8,528
)Net cash used in investing activities


(15,855
)


(14,007
)


4,373



(25,489
)Cash flows from financing activities:Long-term borrowings, net


(511
)


9,688



4,083



13,260Proceeds from issuance of common stock


6,135











6,135Change in cash held on behalf of unconsolidated affiliates


22,306



45



(8,456
)


13,895Other items, net


15,821



(55,081
)


54,139



14,879Net cash provided by (used in) financing activities


43,751



(45,348
)


49,766



48,169Net cash used in discontinued operations


(209
)










(209
)Effect of exchange rate changes on cash






(113
)






(113
)Net increase (decrease) in cash


56,522



(5,065
)






51,457Cash at the beginning of the period


23,934



7,806







31,740Cash at the end of the period

$
80,456


$
2,741


$



$
83,197   26




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  Period from April 19 through September 30, 2007




Non-Participating


Consolidation


ConsolidatedSuccessor

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income (loss)

$
3,972


$
52,337


$
(52,337
)

$
3,972Loss from discontinued operations


317











317Changes in operating and intercompany assets and liabilities and
    noncash items included in net income (loss)


23,322



30,448



(3,289
)


50,481Net cash provided by operating activities


27,611



82,785



(55,626
)


54,770Cash flows from investing activities:Purchases of property and equipment, net


(1,640
)


(6,477
)






(8,117
)Purchases and sales of new businesses and equity interests, net


(72,655
)










(72,655
)Other items


13,430



447



(4,225
)


9,652Net cash used in investing activities


(60,865
)


(6,030
)


(4,225
)


(71,120
)Cash flows from financing activities:Long-term borrowings, net


703,833



(10,347
)


650



694,136Net equity contribution from USPI Group Holdings, Inc.


779,279











779,279Payments to repurchase common stock


(1,430,879
)










(1,430,879
)Other items


(12,082
)


(60,264
)


59,201



(13,145
)Net cash provided by (used in) financing activities


40,151



(70,611
)


59,851



29,391Net cash provided by discontinued operations


494











494Effect of exchange rate changes on cash






27







27Net increase (decrease) in cash


7,391



6,171







13,562Cash at the beginning of the period


80,456



2,741







83,197Cash at the end of the period

$
87,847


$
8,912


$



$
96,759  27




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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
       28




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
            Merger
    Transaction
  Form 10-K
  Acquisitions,
    Equity Investments and Development Projects
   29




---



##### Table of Contents




    Receipt of $3.6 million from a not-for-profit hospital
    partner that obtained additional ownership in a facility in the
    Kansas City, Missouri area;
    Investment of $1.1 million in a joint venture with one of
    our not-for-profit hospital partners which the joint venture
    used to acquire ownership in facility in the Las Vegas, Nevada,
    area;
    Investment of $1.4 million in a surgical facility in
    Knoxville, Tennessee, jointly owned with one of our
    not-for-profit hospital partners; and
    Net payment of approximately $0.8 million related to
    various other purchases and sales of equity interests and
    contributions of cash to equity method investees.  Discontinued
    Operations and Other Dispositions
         30




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##### Table of Contents



Combination
    of Operating Results
    Predecessor


SuccessorPeriod from


Period from


CombinedJanuary 1 through


April 19 through


Nine Months EndedApril 18, 2007


September 30, 2007


September 30, 2007Revenues:Net patient service revenues

$
170,598


$
254,195


$
424,793Management and contract service revenues


19,142



29,332



48,474Other revenues


1,615



2,287



3,902Total revenues


191,355



285,814



477,169Equity in earnings of unconsolidated affiliates


9,906



13,805



23,711Operating expenses:Salaries, benefits, and other employee costs


53,871



79,559



133,430Medical services and supplies


34,308



49,792



84,100Other operating expenses


31,744



46,179



77,923General and administrative expenses


39,277



17,898



57,175Provision for doubtful accounts


3,297



5,463



8,760Depreciation and amortization


12,426



19,740



32,166Total operating expenses


174,923



218,631



393,554Operating income


26,338



80,988



107,326Interest income


933



1,841



2,774Interest expense


(9,521
)


(43,645
)


(53,166
)Loss on early retirement of debt


(2,435
)






(2,435
)Other, net


798



(234
)


564Total other expense, net


(10,225
)


(42,038
)


(52,263
)Income before minority interests


16,113



38,950



55,063Minority interests in income of consolidated subsidiaries


(18,866
)


(28,117
)


(46,983
)Income (loss) from continuing operations before income taxes


(2,753
)


10,833



8,080Income tax expense


(4,145
)


(6,544
)


(10,689
)Income (loss) from continuing operations


(6,898
)


4,289



(2,609
)Loss from discontinued operations, net of tax


(251
)


(317
)


(568
)Net income (loss)

$
(7,149
)

$
3,972


$
(3,177
)  31




---



##### Table of Contents



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.    Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,Combined2008


2007


2008


2007Net patient service revenues


88
%


89
%


88
%


89
%Management and contract service revenues


12



10



11



10Other revenues






1



1



1Total revenues


100
%


100
%


100
%


100
%       Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,Combined2008


2007


2008


2007Management of surgical facilities

$
9,784


$
8,394


$
29,430


$
24,949Contract services provided to physicians, hospitals and related
    entities


7,973



7,873



24,485



23,525Total management and contract service revenues

$
17,757


$
16,267


$
53,915


$
48,474     Three Months Ended


Nine MonthsSeptember 30,


Ended September 30,Combined2008


2007


2008


2007United States


80
%


81
%


80
%


82
%United Kingdom


20



19



20



18Total


100
%


100
%


100
%


100
%    32




---



##### Table of Contents



Equity in
    Earnings of Unconsolidated Affiliates
    Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2008


2007


2008


2007Revenues

$
246,890


$
197,042


$
716,013


$
565,541Operating expenses:Salaries, benefits, and other employee costs


62,370



55,258



179,106



150,416Medical services and supplies


52,568



42,492



150,939



118,567Other operating expenses


62,310



52,331



182,563



148,145Depreciation and amortization


11,839



10,535



36,490



28,804Total operating expenses


189,087



160,616



549,098



445,932Operating income


57,803



36,426



166,915



119,609Interest expense, net


(6,105
)


(5,826
)


(18,311
)


(14,672
)Other


865



1,542



2,301



643Income before income taxes

$
52,563


$
32,142


$
150,905


$
105,580Long-term debt

$
274,243


$
269,668


$
274,243


$
269,668USPIs equity in earnings of unconsolidated affiliates


11,420



6,561



32,563



23,711USPIs imputed weighted average ownership percentage based
    on affiliates pre-tax income(1)


21.7
%


20.4
%


21.6
%


22.5
%USPIs imputed weighted average ownership percentage based
    on affiliates debt(2)


25.1
%


25.8
%


25.1
%


25.8
%Unconsolidated facilities operated at period end


98



91



98



91     (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. 33




---



##### Table of Contents



Results
    of Operations
    Nine MonthsThree Months Ended September 30,


Ended September 30,Combined2008


2007


2008


2007Total revenues


100
%


100
%


100
%


100
%Equity in earnings of unconsolidated affiliates


7.4



4.2



6.8



5.0Operating expenses, excluding depreciation and amortization


(71.3
)


(70.4
)


(70.8
)


(75.7
)Depreciation and amortization


(5.8
)


(7.0
)


(5.8
)


(6.8
)Operating income


30.3



26.8



30.2



22.5Minority interests in income of consolidated entities


(7.8
)


(9.0
)


(8.6
)


(9.8
)Interest and other expense, net


(13.7
)


(15.3
)


(13.0
)


(11.0
)Income from continuing operations before income taxes


8.8



2.5



8.6



1.7Income tax expense


(4.0
)


(2.5
)


(3.9
)


(2.3
)Income (loss) from continuing operations


4.8







4.7



(0.6
)Loss from discontinued operations






(0.1
)


(0.2
)


(0.1
)Net income (loss)


4.8
%


(0.1
)%


4.5
%


(0.7
)%   Executive
    Summary
         34




---



##### Table of Contents



Systemwide
    Operating Results
      
    equity in earnings of unconsolidated affiliates: our share of
    the net income of each facility, which is based on the
    facilities net income 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.   35




---



##### Table of Contents



Three Months Ended September 30,2008



2007USPI as












USPI asUSPI


Unconsolidated


Consolidation


Reported



USPI


Unconsolidated


Consolidation


ReportedSystem-Wide(1)


Affiliates(2)


Adjustments


Under GAAP



System-Wide(1)


Affiliates(2)


Adjustments


Under GAAPRevenues:Net patient service revenues

$
382,699


$
(248,230
)

$



$
134,469



$
335,192


$
(198,046
)

$



$
137,146Management and administrative services revenues


8,117







9,640
(3)


17,757




7,957







8,310
(3)


16,267Other income


1,898



(461
)






1,437




1,638



(382
)






1,256Total revenues


392,714



(248,691
)


9,640



153,663




344,787



(198,428
)


8,310



154,669Equity in earnings (loss) of unconsolidated affiliates










11,420
(4)


11,420








10



6,551
(4)


6,561Operating expenses:Salaries, benefits and other employee costs


107,915



(62,743
)






45,172




99,639



(55,544
)






44,095Medical services and supplies


80,134



(52,796
)






27,338




69,922



(42,683
)






27,239Other operating expenses


70,254



(54,706
)


9,640
(3)


25,188




63,502



(46,207
)


8,310
(3)


25,605General and administrative expenses


9,766











9,766




9,339











9,339Provision for doubtful accounts


10,223



(8,077
)






2,146




9,033



(6,451
)






2,582Depreciation and amortization


20,695



(11,839
)






8,856




21,525



(10,535
)






10,990Total operating expenses


298,987



(190,161
)


9,640



118,466




272,960



(161,420
)


8,310



119,850Operating income (loss)


93,727



(58,530
)


11,420



46,617




71,827



(36,998
)


6,551



41,380Interest income


1,099



(414
)






685




1,798



(708
)






1,090Interest expense


(27,676
)


6,517







(21,159
)



(30,966
)


6,537







(24,429
)Other


157



(865
)






(708
)



1,181



(1,542
)






(361
)Total other expenses, net


(26,420
)


5,238







(21,182
)



(27,987
)


4,287







(23,700
)Income (loss) before minority interests


67,307



(53,292
)


11,420



25,435




43,840



(32,711
)


6,551



17,680Minority interests in (income) loss of consolidated subsidiaries


(52,456
)






40,541
(5)


(11,915
)



(39,106
)






25,240
(5)


(13,866
)Income (loss) from continuing operations before income taxes


14,851



(53,292
)


51,961



13,520




4,734



(32,711
)


31,791



3,814Income tax expense


(7,404
)


1,331







(6,073
)



(4,787
)


920







(3,867
)Net income (loss) from continuing
    operations(6)

$
7,447


$
(51,961
)

$
51,961


$
7,447



$
(53
)

$
(31,791
)

$
31,791


$
(53
)   36




---



##### Table of Contents



Nine Months Ended September 30,2008



2007USPI as












CombinedUSPI


Unconsolidated


Consolidation


Reported



USPI


Unconsolidated


Consolidation


USPI asSystem-Wide(1)


Affiliates(2)


Adjustments


Under GAAP



System-Wide(1)


Affiliates(2)


Adjustments


Adjusted(7)Revenues:Net patient service revenues

$
1,144,369


$
(720,288
)

$



$
424,081



$
993,889


$
(569,096
)

$



$
424,793Management and administrative services revenues


24,904







29,011
(3)


53,915




23,744







24,730
(3)


48,474Other income


5,629



(1,660
)






3,969




4,968



(1,066
)






3,902Total revenues


1,174,902



(721,948
)


29,011



481,965




1,022,601



(570,162
)


24,730



477,169Equity in earnings (loss) of unconsolidated affiliates






(13
)


32,576
(4)


32,563








(102
)


23,813
(4)


23,711Operating expenses:Salaries, benefits and other employee costs


319,349



(180,529
)






138,820




284,750



(151,320
)






133,430Medical services and supplies


236,949



(151,766
)






85,183




203,284



(119,184
)






84,100Other operating expenses


212,915



(160,535
)


29,011
(3)


81,391




186,447



(133,254
)


24,730
(3)


77,923General and administrative expenses


29,933











29,933




31,845











31,845Provision for doubtful accounts


29,524



(23,568
)






5,956




24,719



(15,959
)






8,760Depreciation and amortization


64,239



(36,537
)






27,702




60,970



(28,804
)






32,166Total operating expenses


892,909



(552,935
)


29,011



368,985




792,015



(448,521
)


24,730



368,224Operating income (loss)


281,993



(169,026
)


32,576



145,543




230,586



(121,743
)


23,813



132,656Interest income


3,841



(1,332
)






2,509




4,889



(2,115
)






2,774Interest expense


(84,765
)


19,654







(65,111
)



(69,960
)


16,794







(53,166
)Loss on early retirement of debt































Other


1,838



(2,301
)






(463
)



1,208



(644
)






564Total other expenses, net


(79,086
)


16,021







(63,065
)



(63,863
)


14,035







(49,828
)Income (loss) before minority interests


202,907



(153,005
)


32,576



82,478




166,723



(107,708
)


23,813



82,828Minority interests in (income) loss of consolidated subsidiaries


(157,711
)






116,447
(5)


(41,264
)



(127,758
)






80,775
(5)


(46,983
)Income (loss) from continuing operations before income taxes


45,196



(153,005
)


149,023



41,214




38,965



(107,708
)


104,588



35,845Income tax expense


(22,669
)


3,982







(18,687
)



(21,324
)


3,120







(18,204
)Net income (loss) from continuing
    operations(6)

$
22,527


$
(149,023
)

$
149,023


$
22,527



$
17,641


$
(104,588
)

$
104,588


$
17,641     (1)
    
    Our systemwide statements of operations treat all of our
    facilities as though they were consolidated subsidiaries. Our
    consolidated systemwide statement of operations is not a measure
    defined under GAAP because it includes the revenues and expenses
    of entities we do not control and thus do not consolidate for
    financial reporting purposes under GAAP. We believe that
    systemwide revenues, expenses, and operating margins are
    important to understanding our business, since these measures
    include the health of the unconsolidated operating entities that
    comprise over 60% of our facilities. For example, these
    facilities growth in revenues directly affects our
    earnings in the form of management fees we earn for operating
    the facilities, as well as indicating the degree to which we are
    growing revenues and leveraging costs at these facilities, which
    are the key drivers of our net income. Our definition of
    systemwide statement of operations may differ materially from
    similarly titled measures of other companies. Our systemwide net
    income is the same as our net income reported under GAAP.(2)
    
    Subtracts the aggregated revenues and expenses of our
    unconsolidated affiliates and one facility in which we hold no
    ownership but operate under a management contract.(3)
    
    Our systemwide statements of operations include consolidation
    entries that eliminate management fee revenues (on USPIs
    financial records) and expenses (on the facilities
    financial records). Under GAAP, these consolidation entries need
    to be removed with respect to amounts charged to unconsolidated
    affiliates, as under GAAP these are not intercompany
    transactions with consolidated subsidiaries.(4)
    
    Records our share of the net income of our unconsolidated
    affiliates. 37




---



##### Table of Contents



(5)
    
    Our systemwide statement of operations includes minority
    interest expense for the portion of investees earnings not
    owned by us. Under GAAP, there is no minority interest expense
    recorded with respect to unconsolidated affiliates.(6)
    
    As the net impact of items (2) through (5) is zero,
    systemwide net income from continuing operations equals the net
    income from continuing operations that we report under GAAP.(7)
    
    As discussed earlier in this document (see Combination of
    Operating Results), the acquisition of our company on
    April 19, 2007 has required us to divide our operating
    results into Predecessor periods (prior to
    April 19, 2007) and Successor periods
    (April 19, 2007 and after). While factors such as our
    increased debt and related interest expense make the Predecessor
    and Successor periods not comparable, we believe combining these
    periods is the most meaningful way of comparing our operating
    results for the nine months ended September 30, 2008 to the
    nine months ended September 30, 2007. In addition, for
    purposes of this table, we have eliminated expenses we incurred
    in 2007 as a result of the merger. The following summarizes the
    impact of these merger-related expenses on our consolidated
    statement of operations for the combined nine months ended
    September 30, 2007, reconciling the amounts reported on a
    combined basis (see Combination of Operating
    Results) to the combined as adjusted amounts reported in
    the table above:  Merger Related


CombinedCombined


Expenses


as AdjustedGeneral and administrative expenses

$
57,175


$
(25,330
)

$
31,845Operating income


107,326



25,330



132,656Loss on early retirement of debt


(2,435
)


2,435



Income before minority interests


55,063



27,765



82,828Income from continuing operations before income taxes


8,080



27,765



35,845Income tax expense


(10,689
)


(7,515
)


(18,204
)Income (loss) from continuing operations


(2,609
)


20,250



17,641   Our
    Ownership Share of Systemwide Results
      Nine Months Ended


Year Ended


Year EndedSeptember 30, 2008


December 31, 2007


December 31, 2006Equity method facilities(1)


21.6
%


22.2
%


22.6
%Consolidated facilities(2)


48.2
%


46.7
%


49.9
%Total(3)


30.8
%


33.0
%


34.6
%     (1)
    
    Computed for equity method 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.(2)
    
    Computed for consolidated facilities by dividing (a) the
    aggregate net income of U.S. surgical facilities we operate less
    our total minority 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).   38




---



##### Table of Contents



Form 10-K,
  Revenues
      ramp-up
 39




---



##### Table of Contents



Three Months Ended


Nine Months EndedSeptember 30, 2008


September 30, 2008United States facilities:Net revenue


12.8
%


10.5
%Surgical cases


3.9
%


1.7
%Net revenue per case(1)


8.6
%


8.6
%United Kingdom facilities:Net revenue using actual exchange rates


3.2
%


10.2
%Net revenue using constant exchange rates(2)


10.4
%


12.5
%All same store facilities:Net revenue using actual exchange rates


11.9
%


10.4
%     (1)
    
    Our overall same store growth in net revenue per case was
    favorably impacted by the growth at our twelve same store
    surgical hospitals, which on average, perform more complex cases
    and thus earn a higher average net revenue per case than
    ambulatory surgery centers. Net revenue per case of our same
    store ambulatory surgery centers also increased 5.7% and 6.0%
    for the three and nine months ended September 30, 2008,
    respectively, as compared to the corresponding prior year
    periods, after having increased by 1.8% during the year ended
    December 31, 2007. The favorable impact, in the first
    quarter of 2008, of our collecting amounts related to past
    patient services in conjunction with our finalizing a new
    contract with a major payer has been excluded from these growth
    rates as it relates to dates of service prior to January 1,
    2008. The revenue reductions related to two similar, but
    adverse, settlements in the second quarter of 2008 were excluded
    for similar reasons.(2)
    
    Calculated using 2008 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
     40




---



##### Table of Contents



September 30,2008


2007United States facilities(1):With a hospital partner


92



89Without a hospital partner


63



63Total U.S. facilities


155



152United Kingdom facilities


3



3



Total facilities operated


158



155Change from September 30, 2007:De novo (newly constructed)


5Acquisition


5Disposals(2)


(7
)Total increase in number of facilities


3     (1)
    
    At September 30, 2008, physicians own a portion of all of
    these facilities.(2)
    
    We sold our ownership interests in facilities in Los Angeles,
    California; Cleveland, Ohio; Sarasota, Florida; Manitowoc,
    Wisconsin; Houston, Texas; and Decatur, Alabama. Additionally,
    we ceased managing a facility effective October 1, 2007,
    although we continued to hold an ownership interest until we
    sold it in July 2008.  Facility
    Operating Margins
         41




---



##### Table of Contents



Three Months Ended


Increase


Nine Months Ended


IncreaseSeptember 30, 2008


(Decrease)


September 30, 2008


(Decrease)United States facilities:With a hospital partner


23.1
%


380 bps



23.4
%


100 bpsWithout a hospital partner


28.7
%


(60) bps



29.9
%


(230) bpsTotal U.S. facilities


24.5
%


220 bps



25.2
%


(20) bpsUnited Kingdom facilities(2)


24.5
%


120 bps



25.7
%


150 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 2008 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. The favorable impact, in the
    first quarter of 2008, of a settlement of a contract dispute
    with a major payer in the first quarter of 2008 has been
    excluded from these growth rates, as it related to dates of
    service prior to January 1, 2008.  Three
    Months Ended September 30, 2008 Compared to Three Months
    Ended September 30, 2007
       42




---



##### Table of Contents



Form 10-K
    Nine
    Months Ended September 30, 2008 Compared to Combined Nine
    Months Ended September 30, 2007
         43




---



##### Table of Contents



Form 10-K
      Liquidity
    and Capital Resources
  Cash
    Flows
     44




---



##### Table of Contents



buy-ups
    Debt
    Senior
    secured credit facility
  buy-up buy-up buy-ups and/or
   45




---



##### Table of Contents



Senior
    subordinated notes
  7 8 1 4 payment-in-kind 1 4
  United
    Kingdom borrowings
     46




---



##### 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 (principal plus interest)(1):U.S. Term loan facility (Term B)

$
712,120


$
40,877


$
81,023


$
79,566


$
510,654Senior subordinated notes, due 2017


424,600



21,300



42,600



42,600



318,100Senior subordinated toggle notes, due 2017


360,333



18,500



37,000



37,000



267,833Amended and restated U.K. credit facility


97,153



11,298



25,697



60,158



Other debt at operating subsidiaries


42,723



11,145



17,176



7,364



7,038Capitalized lease obligations


74,295



8,489



15,035



11,385



39,386Operating lease obligations


73,070



14,274



23,523



14,626



20,647Total contractual cash obligations

$
1,784,294


$
125,883


$
242,054


$
252,699


$
1,163,658     (1)
    
    Amounts shown for long-term debt obligations and capital lease
    obligations include the associated interest. For variable rate
    debt, the interest is calculated using the September 30,
    2008 rates applicable to each debt instrument and also gives
    effect to the interest rate swap designated in a cash flow
    hedging relationship against portions of the U.K. credit
    facility and Term B facility in the U.S.  Debt
    at Operating Subsidiaries
     47




---



##### Table of Contents



Related
    Party Transactions
          New
    Accounting Pronouncements
  Business Combinations
  Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
 48




---



##### Table of Contents



Disclosures about Derivative Instruments and Hedging
    Activities, an amendment of FASB Statement No. 133
  No. 142-3, Determination of the Useful Life of Intangible Assets FSP 142-3 Goodwill and Other Intangible
    Assets FSP 142-3 Business Combinations FSP 142-3 FSP 142-3
  The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present
    Fairly in Conformity With Generally Accepted Accounting
    Principles, The
    Meaning of Present Fairly in Conformity with Generally Accepted
    Accounting Principles
  ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk       49




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##### Table of Contents



ITEM 4T.
    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 Note due 2017 and
    91/4%/10% Senior
    Subordinated Toggle Note 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 2002.32
.1*

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

Certification of Chief Executive Officer pursuant to
    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. 50




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##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser    Executive Vice President
    and Chief Financial Officer
    (Principal Financial Officer)
    By:
    /s/  John
    J. Wellik   Senior Vice President, Accounting
 and Administration, and Secretary
 (Principal Accounting Officer)
 51




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##### 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 Note due 2017 and
    91/4%/10% Senior
    Subordinated Toggle Note due 2017, among United Surgical
    Partners International, Inc., 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 to
    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. 52