##### 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 March 31,
    2011oro

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
   o o
     Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ

Smaller reporting
    company o(Do
    not check if a smaller reporting company)    o þ




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##### 



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


Financial Information


3Item 1.


Review Report of Independent Registered Public
    Accounting Firm


3Financial Statements


4Consolidated Balance Sheets (unaudited)


4Consolidated Statements of Income (unaudited)


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


6Consolidated Statements of Changes in Equity
    (unaudited)


7Consolidated Statements of Cash Flows
    (unaudited)


9Notes to Consolidated Financial Statements
    (unaudited)


10Item 2.


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


23Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


38Item 4.


Controls and Procedures


39PART II.


Other Information


40Item 1.


Legal Proceedings


40Item 6.


Exhibits


40Signatures





41EX-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 SUBSIDIARIES Consolidated
    Balance Sheets  March 31,


December 31,2011


2010(Unaudited)(In thousands  except share data)ASSETSCash and cash equivalents

$
44,568


$
60,253Accounts receivable, net of allowance for doubtful accounts of
    $7,220 and $7,481, respectively


46,860



50,082Other receivables


25,818



15,242Inventories of supplies


8,840



9,191Deferred tax asset, net


14,747



14,961Prepaids and other current assets


22,730



14,682Total current assets


163,563



164,411Property and equipment, net


199,238



202,260Investments in unconsolidated affiliates


391,796



393,561Goodwill


1,278,368



1,268,663Intangible assets, net


318,588



319,213Other assets


22,349



24,631Total assets

$
2,373,902


$
2,372,739LIABILITIES AND EQUITYAccounts payable

$
21,302


$
23,488Accrued salaries and benefits


20,779



26,153Due to affiliates


112,491



116,104Accrued interest


18,629



8,714Current portion of long-term debt


24,523



22,386Other current liabilities


63,961



67,815Total current liabilities


261,685



264,660Long-term debt, less current portion


1,020,516



1,047,440Other long-term liabilities


27,889



26,615Deferred tax liability, net


132,900



131,205Total liabilities


1,442,990



1,469,920Noncontrolling interests  redeemable (Note 4)


84,875



81,668Equity: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


782,703



784,573Accumulated other comprehensive loss


(55,591
)


(66,351
)Retained earnings


84,256



68,535Total USPI stockholders equity


811,368



786,757Noncontrolling interests  non-redeemable (Note 4)


34,669



34,394Total equity


846,037



821,151Total liabilities and equity

$
2,373,902


$
2,372,739    4




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31,


March 31,2011


2010(Unaudited  in thousands)Revenues:Net patient service revenues

$
127,666


$
120,448Management and contract service revenues


17,276



15,129Other revenues


2,148



2,294Total revenues


147,090



137,871Equity in earnings of unconsolidated affiliates


17,932



14,288Operating expenses:Salaries, benefits, and other employee costs


39,461



37,263Medical services and supplies


24,418



24,426Other operating expenses


23,832



22,056General and administrative expenses


9,780



8,549Provision for doubtful accounts


1,746



1,882Net (gain) loss on deconsolidations, disposals and impairments


(499
)


316Depreciation and amortization


7,328



7,303Total operating expenses


106,066



101,795Operating income


58,956



50,364Interest income


171



364Interest expense


(17,205
)


(17,974
)Other, net


72



335Total other expense, net


(16,962
)


(17,275
)Income from continuing operations before income taxes


41,994



33,089Income tax expense


(9,868
)


(7,647
)Income from continuing operations


32,126



25,442Discontinued operations, net of tax (Note 2):Income from discontinued operations


1



204Loss on disposal of discontinued operations


(694
)


Total earnings (loss) from discontinued operations


(693
)


204Net income


31,433



25,646Less: Net income attributable to noncontrolling interests


(15,712
)


(13,635
)Net income attributable to USPIs common stockholder

$
15,721


$
12,011Amounts attributable to USPIs common stockholder:Income from continuing operations, net of tax

$
16,419


$
11,772Earnings (loss) from discontinued operations, net of tax


(698
)


239Net income attributable to USPIs common stockholder

$
15,721


$
12,011    5




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010(Unaudited  in thousands)Net income

$
31,433


$
25,646Other comprehensive income:Foreign currency translation adjustments


9,509



(14,588
)Unrealized gain on interest rate swaps, net of tax


1,251



300Total other comprehensive income (loss)


10,760



(14,288
)Comprehensive income


42,193



11,358Comprehensive income attributable to noncontrolling interests


(15,712
)


(13,635
)Comprehensive income (loss) attributable to USPIs common
    stockholder

$
26,481


$
(2,277
)    6




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESConsolidated Statement of Changes in EquityFor the Three Months Ended March 31,
    2011  USPIs Common StockholderAccumulatedAdditional


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


InterestsTotal


Income (Loss)


Shares


Par Value


Capital


Loss


Earnings


Non-Redeemable(Unaudited  in thousands, except share amounts)Balance, December 31, 2010

$
821,151


$




100


$



$
784,573


$
(66,351
)

$
68,535


$
34,394Distributions to noncontrolling interests


(1,578
)


























(1,578
)Purchases of noncontrolling interests


(23
)














4











(27
)Sales of noncontrolling interests


(2,052
)














(2,324
)










272Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


450















450











Comprehensive income:Net income


17,329



15,721



















15,721



1,608Other comprehensive income:Unrealized gain on interest rate swaps, net of tax


1,251



1,251















1,251







Foreign currency translation adjustments


9,509



9,509















9,509







Other comprehensive income


10,760



10,760























Comprehensive income


28,089


$
26,481























1,608Balance, March 31, 2011

$
846,037







100


$



$
782,703


$
(55,591
)

$
84,256


$
34,669    7




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Consolidated Statement of Changes in Equity
    For the Three Months Ended March 31, 2010
  USPIs Common StockholderAccumulatedAdditional


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


InterestsTotal


Income (Loss)


Shares


Par Value


Capital


Loss


Earnings


Non-Redeemable(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: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


$
39,949    8




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Unaudited  in thousands)Cash flows from operating activities:Net income

$
31,433


$
25,646Adjustments to reconcile net income to net cash provided by
    operating activities:Loss (earnings) from discontinued operations


693



(204
)Provision for doubtful accounts


1,746



1,882Depreciation and amortization


7,328



7,303Amortization of debt issue costs


887



790Deferred income taxes


2,209



3,729Net (gain) loss on deconsolidations, disposals and impairments


(499
)


316Equity in earnings of unconsolidated affiliates, net of
    distributions received


7,193



1,412Equity-based compensation


443



415Increases (decreases) in cash from changes in operating assets
    and liabilities, net of effects from purchases of new businesses:Accounts receivable


1,425



1,548Other receivables


(6,846
)


(1,455
)Inventories of supplies, prepaids and other current assets


(2,904
)


(2,754
)Accounts payable and other current liabilities


(3,029
)


(234
)Long-term liabilities


1,478



230Net cash provided by operating activities


41,557



38,624Cash flows from investing activities:Purchases of new businesses and equity interests, net of cash
    received


(7,161
)


(1,067
)Proceeds from sales of businesses and equity interests


2,628



1,720Purchases of property and equipment


(7,047
)


(8,148
)Purchases of marketable securities


(5,000
)


Returns of capital from unconsolidated affiliates


545



461(Increase) decrease in deposits and notes receivable


2,985



(1,503
)Net cash used in investing activities


(13,050
)


(8,537
)Cash flows from financing activities:Proceeds from long-term debt


5,431



3,089Payments on long-term debt


(30,862
)


(10,909
)Decrease in cash held on behalf of unconsolidated affiliates


(3,727
)


(5,027
)Purchases and sales of noncontrolling interests, net


468



651Distributions to noncontrolling interests


(15,517
)


(14,064
)Net cash used in financing activities


(44,207
)


(26,260
)Cash flows of discontinued operations:Operating cash flows






795Investing cash flows






(501
)Financing cash flows






(135
)Net cash provided by discontinued operations






159Effect of exchange rate changes on cash and cash equivalents


15



(85
)Net (decrease) increase in cash and cash equivalents


(15,685
)


3,901Cash and cash equivalents at beginning of period


60,253



34,890Cash and cash equivalents at end of period

$
44,568


$
38,791Supplemental information:Interest paid

$
6,445


$
7,276Income taxes paid


12,902



3,503Non-cash transactions:Assets acquired under capital lease obligations

$
579


$
1,278    9




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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)
    Discontinued
    Operations and Other Dispositions     10




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Revenues

$
575


$
6,972Income from discontinued operations before income taxes

$
1


$
313Income tax expense






(109
)Income from discontinued operations

$
1


$
204Loss on disposal of discontinued operations before income taxes

$
(1,174
)

$
Income tax benefit


480



Total loss from disposal of discontinued operations

$
(694
)

$
   (3)
    Investments
    in Unconsolidated Affiliates  not-for-profit
    Three Months


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Unconsolidated facilities operated at period-end


133



110Income statement information:Revenues

$
347,815


$
294,700Operating expenses:Salaries, benefits, and other employee costs


84,895



72,221Medical services and supplies


79,802



69,211Other operating expenses


83,472



69,910Gain on assets disposals, net


(412
)


(40
)Depreciation and amortization


15,478



12,979Total operating expenses


263,235



224,281Operating income


84,580



70,419Interest expense, net


(7,300
)


(6,123
)Other, net


(13
)


(488
)Income before income taxes

$
77,267


$
63,808 11




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Balance sheet information:Current assets

$
282,115


$
260,015Noncurrent assets


567,853



438,956Current liabilities


164,634



152,105Noncurrent liabilities


402,884



303,139     Effective Date

Facility Location

AmountInvestmentsJanuary 2011

Dallas, Texas(1)


$1.3 millionJanuary 2011

Rancho Mirage, California(2)


0.5 millionJanuary 2011

Edinburgh, Scotland(3)


1.1 millionMarch 2011

Plano, Texas(4)


1.9 millionMarch 2011

Oklahoma City, Oklahoma(5)


1.2 millionTotal




$6.0 million     (1)
    
    Represents additional capital the Company contributed to a joint
    venture with one of the Companys
    not-for-profit
    hospital partners, which the joint venture used to acquire an
    equity interest in this facility. The Company already was
    providing management services to the facility. The remainder of
    this facility is owned by local physicians.(2)
    
    Acquisition of additional equity interest in a surgical facility
    in which the Company already held an investment. This facility
    is jointly owned with physicians and continues to be accounted
    for under the equity method.(3)
    
    Acquisition of a 50% noncontrolling interest in diagnostic and
    surgery facility in which the Company had no previous
    involvement.(4)
    
    Represents additional capital the Company contributed to a joint
    venture with one of the Companys
    not-for-profit
    hospital partners, which the joint venture used to acquire an
    equity interest in this facility. The remainder of this facility
    is owned by local physicians. The Company also acquired the
    right to manage this facility.(5)
    
    Represents additional capital the Company contributed to a
    facility in which it holds an equity interest.  (4)
    Noncontrolling
    Interests   12




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Net income attributable to USPI

$
15,721


$
12,011Transfers to the noncontrolling interests:Decrease in USPIs additional paid-in capital for sales of
    subsidiaries equity interests


(2,324
)


(2,950
)Increase (decrease) in USPIs additional paid-in capital
    for purchases of subsidiaries equity interests


4



(28
)Net transfers to noncontrolling interests


(2,320
)


(2,978
)Change in equity from net income attributable to USPI and
    transfers to noncontrolling interests

$
13,401


$
9,033     NoncontrollingInterests Redeemable-2011Balance, December 31, 2010

$
81,668Net income attributable to noncontrolling interests


14,104Distributions to noncontrolling interests


(13,939
)Purchases of noncontrolling interests


(145
)Sales of noncontrolling interests


3,187Balance, March 31, 2011

$
84,875   NoncontrollingInterests Redeemable-2010Balance, 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

$
67,129  13




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  (5)
    Other
    Investments        (6)
    Interest
    Rate Swaps       14




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
              (7)
    Fair
    Value of Financial Instruments   15




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
      available-for-sale.
  (8)
    Equity-Based
    Compensation        Three Months


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Salaries, benefits and other employee costs

$
156


$
140General and administrative expenses


287



275Discontinued operations






64Expense before income tax benefit


443



479Income tax benefit


(82
)


(101
)Total equity-based compensation expense, net of tax

$
361


$
378  16




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2011


March 31, 2010Share awards

$
331


$
318Stock options


112



161Expense before income tax benefit


443



479Income tax benefit


(82
)


(101
)Total equity-based compensation expense, net of tax

$
361


$
378   (9)
    Segment
    Disclosures    United


UnitedThree Months Ended March 31, 2011

States


Kingdom


TotalNet patient service revenues

$
99,670


$
27,996


$
127,666Other revenues


19,424







19,424Total revenues

$
119,094


$
27,996


$
147,090Depreciation and amortization

$
5,344


$
1,984


$
7,328Operating income


53,864



5,092



58,956Net interest expense


(16,382
)


(652
)


(17,034
)Income tax expense


(8,648
)


(1,220
)


(9,868
)Total assets


2,031,704



342,198



2,373,902Capital expenditures


2,471



5,155



7,626   United


UnitedThree Months Ended March 31, 2010

States


Kingdom


TotalNet patient service revenues

$
94,101


$
26,347


$
120,448Other revenues


17,423







17,423Total revenues

$
111,524


$
26,347


$
137,871Depreciation and amortization

$
5,636


$
1,667


$
7,303Operating income


46,007



4,357



50,364Net interest expense


(16,257
)


(1,353
)


(17,610
)Income tax expense


(6,832
)


(815
)


(7,647
)Total assets


2,004,793



309,054



2,313,847Capital expenditures


4,255



5,171



9,426  17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial Statements
    (Unaudited)  (Continued)
  (10)
    Related
    Party Transactions    (11)
    Commitments
    and Contingencies      (12)
    Subsequent
    Events    (13)
    Condensed
    Consolidating Financial Statements    7 8 1 4 Form S-4
 18




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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 March 31, 2011

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
36,947


$
7,621


$



$
44,568Accounts receivable, net






46,860







46,860Other receivables


37,433



44,400



(56,015
)


25,818Inventories of supplies


787



8,053







8,840Prepaids and other current assets


34,818



2,659







37,477Total current assets


109,985



109,593



(56,015
)


163,563Property and equipment, net


19,364



179,803



71



199,238Investments in unconsolidated affiliates


1,019,996







(628,200
)


391,796Goodwill and intangible assets, net


904,056



352,200



340,700



1,596,956Other assets


90,603



526



(68,780
)


22,349Total assets

$
2,144,004


$
642,122


$
(412,224
)

$
2,373,902LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
1,806


$
19,496


$



$
21,302Accrued expenses and other


232,936



37,164



(54,240
)


215,860Current portion of long-term debt


5,589



20,503



(1,569
)


24,523Total current liabilities


240,331



77,163



(55,809
)


261,685Long-term debt, less current portion


940,727



82,291



(2,502
)


1,020,516Other long-term liabilities


151,578



9,673



(462
)


160,789Parents equity


811,368



448,846



(448,846
)


811,368Noncontrolling interests






24,149



95,395



119,544Total liabilities and equity

$
2,144,004


$
642,122


$
(412,224
)

$
2,373,902   19




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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, 2010

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
60,186


$
67


$



$
60,253Accounts receivable, net






50,082







50,082Other receivables


27,313



45,146



(57,217
)


15,242Inventories of supplies


685



8,506







9,191Prepaids and other current assets


27,477



2,166







29,643Total current assets


115,661



105,967



(57,217
)


164,411Property and equipment, net


24,343



177,803



114



202,260Investments in unconsolidated affiliates


1,010,592







(617,031
)


393,561Goodwill and intangible assets, net


904,108



342,777



340,991



1,587,876Other assets


91,151



2,602



(69,122
)


24,631Total assets

$
2,145,855


$
629,149


$
(402,265
)

$
2,372,739LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
1,684


$
21,804


$



$
23,488Accrued expenses and other


236,835



37,868



(55,917
)


218,786Current portion of long-term debt


4,932



19,751



(2,297
)


22,386Total current liabilities


243,451



79,423



(58,214
)


264,660Long-term debt, less current portion


966,999



82,732



(2,291
)


1,047,440Other long-term liabilities


148,648



9,692



(520
)


157,820Parents equity


786,757



432,261



(432,261
)


786,757Noncontrolling interests






25,041



91,021



116,062Total liabilities and equity

$
2,145,855


$
629,149


$
(402,265
)

$
2,372,739   Condensed
    Consolidating Statements of Income:
  Non-Participating


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2011

Guarantors


Investees


Adjustments


TotalRevenues

$
25,646


$
127,153


$
(5,709
)

$
147,090Equity in earnings of unconsolidated affiliates


34,695



774



(17,537
)


17,932Operating expenses, excluding depreciation and amortization


18,564



84,193



(4,019
)


98,738Depreciation and amortization


1,740



5,544



44



7,328Operating income


40,037



38,190



(19,271
)


58,956Interest expense, net


(15,351
)


(1,683
)






(17,034
)Other income (expense), net


70



2







72Income from continuing operations before income taxes


24,756



36,509



(19,271
)


41,994Income tax expense


(8,342
)


(1,526
)






(9,868
)Income from continuing operations


16,414



34,983



(19,271
)


32,126Loss from discontinued operations, net of tax


(693
)


(17
)


17



(693
)Net income


15,721



34,966



(19,254
)


31,433Less: Net income attributable to noncontrolling interests






(3,315
)


(12,397
)


(15,712
)Net income attributable to Parent

$
15,721


$
31,651


$
(31,651
)

$
15,721  20




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##### Table of Contents



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


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2010

Guarantors


Investees


Adjustments


TotalRevenues

$
22,702


$
120,307


$
(5,138
)

$
137,871Equity in earnings of unconsolidated affiliates


28,400



582



(14,694
)


14,288Operating expenses, excluding depreciation and amortization


16,441



83,970



(5,919
)


94,492Depreciation and amortization


1,792



5,456



55



7,303Operating income


32,869



31,463



(13,968
)


50,364Interest expense, net


(14,990
)


(2,492
)


(128
)


(17,610
)Other income (expense), net


314



21







335Income from continuing operations before income taxes


18,193



28,992



(14,096
)


33,089Income tax expense


(6,386
)


(1,261
)






(7,647
)Income from continuing operations


11,807



27,731



(14,096
)


25,442Earnings from discontinued operations, net of tax


204



132



(132
)


204Net income


12,011



27,863



(14,228
)


25,646Less: Net income attributable to noncontrolling interests






(2,195
)


(11,440
)


(13,635
)Net income attributable to Parent

$
12,011


$
25,668


$
(25,668
)

$
12,011   Condensed
    Consolidating Statements of Cash Flows:
  Non-Participating


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2011

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
15,721


$
34,966


$
(19,254
)

$
31,433Loss (earnings) on discontinued operations


693



17



(17
)


693Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


881



1,628



6,922



9,431Net cash provided by operating activities


17,295



36,611



(12,349
)


41,557Cash flows from investing activities:Purchases of property and equipment, net






(7,047
)






(7,047
)Purchases and sales of new businesses and equity interests, net


(3,409
)


(1,124
)






(4,533
)Other items, net


(4,245
)


3,305



(530
)


(1,470
)Net cash used in investing activities


(7,654
)


(4,866
)


(530
)


(13,050
)Cash flows from financing activities:Long-term borrowings, net


(26,316
)


115



770



(25,431
)Purchases and sales of noncontrolling interests, net


468











468Distributions to noncontrolling interests






(27,866
)


12,349



(15,517
)Decrease in cash held on behalf of noncontrolling interest
    holders and other


(7,032
)


3,545



(240
)


(3,727
)Net cash provided by (used in) financing activities


(32,880
)


(24,206
)


12,879



(44,207
)Effect of exchange rate changes on cash






15







15Net increase (decrease) in cash


(23,239
)


7,554







(15,685
)Cash at the beginning of the period


60,186



67







60,253Cash at the end of the period

$
36,947


$
7,621


$



$
44,568   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


ConsolidatedFor the Three Months Ended March 31, 2010

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
12,011


$
27,863


$
(14,228
)

$
25,646Loss (earnings) on discontinued operations


(204
)


132



(132
)


(204
)Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


4,818



6,322



2,042



13,182Net cash provided by operating activities


16,625



34,317



(12,318
)


38,624Cash flows from investing activities:Purchases of property and equipment, net


(715
)


(7,433
)






(8,148
)Purchases and sales of new businesses and equity interests, net


653











653Other items, net


(452
)


948



(1,538
)


(1,042
)Net cash used in investing activities


(514
)


(6,485
)


(1,538
)


(8,537
)Cash flows from financing activities:Long-term borrowings, net


(6,316
)


(1,725
)


221



(7,820
)Purchases and sales of noncontrolling interests, net


598



53







651Distributions to noncontrolling interests






(26,382
)


12,318



(14,064
)Increase in cash held on behalf of noncontrolling interest
    holders and other


(5,975
)


(369
)


1,317



(5,027
)Net cash provided by (used in) financing activities


(11,693
)


(28,423
)


13,856



(26,260
)Net cash provided by discontinued operations






159







159Effect of exchange rate changes on cash






(85
)






(85
)Net increase (decrease) in cash


4,418



(517
)






3,901Cash at the beginning of the period


27,430



7,460







34,890Cash at the end of the period

$
31,848


$
6,943


$



$
38,791  22




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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
   23




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##### Table of Contents



Critical
    Accounting Policies and Estimates
    not-for-profit
     24




---



##### Table of Contents



Equity
    Investments and Development Projects
    Effective Date

Facility Location

AmountInvestmentsJanuary 2011

Dallas, Texas(1)

$
1.3 millionJanuary 2011

Rancho Mirage, California(2)


0.5 millionJanuary 2011

Edinburgh, Scotland(3)


1.1 millionMarch 2011

Plano, Texas(4)


1.9 millionMarch 2011

Oklahoma City, Oklahoma(5)


1.2 millionTotal



$
6.0 million     (1)
    
    Represents additional capital we contributed to a joint venture
    with one of our
    not-for-profit
    hospital partners, which the joint venture used to acquire an
    equity interest in this facility. We already were providing
    management services to the facility. The remainder of this
    facility is owned by local physicians.(2)
    
    Acquisition of additional equity interest in a surgical facility
    in which we already held an investment. This facility is jointly
    owned with physicians and continues to be accounted for under
    the equity method.(3)
    
    Acquisition of a 50% noncontrolling interest in diagnostic and
    surgery facility in which we had no previous involvement.(4)
    
    Represents additional capital we contributed to a joint venture
    with one of our
    not-for-profit
    hospital partners, which the joint venture used to acquire an
    equity interest in this facility. The remainder of this facility
    is owned by local physicians. We also acquired the right to
    manage this facility.(5)
    
    Represents additional capital we contributed to a facility in
    which we hold an equity interest.    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. 25




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##### Table of Contents



Three MonthsEndedMarch 31,2011


2010Net patient service revenues


87
%


87
%Management and contract service revenues


12



11Other revenues


1



2Total revenues


100
%


100
%       Three MonthsEndedMarch 31,2011


2010Management of surgical facilities

$
14,785


$
12,550Contract services provided to other healthcare providers


2,491



2,579Total management and contract service revenues

$
17,276


$
15,129     Three MonthsEndedMarch 31,2011


2010United States


81
%


81
%United Kingdom


19



19Total


100
%


100
%    26




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##### Table of Contents



Results
    of Operations
    Three MonthsEndedMarch 31,USPI

2011


2010Total revenues


100.0
%


100.0
%Equity in earnings of unconsolidated affiliates


12.2



10.3Operating expenses, excluding depreciation and amortization


(67.1
)


(68.5
)Depreciation and amortization


(5.0
)


(5.3
)Operating income


40.1



36.5Interest and other expense, net


(11.5
)


(12.5
)Income from continuing operations before income taxes


28.6



24.0Income tax expense


(6.7
)


(5.6
)Income from continuing operations


21.9



18.4Earnings (loss) from discontinued operations, net of tax


(0.5
)


0.2Net income


21.4



18.6Less: Net income attributable to the noncontrolling interests


(10.7
)


(9.9
)Net income attributable to USPIs common stockholder


10.7
%


8.7
%   not-for-profit
  Three MonthsEndedMarch 31,USPIs Unconsolidated Affiliates

2011


2010Revenues


100.0
%


100.0
%Operating expenses, excluding depreciation and amortization


(71.2
)


(71.7
)Depreciation and amortization


(4.5
)


(4.4
)Operating income


24.3



23.9Interest expense, net


(2.1
)


(2.1
)Other, net






(0.2
)Income before income taxes


22.2



21.6Income tax expense


(0.6
)


(0.6
)Net income


21.6
%


21.0
%   Executive
    Summary
   27




---



##### Table of Contents



Our
    Business and Key Measures
  not-for-profit day-to-day
  
    our share of each facilitys net income, which is computed
    by multiplying the facilitys net income 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 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. 28




---



##### Table of Contents




    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 29




---



##### Table of Contents



Our
    Consolidated and Unconsolidated Results
    Three Months Ended March 31,2011


2010


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

$
127,666


$
345,692


$
120,448


$
293,292


$
7,218


$
52,400Management and contract service revenues


17,276







15,129







2,147



Other income


2,148



2,123



2,294



1,408



(146
)


715Total revenues


147,090



347,815



137,871



294,700



9,219



53,115Equity in earnings of unconsolidated affiliates


17,932







14,288







3,644



Operating expenses:Salaries, benefits, and other employee costs


39,461



84,895



37,263



72,221



2,198



12,674Medical services and supplies


24,418



79,802



24,426



69,211



(8
)


10,591Other operating expenses


23,832



76,024



22,056



63,507



1,776



12,517General and administrative expenses


9,780







8,549







1,231



Provision for doubtful accounts


1,746



7,448



1,882



6,403



(136
)


1,045Net (gain) loss on deconsolidations, disposals and impairments


(499
)


(412
)


316



(40
)


(815
)


(372
)Depreciation and amortization


7,328



15,478



7,303



12,979



25



2,499Total operating expenses


106,066



263,235



101,795



224,281



4,271



38,954Operating income


58,956



84,580



50,364



70,419



8,592



14,161Interest income


171



99



364



101



(193
)


(2
)Interest expense


(17,205
)


(7,399
)


(17,974
)


(6,224
)


769



(1,175
)Other


72



(13
)


335



(488
)


(263
)


475Total other expense, net


(16,962
)


(7,313
)


(17,275
)


(6,611
)


313



(702
)Income before income taxes


41,994



77,267



33,089



63,808



8,905



13,459Income tax expense


(9,868
)


(2,115
)


(7,647
)


(1,813
)


(2,221
)


(302
)Income from continuing operations


32,126



75,152



25,442



61,995



6,684



13,157Discontinued operations, net of tax


(693
)






204







(897
)


Net income


31,433


$
75,152



25,646


$
61,995



5,787


$
13,157Less: Net income attributable to noncontrolling interests


(15,712
)






(13,635
)






(2,077
)Net income attributable to USPIs common stockholder

$
15,721






$
12,011






$
3,710USPIs equity in earnings of unconsolidated affiliates





$
17,932






$
14,288






$
3,644  30




---



##### Table of Contents



Three MonthsEndedMarch 31,2011


2010Long-term debt

$
376,867


$
295,048USPIs imputed weighted average ownership percentage based
    on affiliates pre-tax income(1)


23.2
%


22.4
%USPIs imputed weighted average ownership percentage based
    on affiliates debt(2)


23.5
%


24.8
%Unconsolidated facilities operated at period end


133



110     (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 USPIs 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 USPIs involvement in equity
    method investments.    Our
    Ownership Interests in the Facilities We Operate
    Three Months





Three MonthsEnded


Year Ended


EndedMarch 31,


December 31,


March 31,2011


2010


2010Unconsolidated facilities(1)


23.2
%


21.7
%


22.4
%Consolidated facilities(2)


46.6
%


46.7
%


44.9
%Total(3)


29.7
%


28.2
%


28.7
%     (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.(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). 31




---



##### Table of Contents



not-for-profit
  Revenues
    Three Months EndedMarch 31, 2011USPI asReported Under


UnconsolidatedGAAP


AffiliatesTotal revenues, three months ended March 31, 2010

$
137,871


$
294,700Add: revenue from acquired facilities


3,716



21,086Less: revenue of deconsolidated facilities


(3,058
)


3,058Impact of exchange rate


638



Adjusted base period


139,167



318,844Increase from operations


5,358



28,000Other


2,565



971Total revenues, three months ended March 31, 2011

$
147,090


$
347,815     Facility
    Growth
     32




---



##### Table of Contents



year-over-year
 Three MonthsEndedMarch 31, 2011United States facilities:Net revenue


8
%Surgical cases


2
%Net revenue per case(1)


6
%United Kingdom facilities:Adjusted admissions


(4
)%Net revenue using actual exchange rates


6
%Net revenue using constant exchange rates(2)


4
%All same store facilities:Net revenue using actual exchange rates


8
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    for the first quarter of 2011 was favorably impacted by the 9%
    growth at our thirteen 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.
    The net revenue per case growth at our ambulatory surgery
    centers was 3% during the first quarter of 2011.(2)
    
    Calculated using 2011 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
 March 31,


March 31,2011


2010United States facilities(1):With a hospital partner


134



111Without a hospital partner


52



54Total U.S. facilities


186



165United Kingdom facilities


5



4Total facilities operated


191



169Change from March 31, 2010:De novo (newly constructed)


1Acquisition


27Disposals/Mergers(2)


(6
)Total increase in number of facilities


22     (1)
    
    At March 31, 2011, physicians own a portion of all of these
    facilities.(2)
    
    During 2010, we merged three of our Dallas-area surgery centers
    into one location. We also sold our ownership interests in a
    facility in Orlando, Florida; Templeton, California; and
    Houston, Texas. 33




---



##### Table of Contents



Facility
    Operating Margins
  year-over-year not-for-profit
    year-over-year
  Three MonthsEnded

IncreaseMarch 31, 2011

(Decrease)United States facilities:With a hospital partner


24.7
%


150 bpsWithout a hospital partner


31.8
%


50 bpsTotal U.S. facilities


26.0
%


130 bpsUnited Kingdom facilities(2)


23.5
%


(190) 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 2011 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 during the first quarter of 2010 has been excluded from U.K.
    same facility operating margins.  Three
    Months Ended March 31, 2011 Compared to Three Months Ended
    March 31, 2010
       34




---



##### Table of Contents



Liquidity
    and Capital Resources
  Cash
    Flows
        Debt
   35




---



##### Table of Contents



Senior
    secured credit facility
  sub-facility, sub-facility;
      Senior
    subordinated notes
  7 8 1 4 payment-in-kind 1 4
  United
    Kingdom borrowings
   36




---



##### 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)

$
507,129


$
5,265


$
10,530


$
491,334


$
Senior subordinated notes, due 2017(1)


240,000















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


197,515















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


53,545



11,697



41,848







Other debt at operating subsidiaries(1)


23,248



4,584



8,694



3,663



6,307Interest on long-term debt obligations(2)


306,253



60,294



118,308



80,675



46,976Capitalized lease obligations(3)


40,099



5,952



9,269



5,835



19,043Operating lease obligations


68,883



13,653



21,205



13,370



20,655Total contractual cash obligations

$
1,436,672


$
101,445


$
209,854


$
594,877


$
530,496     (1)
    
    Scheduled principal payments.(2)
    
    Represents interest due on long-term debt obligations. For
    variable rate debt, the interest rate is calculated using the
    March 31, 2011 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 the senior secured credit facility in the
    U.S.(3)
    
    Includes principal and interest. 37




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##### Table of Contents



Debt
    at Operating Subsidiaries
        Related
    Party Transactions
    ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  variable-to-fixed
 38




---



##### Table of Contents



ITEM 4.
    Controls
    and Procedures  Form 10-Q.
 39




---



##### Table of Contents



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
    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 200231
.2*

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1*

Certification of Chief Executive Officer pursuant
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith. 40




---



##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser   Executive Vice President
 and Chief Financial Officer
 (Principal Financial Officer)
    By:
    /s/  J.
    Anthony Martin  J. Anthony Martin
 Vice President, Corporate Controller,
 and Chief Accounting Officer
 (Principal Accounting Officer)
 41




---



##### 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 200231
.2*

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1*

Certification of Chief Executive Officer pursuant
    Section 906 of the Sarbanes-Oxley Act of 200232
.2*

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