##### 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, 2009oro

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

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

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

75001(Zip
    Code)   (972) 713-3500
 (Registrants telephone
    number, including area code)
   o þ
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ
  The number of shares of Common Stock of the Registrant
    outstanding at November 3, 2009 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 Income (unaudited)


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


7Consolidated Statements of Changes in Equity
    (unaudited)


8Consolidated Statements of Cash Flows
    (unaudited)


10Notes to Consolidated Financial Statements
    (unaudited)


11Item 2.


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


31Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


53Item 4T


Controls and Procedures


53PART II.  Other Information


54Item 1.


Legal Proceedings


54Item 1B.


Unresolved Staff Comments


54Item 6.


Exhibits


54Signatures


55EX-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
           810-10-65-1, Consolidation
  KPMG
    LLP
    3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIESConsolidated Balance Sheets
  September 30, 2009


December 31, 2008(Unaudited)(In thousands  except share data)ASSETSCash and cash equivalents

$
156,543


$
49,435Accounts receivable, net of allowance for doubtful accounts of
    $8,691 and $11,544, respectively


53,047



57,213Other receivables (Note 10)


18,148



17,070Inventories of supplies


8,310



9,079Deferred tax asset, net (Note 7)


17,094



Prepaids and other current assets


13,720



11,735Total current assets


266,862



144,532Property and equipment, net


191,633



201,824Investments in unconsolidated affiliates


315,561



307,771Goodwill


1,269,626



1,270,287Intangible assets, net


321,506



318,852Other assets


25,582



24,897Total assets

$
2,390,770


$
2,268,163LIABILITIES AND EQUITYAccounts payable

$
18,206


$
22,194Accrued salaries and benefits


32,949



27,241Due to affiliates


121,930



57,237Accrued interest


18,950



9,336Current portion of long-term debt


22,627



24,488Other current liabilities


37,659



42,874Total current liabilities


252,321



183,370Long-term debt, less current portion


1,047,233



1,073,459Other long-term liabilities


31,755



27,517Deferred tax liability, net


123,448



125,639Total liabilities


1,454,757



1,409,985Noncontrolling interests  redeemable (Notes 1
    and 4)


57,462



52,214Commitments and contingencies (Note 11)Equity:United Surgical Partners International, Inc. (USPI)
    stockholders equity:Common stock, $0.01 par value; 100 shares authorized;
    issued and outstanding






Additional paid-in capital


796,708



801,902Accumulated other comprehensive loss


(61,204
)


(84,008
)Retained earnings


107,386



46,243Total USPI stockholders equity


842,890



764,137Noncontrolling interests  nonredeemable (Notes 1
    and 4)


35,661



41,827Total equity


878,551



805,964Total liabilities and equity

$
2,390,770


$
2,268,163    4




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##### Table of Contents



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


Three MonthsEnded


EndedSeptember 30,


September 30,2009


2008(Unaudited  in thousands)Revenues:Net patient service revenues

$
129,588


$
134,469Management and contract service revenues


19,521



17,757Other revenues


3,272



1,437Total revenues


152,381



153,663Equity in earnings of unconsolidated affiliates


14,913



11,420Operating expenses:Salaries, benefits, and other employee costs


44,223



45,172Medical services and supplies


25,451



27,338Other operating expenses


21,210



25,188General and administrative expenses


9,609



9,766Provision for doubtful accounts


2,674



2,146Depreciation and amortization


8,745



8,856Total operating expenses


111,912



118,466Operating income


55,382



46,617Interest income


520



685Interest expense


(17,589
)


(21,159
)Other, net (Notes 2 and 4)


(8,925
)


(708
)Total other expense, net


(25,994
)


(21,182
)Income from continuing operations before income taxes


29,388



25,435Income tax benefit (expense) (Note 7)


24,123



(6,074
)Income from continuing operations


53,511



19,361Loss from discontinued operations, net of tax






(9
)Net income


53,511



19,352Less: Net income attributable to noncontrolling interests


(14,807
)


(11,911
)Net income attributable to USPIs common stockholder

$
38,704


$
7,441Amounts attributable to USPIs common stockholder:Income from continuing operations, net of tax

$
38,704


$
7,447Loss from discontinued operations, net of tax






(6
)Net income attributable to USPIs common stockholder

$
38,704


$
7,441    5




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##### Table of Contents



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


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008(Unaudited  in thousands)Revenues:Net patient service revenues

$
396,979


$
424,081Management and contract service revenues


57,573



53,915Other revenues


11,335



3,969Total revenues


465,887



481,965Equity in earnings of unconsolidated affiliates


43,110



32,563Operating expenses:Salaries, benefits, and other employee costs


130,089



138,820Medical services and supplies


76,019



85,183Other operating expenses


69,904



81,391General and administrative expenses


29,708



29,933Provision for doubtful accounts


7,553



5,956Depreciation and amortization


26,610



27,702Total operating expenses


339,883



368,985Operating income


169,114



145,543Interest income


2,261



2,509Interest expense


(53,384
)


(65,111
)Other, net (Notes 2 and 4)


(19,145
)


(463
)Total other expense, net


(70,268
)


(63,065
)Income from continuing operations before income taxes


98,846



82,478Income tax benefit (expense) (Note 7)


9,504



(18,686
)Income from continuing operations


108,350



63,792Loss from discontinued operations, net of tax






(898
)Net income


108,350



62,894Less: Net income attributable to noncontrolling interests


(47,207
)


(41,269
)Net income attributable to USPIs common stockholder

$
61,143


$
21,625Amounts attributable to USPIs common stockholder:Income from continuing operations, net of tax

$
61,143


$
22,527Loss from discontinued operations, net of tax






(902
)Net income attributable to USPIs common stockholder

$
61,143


$
21,625    6




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##### Table of Contents



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


Three MonthsEnded


EndedSeptember 30,


September 30,2009


2008(Unaudited  in thousands)Net income

$
53,511


$
19,352Other comprehensive loss:Foreign currency translation adjustments


(6,538
)


(28,696
)Unrealized gain (loss) on interest rate swaps, net of tax


2,277



(862
)Total other comprehensive loss


(4,261
)


(29,558
)Comprehensive income (loss)


49,250



(10,206
)Less: Comprehensive income attributable to noncontrolling
    interests


(14,807
)


(11,911
)Comprehensive income (loss) attributable to USPIs common
    stockholder

$
34,443


$
(22,117
)   Nine Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008(Unaudited  in thousands)Net income

$
108,350


$
62,894Other comprehensive income (loss):Foreign currency translation adjustments


19,625



(27,793
)Unrealized gain (loss) on interest rate swaps, net of tax


3,179



(42
)Total other comprehensive income (loss)


22,804



(27,835
)Comprehensive income


131,154



35,059Less: Comprehensive income attributable to noncontrolling
    interests


(47,207
)


(41,269
)Comprehensive income (loss) attributable to USPIs common
    stockholder

$
83,947


$
(6,210
)    7




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##### Table of Contents



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


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


Interests Total


Income (Loss)


Shares


Par Value


Capital


Income (Loss)


Earnings


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

$
805,964


$




100


$



$
801,902


$
(84,008
)

$
46,243


$
41,827Distributions to noncontrolling interests


(605
)


























(605
)Purchases of noncontrolling interests


(668
)














(453
)










(215
)Sales of noncontrolling interests


(2,146
)














(2,142
)










(4
)Deconsolidation of subsidiaries


(5,852
)


























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


462















462











Comprehensive income:Net income


6,915



5,687



















5,687



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


(63
)


(63
)














(63
)






Foreign currency translation adjustments


(4,480
)


(4,480
)














(4,480
)






Other comprehensive loss


(4,543
)


(4,543
)






















Comprehensive income


2,372


$
1,144























1,228Balance, March 31, 2009


799,527







100







799,769



(88,551
)


51,930



36,379Distributions to noncontrolling interests


(962
)


























(962
)Purchases of noncontrolling interests


(288
)














(270
)










(18
)Sales of noncontrolling interests


(1,904
)














(1,953
)










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


495















495











Comprehensive income:Net income


18,314



16,752



















16,752



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


965



965















965







Foreign currency translation adjustments


30,643



30,643















30,643







Other comprehensive income


31,608



31,608























Comprehensive income


49,922


$
48,360























1,562Balance, June 30, 2009


846,790







100







798,041



(56,943
)


68,682



37,010Distributions to noncontrolling interests


(1,557
)


























(1,557
)Purchases of noncontrolling interests


(34
)














(30
)










(4
)Sales of noncontrolling interests


(1,767
)














(1,770
)










3Deconsolidation of subsidiaries


(876
)


























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


467















467











Comprehensive income:Net income


39,789



38,704



















38,704



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


2,277



2,277















2,277







Foreign currency translation adjustments


(6,538
)


(6,538
)














(6,538
)






Other comprehensive loss


(4,261
)


(4,261
)






















Comprehensive income


35,528


$
34,443























1,085Balance, September 30, 2009

$
878,551







100


$



$
796,708


$
(61,204
)

$
107,386


$
35,661    8




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Consolidated
    Statement of Changes in Equity
 For the
    Three Months and Nine Months Ended September 30,
    2008
  USPI Common StockholderAccumulatedAdditional


Other





NoncontrollingComprehensive


Outstanding





Paid-in


Comprehensive


Retained


Interests Total


Income (Loss)


Shares


Par Value


Capital


Income (Loss)


Earnings


Nonredeemable(Unaudited  in thousands, except share amounts)Balance, December 31, 2007

$
837,100


$




100


$



$
799,562


$
(1,485
)

$
8,729


$
30,294Distributions to noncontrolling interests


(210
)


























(210
)Purchases and sales of noncontrolling interests, net


2,001



























2,001Contribution related to equity award grants by USPI Group
    Holdings, Inc.


987















987











Comprehensive income:Net income


8,926



7,721



















7,721



1,205Other comprehensive income:Unrealized loss on interest rate swaps, net of tax


13



13















13







Foreign currency translation adjustments


186



186















186







Other comprehensive income


199



199























Comprehensive income


9,125


$
7,920























1,205Balance, March 31, 2008


849,003







100







800,549



(1,286
)


16,450



33,290Distributions to noncontrolling interests


(3,512
)


























(3,512
)Purchases and sales of noncontrolling interests, net


1,000



























1,000Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


462















462











Comprehensive income:Net income


7,466



6,463



















6,463



1,003Other comprehensive income:Unrealized gain on interest rate swap, net of tax


807



807















807







Foreign currency translation adjustments


717



717















717







Other comprehensive income


1,524



1,524























Comprehensive income


8,990


$
7,987























1,003Balance, June 30, 2008


855,943







100







801,011



238



22,913



31,781Distributions to noncontrolling interests


(901
)


























(901
)Purchases and sales of noncontrolling interests, net and other


3,181



























3,181Contribution related to equity award grants by USPI Group
    Holdings, Inc. and other


527















527











Comprehensive income:Net income (loss)


7,216



7,441



















7,441



(225
)Other comprehensive income:Unrealized loss on interest rate swap, net of tax


(862
)


(862
)














(862
)






Foreign currency translation adjustments


(28,696
)


(28,696
)














(28,696
)






Other comprehensive income


(29,558
)


(29,558
)






















Comprehensive income (loss)


(22,342
)

$
(22,117
)






















(225
)Balance, September 30, 2008

$
836,408







100


$



$
801,538


$
(29,320
)

$
30,354


$
33,836    9




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##### Table of Contents



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


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008(Unaudited  in thousands)Cash flows from operating activities:Net income

$
108,350


$
62,894Adjustments to reconcile net income to net cash provided by
    operating activities:Loss on discontinued operations






898Provision for doubtful accounts


7,553



5,956Depreciation and amortization


26,610



27,702Loss on sale of equity interests and other


12,778



1,863Loss on impairment of intangible assets


4,370



Amortization of debt issue costs and discount


2,517



2,133Deferred income tax (benefit) expense


(16,795
)


11,126Equity in earnings of unconsolidated affiliates, net of
    distributions received


(4,499
)


(5,291
)Equity-based compensation


1,463



1,876Increases (decreases) in cash from changes in operating assets
    and liabilities, net of effects from purchases of new businesses:Accounts receivable


(5,832
)


(5,789
)Other receivables


2,330



(6,513
)Inventories of supplies, prepaids and other current assets


(1,607
)


1,214Accounts payable and other current liabilities


6,563



10,301Long-term liabilities


1,378



(591
)Net cash provided by operating activities


145,179



107,779Cash flows from investing activities:Purchases of new businesses and equity interests, net of cash
    received


(12,855
)


(36,039
)Proceeds from sale of businesses and equity interests


2,091



12,151Purchases of property and equipment


(17,016
)


(26,526
)Returns of capital from unconsolidated affiliates


2,613



2,374(Increase) decrease in deposits and notes receivable


(3,686
)


722Net cash used in investing activities


(28,853
)


(47,318
)Cash flows from financing activities:Proceeds from long-term debt


761



43,026Payments on long-term debt


(20,404
)


(22,203
)Increase in cash held on behalf of unconsolidated affiliates


55,887



36,007Sales (purchases) of noncontrolling interests, net


1,791



(26,846
)Distributions to noncontrolling interests


(47,435
)


(43,392
)Net cash used in financing activities


(9,400
)


(13,408
)Cash flows of discontinued operations:Operating cash flows






160Investing cash flows






(76
)Financing cash flows






(34
)Net cash provided by discontinued operations






50Effect of exchange rate changes on cash


182



53Net increase in cash and cash equivalents


107,108



47,156Cash and cash equivalents at beginning of period


49,435



76,758Cash and cash equivalents at end of period

$
156,543


$
123,914Supplemental information:Interest paid

$
43,771


$
56,689Income taxes paid


6,556



5,665Non-cash transactions:Assets acquired under capital lease obligations

$
1,863


$
1,089Receipt of note receivable for sale of equity interests


980



601    10




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes
    to Consolidated Financial Statements (unaudited)
  (1)
    Basis of
    Presentation  (a)  Description
    of Business
  not-for-profit not-for-profit
      Form 10-K
  Form 10-K.
     11




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  (b)  Adoption
    of New Accounting Standards
  Business Combinations Noncontrolling Interests in
    Consolidated Financial Statements an Amendment of ARB
    No. 51 Accounting Standards
    Codification Business Combinations Consolidations
      BeforeASC 810


ASC 810Changes in Cash Flow Classification:Distributions of earnings paid to noncontrolling interests


Operating



FinancingAcquisitions or sales of equity interests in consolidated
    subsidiaries, no change of control


Investing



FinancingNo Change in Cash Flow Classification:Distributions of earnings received from unconsolidated affiliates


Operating



OperatingReturns of capital paid to noncontrolling interests


Financing



FinancingReturns of capital received from unconsolidated affiliates


Investing



InvestingSales of equity interests in consolidated subsidiaries resulting
    in a change of control


Investing



InvestingAcquisitions or sales of equity interests in unconsolidated
    affiliates, no change of control


Investing



InvestingAcquisitions of equity interests in unconsolidated affiliates,
    resulting in change of control


Investing



InvestingBusiness combinations with no previous ownership by the Company


Investing



Investing  12




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
    December 31,Consolidated Balance Sheet

2008Total equity as previously reported

$
764,137Reclassification of non-redeemable noncontrolling interests to
    equity as required by ASC 810


41,827Total equity as adjusted for ASC 810

$
805,964     Nine MonthsEndedSeptember 30,Consolidated Statement of Cash Flows

2008(In thousands)Net cash provided by operating activities as previously reported

$
65,831Reclassification of distributions to noncontrolling interests to
    financing activities


41,948Net cash provided by operating activities as adjusted for ASC 810

$
107,779Net cash used in investing activities as previously reported

$
(74,164
)Reclassification of purchases and sales of noncontrolling
    interests to financing activities


26,846Net cash used in investing activities as adjusted for ASC 810

$
(47,318
)Net cash provided by financing activities as previously reported

$
55,386Reclassification of distributions to noncontrolling interests
    from operating activities


(41,948
)Reclassification of purchases and sales of noncontrolling
    interests from investing activities


(26,846
)Net cash used in financing activities as adjusted for ASC 810

$
(13,408
)    13




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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    Effective Date

Facility Location

Proceeds


Gain (loss)February 2009

Las Cruces, New Mexico(1)

$



$
February 2009

East Brunswick, New Jersey(1)


0.7 million



(2.6) millionJuly 2009

Cleveland, Ohio(2)


1.0 million



September 2009

San Antonio, Texas(1)






(2.6) millionTotal



$
1.7 million


$
(5.2) 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 loss on the disposal of
    these facilities is recorded in Other, net in the
    accompanying consolidated statements of income.(2)
    
    The Company financed the entire purchase price with the buyer
    and has a security interest in the facilitys assets until
    the note, which matures in December 2009, is collected. As a
    result, the Company deferred the gain, which is estimated at
    $0.6 million. Because this investment was accounted for
    under the equity method, the results of operations of this
    facility are not reported as discontinued operations.    Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2008


2008Revenues

$



$
3,108Income from discontinued operations before income taxes

$
10


$
97Income tax expense


(4
)


(34
)Income from discontinued operations

$
6


$
63Loss on sale of discontinued operations before income taxes

$



$
(965
)Income tax benefit






Loss on sale of discontinued operations

$



$
(965
)   (3)
    Investments
    in Unconsolidated Affiliates  not-for-profit
   14




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


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Unconsolidated facilities operated at period-end


106



98



106



98Income statement information:Revenues

$
293,207


$
248,691


$
852,679


$
721,048Operating expenses:Salaries, benefits, and other employee costs


71,391



62,743



204,485



180,196Medical services and supplies


68,086



52,796



194,973



151,574Other operating expenses


68,718



62,783



200,531



183,818Depreciation and amortization


12,645



11,839



37,474



36,490Total operating expenses


220,840



190,161



637,463



552,078Operating income


72,367



58,530



215,216



168,970Interest expense, net


(6,041
)


(6,103
)


(18,312
)


(18,307
)Other, net


838



865



2,177



2,301Income before income taxes

$
67,164


$
53,292


$
199,081


$
152,964Balance sheet information:Current assets

$
237,086


$
211,295


$
237,086


$
211,295Noncurrent assets


405,547



400,456



405,547



400,456Current liabilities


153,621



132,364



153,621



132,364Noncurrent liabilities


288,629



283,191



288,629



283,191     
    Payment of $2.5 million for an investment in and the rights
    to manage a surgical facility in Stockton, California, jointly
    owned with one of the Companys
    not-for-profit
    hospital partners;
    Payment of $2.0 million for the rights to manage a surgical
    facility in the Dallas/Fort Worth, Texas area and to fund a
    transaction whereby an unconsolidated investee of the Company
    acquired an equity interest in the facility;
    Payment of $2.2 million to obtain additional ownership in
    three facilities in the Dallas/Fort Worth, Texas
    area; and
    Net payment of approximately $4.2 million related to
    various other purchases and sales of equity interests and
    contributions of cash to equity method investees.   15




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UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
    (4)
    Noncontrolling
    Interests      Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2009Net income attributable to USPIs common stockholder

$
38,704


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


(1,770
)


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


(30
)


(753
)Net transfers to noncontrolling interests


(1,800
)


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

$
36,904


$
54,525     Effective Date

Facility Location

Proceeds


(Loss)March 2009

Phoenix, Arizona(1)

$
0.1 million


$
(8.2) millionJuly 2009

Oklahoma City, Oklahoma(2)


0.2 million



(0.6) millionTotal



$
0.3 million


$
(8.8) million     (1)
    
    A controlling interest in an entity was sold to a hospital
    partner as part of the Companys strategy for partnering
    with this hospital system. The hospital partner already had a
    49% ownership interest in this entity, which owns and manages
    two surgical facilities, and through the transaction acquired an
    additional 1.1% interest. The $8.2 million loss was
    primarily related to the revaluation of the Companys
    remaining investment in the entity to fair value. 16




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UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
   During the third quarter of 2009, the Company recorded an
    impairment charge related to its rights to manage this facility,
    the value of which is carried as an indefinite-lived intangible
    asset on the Companys consolidated balance sheet. This
    charge was triggered by a reduction in the Companys
    expected earnings under the contract. As a result, an impairment
    charge of $3.6 million was recorded and represents the
    difference between the intangibles carrying value and
    estimated fair value. The impairment is recorded in Other,
    net in the accompanying consolidated statements of income.(2)
    
    The Company and other owners of a facility consolidated by the
    Company agreed to merge the facility into another entity in
    which the Company holds an investment accounted for under the
    equity method. The Company recorded a loss, included in
    Other, net in the accompanying consolidated
    statements of income, of $0.6 million on the sale and
    deconsolidation of the facility together with the impairment of
    the Companys indefinite-lived intangible asset related to
    the Companys rights to manage the facility.  interests-redeemable
  NoncontrollingInterests Redeemable-2009Balance, December 31, 2008

$
52,214Net income attributable to noncontrolling interests


15,067Distributions to noncontrolling interests


(13,359
)Purchases of noncontrolling interests


(594
)Sales of noncontrolling interests


3,111Deconsolidation of noncontrolling interests and other


(2,188
)Balance, March 31, 2009


54,251Net income attributable to noncontrolling interests


14,543Distributions to noncontrolling interests


(15,039
)Purchases of noncontrolling interests


(345
)Sales of noncontrolling interests


2,925Deconsolidation of noncontrolling interests and other


(239
)Balance, June 30, 2009


56,096Net income attributable to noncontrolling interests


13,722Distributions to noncontrolling interests


(15,913
)Purchases of noncontrolling interests


248Sales of noncontrolling interests


3,491Deconsolidation of noncontrolling interests and other


(182
)Balance, September 30, 2009

$
57,462   17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  NoncontrollingInterests Redeemable-2008Balance, December 31, 2007

$
52,769Net income attributable to noncontrolling interests


14,201Distributions to noncontrolling interests


(14,618
)Purchases of noncontrolling interests


(104
)Sales of noncontrolling interests


(325
)Deconsolidation of noncontrolling interests and other


366Balance, March 31, 2008


52,289Net income attributable to noncontrolling interests


12,949Distributions to noncontrolling interests


(12,593
)Purchases of noncontrolling interests


(605
)Sales of noncontrolling interests


251Deconsolidation of noncontrolling interests and other


(662
)Balance, June 30, 2008


51,629Net income attributable to noncontrolling interests


12,136Distributions to noncontrolling interests


(11,559
)Purchases of noncontrolling interests


(1,693
)Sales of noncontrolling interests


1,576Deconsolidation of noncontrolling interests and other


(3,191
)Balance, September 30, 2008

$
48,898   (5)
    Interest
    Rate Swaps       18




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UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
            (6)
    Fair
    Value of Financial Instruments     19




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
    (7)
    Income
    Taxes        (8)
    Equity-Based
    Compensation     20




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##### Table of Contents



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


Nine Months


Three Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2009


2009


2008


2008Salaries, benefits and other employee costs

$
210


$
594


$
182


$
790General and administrative expenses


257



738



246



750Other operating expenses






131







336Expense before income tax benefit


467



1,463



428



1,876Income tax benefit


(98
)


(287
)


(93
)


(371
)Total equity-based compensation expense, net of tax

$
369


$
1,176


$
335


$
1,505     Three Months


Nine Months


Three Months


Nine MonthsEnded


Ended


Ended


EndedSeptember 30,


September 30,


September 30,


September 30,2009


2009


2008


2008Share awards

$
304


$
889


$
286


$
884Stock options


163



443



142



656Warrants






131







336Expense before income tax benefit


467



1,463



428



1,876Income tax benefit


(98
)


(287
)


(93
)


(371
)Total equity-based compensation expense, net of tax

$
369


$
1,176


$
335


$
1,505   1 2
    (9)
    Segment
    Disclosures   21




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

United


UnitedSeptember 30, 2009

States


Kingdom


TotalNet patient service revenues

$
102,438


$
27,150


$
129,588Other revenues


22,793







22,793Total revenues

$
125,231


$
27,150


$
152,381Depreciation and amortization

$
6,921


$
1,824


$
8,745Operating income


50,844



4,538



55,382Net interest expense


(16,530
)


(539
)


(17,069
)Income tax benefit (expense)


25,209



(1,086
)


24,123Total assets


2,071,602



319,168



2,390,770Capital expenditures


3,123



3,097



6,220   Nine Months Ended

United


UnitedSeptember 30, 2009

States


Kingdom


TotalNet patient service revenues

$
319,076


$
77,903


$
396,979Other revenues


68,908







68,908Total revenues

$
387,984


$
77,903


$
465,887Depreciation and amortization

$
21,606


$
5,004


$
26,610Operating income


153,473



15,641



169,114Net interest expense


(50,224
)


(899
)


(51,123
)Income tax benefit (expense)


13,658



(4,154
)


9,504Total assets


2,071,602



319,168



2,390,770Capital expenditures


11,664



7,215



18,879   Three Months Ended

United


UnitedSeptember 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


(4,553
)


(1,521
)


(6,074
)Total assets


1,996,992



342,003



2,338,995Capital expenditures


4,595



2,020



6,615   22




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##### Table of Contents



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

United


UnitedSeptember 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


(13,950
)


(4,736
)


(18,686
)Total assets


1,996,992



342,003



2,338,995Capital expenditures


13,109



14,506



27,615   (10)
    Related
    Party Transactions        (11)
    Commitments
    and Contingencies     23




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
    (12)
    New
    Accounting Pronouncements  No. 2009-5, Measuring Liabilities at Fair Value 2009-05). 2009-05 Fair Value Measurements and
    Disclosures. ASU 2009-05 and/or 2009-05 2009-05
  The
    FASB Accounting Standards Codification and the
    Hierarchy of Generally Accepted Accounting Principles FASB
    Accounting Standards Codification
  Amendments to FASB Interpretation No. 46(R) Consolidations
  Subsequent Events Subsequent Events.
  Employers Disclosures about
    Postretirement Benefit Plan Assets Compensation  Retirement
 24




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UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
   (13)
    Subsequent
    Events    (14)
    Condensed
    Consolidating Financial Statements    7 8 1 4 Form S-4 wholly-owned
 25




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##### Table of Contents



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


Consolidation


ConsolidatedAs of September 30, 2009

Guarantors


Investees


Adjustments


TotalAssetsCurrent assets:Cash and cash equivalents

$
146,945


$
9,598


$



$
156,543Accounts receivable, net






53,012



35



53,047Other receivables


49,426



43,611



(74,889
)


18,148Inventories of supplies


367



7,943







8,310Prepaids and other current assets


26,340



4,474







30,814Total current assets


223,078



118,638



(74,854
)


266,862Property and equipment, net


16,367



174,734



532



191,633Investments in unconsolidated affiliates


985,123







(669,562
)


315,561Goodwill and intangible assets, net


849,548



337,685



403,899



1,591,132Other assets


97,799



1,687



(73,904
)


25,582Total assets

$
2,171,915


$
632,744


$
(413,889
)

$
2,390,770Liabilities and EquityCurrent liabilities:Accounts payable

$
632


$
17,574


$



$
18,206Accrued expenses and other


231,149



52,480



(72,141
)


211,488Current portion of long-term debt


5,541



19,554



(2,468
)


22,627Total current liabilities


237,322



89,608



(74,609
)


252,321Long-term debt, less current portion


948,561



119,004



(20,332
)


1,047,233Other long-term liabilities


143,142



12,940



(879
)


155,203Parents equity


842,890



400,146



(400,146
)


842,890Noncontrolling interests






11,046



82,077



93,123Total liabilities and equity

$
2,171,915


$
632,744


$
(413,889
)

$
2,390,770   26




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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, 2008

Guarantors


Investees


Adjustments


TotalAssetsCurrent assets:Cash and cash equivalents

$
42,025


$
7,410


$



$
49,435Accounts receivable, net






57,172



41



57,213Other receivables


43,033



39,454



(65,417
)


17,070Inventories of supplies


109



8,970







9,079Prepaids and other current assets


9,625



2,110







11,735Total current assets


94,792



115,116



(65,376
)


144,532Property and equipment, net


16,036



184,959



829



201,824Investments in unconsolidated affiliates


1,022,144



63



(714,436
)


307,771Goodwill and intangible assets, net


790,491



322,866



475,782



1,589,139Other assets


97,400



152



(72,655
)


24,897Total assets

$
2,020,863


$
623,156


$
(375,856
)

$
2,268,163Liabilities and EquityCurrent liabilities:Accounts payable

$
910


$
21,284


$



$
22,194Accrued expenses and other


153,249



46,371



(62,932
)


136,688Current portion of long-term debt


5,556



20,368



(1,436
)


24,488Total current liabilities


159,715



88,023



(64,368
)


183,370Long-term debt, less current portion


954,968



139,445



(20,954
)


1,073,459Other long-term liabilities


142,043



12,169



(1,056
)


153,156Parents equity


764,137



371,335



(371,335
)


764,137Noncontrolling interests






12,184



81,857



94,041Total liabilities and equity

$
2,020,863


$
623,156


$
(375,856
)

$
2,268,163  27




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements
    (unaudited)  (Continued)
  Condensed
    Consolidating Statements of Income:
  For the Nine Months Ended




Non-Participating


Consolidation


ConsolidatedSeptember 30, 2009

Guarantors


Investees


Adjustments


TotalRevenues

$
72,396


$
410,190


$
(16,699
)

$
465,887Equity in earnings of unconsolidated affiliates


97,831



1,580



(56,301
)


43,110Operating expenses, excluding depreciation and amortization


54,909



275,095



(16,731
)


313,273Depreciation and amortization


5,408



20,905



297



26,610Operating income


109,910



115,770



(56,566
)


169,114Interest expense, net


(45,365
)


(6,067
)


309



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


(19,053
)


141



(233
)


(19,145
)Income from before income taxes


45,492



109,844



(56,490
)


98,846Income tax benefit (expense)


15,651



(6,147
)






9,504Net income


61,143



103,697



(56,490
)


108,350Less: Net income attributable to noncontrolling interests






(7,634
)


(39,573
)


(47,207
)Net income attributable to Parent

$
61,143


$
96,063


$
(96,063
)

$
61,143   For the Nine Months Ended




Non-Participating


Consolidation


ConsolidatedSeptember 30, 2008

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 from continuing operations before income taxes


34,669



99,219



(51,410
)


82,478Income tax expense


(12,142
)


(6,546
)


2



(18,686
)Income from continuing operations


22,527



92,673



(51,408
)


63,792Earnings (loss) from discontinued operations, net of tax


(902
)


4







(898
)Net income


21,625



92,677



(51,408
)


62,894Less: Net income attributable to noncontrolling interests






(5,208
)


(36,061
)


(41,269
)Net income attributable to Parent

$
21,625


$
87,469


$
(87,469
)

$
21,625  28




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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




Non-Participating


Consolidation


ConsolidatedSeptember 30, 2009

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
61,143


$
103,697


$
(56,490
)

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


(30
)


20,162



16,697



36,829Net cash provided by operating activities


61,113



123,859



(39,793
)


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


(3,966
)


(13,050
)






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


(8,862
)


(1,902
)






(10,764
)Other items, net


(1,495
)


(6,886
)


7,308



(1,073
)Net cash used in investing activities


(14,323
)


(21,838
)


7,308



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


(6,434
)


(14,314
)


1,105



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


1,791











1,791Distributions to noncontrolling interests






(87,228
)


39,793



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


62,773



1,527



(8,413
)


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


58,130



(100,015
)


32,485



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






182







182Net increase in cash


104,920



2,188







107,108Cash at the beginning of the period


42,025



7,410







49,435Cash at the end of the period

$
146,945


$
9,598


$



$
156,543   29




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##### Table of Contents



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




Non-Participating


Consolidation


ConsolidatedSeptember 30, 2008

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
21,625


$
92,677


$
(51,408
)

$
62,894Loss (gain) from discontinued operations


902



(4
)






898Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


11,248



26,684



6,055



43,987Net cash provided by operating activities


33,775



119,357



(45,353
)


107,779Cash flows from investing activities:Purchases of property and equipment, net


(3,859
)


(22,667
)






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


(23,781
)


(107
)






(23,888
)Other items, net


3,559



(5,120
)


4,657



3,096Net cash used in investing activities


(24,081
)


(27,894
)


4,657



(47,318
)Cash flows from financing activities:Long-term borrowings, net


28,276



(8,186
)


733



20,823Purchases and sales of noncontrolling interests, net


(26,846
)










(26,846
)Distributions to noncontrolling interests






(88,010
)


44,618



(43,392
)Increase in cash held on behalf of noncontrolling interest
    holders and other


39,679



983



(4,655
)


36,007Net cash provided by (used in) financing activities


41,109



(95,213
)


40,696



(13,408
)Net cash provided by discontinued operations


50











50Effect of exchange rate changes on cash






53







53Net increase 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  30




---



##### 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
   31




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
             32




---



##### Table of Contents



Acquisitions,
    Equity Investments and Development Projects
      Effective Date

Facility Location

AmountInvestmentsFebruary 2009

Granbury, Texas(1)

$
2.0 millionFebruary 2009

Stockton, California(1)


2.5 millionMay 2009

St. Louis, Missouri(2)


0.9 millionVarious

Various(3)


6.4 millionTotal



$
11.8 million     (1)
    
    Acquisition of a noncontrolling interest in and right to manage
    a surgical facility in which we previously had no involvement.
    This facility is jointly owned with one of our hospital partners
    and local physicians.(2)
    
    Acquisition of the right to manage a surgical facility in which
    we previously had no involvement. We have a purchase option to
    acquire a 20% equity interest in the facility within one year,
    and after approximately three years, an option to purchase an
    additional 20% equity interest.(3)
    
    Represents the purchase of additional ownership and equity
    contributions in various unconsolidated affiliates, including
    $2.2 million to purchase additional ownership in three
    facilities in the Dallas/Fort Worth area.       33




---



##### Table of Contents



Discontinued
    Operations, Other Dispositions, and Deconsolidations
    Effective Date

Facility Location

Proceeds


(Loss)February 2009

Las Cruces, New Mexico(1)

$



$
February 2009

East Brunswick, New Jersey(1)


0.7 million



(2.6) millionJuly 2009

Cleveland, Ohio(2)


1.0 million



September 2009

San Antonio, Texas(1)






(2.6) millionTotal



$
1.7 million


$
(5.2) 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 loss on the disposal of
    these facilities is recorded in Other, net in the
    accompanying consolidated statements of income.(2)
    
    We financed the entire purchase price with the buyer and have a
    security interest in the facilitys assets until the note,
    which matures in December 2009, is collected. As a result, we
    deferred the gain, which is estimated at $0.6 million.
    Because this investment was accounted for under the equity
    method, the results of operations of this facility are not
    reported as discontinued operations.      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 34




---



##### Table of Contents



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 30,2009


2008


2009


2008Net patient service revenues


85
%


88
%


85
%


88
%Management and contract service revenues


13



12



13



11Other revenues


2







2



1Total revenues


100
%


100
%


100
%


100
%       Nine MonthsThree Months


EndedEnded September 30,


September 30,2009


2008


2009


2008Management of surgical facilities

$
11,527


$
9,784


$
34,194


$
29,430Contract services provided to hospitals, physicians and related
    entities


7,994



7,973



23,379



24,485Total management and contract service revenues

$
19,521


$
17,757


$
57,573


$
53,915       Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008


2009


2008United States


82
%


80
%


83
%


80
%United Kingdom


18



20



17



20Total


100
%


100
%


100
%


100
%    35




---



##### Table of Contents



Equity in
    Earnings of Unconsolidated Affiliates
  not-for-profit
  Three Months


Nine MonthsEnded


EndedSeptember 30,


September 30,2009


2008


2009


2008Revenues

$
293,207


$
248,691


$
852,679


$
721,048Operating expenses:Salaries, benefits, and other employee costs


71,391



62,743



204,485



180,196Medical services and supplies


68,086



52,796



194,973



151,574Other operating expenses


68,718



62,783



200,531



183,818Depreciation and amortization


12,645



11,839



37,474



36,490Total operating expenses


220,840



190,161



637,463



552,078Operating income


72,367



58,530



215,216



168,970Interest expense, net


(6,041
)


(6,103
)


(18,312
)


(18,307
)Other


838



865



2,177



2,301Income before income taxes

$
67,164


$
53,292


$
199,081


$
152,964Long-term debt

$
280,217


$
274,243


$
280,217


$
274,243USPIs equity in earnings of unconsolidated affiliates


14,913



11,420



43,110



32,563USPIs imputed weighted average ownership percentage based
    on affiliates pre-tax income(1)


22.2
%


21.4
%


21.7
%


21.3
%USPIs imputed weighted average ownership percentage based
    on affiliates debt(2)


25.0
%


25.1
%


25.0
%


25.1
%Unconsolidated facilities operated at period end


106



98



106



98     (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. There is
    no comparable GAAP measure but management believes this
    percentage 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. There is no
    comparable GAAP measure but management believes this percentage
    provides further useful information about its involvement in
    equity method investments. 36




---



##### Table of Contents



Results
    of Operations
    Three Months


Nine MonthsEnded September 30,


Ended September 30,2009


2008


2009


2008Total revenues


100
%


100
%


100
%


100
%Equity in earnings of unconsolidated affiliates


9.8



7.4



9.3



6.8Operating expenses, excluding depreciation and amortization


(67.7
)


(71.3
)


(67.2
)


(70.8
)Depreciation and amortization


(5.8
)


(5.8
)


(5.8
)


(5.8
)Operating income


36.3



30.3



36.3



30.2Interest and other expense, net


(17.0
)


(13.7
)


(15.1
)


(13.1
)Income from continuing operations before income taxes


19.3



16.6



21.2



17.1Income tax benefit (expense)


15.8



(4.0
)


2.0



(3.9
)Income from continuing operations


35.1



12.6



23.2



13.2Loss from discontinued operations














(0.2
)Net income


35.1



12.6



23.2



13.0Less: Net income attributable to noncontrolling interests


(9.7
)


(7.8
)


(10.1
)


(8.6
)Net income attributable to USPIs common stockholder


25.4
%


4.8
%


13.1
%


4.4
%   Executive
    Summary
      not-for-profit
 37




---



##### Table of Contents



Systemwide
    Operating Results
  not-for-profit
      
    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. 38




---



##### Table of Contents



Three Months Ended September 30,2009


2008USPI as











USPI asReported











ReportedUSPI


Unconsolidated


Consolidation


Under


USPI


Unconsolidated


Consolidation


UnderSystemwide(1)


Affiliates(2)


Adjustments


GAAP


Systemwide(1)


Affiliates(2)


Adjustments


GAAPRevenues:Net patient service revenues

$
422,388


$
(292,800
)

$



$
129,588


$
382,699


$
(248,230
)

$



$
134,469Management and administrative services revenues


8,020







11,501
(3)


19,521



8,117







9,640
(3)


17,757Other income


3,679



(407
)






3,272



1,898



(461
)






1,437Total revenues


434,087



(293,207
)


11,501



152,381



392,714



(248,691
)


9,640



153,663Equity in earnings of unconsolidated affiliates










14,913
(4)


14,913











11,420
(4)


11,420Operating expenses:Salaries, benefits and other employee costs


115,614



(71,391
)






44,223



107,915



(62,743
)






45,172Medical services and supplies


93,537



(68,086
)






25,451



80,134



(52,796
)






27,338Other operating expenses


70,517



(60,808
)


11,501
(3)


21,210



70,254



(54,706
)


9,640
(3)


25,188General and administrative expenses


9,609











9,609



9,766











9,766Provision for doubtful accounts


10,584



(7,910
)






2,674



10,223



(8,077
)






2,146Depreciation and amortization


21,390



(12,645
)






8,745



20,695



(11,839
)






8,856Total operating expenses


321,251



(220,840
)


11,501



111,912



298,987



(190,161
)


9,640



118,466Operating income


112,836



(72,367
)


14,913



55,382



93,727



(58,530
)


11,420



46,617Interest income


609



(89
)






520



1,099



(414
)






685Interest expense


(23,719
)


6,130







(17,589
)


(27,676
)


6,517







(21,159
)Other, net


(8,087
)


(838
)






(8,925
)


157



(865
)






(708
)Total other expenses, net


(31,197
)


5,203







(25,994
)


(26,420
)


5,238







(21,182
)Income from continuing operations before income taxes


81,639



(67,164
)


14,913



29,388



67,307



(53,292
)


11,420



25,435Income tax benefit (expense)


22,415



1,708







24,123



(7,405
)


1,331







(6,074
)Income from continuing operations


104,054



(65,456
)


14,913



53,511



59,902



(51,961
)


11,420



19,361Loss from discontinued operations, net of tax


















(9
)










(9
)Net income


104,054



(65,456
)


14,913



53,511



59,893



(51,961
)


11,420



19,352Less: Net income attributable to noncontrolling interests


(65,350
)






50,543
(5)


(14,807
)


(52,452
)






40,541
(5)


(11,911
)Net income attributable to USPI/Parent(6)

$
38,704


$
(65,456
)

$
65,456


$
38,704


$
7,441


$
(51,961
)

$
51,961


$
7,441   39




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##### Table of Contents



Nine Months Ended September 30,2009


2008USPI as











USPI asReported











ReportedUSPI


Unconsolidated


Consolidation


Under


USPI


Unconsolidated


Consolidation


UnderSystemwide(1)


Affiliates(2)


Adjustments


GAAP


Systemwide(1)


Affiliates(2)


Adjustments


GAAPRevenues:Net patient service revenues

$
1,246,828


$
(849,849
)

$



$
396,979


$
1,143,456


$
(719,375
)

$



$
424,081Management and administrative services revenues


23,447







34,126
(3)


57,573



24,904







29,011
(3)


53,915Other income


14,165



(2,830
)






11,335



5,629



(1,660
)






3,969Total revenues


1,284,440



(852,679
)


34,126



465,887



1,173,989



(721,035
)


29,011



481,965Equity in earnings of unconsolidated affiliates










43,110
(4)


43,110



13



(13
)


32,563
(4)


32,563Operating expenses:Salaries, benefits and other employee costs


334,574



(204,485
)






130,089



319,016



(180,196
)






138,820Medical services and supplies


270,992



(194,973
)






76,019



236,757



(151,574
)






85,183Other operating expenses


216,409



(180,631
)


34,126
(3)


69,904



212,658



(160,278
)


29,011
(3)


81,391General and administrative expenses


29,708











29,708



29,933











29,933Provision for doubtful accounts


27,453



(19,900
)






7,553



29,496



(23,540
)






5,956Depreciation and amortization


64,084



(37,474
)






26,610



64,192



(36,490
)






27,702Total operating expenses


943,220



(637,463
)


34,126



339,883



892,052



(552,078
)


29,011



368,985Operating income


341,220



(215,216
)


43,110



169,114



281,950



(168,970
)


32,563



145,543Interest income


2,625



(364
)






2,261



3,841



(1,332
)






2,509Interest expense


(72,060
)


18,676







(53,384
)


(84,750
)


19,639







(65,111
)Other, net


(16,968
)


(2,177
)






(19,145
)


1,838



(2,301
)






(463
)Total other expenses, net


(86,403
)


16,135







(70,268
)


(79,071
)


16,006







(63,065
)Income from continuing operations before income taxes


254,817



(199,081
)


43,110



98,846



202,879



(152,964
)


32,563



82,478Income tax benefit (expense)


4,698



4,806







9,504



(22,667
)


3,981







(18,686
)Income from continuing operations


259,515



(194,275
)


43,110



108,350



180,212



(148,983
)


32,563



63,792Loss from discontinued operations, net of tax


















(898
)










(898
)Net income


259,515



(194,275
)


43,110



108,350



179,314



(148,983
)


32,563



62,894Less: Net income attributable to noncontrolling interests


(198,372
)






151,165
(5)


(47,207
)


(157,689
)






116,420
(5)


(41,269
)Net income attributable to USPI/Parent(6)

$
61,143


$
(194,275
)

$
194,275


$
61,143


$
21,625


$
(148,983
)

$
148,983


$
21,625     (1)
    
    Our systemwide statements of income treat all of our facilities
    as though they were consolidated subsidiaries. Our consolidated
    systemwide statement of income 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
    income 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.(3)
    
    Our systemwide statements of income 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. 40




---



##### Table of Contents



(5)
    
    Our systemwide statements of income include noncontrolling
    interest expense for the portion of investees earnings not
    owned by us. Under GAAP, there is no noncontrolling interest
    expense recorded with respect to unconsolidated affiliates.(6)
    
    As the net impact of items (2) through (5) is zero,
    systemwide net income attributable to USPI/Parent equals the net
    income that we report under GAAP.  Our
    Ownership Share of Systemwide Results
      Nine Months Ended

Year Ended

Nine Months EndedSeptember 30,

December 31,

September 30,2009

2008

2008Equity method facilities(1)


21.7
%


21.2
%


21.3
%Consolidated facilities(2)


48.7
%


48.8
%


48.2
%Total(3)


30.2
%


30.2
%


30.5
%     (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
    net income attributable to the noncontrolling interests 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).   41




---



##### Table of Contents



Revenues
    Three Months Ended September 30, 2009USPI as Reported


USPIUnder GAAP


SystemwideTotal revenues, period ended September 30, 2008

$
153,663


$
392,714Add: Revenue from acquired facilities


6,820



24,473Less: Revenue of disposed facilities






(5,556
)Less: Revenue of deconsolidated facilities


(9,185
)


Other payer adjustments






Impact of exchange rate


(4,076
)


(4,076
)Adjusted base period


147,222



407,555Operating growth


3,552



26,282Non-facility based revenue


1,607



250Total revenues, period ended September 30, 2009

$
152,381


$
434,087   Nine Months Ended September 30, 2009USPI as Reported


USPIUnder GAAP


SystemwideTotal revenues, period ended September 30, 2008

$
481,965


$
1,173,989Add: Revenue from acquired facilities


20,883



71,783Less: Revenue of disposed facilities






(19,127
)Less: Revenue of deconsolidated facilities


(32,678
)


Other payer adjustments


78



(7,985
)Impact of exchange rate


(19,941
)


(19,941
)Adjusted base period


450,307



1,198,719Operating growth


13,513



85,320Non-facility based revenue


2,067



401Total revenues, period ended September 30, 2009

$
465,887


$
1,284,440   year-over-year
   42




---



##### Table of Contents



year-over-year
    Three Months Ended

Nine Months EndedSeptember 30, 2009

September 30, 2009United States facilities:Net revenue


7.2
%


7.8
%Surgical cases


2.2
%


2.5
%Net revenue per case(1)


4.9
%


5.2
%United Kingdom facilities:Adjusted admissions


(1.5
)%


(1.9
)%Net revenue using actual exchange rates


(12.0
)%


(19.1
)%Net revenue using constant exchange rates(2)


1.3
%


2.1
%All same store facilities:Net revenue using actual exchange rates


5.7
%


5.6
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    for the third quarter of 2009 was favorably impacted by the 8.1%
    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 2.6% during the third quarter of 2009. 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, adjustments in the second quarter of 2008
    were excluded for similar reasons, as was the unfavorable impact
    of such an amount which arose during the second quarter of 2009.(2)
    
    Calculated using 2009 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. 43




---



##### Table of Contents



Joint
    Ventures With
    Not-For-Profit
    Hospitals; Number of Facilities
  not-for-profit
    September 30,2009


2008United States facilities(1):With a hospital partner


103



92Without a hospital partner


60



63Total U.S. facilities


163



155United Kingdom facilities


4



3Total facilities operated


167



158Change from September 30, 2008:De novo (newly constructed) and other(2)


3Acquisition


11Disposals(3)


(5
)Total increase in number of facilities


9     (1)
    
    At September 30, 2009, physicians own a portion of all of
    these facilities.(2)
    
    We now consider our operations at the Parkside facility in
    London, consisting of a hospital and an oncology clinic, to be
    two separate entities in our facility count.(3)
    
    We sold our ownership interests in facilities in Las Cruces, New
    Mexico; East Brunswick, New Jersey; Cleveland, Ohio; and
    San Antonio, Texas. We also merged one of our surgery
    centers into one of our surgical hospitals in Oklahoma.  Facility
    Operating Margins
  not-for-profit
   44




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##### Table of Contents



ramp-up
    year-over-year
  Three Months Ended

Increase

Nine Months Ended

IncreaseSeptember 30, 2009

(Decrease)

September 30, 2009

(Decrease)United States facilities(2):With a hospital partner


25.4
%


240
bps


26.1
%


380
bpsWithout a hospital partner


28.4
%


(30)
bps


29.7
%


(20)
bpsTotal U.S. facilities


26.1
%


160
bps


27.0
%


270
bpsUnited Kingdom facilities(3)


22.7
%


(180)
bps


24.6
%


(110)
bps     (1)
    
    Operating margin is calculated as operating income divided by
    total revenues. This table aggregates all of the same store
    facilities we operate using 100% of their results. This does not
    represent the overall margin for USPIs operations in
    either the U.S. or the U.K. because we have a variety of
    ownership levels in the facilities we operate, and facilities
    open for less than a year are excluded from same store
    calculations.(2)
    
    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, adjustments in
    the second quarter of 2008 were excluded for similar reasons, as
    was the unfavorable impact of such an amount which arose during
    the second quarter of 2009.(3)
    
    Calculated using 2009 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 favorable impact of a one-time recovery of
    value-added tax during the second quarter of 2009 has been
    excluded from U.K. same facility operating margins.  Three
    Months Ended September 30, 2009 Compared to Three Months
    Ended September 30, 2008
     45




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##### Table of Contents



46




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##### Table of Contents



Nine
    Months Ended September 30, 2009 Compared to Nine Months
    Ended September 30, 2008
                   47




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##### Table of Contents



Liquidity
    and Capital Resources
  Cash
    Flows
    ,
    Debt
     48




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##### Table of Contents



Senior
    secured credit facility
  sub-facility, sub-facility; buy-up buy-up
      Senior
    subordinated notes
  7 8 1 4 payment-in-kind 1 4
 49




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##### Table of Contents



United
    Kingdom borrowings
        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)

$
515,026


$
5,261


$
10,494


$
10,457


$
488,814Senior subordinated notes, due 2017(1)


240,000















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


197,515















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


60,602



6,907



16,215



37,480



Other debt at operating subsidiaries(1)


26,589



6,275



10,200



5,092



5,022Interest on long-term debt obligations(2)


398,449



62,030



121,534



108,593



106,292Capitalized lease obligations(3)


52,153



7,383



11,771



7,306



25,693Operating lease obligations


71,601



14,993



23,567



14,807



18,234Total contractual cash obligations

$
1,561,935


$
102,849


$
193,781


$
183,735


$
1,081,570     (1)
    
    Scheduled principal payments 50




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##### Table of Contents



(2)
    
    Represents interest due on long-term debt obligations. For
    variable rate debt, the interest is calculated using the
    September 30, 2009 rates applicable to each debt instrument
    and also gives effect to the interest rate swaps designated in a
    cash flow hedging relationship against portions of the U.K.
    credit facility and senior secured credit facility in the U.S.(3)
    
    Includes related principal and interest.  Debt
    at Operating Subsidiaries
            Related
    Party Transactions
     51




---



##### Table of Contents



New
    Accounting Pronouncements
  No. 2009-5, Measuring Liabilities at Fair Value 2009-05). 2009-05 Fair Value Measurements and
    Disclosures. ASU 2009-05 and/or 2009-05 2009-05
  The
    FASB Accounting Standards Codification and the
    Hierarchy of Generally Accepted Accounting Principles FASB
    Accounting Standards Codification
  Amendments to FASB Interpretation No. 46(R) Consolidations
  Subsequent Events Subsequent Events.
  Employers Disclosures about
    Postretirement Benefit Plan Assets Compensation  Retirement
 52




---



##### Table of Contents



ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  variable-to-fixed
            ITEM 4T.
    Controls
    and Procedures  Form 10-Q.
 53




---



##### Table of Contents



PART II 
    OTHER INFORMATION ITEM 1.
    Legal
    Proceedings    ITEM 1B.
    Unresolved
    Staff Comments  Form 10-Q,
  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 2002.31
.2*

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

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

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Filed herewith 54




---



##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser   Executive Vice President
 and Chief Financial Officer
 (Principal Financial Officer)
    By:
    /s/  J.
    Anthony Martin   Vice President, Corporate Controller,
 and Chief Accounting Officer
 (Principal Accounting Officer)
 55




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

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

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

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

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

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Filed herewith. 56