##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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, 2010oro

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

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

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

75001(Zip
    Code)    (972) 713-3500 (Registrants telephone
    number, including area code)
   o þ
   Regulation S-T o o
   Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ

Smaller reporting
    company o(Do not check if a smaller
    reporting company)    Rule 12b-2 o þ
   The number of shares of Common Stock of the Registrant
    outstanding at May 5, 2010 was 100.




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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 StatementsConsolidated 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


24Item 3.


Quantitative and Qualitative Disclosures About
    Market Risk


40Item 4.


Controls and Procedures


41PART II.


Other Information


41Item 1.


Legal Proceedings


41Item 6.


Exhibits


41Signatures


42EX-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 31,2010


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

$
38,791


$
34,890Accounts receivable, net of allowance for doubtful accounts of
    $8,095 and $8,160, respectively


49,595



54,237Other receivables


21,549



15,246Inventories of supplies


8,568



8,789Deferred tax asset, net


15,317



16,400Prepaids and other current assets


15,802



14,382Total current assets


149,622



143,944Property and equipment, net


195,420



198,506Investments in unconsolidated affiliates


353,477



355,499Goodwill


1,264,640



1,279,291Intangible assets, net


321,221



322,896Other assets


29,467



25,256Total assets

$
2,313,847


$
2,325,392LIABILITIES AND EQUITYAccounts payable

$
20,123


$
23,475Accrued salaries and benefits


24,841



33,015Due to affiliates


124,157



129,296Accrued interest


18,760



8,784Current portion of long-term debt


25,559



23,337Other current liabilities


42,351



39,053Total current liabilities


255,791



256,960Long-term debt, less current portion


1,034,496



1,048,191Other long-term liabilities


34,658



32,466Deferred tax liability, net


128,595



125,907Total liabilities


1,453,540



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


67,129



63,865Equity: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


787,059



789,505Accumulated other comprehensive loss


(73,133
)


(58,845
)Retained earnings


39,303



27,292Total USPI stockholders equity


753,229



757,952Noncontrolling interests  non-redeemable (Note 3)


39,949



40,051Total equity


793,178



798,003Total liabilities and equity

$
2,313,847


$
2,325,392    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 31,2010


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

$
122,807


$
134,576Management and contract service revenues


19,743



18,783Other revenues


2,293



3,780Total revenues


144,843



157,139Equity in earnings of unconsolidated affiliates


14,288



13,559Operating expenses:Salaries, benefits, and other employee costs


40,632



42,875Medical services and supplies


25,285



25,753Other operating expenses


23,426



24,297General and administrative expenses


8,548



10,344Provision for doubtful accounts


1,883



2,052Depreciation and amortization


8,298



8,956Total operating expenses


108,072



114,277Operating income


51,059



56,421Interest income


364



466Interest expense


(18,114
)


(18,218
)Other, net (Note 3)


93



(10,064
)Total other expense, net


(17,657
)


(27,816
)Income before income taxes


33,402



28,605Income tax expense


(7,756
)


(6,623
)Net income


25,646



21,982Less: Net income attributable to noncontrolling interests


(13,635
)


(16,295
)Net income attributable to USPIs common stockholder

$
12,011


$
5,687    5




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2010


March 31, 2009(Unaudited  in thousands)Net income

$
25,646


$
21,982Other comprehensive income:Foreign currency translation adjustments


(14,588
)


(4,480
)Unrealized gain (loss) on interest rate swaps, net of tax


300



(63
)Total other comprehensive loss


(14,288
)


(4,543
)Comprehensive income


11,358



17,439Comprehensive income attributable to noncontrolling interests


(13,635
)


(16,295
)Comprehensive income (loss) attributable to USPIs common
    stockholder

$
(2,277
)

$
1,144    6




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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


Income (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    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, 2009
  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, 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


$
36,379    8




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##### Table of Contents



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


Three MonthsEnded


EndedMarch 31, 2010


March 31, 2009Unaudited  in thousands)Cash flows from operating activities:Net income

$
25,646


$
21,982Adjustments to reconcile net income to net cash provided by
    operating activities:Provision for doubtful accounts


1,883



2,052Depreciation and amortization


8,298



8,956Amortization of debt issue costs


790



771Deferred income taxes


3,729



4,621Loss on sales of equity interests and other


419



10,077Equity in earnings of unconsolidated affiliates, net of
    distributions received


1,412



(1,963
)Equity-based compensation


479



442Increases (decreases) in cash from changes in operating assets
    and liabilities, net of effects from purchases of new businesses:Accounts receivable


1,984



(1,707
)Other receivables


(1,117
)


1,691Inventories of supplies, prepaids and other current assets


(2,957
)


(2,109
)Accounts payable and other current liabilities


(1,373
)


7,880Long-term liabilities


224



(393
)Net cash provided by operating activities


39,417



52,300Cash flows from investing activities:Purchases of new businesses and equity interests, net of cash
    received


(1,194
)


(6,034
)Proceeds from sales of businesses and equity interests


1,720



877Purchases of property and equipment


(8,521
)


(5,376
)Returns of capital from unconsolidated affiliates


461



718(Increase) decrease in deposits and notes receivable


(1,503
)


60Net cash used in investing activities


(9,037
)


(9,755
)Cash flows from financing activities:Proceeds from long-term debt


3,089



110Payments on long-term debt


(10,982
)


(8,328
)(Decrease) increase in cash held on behalf of unconsolidated
    affiliates


(5,027
)


44,246Purchases and sales of noncontrolling interests, net


680



(256
)Distributions to noncontrolling interests


(14,154
)


(13,964
)Net cash (used in) provided by financing activities


(26,394
)


21,808Effect of exchange rate changes on cash and cash equivalents


(85
)


(53
)Net increase in cash and cash equivalents


3,901



64,300Cash and cash equivalents at beginning of period


34,890



49,435Cash and cash equivalents at end of period

$
38,791


$
113,735Supplemental information:Interest paid

$
7,420


$
8,607Income taxes paid


1,703



1,381Non-cash transactions:Assets acquired under capital lease obligations

$
1,278


$
1,163    9




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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.
      (2)
    Investments
    in Unconsolidated Affiliates  not-for-profit
 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, 2010


March 31, 2009Unconsolidated facilities operated at period-end


110



106Income statement information:Revenues

$
293,811


$
272,511Operating expenses:Salaries, benefits, and other employee costs


72,221



65,139Medical services and supplies


69,211



61,265Other operating expenses


69,910



64,782Depreciation and amortization


12,979



12,577Total operating expenses


224,321



203,763Operating income


69,490



68,748Interest expense, net


(6,123
)


(6,032
)Other, net


441



354Income before income taxes

$
63,808


$
63,070Balance sheet information:Current assets

$
260,015


$
245,578Noncurrent assets


438,956



404,149Current liabilities


152,105



148,882Noncurrent liabilities


303,139



301,402     (3)
    Noncontrolling
    Interests   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, 2010


March 31, 2009Net income attributable to USPI

$
12,011


$
5,687Transfers to the noncontrolling interests:Decrease in USPIs additional paid-in capital for sales of
    subsidiaries equity interests


(2,950
)


(2,142
)Decrease in USPIs additional paid-in capital for purchases
    of subsidiaries equity interests


(28
)


(453
)Net transfers to noncontrolling interests


(2,978
)


(2,595
)Change in equity from net income attributable to USPI and
    transfers to noncontrolling interests

$
9,033


$
3,092   not-for-profit not-for-profit
     12




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##### Table of Contents



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

$
51,961Net income attributable to noncontrolling interests


15,054Distributions to noncontrolling interests


(13,359
)Purchases of noncontrolling interests


(594
)Sales of noncontrolling interests


3,117Deconsolidation of noncontrolling interests and other


(2,189
)Balance, March 31, 2009

$
53,990   (4)
    Other
    Investments     13




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##### Table of Contents



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




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements (Unaudited) 
    (Continued)
            (6)
    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)
      (7)
    Equity-Based
    Compensation        Three Months


Three MonthsEnded


EndedMarch 31, 2010


March 31, 2009Salaries, benefits and other employee costs

$
204


$
201General and administrative expenses


275



241Expense before income tax benefit


479



442Income tax benefit


(101
)


(93
)Total equity-based compensation expense, net of tax

$
378


$
349     Three Months


Three MonthsEnded


EndedMarch 31, 2010


March 31, 2009Share awards

$
318


$
285Stock options


161



157Expense before income tax benefit


479



442Income tax benefit


(101
)


(93
)Total equity-based compensation expense, net of tax

$
378


$
349  16




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements (Unaudited) 
    (Continued)
  (8)
    Segment
    Disclosures    United


UnitedThree Months Ended March 31, 2010

States


Kingdom


TotalNet patient service revenues

$
96,460


$
26,347


$
122,807Other revenues


22,036







22,036Total revenues

$
118,496


$
26,347


$
144,843Depreciation and amortization

$
6,631


$
1,667


$
8,298Operating income


46,702



4,357



51,059Net interest expense


(16,397
)


(1,353
)


(17,750
)Income tax expense


(6,941
)


(815
)


(7,756
)Total assets


2,004,793



309,054



2,313,847Capital expenditures


4,628



5,171



9,799   United


UnitedThree Months Ended March 31, 2009

States


Kingdom


TotalNet patient service revenues

$
110,203


$
24,373


$
134,576Other revenues


22,563







22,563Total revenues

$
132,766


$
24,373


$
157,139Depreciation and amortization

$
7,516


$
1,440


$
8,956Operating income


50,967



5,454



56,421Net interest expense


(17,020
)


(732
)


(17,752
)Income tax expense


(5,247
)


(1,376
)


(6,623
)Total assets


2,023,438



280,392



2,303,830Capital expenditures


4,797



1,742



6,539   (9)
    Related
    Party Transactions  long-term
  (10)
    Commitments
    and Contingencies   17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Notes to
    Consolidated Financial Statements (Unaudited) 
    (Continued)
      (11)
    Subsequent
    Events    (12)
    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, 2010

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
31,848


$
6,943


$



$
38,791Accounts receivable, net






49,560



35



49,595Other receivables


44,600



43,903



(66,954
)


21,549Inventories of supplies


416



8,152







8,568Prepaids and other current assets


27,805



3,314







31,119Total current assets


104,669



111,872



(66,919
)


149,622Property and equipment, net


15,574



179,449



397



195,420Investments in unconsolidated affiliates


973,292







(619,815
)


353,477Goodwill and intangible assets, net


891,771



339,673



354,417



1,585,861Other assets


98,970



3,376



(72,879
)


29,467Total assets

$
2,084,276


$
634,370


$
(404,799
)

$
2,313,847LIABILITIES AND EQUITYCurrent liabilities:Accounts payable

$
935


$
19,188


$



$
20,123Accrued expenses and other


227,448



48,110



(65,449
)


210,109Current portion of long-term debt


5,491



22,150



(2,082
)


25,559Total current liabilities


233,874



89,448



(67,531
)


255,791Long-term debt, less current portion


945,990



111,160



(22,654
)


1,034,496Other long-term liabilities


151,183



12,833



(763
)


163,253Parents equity


753,229



400,675



(400,675
)


753,229Noncontrolling interests






20,254



86,824



107,078Total liabilities and equity

$
2,084,276


$
634,370


$
(404,799
)

$
2,313,847   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, 2009

Guarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
27,430


$
7,460


$



$
34,890Accounts receivable, net






54,202



35



54,237Other receivables


46,975



45,776



(77,505
)


15,246Inventories of supplies


428



8,361







8,789Prepaids and other current assets


26,264



4,518







30,782Total current assets


101,097



120,317



(77,470
)


143,944Property and equipment, net


16,197



181,857



452



198,506Investments in unconsolidated affiliates


1,027,814







(672,315
)


355,499Goodwill and intangible assets, net


857,802



353,212



391,173



1,602,187Other assets


96,205



2,213



(73,162
)


25,256Total assets

$
2,099,115


$
657,599


$
(431,322
)

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

$
1,396


$
22,079


$



$
23,475Accrued expenses and other


235,904



50,200



(75,956
)


210,148Current portion of long-term debt


5,480



20,116



(2,259
)


23,337Total current liabilities


242,780



92,395



(78,215
)


256,960Long-term debt, less current portion


952,311



118,892



(23,012
)


1,048,191Other long-term liabilities


146,072



13,122



(821
)


158,373Parents equity


757,952



412,362



(412,362
)


757,952Noncontrolling interests






20,828



83,088



103,916Total liabilities and equity

$
2,099,115


$
657,599


$
(431,322
)

$
2,325,392  20




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##### Table of Contents



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


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2010

Guarantors


Investees


Adjustments


TotalRevenues

$
22,808


$
127,373


$
(5,338
)

$
144,843Equity in earnings of unconsolidated affiliates


28,518



646



(14,876
)


14,288Operating expenses, excluding depreciation and amortization


16,261



88,868



(5,355
)


99,774Depreciation and amortization


1,792



6,450



56



8,298Operating income


33,273



32,701



(14,915
)


51,059Interest expense, net


(14,990
)


(2,632
)


(128
)


(17,750
)Other income (expense), net


138



(860
)


815



93Income before income taxes


18,421



29,209



(14,228
)


33,402Income tax expense


(6,410
)


(1,346
)






(7,756
)Net 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   Non-Participating


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2009

Guarantors


Investees


Adjustments


TotalRevenues

$
24,291


$
138,639


$
(5,791
)

$
157,139Equity in earnings of unconsolidated affiliates


32,659



943



(20,043
)


13,559Operating expenses, excluding depreciation and amortization


19,801



91,319



(5,799
)


105,321Depreciation and amortization


1,778



7,067



111



8,956Operating income


35,371



41,196



(20,146
)


56,421Interest expense, net


(15,180
)


(2,737
)


165



(17,752
)Other income (expense), net


(9,995
)


9



(78
)


(10,064
)Income before income taxes


10,196



38,468



(20,059
)


28,605Income tax expense


(4,509
)


(2,114
)






(6,623
)Net income


5,687



36,354



(20,059
)


21,982Less: Net income attributable to noncontrolling interests






(2,404
)


(13,891
)


(16,295
)Net income attributable to Parent

$
5,687


$
33,950


$
(33,950
)

$
5,687  21




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##### Table of Contents



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


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2010

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
12,011


$
27,863


$
(14,228
)

$
25,646Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


4,712



7,151



1,908



13,771Net cash provided by operating activities


16,723



35,014



(12,320
)


39,417Cash flows from investing activities:Purchases of property and equipment, net


(715
)


(7,806
)






(8,521
)Purchases and sales of new businesses and equity interests, net


526











526Other items, net


(452
)


948



(1,538
)


(1,042
)Net cash used in investing activities


(641
)


(6,858
)


(1,538
)


(9,037
)Cash flows from financing activities:Long-term borrowings, net


(6,316
)


(1,798
)


221



(7,893
)Purchases and sales of noncontrolling interests, net


627



53







680Distributions to noncontrolling interests






(26,474
)


12,320



(14,154
)Decrease in cash held on behalf of noncontrolling interest
    holders


(5,975
)


(369
)


1,317



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


(11,664
)


(28,588
)


13,858



(26,394
)Effect 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



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


Consolidation


ConsolidatedFor the Three Months Ended March 31, 2009

Guarantors


Investees


Adjustments


TotalCash flows from operating activities:Net income

$
5,687


$
36,354


$
(20,059
)

$
21,982Changes in operating and intercompany assets and liabilities and
    noncash items included in net income


14,397



(4,138
)


20,059



30,318Net cash provided by operating activities


20,084



32,216







52,300Cash flows from investing activities:Purchases of property and equipment, net


(1,675
)


(3,701
)






(5,376
)Purchases and sales of new businesses and equity interests, net


(5,255
)


98







(5,157
)Other items, net


380



2,391



(1,993
)


778Net cash used in investing activities


(6,550
)


(1,212
)


(1,993
)


(9,755
)Cash flows from financing activities:Long-term borrowings, net


(3,801
)


(4,724
)


307



(8,218
)Purchases and sales of noncontrolling interests, net


(256
)










(256
)Distributions to noncontrolling interests


13,100



(27,064
)






(13,964
)Increase in cash held on behalf of noncontrolling interest
    holders and other


41,855



705



1,686



44,246Net cash provided by (used in) financing activities


50,898



(31,083
)


1,993



21,808Effect of exchange rate changes on cash






(53
)






(53
)Net increase (decrease) in cash


64,432



(132
)






64,300Cash at the beginning of the period


42,025



7,410







49,435Cash at the end of the period

$
106,457


$
7,278


$



$
113,735  23




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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
     24




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##### Table of Contents



Critical
    Accounting Policies and Estimates
    not-for-profit
   25




---



##### Table of Contents



Equity
    Investments and Development Projects
      Deconsolidations
  not-for-profit
        Sources
    of Revenue
    
    net patient service revenues of the facilities that we
    consolidate for financial reporting purposes, which are
    typically those facilities in which we have ownership interests
    of greater than 50% or otherwise maintain effective control. 26




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##### Table of Contents




    management and contract service revenues, consisting of the fees
    that we earn from managing the facilities that we do not
    consolidate for financial reporting purposes and the fees we
    earn from providing certain consulting and administrative
    services to physicians and hospitals. Our consolidated revenues
    and expenses do not include the management fees we earn from
    operating the facilities that we consolidate for financial
    reporting purposes as those fees are charged to subsidiaries and
    thus eliminate in consolidation.    Three MonthsEndedMarch 31,2010

2009Net patient service revenues


85
%


86
%Management and contract service revenues


14



12Other revenues


1



2Total revenues


100
%


100
%       Three MonthsEndedMarch 31,2010


2009Management of surgical facilities

$
12,550


$
11,181Contract services provided to hospitals, physicians, and related
    entities


7,193



7,602Total management and contract service revenues

$
19,743


$
18,783       Three MonthsEndedMarch 31,2010


2009United States


82
%


84
%United Kingdom


18



16Total


100
%


100
%    27




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##### Table of Contents



Results
    of Operations
    Three MonthsEndedMarch 31,USPI

2010

2009Total revenues


100.0
%


100.0
%Equity in earnings of unconsolidated affiliates


9.9



8.6Operating expenses, excluding depreciation and amortization


(68.9
)


(67.0
)Depreciation and amortization


(5.7
)


(5.7
)Operating income


35.3



35.9Interest and other expense, net


(12.2
)


(17.7
)Income from continuing operations before income taxes


23.1



18.2Income tax expense


(5.4
)


(4.2
)Net income


17.7



14.0Less: Net income attributable to the noncontrolling interests


(9.4
)


(10.4
)Net income attributable to USPIs common stockholder


8.3
%


3.6
%     Three MonthsEndedMarch 31,USPIs Unconsolidated Affiliates

2010

2009Revenues


100.0
%


100.0
%Operating expenses:Salaries, benefits, and other employee costs


(24.5
)


(23.9
)Medical services and supplies


(23.6
)


(22.5
)Other operating expenses


(23.8
)


(23.8
)Depreciation and amortization


(4.4
)


(4.6
)Total operating expenses


(76.3
)


(74.8
)Operating income


23.7



25.2Interest expense, net


(2.1
)


(2.2
)Other, net


0.1



0.1Income before income taxes


21.7



23.1Income tax expense


(0.6
)


(0.6
)Net income


21.1
%


22.5
%   Executive
    Summary
   28




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##### Table of Contents



Our
    Business and Key Measures
    
    management services revenues, computed as a percentage of each
    facilitys net revenues (often net of bad debt
    expense); and
    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.     29




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##### Table of Contents




    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.    
    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  Our
    Consolidated and Unconsolidated Results
    Three Months Ended March 31,2010


2009


Variance to Prior YearUSPI as





USPI as





USPI asReported





Reported





ReportedUnder


Unconsolidated


Under


Unconsolidated


Under


UnconsolidatedGAAP


Affiliates


GAAP


Affiliates


GAAP


AffiliatesRevenues:Net patient service revenues

$
122,807


$
293,292


$
134,576


$
271,792


$
(11,769
)

$
21,500Management and contract service revenues


19,743







18,783







960



Other income


2,293



519



3,780



719



(1,487
)


(200
)Total revenues


144,843



293,811



157,139



272,511



(12,296
)


21,300Equity in earnings of unconsolidated affiliates


14,288







13,559







729



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


40,632



72,221



42,875



65,139



(2,243
)


7,082Medical services and supplies


25,285



69,211



25,753



61,265



(468
)


7,946Other operating expenses


23,426



63,507



24,297



59,389



(871
)


4,118General and administrative expenses


8,548







10,344







(1,796
)


Provision for doubtful accounts


1,883



6,403



2,052



5,393



(169
)


1,010Depreciation and amortization


8,298



12,979



8,956



12,577



(658
)


402Total operating expenses


108,072



224,321



114,277



203,763



(6,205
)


20,558 30




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##### Table of Contents



Three Months Ended March 31,2010


2009


Variance to Prior YearUSPI as





USPI as





USPI asReported





Reported





ReportedUnder


Unconsolidated


Under


Unconsolidated


Under


UnconsolidatedGAAP


Affiliates


GAAP


Affiliates


GAAP


AffiliatesOperating income


51,059



69,490



56,421



68,748



(5,362
)


742Interest income


364



101



466



184



(102
)


(83
)Interest expense


(18,114
)


(6,224
)


(18,218
)


(6,216
)


104



(8
)Other


93



441



(10,064
)


354



10,157



87Total other expense, net


(17,657
)


(5,682
)


(27,816
)


(5,678
)


10,159



(4
)Income before income taxes


33,402



63,808



28,605



63,070



4,797



738Income tax expense


(7,756
)


(1,813
)


(6,623
)


(1,694
)


(1,133
)


(119
)Net income


25,646


$
61,995



21,982


$
61,376



3,664


$
619Less: Net income attributable to noncontrolling interests


(13,635
)






(16,295
)






2,660Net income attributable to USPIs common stockholder

$
12,011






$
5,687






$
6,324USPIs equity in earnings of unconsolidated affiliates





$
14,288






$
13,559






$
729     Three MonthsEndedMarch 31,2010

2009Long-term debt

$
295,048


$
289,945USPIs imputed weighted average ownership percentage based
    on affiliates pre-tax income(1)


22.4
%


21.5
%USPIs imputed weighted average ownership percentage based
    on affiliates debt(2)


24.8
%


25.2
%Unconsolidated facilities operated at period end


110



106     (1)
    
    Our weighted average percentage ownership in our unconsolidated
    affiliates is calculated as USPIs equity in earnings of
    unconsolidated affiliates divided by the total net income of
    unconsolidated affiliates for each respective period. This is a
    non-GAAP measure but management believes it provides further
    useful information about 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.   31




---



##### Table of Contents



Our
    Ownership Interests in the Facilities We Operate
    Three Months



Three MonthsEnded

Year Ended

EndedMarch 31,

December 31,

March 31,2010

2009

2009Unconsolidated facilities(1)


22.4
%


21.5
%


21.5
%Consolidated facilities(2)


44.9
%


48.1
%


49.4
%Total(3)


28.7
%


29.4
%


30.9
%     (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).     32




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##### Table of Contents



Revenues
    Three Months EndedMarch 31, 2010USPI asReported Under


UnconsolidatedGAAP


AffiliatesTotal revenues, three months ended March 31, 2009

$
157,139


$
272,511Add: revenue from acquired facilities


1,622



6,253Less: revenue of disposed facilities






(5,864
)Less: revenue of deconsolidated facilities


(7,686
)


7,686Impact of exchange rate


2,114



Adjusted base period


153,189



280,586(Decrease) increase from operations


(6,732
)


11,542Other


(1,614
)


1,683Total revenues, three months ended March 31, 2010

$
144,843


$
293,811     Facility
    Growth
       33




---



##### Table of Contents



Three MonthsEndedMarch 31, 2010United States facilities:Net revenue


2
%Surgical cases


(2
)%Net revenue per case(1)


4
%United Kingdom facilities:Adjusted admissions


4
%Net revenue using actual exchange rates


9
%Net revenue using constant exchange rates(2)


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


2
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    for the first quarter of 2010 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 1% during the first quarter of 2010.(2)
    
    Calculated using 2010 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business.  Joint
    Ventures With Not-For-Profit Hospitals
      March 31,

March 31,2010

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


111



103Without a hospital partner


54



61Total U.S. facilities


165



164United Kingdom facilities


4



4Total facilities operated


169



168Change from March 31, 2009:De novo (newly constructed)


4Acquisition


3Disposals/Mergers(2)


(6
)Total increase in number of facilities


1  34




---



##### Table of Contents



(1)
    
    At March 31, 2010, physicians own a portion of all of these
    facilities.(2)
    
    We sold our ownership interests in facilities in Cleveland,
    Ohio; San Antonio, Texas; Baton Rouge, Louisiana; and
    Oxnard, California. We merged one of our surgery centers into
    one of our surgical hospitals in Oklahoma, and also merged two
    of our surgery centers into one location in Ohio.  Facility
    Operating Margins
    ramp-up
      Three Months EndedMarch 31, 2010


DecreaseUnited States facilities:With a hospital partner


23.7
%


(190
) bpsWithout a hospital partner


30.5
%


(350
) bpsTotal U.S. facilities


25.2
%


(240
) bpsUnited Kingdom facilities(2)


25.4
%


(220
) bps     (1)
    
    Operating margin is calculated as operating income divided by
    total revenues. This table aggregates all of the same store
    facilities we operate using 100% of their results. This does not
    represent the overall margin for USPIs operations in
    either the U.S. or the U.K. because we have a variety of
    ownership levels in the facilities we operate, and facilities
    open for less than a year are excluded from same store
    calculations.(2)
    
    Calculated using 2010 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business. In addition, the
    $1.0 million unfavorable impact of a payment of value-added
    tax has been excluded from U.K. same facility operating margins.  Three
    Months Ended March 31, 2010 Compared to Three Months Ended
    March 31, 2009
   35




---



##### Table of Contents



Liquidity
    and Capital Resources
  Cash
    Flows
  ,
 36




---



##### Table of Contents



Debt
      Senior
    secured credit facility
     37




---



##### Table of Contents



Senior
    subordinated notes
  7 8 1 4 payment-in-kind 1 4
  United
    Kingdom borrowings
     38




---



##### 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)

$
512,394


$
5,265


$
10,530


$
496,599


$
Senior subordinated notes, due 2017(1)


240,000















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


197,515















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


57,107



6,554



14,127



36,426



Other debt at operating subsidiaries(1)


23,138



6,297



8,297



4,112



4,432Interest on long-term debt obligations(2)


367,386



61,558



120,784



98,728



86,316Capitalized lease obligations(3)


50,297



7,727



11,409



7,080



24,081Operating lease obligations


90,683



13,785



25,946



18,455



32,497Total contractual cash obligations

$
1,538,520


$
101,186


$
191,093


$
661,400


$
584,841     (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, 2010 rates applicable to each debt instrument and
    also gives effect to the interest rate swaps designated in a
    cash flow hedging relationship against portions of the U.K.
    credit facility and the senior secured credit facility in the
    U.S.(3)
    
    Includes principal and interest.  Debt
    at Operating Subsidiaries
     39




---



##### Table of Contents



Related
    Party Transactions
  long-term
  ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk             40




---



##### Table of Contents



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

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

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

Indenture governing
    87/8% Senior
    Subordinated Notes due 2017 and
    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. 41




---



##### 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)
 42




---



##### 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. 43