UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
333-144337
United Surgical Partners
International, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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75-2749762
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(State or other jurisdiction
of
incorporation or organization)
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(IRS Employer
Identification Number)
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15305 Dallas Parkway, Suite 1600
Addison, Texas
(Address of principal
executive offices)
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75001
(Zip
Code)
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(972) 713-3500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of shares of Common Stock of the Registrant
outstanding at November 9, 2010 was 100.
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Note: Items 1A, 2, 3, 4, and 5 of Part II are omitted
because they are not applicable.
2
PART I.
FINANCIAL INFORMATION
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ITEM 1.
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Financial
Statements
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Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
United Surgical Partners International, Inc.:
We have reviewed the accompanying consolidated balance sheet of
United Surgical Partners International, Inc. and subsidiaries
(the Company) as of September 30, 2010, the related
consolidated statements of income, comprehensive income and
changes in equity for the three-month and nine-month periods
ended September 30, 2010 and 2009, and the related
consolidated statements of cash flows for the nine-month periods
ended September 30, 2010 and 2009. These consolidated
financial statements are the responsibility of the
Companys management.
We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
Dallas, Texas
November 9, 2010
3
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September 30,
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December 31,
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2010
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2009
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(Unaudited)
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(In thousands except share
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data)
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ASSETS
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Cash and cash equivalents
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$
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60,726
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$
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34,890
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Accounts receivable, net of allowance for doubtful accounts of
$8,422 and $8,160, respectively
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48,087
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54,237
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Other receivables
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20,140
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15,246
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Inventories of supplies
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8,951
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8,789
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Deferred tax asset, net
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11,101
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16,400
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Prepaids and other current assets
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10,593
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14,382
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Total current assets
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159,598
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143,944
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Property and equipment, net
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215,753
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198,506
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Investments in unconsolidated affiliates
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347,120
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355,499
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Goodwill
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1,278,615
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1,279,291
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Intangible assets, net
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323,210
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322,896
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Other assets
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26,363
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25,256
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Total assets
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$
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2,350,659
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$
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2,325,392
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LIABILITIES AND EQUITY
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Accounts payable
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$
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21,701
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$
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23,475
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Accrued salaries and benefits
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22,654
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33,015
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Due to affiliates
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109,175
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129,296
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Accrued interest
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18,673
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8,784
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Current portion of long-term debt
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29,014
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23,337
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Other current liabilities
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50,214
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39,053
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Total current liabilities
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251,431
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256,960
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Long-term debt, less current portion
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1,036,647
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1,048,191
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Other long-term liabilities
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27,206
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32,466
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Deferred tax liability, net
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135,314
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125,907
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Total liabilities
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1,450,598
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1,463,524
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Noncontrolling interests redeemable (Note 3)
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71,995
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63,865
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Commitments and contingencies (Note 11)
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Equity:
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United Surgical Partners International, Inc. (USPI)
stockholders equity:
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Common stock, $0.01 par value; 100 shares authorized,
issued and outstanding
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Additional paid-in capital
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784,867
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789,505
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Accumulated other comprehensive loss
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(62,929
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)
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(58,845
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)
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Retained earnings
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66,188
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27,292
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Total USPI stockholders equity
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788,126
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757,952
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Noncontrolling interests nonredeemable (Note 3)
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39,940
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40,051
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Total equity
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828,066
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798,003
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Total liabilities and equity
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$
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2,350,659
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$
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2,325,392
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See accompanying notes to consolidated financial statements.
4
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Three Months
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Three Months
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Ended
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Ended
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September 30,
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September 30,
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2010
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2009
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(Unaudited in thousands)
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Revenues:
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Net patient service revenues
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$
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126,061
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$
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129,588
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Management and contract service revenues
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21,012
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19,521
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Other revenues
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1,717
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3,272
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Total revenues
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148,790
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152,381
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Equity in earnings of unconsolidated affiliates
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17,247
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14,913
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Operating expenses:
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Salaries, benefits, and other employee costs
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42,763
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44,223
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Medical services and supplies
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24,347
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25,451
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Other operating expenses
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28,926
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21,210
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General and administrative expenses
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9,626
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9,609
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Provision for doubtful accounts
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2,032
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2,674
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Depreciation and amortization
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8,294
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8,745
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Total operating expenses
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115,988
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111,912
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Operating income
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50,049
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55,382
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Interest income
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212
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520
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Interest expense
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(17,333
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)
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(17,589
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)
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Other, net
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476
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(8,925
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)
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Total other expense, net
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(16,645
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)
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(25,994
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)
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Income before income taxes
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33,404
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29,388
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Income tax (expense) benefit (Note 7)
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(7,247
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)
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24,123
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Net income
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26,157
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53,511
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Less: Net income attributable to noncontrolling interests
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(14,309
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)
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(14,807
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)
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Net income attributable to USPIs common stockholder
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$
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11,848
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$
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38,704
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See accompanying notes to consolidated financial statements.
5
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
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Nine Months
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Nine Months
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Ended
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Ended
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September 30,
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September 30,
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2010
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2009
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(Unaudited in thousands)
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Revenues:
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Net patient service revenues
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$
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377,477
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$
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396,979
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Management and contract service revenues
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61,232
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57,573
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Other revenues
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5,135
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11,335
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Total revenues
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443,844
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465,887
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Equity in earnings of unconsolidated affiliates
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49,754
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43,110
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Operating expenses:
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Salaries, benefits, and other employee costs
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124,226
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130,089
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Medical services and supplies
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74,203
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76,019
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Other operating expenses
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76,817
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69,904
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General and administrative expenses
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|
27,295
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29,708
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Provision for doubtful accounts
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|
6,351
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7,553
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Depreciation and amortization
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25,080
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26,610
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|
|
|
|
|
|
|
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Total operating expenses
|
|
|
333,972
|
|
|
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339,883
|
|
|
|
|
|
|
|
|
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Operating income
|
|
|
159,626
|
|
|
|
169,114
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|
Interest income
|
|
|
638
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|
|
|
2,261
|
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Interest expense
|
|
|
(53,069
|
)
|
|
|
(53,384
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)
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Other, net (Note 3)
|
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|
304
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|
|
|
(19,145
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)
|
|
|
|
|
|
|
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Total other expense, net
|
|
|
(52,127
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)
|
|
|
(70,268
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)
|
|
|
|
|
|
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|
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Income before income taxes
|
|
|
107,499
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|
|
|
98,846
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Income tax (expense) benefit (Note 7)
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(24,674
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)
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9,504
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|
|
|
|
|
|
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|
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Net income
|
|
|
82,825
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|
|
|
108,350
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Less: Net income attributable to noncontrolling interests
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(43,079
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)
|
|
|
(47,207
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)
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|
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|
|
|
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Net income attributable to USPIs common stockholder
|
|
$
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39,746
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$
|
61,143
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|
See accompanying notes to consolidated financial statements.
6
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|
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|
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|
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Three Months
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Three Months
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Ended
|
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Ended
|
|
|
|
September 30,
|
|
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September 30,
|
|
|
|
2010
|
|
|
2009
|
|
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|
(Unaudited in thousands)
|
|
|
Net income
|
|
$
|
26,157
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|
|
$
|
53,511
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Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
11,857
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|
|
|
(6,538
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)
|
Unrealized gain on interest rate swaps, net of tax
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|
|
792
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|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
12,649
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|
|
|
(4,261
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
38,806
|
|
|
|
49,250
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|
Less: Comprehensive income attributable to noncontrolling
interests
|
|
|
(14,309
|
)
|
|
|
(14,807
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)
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to USPIs common
stockholder
|
|
$
|
24,497
|
|
|
$
|
34,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited in thousands)
|
|
|
Net income
|
|
$
|
82,825
|
|
|
$
|
108,350
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(6,294
|
)
|
|
|
19,625
|
|
Unrealized gain on interest rate swaps, net of tax
|
|
|
2,210
|
|
|
|
3,179
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(4,084
|
)
|
|
|
22,804
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
78,741
|
|
|
|
131,154
|
|
Less: Comprehensive income attributable to noncontrolling
interests
|
|
|
(43,079
|
)
|
|
|
(47,207
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to USPIs common
stockholder
|
|
$
|
35,662
|
|
|
$
|
83,947
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USPIs Common Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Comprehensive
|
|
|
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, 2009
|
|
$
|
798,003
|
|
|
$
|
|
|
|
|
100
|
|
|
$
|
|
|
|
$
|
789,505
|
|
|
$
|
(58,845
|
)
|
|
$
|
27,292
|
|
|
$
|
40,051
|
|
Distributions to noncontrolling interests
|
|
|
(1,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,702
|
)
|
Purchases of noncontrolling interests
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
Sales of noncontrolling interests
|
|
|
(2,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,950
|
)
|
|
|
|
|
|
|
|
|
|
|
153
|
|
Contribution related to equity award grants by USPI Group
Holdings, Inc. and other
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
13,518
|
|
|
|
12,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,011
|
|
|
|
1,507
|
|
Other 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
|
793,178
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
787,059
|
|
|
|
(73,133
|
)
|
|
|
39,303
|
|
|
|
39,949
|
|
Distributions to noncontrolling interests
|
|
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,450
|
)
|
Purchases of noncontrolling interests
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Sales of noncontrolling interests
|
|
|
(919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,496
|
)
|
|
|
|
|
|
|
|
|
|
|
577
|
|
Contribution related to equity award grants by USPI Group
Holdings, Inc. and other
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend to USPI Holdings/USPI Group Holdings
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(850
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
17,058
|
|
|
|
15,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,887
|
|
|
|
1,171
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swaps, net of tax
|
|
|
1,118
|
|
|
|
1,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(3,563
|
)
|
|
|
(3,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
(2,445
|
)
|
|
|
(2,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
14,613
|
|
|
$
|
13,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
|
804,882
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
785,900
|
|
|
|
(75,578
|
)
|
|
|
54,340
|
|
|
|
40,220
|
|
Distributions to noncontrolling interests
|
|
|
(1,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,565
|
)
|
Purchases of noncontrolling interests
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
208
|
|
Sales of noncontrolling interests
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Contribution related to equity award grants by USPI Group
Holdings, Inc. and other
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,976
|
|
|
|
11,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,848
|
|
|
|
1,128
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swaps, net of tax
|
|
|
792
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
11,857
|
|
|
|
11,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
12,649
|
|
|
|
12,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
25,625
|
|
|
$
|
24,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
$
|
828,006
|
|
|
|
|
|
|
|
100
|
|
|
$
|
|
|
|
$
|
784,867
|
|
|
$
|
(62,929
|
)
|
|
$
|
66,188
|
|
|
$
|
39,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
8
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
For the Three Months and Nine Months Ended
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USPI Common Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Comprehensive
|
|
|
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
|
|
|
$
|
41,827
|
|
Distributions 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
|
|
|
|
1,228
|
|
Other 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
799,527
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
799,769
|
|
|
|
(88,551
|
)
|
|
|
51,930
|
|
|
|
36,379
|
|
Distributions to noncontrolling interests
|
|
|
(962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(962
|
)
|
Purchases of noncontrolling interests
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
Sales of noncontrolling interests
|
|
|
(1,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,953
|
)
|
|
|
|
|
|
|
|
|
|
|
49
|
|
Contribution related to equity award grants by USPI Group
Holdings, Inc. and other
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
18,314
|
|
|
|
16,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,752
|
|
|
|
1,562
|
|
Other 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
846,790
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
798,041
|
|
|
|
(56,943
|
)
|
|
|
68,682
|
|
|
|
37,010
|
|
Distributions to noncontrolling interests
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
Purchases of noncontrolling interests
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Sales of noncontrolling interests
|
|
|
(1,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,770
|
)
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Deconsolidation 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
|
|
|
|
1,085
|
|
Other 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
$
|
878,551
|
|
|
|
|
|
|
|
100
|
|
|
$
|
|
|
|
$
|
796,708
|
|
|
$
|
(61,204
|
)
|
|
$
|
107,386
|
|
|
$
|
35,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
9
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82,825
|
|
|
$
|
108,350
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
6,351
|
|
|
|
7,553
|
|
Depreciation and amortization
|
|
|
25,080
|
|
|
|
26,610
|
|
(Gain) loss on sale of equity interests and other
|
|
|
(519
|
)
|
|
|
12,778
|
|
Loss on impairment of intangible assets
|
|
|
1,004
|
|
|
|
4,370
|
|
Amortization of debt issue costs and discount
|
|
|
2,429
|
|
|
|
2,517
|
|
Deferred income tax expense (benefit)
|
|
|
14,054
|
|
|
|
(16,795
|
)
|
Equity in earnings of unconsolidated affiliates, net of
distributions received
|
|
|
7,633
|
|
|
|
(4,499
|
)
|
Equity-based compensation
|
|
|
1,383
|
|
|
|
1,463
|
|
Increases (decreases) in cash from changes in operating assets
and liabilities, net of effects from purchases of new businesses:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(168
|
)
|
|
|
(5,832
|
)
|
Other receivables
|
|
|
(181
|
)
|
|
|
2,330
|
|
Inventories of supplies, prepaids and other current assets
|
|
|
2,711
|
|
|
|
(1,607
|
)
|
Accounts payable and other current liabilities
|
|
|
(1,852
|
)
|
|
|
6,563
|
|
Long-term liabilities
|
|
|
1,387
|
|
|
|
1,378
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
142,137
|
|
|
|
145,179
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of new businesses and equity interests, net of cash
received
|
|
|
(15,266
|
)
|
|
|
(12,855
|
)
|
Proceeds from sale of equity interests
|
|
|
9,953
|
|
|
|
2,091
|
|
Purchases of property and equipment
|
|
|
(29,173
|
)
|
|
|
(17,016
|
)
|
Returns of capital from unconsolidated affiliates
|
|
|
870
|
|
|
|
2,613
|
|
Increase in deposits and notes receivable
|
|
|
(1,132
|
)
|
|
|
(3,686
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(34,748
|
)
|
|
|
(28,853
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
13,032
|
|
|
|
761
|
|
Payments on long-term debt
|
|
|
(29,615
|
)
|
|
|
(20,404
|
)
|
(Decrease) increase in cash held on behalf of unconsolidated
affiliates and other
|
|
|
(21,248
|
)
|
|
|
55,887
|
|
Sales of noncontrolling interests, net
|
|
|
1,228
|
|
|
|
1,791
|
|
Distributions to noncontrolling interests
|
|
|
(45,133
|
)
|
|
|
(47,435
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(81,736
|
)
|
|
|
(9,400
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
183
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
25,836
|
|
|
|
107,108
|
|
Cash and cash equivalents at beginning of period
|
|
|
34,890
|
|
|
|
49,435
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
60,726
|
|
|
$
|
156,543
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
42,624
|
|
|
$
|
43,771
|
|
Income taxes paid
|
|
|
7,521
|
|
|
|
6,556
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Assets acquired under capital lease obligations
|
|
$
|
12,562
|
|
|
$
|
1,863
|
|
Receipt of note receivable for sale of equity interests
|
|
|
|
|
|
|
980
|
|
See accompanying notes to consolidated financial statements
10
|
|
(1)
|
Basis of
Presentation
|
|
|
(a)
|
Description
of Business
|
United Surgical Partners International, Inc., a Delaware
Corporation, and subsidiaries (USPI or the Company) was formed
in February 1998 for the primary purpose of ownership and
operation of ambulatory surgery centers, hospitals and related
businesses in the United States and Europe. At
September 30, 2010, the Company, headquartered in Dallas,
Texas, operated 174 short-stay surgical facilities. Of these 174
facilities, the Company consolidates the results of 60 and
accounts for 114 under the equity method. The Company operates
in two countries, with 170 of its 174 facilities located in the
United States of America; the remaining four facilities are
located in the United Kingdom. The majority of the
Companys U.S. facilities are jointly owned with local
physicians and a
not-for-profit
healthcare system that has other healthcare businesses in the
region. At September 30, 2010, the Company had agreements
with
not-for-profit
healthcare systems providing for joint ownership of 117 of the
Companys 170 U.S. facilities and also providing a
framework for the planning and construction of additional
facilities in the future. All of the Companys
U.S. facilities include physician owners.
Global Healthcare Partners Limited (Global), a USPI subsidiary
incorporated in England, manages and owns three hospitals and an
oncology center in the greater London area.
The Companys business is subject to various risks,
including changes in government and commercial reimbursement,
changes in healthcare regulations and the impact of healthcare
reform.
The Company maintains its books and records on the accrual basis
of accounting, and the accompanying consolidated financial
statements are prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). The
accompanying consolidated financial statements and notes should
be read in conjunction with the Companys December 31,
2009
Form 10-K.
It is managements opinion that the accompanying
consolidated financial statements reflect all adjustments
necessary for a fair presentation of the results for the periods
presented. The results of operations for any interim period are
not necessarily indicative of results for the full year. As
discussed in Note 7, the Companys results of
operations for the three months ended September 30, 2009
include a tax benefit of $31.5 million related to the
reversal of the majority of its deferred income tax asset
allowance during the third quarter of 2009.
The preparation of financial statements in conformity with GAAP
requires management to make a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
|
|
(2)
|
Investments
in Unconsolidated Affiliates and Business Combinations
|
The Companys U.S. facilities are generally operated
through separate legal entities in which the Company holds an
equity interest. Other investors include physicians who utilize
the facility and, in many cases, a
not-for-profit
health system that has other healthcare businesses in the region.
The Company controls 56 of these entities and therefore
consolidates their results. However, the Company accounts for an
increasing majority (114 of its 170 U.S. facilities at
September 30, 2010) as investments in unconsolidated
affiliates, i.e., under the equity method, as the Companys
level of influence is significant but does not reach the
threshold of controlling the entity, as that concept is defined
under GAAP. The majority of these investees are partnerships or
limited liability companies, which require the associated tax
benefit or expense to be recorded by the partners or members.
Summarized financial information for the Companys equity
method
11
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
investees on a combined basis is as follows (amounts are in
thousands, except number of facilities, reflect 100% of the
investees results on an aggregated basis and are
unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Unconsolidated facilities operated at period-end
|
|
|
114
|
|
|
|
106
|
|
|
|
114
|
|
|
|
106
|
|
Income statement information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
328,879
|
|
|
$
|
293,207
|
|
|
$
|
948,350
|
|
|
$
|
852,679
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits, and other employee costs
|
|
|
77,875
|
|
|
|
71,391
|
|
|
|
224,641
|
|
|
|
204,485
|
|
Medical services and supplies
|
|
|
76,520
|
|
|
|
68,086
|
|
|
|
222,362
|
|
|
|
194,973
|
|
Other operating expenses
|
|
|
78,592
|
|
|
|
68,718
|
|
|
|
224,055
|
|
|
|
200,531
|
|
Depreciation and amortization
|
|
|
13,813
|
|
|
|
12,645
|
|
|
|
40,636
|
|
|
|
37,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
246,800
|
|
|
|
220,840
|
|
|
|
711,694
|
|
|
|
637,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
82,079
|
|
|
|
72,367
|
|
|
|
236,656
|
|
|
|
215,216
|
|
Interest expense, net
|
|
|
(6,431
|
)
|
|
|
(6,041
|
)
|
|
|
(19,090
|
)
|
|
|
(18,312
|
)
|
Other, net
|
|
|
(46
|
)
|
|
|
838
|
|
|
|
1,805
|
|
|
|
2,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
75,602
|
|
|
$
|
67,164
|
|
|
$
|
219,371
|
|
|
$
|
199,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
261,874
|
|
|
$
|
237,086
|
|
|
$
|
261,874
|
|
|
$
|
237,086
|
|
Noncurrent assets
|
|
|
439,402
|
|
|
|
405,547
|
|
|
|
439,402
|
|
|
|
405,547
|
|
Current liabilities
|
|
|
146,095
|
|
|
|
153,621
|
|
|
|
146,095
|
|
|
|
153,621
|
|
Noncurrent liabilities
|
|
|
305,316
|
|
|
|
288,629
|
|
|
|
305,316
|
|
|
|
288,629
|
|
The Company also regularly engages in the purchase and sale of
equity interests with respect to its investments in
unconsolidated affiliates that do not result in a change of
control. These transactions are primarily the acquisitions and
sales of equity interests in unconsolidated surgical facilities
and the investment of additional cash in surgical facilities
under development. During the nine months ended
September 30, 2010, these transactions resulted in a net
cash outflow of approximately $0.7 million, which is
summarized below:
|
|
|
|
|
|
|
Effective Date
|
|
Facility Location
|
|
Amount
|
|
|
Investments
|
|
|
|
|
|
|
April 2010
|
|
Destin, Florida(1)
|
|
$
|
1.3 million
|
|
April 2010
|
|
St. Louis, Missouri(2)
|
|
|
0.4 million
|
|
May 2010
|
|
Mansfield, Texas(3)
|
|
|
0.6 million
|
|
July 2010
|
|
Carrollton, Texas(3)
|
|
|
0.8 million
|
|
July 2010
|
|
Sacramento, California(4)
|
|
|
1.5 million
|
|
Various
|
|
Various(5)
|
|
|
4.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.6 million
|
|
Sales
|
|
|
|
|
|
|
June 2010
|
|
Cincinnati, Ohio(6)
|
|
|
7.9 million
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
0.7 million
|
|
|
|
|
|
|
|
|
12
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
(1) |
|
Acquisition of an additional noncontrolling interest in a
surgical facility in which the Company already held an
investment. This facility is jointly owned with local physicians. |
|
(2) |
|
Acquisition of a noncontrolling interest in a surgical facility
in which the Company already provided management services. This
facility is jointly owned with one of the Companys
hospital partners and local physicians. |
|
(3) |
|
Acquisition of the right to manage a surgical facility in which
the Company previously had no involvement. Concurrent with this
transaction, an unconsolidated investee the Company jointly owns
with a hospital partner used cash on hand to acquire an equity
interest in this facility, resulting in the Company having an
indirect ownership interest in the facility. The remainder of
this facility is owned by local physicians. |
|
(4) |
|
Acquisition of a noncontrolling interest in and right to manage
a surgical facility in which the Company previously had no
involvement. This facility is jointly owned with one of the
Companys hospital partners and local physicians. |
|
(5) |
|
Represents the net purchase of additional ownership and equity
contributions in various other unconsolidated affiliates,
including $3.1 million paid for additional ownership in
four centers the Company already operated. |
|
(6) |
|
Sale of a portion of the Companys equity ownership in one
facility to a hospital partner. |
In May 2010, the Company obtained control of a surgical facility
in St. Louis, Missouri. The purchase price was
approximately $4.6 million in cash. The financial results
of the acquired entity are included in the Companys
consolidated financial statements beginning on the
acquisitions effective closing date. The actual results of
those operations were not material. Additionally, the
adjustments to arrive at pro forma operating results for this
acquisition are not material.
|
|
(3)
|
Noncontrolling
Interests
|
The Company controls and therefore consolidates the results of
60 of its 174 facilities. Similar to its investments in
unconsolidated affiliates, the Company regularly engages in the
purchase and sale of equity interests with respect to its
consolidated subsidiaries that do not result in a change of
control. These transactions are accounted for as equity
transactions, as they are undertaken among the Company, its
consolidated subsidiaries, and noncontrolling interests, and
their cash flow effect is classified within financing activities.
During the nine months ended September 30, 2010, the
Company purchased and sold equity interests in various
U.S. consolidated subsidiaries in the amounts of
$1.3 million and $2.2 million, respectively. The basis
difference between the Companys carrying amount and the
proceeds received or paid in each transaction is
13
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
recorded as an adjustment to additional paid-in capital. The
impact of these transactions is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
Net income attributable to USPIs common stockholder
|
|
$
|
11,848
|
|
|
$
|
39,746
|
|
|
$
|
38,704
|
|
|
$
|
61,143
|
|
Transfers to the noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in USPIs additional paid-in capital for sales of
subsidiaries equity interests
|
|
|
(1,228
|
)
|
|
|
(5,674
|
)
|
|
|
(1,770
|
)
|
|
|
(5,865
|
)
|
Decrease in USPIs additional paid-in capital for purchases
of subsidiaries equity interests
|
|
|
(283
|
)
|
|
|
(426
|
)
|
|
|
(30
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers to noncontrolling interests
|
|
|
(1,511
|
)
|
|
|
(6,100
|
)
|
|
|
(1,800
|
)
|
|
|
(6,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in equity from net income attributable to USPI and
transfers to noncontrolling interests
|
|
$
|
10,337
|
|
|
$
|
33,646
|
|
|
$
|
36,904
|
|
|
$
|
54,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, as part of its strategy of partnering with
physicians and
not-for-profit
health systems, the Company from time to time surrenders control
of an entity but retains a noncontrolling interest (classified
within investments in unconsolidated affiliates).
These transactions result in a gain or loss, computed as the
difference between (a) the sales proceeds and fair value of
the retained investment compared to (b) the Companys
carrying value of the investment prior to the transaction. Gains
or losses for such transactions are classified within
Other, net in the accompanying consolidated
statements of income and their cash flow effects within
investing activities. During the nine months ended
September 30, 2010, the Company completed one such
transaction whereby it merged a consolidated surgery center into
a surgery center accounted for under the equity method. A local
not-for-profit
health system obtained ownership in the combined center. The
Company received immaterial proceeds and recorded a pretax gain
of approximately $0.6 million, which was primarily related
to the revaluation of the Companys remaining investment in
the entity to fair value.
During the nine months ended September 30, 2009, the
Company completed one such transaction. A controlling interest
in an entity was sold to a hospital partner as part of its
strategy for partnering with this health system. The hospital
partner already had a 49% ownership interest in this entity,
which owns and manages two surgical facilities in the Phoenix,
Arizona area, and through the transaction acquired an additional
1.1% interest. The Company received proceeds of approximately
$0.1 million and recorded a pretax loss of approximately
$8.2 million, which was primarily related to the
revaluation of the Companys remaining investment in the
entity to fair value.
Fair values for the retained noncontrolling interests are
estimated based on market multiples and discounted cash flow
models which have been derived from the Companys
experience in acquiring surgical facilities and by third party
valuations it has obtained with respect to such transactions.
The Companys continuing involvement as an equity method
investor and manager of the facilities precludes classification
of these transactions as discontinued operations.
Upon the occurrence of certain fundamental regulatory changes,
the Company could be obligated, under the terms of its
investees partnership and operating agreements, to
purchase some or all of the noncontrolling interests related to
the Companys consolidated subsidiaries. These repurchase
requirements are limited to the portions of its facilities that
are owned by physicians who perform surgery at the
Companys facilities and would be triggered by regulatory
changes making the existing ownership structure illegal. While
the Company is not aware of events that
14
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
would make the occurrence of such a change probable, regulatory
changes are outside the control of the Company. Accordingly, the
noncontrolling interests subject to these repurchase provisions
have been classified outside of equity and are carried as
noncontrolling interests redeemable on
the Companys consolidated balance sheets. The activity for
the three and nine months ended September 30, 2010 and 2009
is summarized below (in thousands):
|
|
|
|
|
|
|
2010
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
|
Redeemable
|
|
|
Balance, December 31, 2009
|
|
$
|
63,865
|
|
Net income attributable to noncontrolling interests
|
|
|
12,128
|
|
Distributions to noncontrolling interests
|
|
|
(12,452
|
)
|
Purchases of noncontrolling interests
|
|
|
(195
|
)
|
Sales of noncontrolling interests
|
|
|
3,708
|
|
Deconsolidation of noncontrolling interests and other
|
|
|
75
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
|
67,129
|
|
Net income attributable to noncontrolling interests
|
|
|
13,964
|
|
Distributions to noncontrolling interests
|
|
|
(13,881
|
)
|
Purchases of noncontrolling interests
|
|
|
(229
|
)
|
Sales of noncontrolling interests
|
|
|
1,923
|
|
Purchase of new business
|
|
|
2,455
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
|
71,361
|
|
Net income attributable to noncontrolling interests
|
|
|
13,180
|
|
Distributions to noncontrolling interests
|
|
|
(14,085
|
)
|
Purchases of noncontrolling interests
|
|
|
(443
|
)
|
Sales of noncontrolling interests
|
|
|
1,982
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
$
|
71,995
|
|
|
|
|
|
|
15
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
2009
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
|
Redeemable
|
|
|
Balance, December 31, 2008
|
|
$
|
51,961
|
|
Net income attributable to noncontrolling interests
|
|
|
15,054
|
|
Distributions to noncontrolling interests
|
|
|
(13,359
|
)
|
Purchases of noncontrolling interests
|
|
|
(594
|
)
|
Sales of noncontrolling interests
|
|
|
3,117
|
|
Deconsolidation of noncontrolling interests and other
|
|
|
(2,189
|
)
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
53,990
|
|
Net income attributable to noncontrolling interests
|
|
|
14,544
|
|
Distributions to noncontrolling interests
|
|
|
(14,780
|
)
|
Purchases of noncontrolling interests
|
|
|
(345
|
)
|
Sales of noncontrolling interests
|
|
|
2,926
|
|
Deconsolidation of noncontrolling interests and other
|
|
|
(239
|
)
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
56,096
|
|
Net income attributable to noncontrolling interests
|
|
|
13,722
|
|
Distributions to noncontrolling interests
|
|
|
(15,913
|
)
|
Purchases of noncontrolling interests
|
|
|
248
|
|
Sales of noncontrolling interests
|
|
|
3,491
|
|
Deconsolidation of noncontrolling interests and other
|
|
|
(182
|
)
|
|
|
|
|
|
Balance, September 30, 2009
|
|
$
|
57,462
|
|
|
|
|
|
|
(4) Other
Investments
The consolidated financial statements include the financial
statements of USPI and its wholly-owned and majority-owned
subsidiaries. The Company also determines if it is the primary
beneficiary of (and therefore should consolidate) any entity
whose operations it does not control with voting rights. At
September 30, 2010, the Company consolidated two entities
in accordance with this accounting guidance. At
September 30, 2009, the Company consolidated one such
entity.
One of these entities operates and manages five surgical
facilities in the Houston, Texas area. Despite not holding a
controlling voting interest, the Company is the primary
beneficiary because the Company has provided all of the funding
the entity has used to purchase surgical facilities, but the
Company does not have full recourse to the entitys other
owner with respect to repayment of these amounts. As the entity
earns management fees and receives cash distributions of
earnings from the surgical facilities, a portion of those
proceeds are allocated to the Company prior to being eligible
for distribution to the entitys other owner. At
September 30, 2010 and 2009, the Companys balance
sheet included $8.4 million and $11.4 million in other
long-term assets related to its advances. The Company has no
exposure for the entitys losses beyond this investment.
Accordingly, the Company did not provide any financial or other
support to the entity that it was not previously contractually
required to provide during the three and nine months ended
September 30, 2010 or 2009. At September 30, 2010 and
2009, the total assets of this entity were $65.1 million
and $40.4 million, and the total liabilities owed to third
parties were $20.5 million and $17.8 million,
respectively. Such amounts are included in the Companys
accompanying consolidated balance sheets.
16
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
The second entity is developing and constructing a new hospital
for one of the Companys unconsolidated affiliates. The
total project cost is approximately $26.2 million, which is
being funded by cash contributions from its partners and debt
financing. The Company is a limited partner in the entity.
However, due to economic structuring of the entity, the Company
is considered its primary beneficiary. The Company made its
required equity contribution of $6.3 million in December
2009, which is the full amount expected to be required by the
Company. The entity has arranged bank financing totaling
$17.4 million, of which 70% is guaranteed by the Company.
Approximately $7.6 million of the bank financing was
borrowed at September 30, 2010. The Company has no exposure
for the entitys losses beyond its investment and bank
guarantee. The Company did not provide any financial or other
support to the entity that it was not previously contractually
required to provide during the three and nine months ended
September 30, 2010. At September 30, 2010, the total
assets and liabilities of this entity were $16.6 million
and $7.7 million, respectively. Such amounts are included
in the Companys accompanying consolidated balance sheet.
The Company also has investments in two unconsolidated variable
interest entities in which it is not considered the primary
beneficiary. These entities own real estate and fixed assets
that are leased to various surgical facilities. The total assets
of these entities were $7.3 million and $8.8 million
and the total liabilities of these entities were
$8.3 million and $8.8 million at September 30,
2010 and 2009, respectively. The Companys investment in
these entities and maximum exposure to loss as a result of its
involvement with these entities is not material. The Company did
not provide any financial or other support to these entities
that it was not previously contractually required to provide
during the three and nine months ended September 30, 2010
and 2009.
The Company does not enter into derivative contracts for
speculative purposes but has at times entered into interest rate
swaps to fix the rate of interest owed on a portion of its
variable rate debt. By using derivative financial instruments to
hedge exposures to changes in interest rates, the Company
exposes itself to credit risk and market risk. Credit risk is
the failure of the counterparty to perform under the terms of
the derivative contract. If the fair value of a derivative
contract is positive, the counterparty owes the Company, which
creates credit risk for the Company. The Company minimizes the
credit risk in derivative instruments by entering into
transactions with counterparties who maintain a strong credit
rating. Market risk is the risk of an adverse effect on the
value of a derivative instrument that results from a change in
interest rates. This risk essentially represents the risk that
variable interest rates decline to a level below the fixed rate
the Company has locked in. The market risk associated with
interest rate contracts is managed by establishing and
monitoring parameters that limit the types and degree of market
risk that may be undertaken.
At the inception of the interest rate swap, the Company formally
documents the hedging relationship and its risk-management
objective and strategy for undertaking the hedge, the hedging
instrument, the hedged item, the nature of the risk being
hedged, how the hedging instruments effectiveness in
offsetting the hedged risk will be assessed prospectively and
retrospectively, and a description of the method of measuring
ineffectiveness. The Company also formally assesses, both at the
hedges inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
In order to manage the Companys interest rate risk related
to a portion of its variable-rate U.K. debt, on
February 29, 2008, the Company entered into an interest
rate swap agreement for a notional amount of
£20.0 million ($31.5 million). The interest rate
swap requires the Company to pay 4.99% and to receive interest
at a variable rate of three-month GBP-LIBOR (0.7% at
September 30, 2010), which is reset quarterly. The interest
rate swap matures in March 2011. No collateral is required under
the interest rate swap agreement.
In order to manage the Companys interest rate risk related
to a portion of its variable-rate senior secured credit
facility, effective July 24, 2008, the Company entered into
a three-year interest rate swap agreement for a notional amount
of $200.0 million. The interest rate swap requires the
Company to pay 3.6525% and to receive interest at a
17
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
variable rate of three-month USD-LIBOR (0.5% at
September 30, 2010), which is reset quarterly. No
collateral is required under the interest rate swap agreement.
The proceeds from the swaps are used to settle the
Companys interest obligations on the hedged portion of the
variable rate debt, which has the overall outcome of the Company
paying and expensing a fixed rate of interest on the hedged debt.
The Company recognizes all derivative instruments as either
assets or liabilities at fair value in the consolidated balance
sheet. The Company designated the interest rate swaps as cash
flow hedges of certain of its variable-rate borrowings. For
derivative instruments that are designated and qualify as a cash
flow hedge, the effective portion of the gain or loss on the
derivative is reported as a component of other comprehensive
income (loss) and reclassified to earnings in the same period or
periods during which the hedged transaction affects earnings.
Gains and losses on the derivatives representing either hedge
ineffectiveness or hedge components excluded from the assessment
of effectiveness are recognized in current earnings and would be
classified as interest expense in the Companys
consolidated statements of income. The Company recorded no
expense related to ineffectiveness for the three and nine months
ended September 30, 2010 or 2009. For the three and nine
months ended September 30, 2010, the Company reclassified
$1.9 million and $5.9 million, respectively, out of
other comprehensive income to interest expense related to the
swaps. For the three and nine months ended September 30,
2009, the Company reclassified $1.8 million and
$4.4 million, respectively, out of other comprehensive
income to interest expense related to the swaps. During the next
twelve months, if current interest rates remain at
September 30, 2010 levels, the Company will record
approximately $5.8 million more interest expense than if it
had not entered into the interest rate swaps.
At September 30, 2010 and 2009, the fair values of the U.K.
interest rate swap were approximately $0.6 million
(recorded in other current liabilities) and $1.7 million
(recorded in other long-term liabilities), respectively, with
the offset to other comprehensive income (loss). At
September 30, 2010 and 2009, the fair values of the
U.S. interest rate swap were approximately
$5.1 million (recorded in other current liabilities) and
$8.5 million (recorded in other long-term liabilities),
respectively, with the offset to other comprehensive income
(loss).
The estimated fair value of the interest rate swaps was
determined using present value models of the contractual
payments. Inputs to the models were based on prevailing LIBOR
market data and incorporate credit data that measure
nonperformance risk. The estimated fair value represents the
theoretical exit cost the Company would have to pay to transfer
the obligations to a market participant with similar credit
risk. The interest rate swap agreements are classified within
Level 3 of the valuation hierarchy.
|
|
(6)
|
Fair
Value Measurements
|
The fair value of a financial instrument is the amount at which
the instrument could be exchanged in an orderly transaction
between market participants to sell the asset or transfer the
liability. The Company uses fair value measurements based on
quoted prices in active markets for identical assets or
liabilities (Level 1), significant other observable inputs
(Level 2) or unobservable inputs for assets or
liabilities (Level 3), depending on the nature of the item
being valued. The estimated fair values may not be
representative of actual values that will be realized or settled
in the future.
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable
approximate fair value because of their short maturities. The
fair value of the Companys interest rate swaps is
disclosed in Note 5.
The fair value of the Companys long-term debt is
determined by either (i) estimation of the discounted
future cash flows of the debt at rates currently quoted or
offered to the Company for similar debt instruments of
comparable maturities by its lenders, or (ii) quoted market
prices at the reporting date for the traded debt securities. At
September 30, 2010, the aggregate carrying amount and
estimated fair value of long-term debt were $1.1 billion
18
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
and $1.1 billion, respectively. At September 30, 2009,
the aggregate carrying amount and estimated fair value of
long-term debt were $1.1 billion and $1.0 billion,
respectively.
The Companys income tax policy is to record the estimated
future tax effects of temporary differences between the tax
bases of assets and liabilities and the bases of those assets
and liabilities as reported in the Companys consolidated
balance sheets. This estimation process requires that the
Company evaluate the need for a valuation allowance against
deferred tax assets, based on factors such as historical
financial information, expected timing of future events, the
probability of expected future taxable income and available tax
planning opportunities.
In conjunction with Welsh Carsons acquisition of the
Company in April 2007, which increased the Companys debt,
caused the Company to generate losses deductible for
U.S. tax purposes, and reduced the likelihood of the
Company generating U.S. taxable income, the Company
established a valuation allowance against its U.S. deferred
tax assets. From the acquisition date until September 2009, the
Company continued to establish a full valuation allowance
against newly generated U.S. deferred tax assets and
continuously assessed the likelihood of the assets being
realized at a future date.
During the third quarter of 2009, the Company determined, based
on factors such as those described above, including recent
favorable operating trends, expected future taxable income, and
other factors, that it was more likely than not that the
majority of these assets, which include net operating loss
carryforwards and other items, would be realized in the future.
Accordingly, the Companys results of operations for the
three months ended September 30, 2009 included an income
tax benefit of $31.5 million related to the reversal of a
majority of the Companys valuation allowance against its
deferred tax assets. If the Companys estimates related to
the above items change significantly, the Company may need to
alter the amount of its valuation allowance in the future
through a favorable or unfavorable adjustment to net income.
|
|
(8)
|
Equity-Based
Compensation
|
The Company accounts for equity-based compensation, such as
stock options and other stock-based awards to employees and
directors, at fair value. The fair value of the compensation is
measured at the date of grant and recognized as expense over the
recipients requisite service period.
The Companys equity-based compensation consists primarily
of stock options and restricted stock granted by the
Companys parent, USPI Group Holdings, Inc., to certain
employees and members of the board of directors. In addition,
one of the Companys wholly-owned subsidiaries granted a
limited number of stock options to purchase shares of that
subsidiarys stock to certain of its employees in January
2008. The fair value of stock options was estimated at the date
of grant using the Black-Scholes formula based on assumptions
derived from historical experience.
19
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
Total equity-based compensation included in the accompanying
consolidated statements of income, classified by line item, is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
Salaries, benefits and other employee costs
|
|
$
|
175
|
|
|
$
|
540
|
|
|
$
|
210
|
|
|
$
|
594
|
|
General and administrative expenses
|
|
|
285
|
|
|
|
843
|
|
|
|
257
|
|
|
|
738
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense before income tax benefit
|
|
|
460
|
|
|
|
1,383
|
|
|
|
467
|
|
|
|
1,463
|
|
Income tax benefit
|
|
|
(92
|
)
|
|
|
(287
|
)
|
|
|
(98
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation expense, net of tax
|
|
$
|
368
|
|
|
$
|
1,096
|
|
|
$
|
369
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation, included in the accompanying
consolidated statements of income, classified by type of award,
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
Share awards
|
|
$
|
332
|
|
|
$
|
993
|
|
|
$
|
304
|
|
|
$
|
889
|
|
Stock options
|
|
|
128
|
|
|
|
390
|
|
|
|
163
|
|
|
|
443
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense before income tax benefit
|
|
|
460
|
|
|
|
1,383
|
|
|
|
467
|
|
|
|
1,463
|
|
Income tax benefit
|
|
|
(92
|
)
|
|
|
(287
|
)
|
|
|
(98
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation expense, net of tax
|
|
$
|
368
|
|
|
$
|
1,096
|
|
|
$
|
369
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has also granted warrants to hospital partners. The
warrants are to purchase USPI Group Holdings, Inc. common stock
and were fully vested and non-forfeitable at the date of grant
but contain exercise restrictions. Because the warrants are
fully vested, the expense associated with them was recorded upon
grant within other operating expenses at a fair value determined
using the Black-Scholes formula. One grant was made during the
nine months ended September 30, 2009. In this grant, one of
the Companys hospital partners received 333,330 warrants
with an exercise price of $3.00 per share, of which 55,555 are
exercisable immediately; the exercise restrictions on additional
tranches of 55,555 warrants lapse each December 1 beginning in
2009 and ending in 2013. These warrants have a contractual life
of approximately
81/2
years and a fair value of approximately $0.1 million.
The Companys business is the operation of surgical
facilities and related businesses in the United States and the
United Kingdom. The Companys chief operating decision
maker, as that term is defined in the accounting standard,
regularly reviews financial information about its surgical
facilities for assessing performance and
20
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
allocating resources both domestically and abroad. Accordingly,
the Companys reportable segments consist of
(1) U.S. based facilities and (2) U.K. based
facilities and are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
Three Months Ended September 30, 2010
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Net patient service revenues
|
|
$
|
100,948
|
|
|
$
|
25,113
|
|
|
$
|
126,061
|
|
Other revenues
|
|
|
22,729
|
|
|
|
|
|
|
|
22,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
123,677
|
|
|
$
|
25,113
|
|
|
$
|
148,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,442
|
|
|
$
|
1,852
|
|
|
$
|
8,294
|
|
Operating income
|
|
|
46,222
|
|
|
|
3,827
|
|
|
|
50,049
|
|
Net interest expense
|
|
|
(16,552
|
)
|
|
|
(569
|
)
|
|
|
(17,121
|
)
|
Income tax expense
|
|
|
(6,441
|
)
|
|
|
(806
|
)
|
|
|
(7,247
|
)
|
Total assets
|
|
|
2,018,663
|
|
|
|
331,996
|
|
|
|
2,350,659
|
|
Capital expenditures
|
|
|
11,891
|
|
|
|
7,326
|
|
|
|
19,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
Nine Months Ended September 30, 2010
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Net patient service revenues
|
|
$
|
301,202
|
|
|
$
|
76,275
|
|
|
$
|
377,477
|
|
Other revenues
|
|
|
66,367
|
|
|
|
|
|
|
|
66,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
367,569
|
|
|
$
|
76,275
|
|
|
$
|
443,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
19,827
|
|
|
$
|
5,253
|
|
|
$
|
25,080
|
|
Operating income
|
|
|
147,643
|
|
|
|
11,983
|
|
|
|
159,626
|
|
Net interest expense
|
|
|
(49,991
|
)
|
|
|
(2,440
|
)
|
|
|
(52,431
|
)
|
Income tax expense
|
|
|
(22,258
|
)
|
|
|
(2,416
|
)
|
|
|
(24,674
|
)
|
Total assets
|
|
|
2,018,663
|
|
|
|
331,996
|
|
|
|
2,350,659
|
|
Capital expenditures
|
|
|
23,363
|
|
|
|
18,372
|
|
|
|
41,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Net patient service revenues
|
|
$
|
102,438
|
|
|
$
|
27,150
|
|
|
$
|
129,588
|
|
Other revenues
|
|
|
22,793
|
|
|
|
|
|
|
|
22,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
125,231
|
|
|
$
|
27,150
|
|
|
$
|
152,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
6,921
|
|
|
$
|
1,824
|
|
|
$
|
8,745
|
|
Operating income
|
|
|
50,844
|
|
|
|
4,538
|
|
|
|
55,382
|
|
Net interest expense
|
|
|
(16,530
|
)
|
|
|
(539
|
)
|
|
|
(17,069
|
)
|
Income tax benefit (expense)
|
|
|
25,209
|
|
|
|
(1,086
|
)
|
|
|
24,123
|
|
Total assets
|
|
|
2,071,602
|
|
|
|
319,168
|
|
|
|
2,390,770
|
|
Capital expenditures
|
|
|
3,123
|
|
|
|
3,097
|
|
|
|
6,220
|
|
21
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Net patient service revenues
|
|
$
|
319,076
|
|
|
$
|
77,903
|
|
|
$
|
396,979
|
|
Other revenues
|
|
|
68,908
|
|
|
|
|
|
|
|
68,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
387,984
|
|
|
$
|
77,903
|
|
|
$
|
465,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
21,606
|
|
|
$
|
5,004
|
|
|
$
|
26,610
|
|
Operating income
|
|
|
153,473
|
|
|
|
15,641
|
|
|
|
169,114
|
|
Net interest expense
|
|
|
(50,224
|
)
|
|
|
(899
|
)
|
|
|
(51,123
|
)
|
Income tax expense
|
|
|
13,658
|
|
|
|
(4,154
|
)
|
|
|
9,504
|
|
Total assets
|
|
|
2,071,602
|
|
|
|
319,168
|
|
|
|
2,390,770
|
|
Capital expenditures
|
|
|
11,664
|
|
|
|
7,215
|
|
|
|
18,879
|
|
(10) Related
Party Transactions
Included in general and administrative expenses are management
fees payable to an affiliate of Welsh Carson, which holds a
controlling interest in the Company, in the amount of
$0.5 million and $1.5 million in the three months and
nine months ended September 30, 2010 and 2009,
respectively. Such amounts accrue at an annual rate of
$2.0 million. The Company pays $1.0 million in cash
per year with the unpaid balance due and payable upon a change
in control. At September 30, 2010, the Company had
approximately $4.0 million accrued related to such
management fee, of which $0.5 million is included in other
current liabilities and $3.5 million is included in other
long-term liabilities in the accompanying consolidated balance
sheet.
|
|
(11)
|
Commitments
and Contingencies
|
As of September 30, 2010, the Company had issued guarantees
of the indebtedness and other obligations of its investees to
third parties, which could potentially require the Company to
make maximum aggregate payments totaling approximately
$56.9 million. Of the total, $26.1 million relates to
the obligations of consolidated subsidiaries, whose obligations
are included in the Companys consolidated balance sheet
and related disclosures, and $22.0 million of the remaining
$30.8 million relates to the obligations of unconsolidated
affiliated companies, whose obligations are not included in the
Companys consolidated balance sheet and related
disclosures. The remaining $8.8 million represents
guarantees of the obligations of two facilities the Company has
sold. The Company has full recourse to the buyers with respect
to these amounts.
The Company has recorded long-term liabilities totaling
approximately $0.2 million related to the guarantees the
Company has issued to unconsolidated affiliates on or after
January 1, 2003, and has not recorded any liabilities
related to guarantees issued prior to that date. Generally,
these arrangements (a) consist of guarantees of real estate
and equipment financing, (b) are secured by the related
property and equipment, (c) require payments by the
Company, when the collateral is insufficient, in the event of a
default by the investee primarily obligated under the financing,
(d) expire as the underlying debt matures at various dates
through 2022, and (e) provide no recourse for the Company
to recover any amounts from third parties. The Company also has
$1.6 million of letters of credit outstanding.
The Company has entered into letters of intent with various
entities regarding possible joint venture, development, or other
transactions. These possible joint ventures, developments of new
facilities, or other transactions are in various stages of
negotiation.
22
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
In October 2010, the Company paid $6.0 million (classified
within other operating expenses in the accompanying consolidated
statements of income for the three and nine months ended
September 30, 2010) in conjunction with resolving a
dispute related to the value of an acquisition the Company made
in a prior year and obtaining an option to acquire two surgical
facilities in the future.
Effective November 1, 2010, the Company completed the
acquisition of 100% of the equity interests in HealthMark
Partners, Inc. (HealthMark), a privately-held, Nashville-based
owner and operator of surgery centers. HealthMark has an equity
investment in 14 surgery centers, 11 of which are located in
markets in which the Company already operates. The Company paid
cash totaling approximately $32.0 million, subject to
certain purchase price adjustments set forth in the purchase
agreement. The Company funded the purchase through cash on hand
and a $25.0 million borrowing under the Companys
revolving credit agreement.
|
|
(13)
|
Condensed
Consolidating Financial Statements
|
The following information is presented as required by
regulations of the Securities and Exchange Commission (SEC) in
connection with the Companys subordinated notes that have
been registered with the SEC. This information is not routinely
prepared for use by management. The operating and investing
activities of the separate legal entities included in the
consolidated financial statements are fully interdependent and
integrated. Accordingly, the operating results of the separate
legal entities are not representative of what the operating
results would be on a stand-alone basis. Revenues and operating
expenses of the separate legal entities include intercompany
charges for management and other services.
The $240.0 million of
87/8% senior
subordinated notes and $200.0 million of
91/4%/10% senior
subordinated toggle notes, all due 2017 (the Notes), were issued
in a private offering on April 19, 2007 and were
subsequently registered as publicly traded securities through a
Form S-4
declared effective by the SEC on July 25, 2007. The
exchange offer was completed in August 2007. The Notes are
unsecured senior subordinated obligations of the Company;
however, the Notes are guaranteed by all of the Companys
current and future direct and indirect wholly-owned domestic
subsidiaries. USPI, which issued the Notes, does not have
independent assets or operations. USPIs investees in the
United Kingdom are not guarantors of the obligation. USPIs
investees in the United States in which USPI owns less than 100%
are not guarantors of the obligation. The financial positions
and results of operations (below, in thousands) of the
respective guarantors are based upon the guarantor relationship
at the end of the period presented. Consolidation adjustments
include purchase accounting entries for investments in which the
Companys ownership percentage in non-participating
investees is not high enough to permit the application of
pushdown accounting.
23
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
Condensed
Consolidating Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
As of September 30, 2010
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
48,434
|
|
|
$
|
12,292
|
|
|
$
|
|
|
|
$
|
60,726
|
|
Accounts receivable, net
|
|
|
|
|
|
|
48,087
|
|
|
|
|
|
|
|
48,087
|
|
Other receivables
|
|
|
49,642
|
|
|
|
40,401
|
|
|
|
(69,903
|
)
|
|
|
20,140
|
|
Inventories of supplies
|
|
|
573
|
|
|
|
8,378
|
|
|
|
|
|
|
|
8,951
|
|
Prepaids and other current assets
|
|
|
18,952
|
|
|
|
2,742
|
|
|
|
|
|
|
|
21,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
117,601
|
|
|
|
111,900
|
|
|
|
(69,903
|
)
|
|
|
159,598
|
|
Property and equipment, net
|
|
|
15,134
|
|
|
|
200,457
|
|
|
|
162
|
|
|
|
215,753
|
|
Investments in unconsolidated affiliates
|
|
|
981,681
|
|
|
|
|
|
|
|
(634,561
|
)
|
|
|
347,120
|
|
Goodwill and intangible assets, net
|
|
|
894,223
|
|
|
|
352,321
|
|
|
|
355,281
|
|
|
|
1,601,825
|
|
Other assets
|
|
|
94,884
|
|
|
|
3,429
|
|
|
|
(71,950
|
)
|
|
|
26,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,103,523
|
|
|
$
|
668,107
|
|
|
$
|
(420,971
|
)
|
|
$
|
2,350,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,498
|
|
|
$
|
20,203
|
|
|
$
|
|
|
|
$
|
21,701
|
|
Accrued expenses and other
|
|
|
213,131
|
|
|
|
55,884
|
|
|
|
(68,299
|
)
|
|
|
200,716
|
|
Current portion of long-term debt
|
|
|
5,502
|
|
|
|
23,424
|
|
|
|
88
|
|
|
|
29,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
220,131
|
|
|
|
99,511
|
|
|
|
(68,211
|
)
|
|
|
251,431
|
|
Long-term debt, less current portion
|
|
|
942,739
|
|
|
|
102,412
|
|
|
|
(8,504
|
)
|
|
|
1,036,647
|
|
Other long-term liabilities
|
|
|
152,527
|
|
|
|
10,199
|
|
|
|
(206
|
)
|
|
|
162,520
|
|
Parents equity
|
|
|
788,126
|
|
|
|
434,187
|
|
|
|
(434,187
|
)
|
|
|
788,126
|
|
Noncontrolling interests
|
|
|
|
|
|
|
21,798
|
|
|
|
90,137
|
|
|
|
111,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,103,523
|
|
|
$
|
668,107
|
|
|
$
|
(420,971
|
)
|
|
$
|
2,350,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
As of December 31, 2009
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
27,430
|
|
|
$
|
7,460
|
|
|
$
|
|
|
|
$
|
34,890
|
|
Accounts receivable, net
|
|
|
|
|
|
|
54,202
|
|
|
|
35
|
|
|
|
54,237
|
|
Other receivables
|
|
|
46,975
|
|
|
|
45,776
|
|
|
|
(77,505
|
)
|
|
|
15,246
|
|
Inventories of supplies
|
|
|
428
|
|
|
|
8,361
|
|
|
|
|
|
|
|
8,789
|
|
Prepaids and other current assets
|
|
|
26,264
|
|
|
|
4,518
|
|
|
|
|
|
|
|
30,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
101,097
|
|
|
|
120,317
|
|
|
|
(77,470
|
)
|
|
|
143,944
|
|
Property and equipment, net
|
|
|
16,197
|
|
|
|
181,857
|
|
|
|
452
|
|
|
|
198,506
|
|
Investments in unconsolidated affiliates
|
|
|
1,027,814
|
|
|
|
|
|
|
|
(672,315
|
)
|
|
|
355,499
|
|
Goodwill and intangible assets, net
|
|
|
857,802
|
|
|
|
353,212
|
|
|
|
391,173
|
|
|
|
1,602,187
|
|
Other assets
|
|
|
96,205
|
|
|
|
2,213
|
|
|
|
(73,162
|
)
|
|
|
25,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,099,115
|
|
|
$
|
657,599
|
|
|
$
|
(431,322
|
)
|
|
$
|
2,325,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,396
|
|
|
$
|
22,079
|
|
|
$
|
|
|
|
$
|
23,475
|
|
Accrued expenses and other
|
|
|
235,904
|
|
|
|
50,200
|
|
|
|
(75,956
|
)
|
|
|
210,148
|
|
Current portion of long-term debt
|
|
|
5,480
|
|
|
|
20,116
|
|
|
|
(2,259
|
)
|
|
|
23,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
242,780
|
|
|
|
92,395
|
|
|
|
(78,215
|
)
|
|
|
256,960
|
|
Long-term debt, less current portion
|
|
|
952,311
|
|
|
|
118,892
|
|
|
|
(23,012
|
)
|
|
|
1,048,191
|
|
Other long-term liabilities
|
|
|
146,072
|
|
|
|
13,122
|
|
|
|
(821
|
)
|
|
|
158,373
|
|
Parents equity
|
|
|
757,952
|
|
|
|
412,362
|
|
|
|
(412,362
|
)
|
|
|
757,952
|
|
Noncontrolling interests
|
|
|
|
|
|
|
20,828
|
|
|
|
83,088
|
|
|
|
103,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,099,115
|
|
|
$
|
657,599
|
|
|
$
|
(431,322
|
)
|
|
$
|
2,325,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
Condensed
Consolidating Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
For the Nine Months Ended September 30, 2010
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
71,220
|
|
|
$
|
389,041
|
|
|
$
|
(16,417
|
)
|
|
$
|
443,844
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
96,522
|
|
|
|
1,744
|
|
|
|
(48,512
|
)
|
|
|
49,754
|
|
Operating expenses, excluding depreciation and amortization
|
|
|
56,324
|
|
|
|
269,030
|
|
|
|
(16,462
|
)
|
|
|
308,892
|
|
Depreciation and amortization
|
|
|
5,422
|
|
|
|
19,502
|
|
|
|
156
|
|
|
|
25,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
105,996
|
|
|
|
102,253
|
|
|
|
(48,623
|
)
|
|
|
159,626
|
|
Interest expense, net
|
|
|
(45,826
|
)
|
|
|
(6,515
|
)
|
|
|
(90
|
)
|
|
|
(52,431
|
)
|
Other income (expense), net
|
|
|
383
|
|
|
|
(738
|
)
|
|
|
659
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from before income taxes
|
|
|
60,553
|
|
|
|
95,000
|
|
|
|
(48,054
|
)
|
|
|
107,499
|
|
Income tax expense
|
|
|
(20,807
|
)
|
|
|
(3,867
|
)
|
|
|
|
|
|
|
(24,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
39,746
|
|
|
|
91,133
|
|
|
|
(48,054
|
)
|
|
|
82,825
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
(8,571
|
)
|
|
|
(34,508
|
)
|
|
|
(43,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Parent
|
|
$
|
39,746
|
|
|
$
|
82,562
|
|
|
$
|
(82,562
|
)
|
|
$
|
39,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
For the Nine Months Ended September 30, 2009
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
Revenues
|
|
$
|
72,396
|
|
|
$
|
410,190
|
|
|
$
|
(16,699
|
)
|
|
$
|
465,887
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
97,831
|
|
|
|
1,580
|
|
|
|
(56,301
|
)
|
|
|
43,110
|
|
Operating expenses, excluding depreciation and amortization
|
|
|
54,909
|
|
|
|
275,095
|
|
|
|
(16,731
|
)
|
|
|
313,273
|
|
Depreciation and amortization
|
|
|
5,408
|
|
|
|
20,905
|
|
|
|
297
|
|
|
|
26,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109,910
|
|
|
|
115,770
|
|
|
|
(56,566
|
)
|
|
|
169,114
|
|
Interest 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
|
)
|
|
|
98,846
|
|
Income tax benefit (expense)
|
|
|
15,651
|
|
|
|
(6,147
|
)
|
|
|
|
|
|
|
9,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
61,143
|
|
|
|
103,697
|
|
|
|
(56,490
|
)
|
|
|
108,350
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
(7,634
|
)
|
|
|
(39,573
|
)
|
|
|
(47,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Parent
|
|
$
|
61,143
|
|
|
$
|
96,063
|
|
|
$
|
(96,063
|
)
|
|
$
|
61,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
Condensed
Consolidating Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
Nine Months Ended September 30, 2010
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
39,746
|
|
|
$
|
91,133
|
|
|
$
|
(48,054
|
)
|
|
$
|
82,825
|
|
Changes in operating and intercompany assets and liabilities and
noncash items included in net income
|
|
|
27,302
|
|
|
|
24,998
|
|
|
|
7,012
|
|
|
|
59,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
67,048
|
|
|
|
116,131
|
|
|
|
(41,042
|
)
|
|
|
142,137
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net
|
|
|
(3,288
|
)
|
|
|
(25,885
|
)
|
|
|
|
|
|
|
(29,173
|
)
|
Purchases and sales of businesses and equity interests, net
|
|
|
(5,313
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,313
|
)
|
Other items, net
|
|
|
(3,775
|
)
|
|
|
4,353
|
|
|
|
(840
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(12,376
|
)
|
|
|
(21,532
|
)
|
|
|
(840
|
)
|
|
|
(34,748
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings, net
|
|
|
(8,949
|
)
|
|
|
(8,782
|
)
|
|
|
1,148
|
|
|
|
(16,583
|
)
|
Purchases and sales of noncontrolling interests, net
|
|
|
880
|
|
|
|
348
|
|
|
|
|
|
|
|
1,228
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(86,175
|
)
|
|
|
41,042
|
|
|
|
(45,133
|
)
|
Decrease in cash held on behalf of noncontrolling interest
holders and other
|
|
|
(25,599
|
)
|
|
|
4,659
|
|
|
|
(308
|
)
|
|
|
(21,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(33,668
|
)
|
|
|
(89,950
|
)
|
|
|
41,882
|
|
|
|
(81,736
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
21,004
|
|
|
|
4,832
|
|
|
|
|
|
|
|
25,836
|
|
Cash at the beginning of the period
|
|
|
27,430
|
|
|
|
7,460
|
|
|
|
|
|
|
|
34,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$
|
48,434
|
|
|
$
|
12,292
|
|
|
$
|
|
|
|
$
|
60,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
UNITED
SURGICAL PARTNERS INTERNATIONAL, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Participating
|
|
|
Consolidation
|
|
|
Consolidated
|
|
Nine Months Ended September 30, 2009
|
|
Guarantors
|
|
|
Investees
|
|
|
Adjustments
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
61,143
|
|
|
$
|
103,697
|
|
|
$
|
(56,490
|
)
|
|
$
|
108,350
|
|
Changes in operating and intercompany assets and liabilities and
noncash items included in net income
|
|
|
(30
|
)
|
|
|
20,162
|
|
|
|
16,697
|
|
|
|
36,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
61,113
|
|
|
|
123,859
|
|
|
|
(39,793
|
)
|
|
|
145,179
|
|
Cash 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
|
|
|
|
|
|
|
|
|
|
|
|
1,791
|
|
Distributions 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
|
)
|
|
|
55,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
58,130
|
|
|
|
(100,015
|
)
|
|
|
32,485
|
|
|
|
(9,400
|
)
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
104,920
|
|
|
|
2,188
|
|
|
|
|
|
|
|
107,108
|
|
Cash at the beginning of the period
|
|
|
42,025
|
|
|
|
7,410
|
|
|
|
|
|
|
|
49,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$
|
146,945
|
|
|
$
|
9,598
|
|
|
$
|
|
|
|
$
|
156,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
ITEM 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with the
Companys unaudited Consolidated Financial Statements and
the notes thereto included in Item 1 of this Quarterly
Report on
Form 10-Q.
Forward-Looking
Statements
Certain statements contained in this Quarterly Report on
Form 10-Q,
including without limitation statements containing the words
believes, anticipates,
expects, continues, will,
may, should, estimates,
intends, plans, and similar expressions,
and statements regarding the Companys business strategy
and plans, constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
managements current expectations and involve known and
unknown risks, uncertainties and other factors, many of which
the Company is unable to predict or control, that may cause the
Companys actual results, performance or achievements to be
materially different from those expressed or implied by such
forward-looking statements. Such factors include, among others,
the following: our significant indebtedness, general economic
and business conditions, including without limitation the
condition of financial markets, both nationally and
internationally; foreign currency fluctuations; demographic
changes; changes in, or the failure to comply with, laws and
governmental regulations; the ability to enter into or renew
managed care provider arrangements on acceptable terms; changes
in Medicare, Medicaid and other government funded payments or
reimbursement in the United States and the United Kingdom; the
efforts of insurers, healthcare providers and others to contain
healthcare costs; the impact of healthcare reform; liability and
other claims asserted against us; the highly competitive nature
of the healthcare industry; changes in business strategy or
development plans of healthcare systems with which we partner;
the ability to attract and retain qualified physicians and
personnel, including nurses and other health care professionals;
the availability of suitable acquisition and development
opportunities and the length of time it takes to accomplish
acquisitions and developments; our ability to integrate new
businesses with our existing operations; the availability and
terms of capital to fund the expansion of our business,
including the acquisition and development of additional
facilities and certain additional factors, risks, and
uncertainties discussed in this Quarterly Report on
Form 10-Q.
Given these uncertainties, investors and prospective investors
are cautioned not to rely on such forward-looking statements. We
disclaim any obligation and make no promise to update any such
factors or forward-looking statements or to publicly announce
the results of any revisions to any such factors or
forward-looking statements, whether as a result of changes in
underlying factors, to reflect new information as a result of
the occurrence of events or developments or otherwise.
Overview
We operate ambulatory surgery centers and hospitals in the
United States and the United Kingdom. As of September 30,
2010, we operated 174 facilities, consisting of 170 in the
United States and four in the United Kingdom. All 170 of
our U.S. facilities include local physician owners, and 117
of these facilities are also partially owned by various
not-for-profit
healthcare systems (hospital partners). In addition to
facilitating the joint ownership of the majority of our existing
facilities, our agreements with hospital partners provide a
framework for the planning and construction of additional
facilities in the future, including all three of the facilities
we are currently constructing and the two additional projects we
are developing. During the first nine months of 2010, we have
added seven facilities. We opened our newest facility, a surgery
center in Austin, Texas, in August 2010. We also opened a
surgical hospital in Arlington, Texas in February 2010, and we
acquired ownership in five additional facilities, four of which
are owned with a hospital partner.
Effective November 1, 2010, we completed the acquisition of
100% of the equity interests in HealthMark Partners, Inc.
(HealthMark), a privately-held, Nashville-based owner and
operator of surgery centers. HealthMark has an equity investment
in 14 surgery centers, 11 of which are located in markets in
which we already operate. We paid cash totaling approximately
$32.0 million, subject to certain purchase price
adjustments set forth in the purchase agreement. We funded the
purchase through cash on hand and a $25.0 million borrowing
under our revolving credit agreement.
Our U.S. facilities, consisting of ambulatory surgery
centers and hospitals, specialize in non-emergency surgical
cases. Due in part to advancements in medical technology, the
volume of surgical cases performed in an
29
outpatient setting has steadily increased over the past two
decades. Our facilities earn a fee from patients, insurance
companies, or other payors in exchange for providing the
facility and related services a surgeon requires in order to
perform a surgical case. In addition, we earn a monthly fee from
each facility we operate in exchange for managing its
operations. All but four of our facilities are located in the
U.S., where we have focused increasingly on adding facilities
with hospital partners, which we believe improves the long-term
profitability and potential of our facilities.
Our U.S. facilities include 13 hospitals, each of which had
a Medicare provider agreement prior to the enactment of the
recent healthcare reform legislation. These facilities will,
however, be impacted by the reform legislation in that they will
be prohibited from adding additional beds, operating rooms or
treatment rooms, and the aggregate physician ownership in each
of these entities cannot increase over the total percentage
interest owned by physicians on the date of enactment. In
addition, one project currently under construction is a hospital
to be owned in partnership with a hospital partner in Phoenix,
Arizona. For new physician-owned hospitals, the reform
legislation includes a deadline to obtain a Medicare provider
agreement on or before December 31, 2010. The hospital is
not expected to have a Medicare provider agreement before that
date. Therefore, if there is no additional legislative action,
physicians will not be permitted to own an interest in this
hospital.
In the United Kingdom, we operate three hospitals and an
oncology center, which supplement the services provided by the
government-sponsored healthcare system. Our patients choose to
receive care at private facilities primarily because of waiting
lists to receive diagnostic procedures or elective surgery at
government-sponsored facilities and pay us either from personal
funds or through private insurance, which is offered by many
employers as a benefit to their employees. Since acquiring our
first two hospitals in the United Kingdom in 2000, we have
expanded selectively by acquiring a third hospital and
increasing the capacity and services offered at each facility,
including the construction of an oncology center near the campus
of our largest hospital. Most recently, we expanded the campus
of our largest U.K. hospital by adding an outpatient facility,
which was completed in August 2010.
Our growth and success depends on our ability to continue to
grow volumes at our existing facilities, to successfully open
new facilities we develop, to successfully integrate acquired
facilities into our operations, and to maintain productive
relationships with our physician and hospital partners. We
believe we will have significant opportunities to operate more
facilities with hospital partners in the future in existing and
new markets.
Due to our partnerships with physician and hospital partners, we
do not consolidate 114 of the 174 facilities we operate. To help
analyze our results of operations, we disclose an operating
measure we refer to as systemwide revenue growth, which includes
both consolidated and unconsolidated facilities. While revenues
of our unconsolidated facilities are not recorded as revenues by
USPI, we believe the information is important in understanding
USPIs financial performance because these revenues are the
basis for calculating the Companys management services
revenues and, together with the expenses of our unconsolidated
facilities, are the basis for USPIs equity in earnings of
unconsolidated affiliates. In addition, we disclose growth rates
and operating margins for the facilities that were operational
in both the current and prior year periods, a group we refer to
as same store facilities.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results
of operations and liquidity and capital resources are based on
our consolidated financial statements which have been prepared
in accordance with accounting principles generally accepted in
the United States of America (GAAP). The preparation of
consolidated financial statements under GAAP requires our
management to make certain estimates and assumptions that impact
the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the
consolidated financial statements. These estimates and
assumptions also impact the reported amount of net earnings
during any period. Estimates are based on information available
as of the date financial statements are prepared. Accordingly,
actual results could differ from those estimates. Critical
accounting policies and estimates are defined as those that are
both most important to the portrayal of our financial condition
and operating results and that require managements most
subjective judgments. Our critical accounting policies and
estimates include our policies and estimates regarding
consolidation, revenue recognition, income taxes and intangible
assets.
30
Our determination of whether to consolidate an entity in which
we hold an investment, account for it under the equity method,
or carry it at cost has a significant impact on our consolidated
financial statements because of the typical business model under
which we operate, particularly in the United States, where the
majority of the facilities we operate are partially owned by
hospital partners, physicians, and other parties. These
quarterly consolidated financial statements have been prepared
using the same consolidation policy as that used in our latest
audited consolidated financial statements.
We also consider our accounting policy regarding intangible
assets to be a critical accounting policy given the significance
of intangible assets as compared to the total assets of the
Company. There have been no significant changes in our
application of GAAP to intangible assets since the preparation
of our latest audited consolidated financial statements.
Our revenue recognition and accounts receivable policy and our
method of accounting for income taxes involve significant
judgments and estimates. There have been no significant changes
in assumptions, estimates, and judgments in the preparation of
these quarterly consolidated financial statements from the
assumptions, estimates, and judgments used in the preparation of
our latest audited consolidated financial statements.
Acquisitions,
Equity Investments and Development Projects
As part of our growth strategy, we acquire interests in existing
surgical facilities from third parties and invest in new
facilities that we develop in partnership with hospital partners
and local physicians. We obtained control of a surgical facility
in St. Louis, Missouri in May 2010. The purchase price was
$4.6 million in cash.
We also regularly engage in the purchase and sale of equity
interests with respect to our investments in unconsolidated
affiliates that do not result in a change of control. These
transactions are primarily the acquisitions and sales of equity
interests in unconsolidated surgical facilities and the
investment of additional cash in surgical facilities under
development. During the nine months ended September 30,
2010, these transactions resulted in a net cash outflow of
approximately $0.7 million, which is summarized below:
|
|
|
|
|
|
|
Effective Date
|
|
Facility Location
|
|
Amount
|
|
|
Investments
|
|
|
|
|
|
|
April 2010
|
|
Destin, Florida(1)
|
|
$
|
1.3 million
|
|
April 2010
|
|
St. Louis, Missouri(2)
|
|
|
0.4 million
|
|
May 2010
|
|
Mansfield, Texas(3)
|
|
|
0.6 million
|
|
July 2010
|
|
Carrollton, Texas(3)
|
|
|
0.8 million
|
|
July 2010
|
|
Sacramento, California(4)
|
|
|
1.5 million
|
|
Various
|
|
Various(5)
|
|
|
4.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.6 million
|
|
Sales
|
|
|
|
|
|
|
June 2010
|
|
Cincinnati, Ohio(6)
|
|
|
7.9 million
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
0.7 million
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Acquisition of an additional noncontrolling interest in a
surgical facility in which we already held an investment. This
facility is jointly owned with local physicians. |
|
(2) |
|
Acquisition of a noncontrolling interest in a surgical facility
in which we already provided management services. This facility
is jointly owned with one of our hospital partners and local
physicians. |
|
(3) |
|
Acquisition of the right to manage a surgical facility in which
we previously had no involvement. Concurrent with this
transaction, an unconsolidated investee the we jointly own with
a hospital partner used cash on hand to acquire an equity
interest in this facility, resulting in our having an indirect
ownership interest in the facility. The remainder of this
facility is owned by local physicians. |
|
(4) |
|
Acquisition of a noncontrolling interest in and right to manage
a surgical facility in which we previously had no involvement.
This facility is jointly owned with one of our hospital partners
and local physicians. |
31
|
|
|
(5) |
|
Represents the net purchase of additional ownership and equity
contributions in various other unconsolidated affiliates,
including $3.1 million paid for additional ownership in
four centers we already operated. |
|
(6) |
|
Sale of a portion of our equity ownership in one facility to a
hospital partner. |
We control and therefore consolidate the results of 60 of our
174 facilities. Similar to our investments in unconsolidated
affiliates, we regularly engage in the purchase and sale of
equity interests in our consolidated subsidiaries that do not
result in a change of control. These transactions are accounted
for as equity transactions, as they are undertaken among us, our
consolidated subsidiaries, and noncontrolling interests. During
the nine months ended September 30, 2010, we purchased and
sold equity interests in various U.S. consolidated
subsidiaries in the amounts of $1.3 million and
$2.2 million, respectively. The difference between our
carrying amount and the proceeds received or paid in each
transaction is recorded as an adjustment to our additional
paid-in capital. These transactions resulted in a
$6.1 million net decrease to our additional paid-in capital
during the nine months ended September 30, 2010.
Deconsolidations
As part of our strategy of partnering with physicians and
not-for-profit
health systems, the Company from time to time surrenders control
of an entity but retains a noncontrolling interest (classified
within investments in unconsolidated affiliates in
the accompanying consolidated balance sheets). These
transactions result in a gain or loss, computed as the
difference between (a) the sales proceeds and fair value of
the retained investment and (b) our carrying value of the
investment prior to the transaction. During the nine months
ended September 30, 2010, we completed one such
deconsolidation transaction by merging two of our facilities.
The impact was not material.
A deconsolidation transaction we completed in March 2009 had a
more significant impact. In this transaction, we sold a
controlling interest in an entity to a hospital partner. The
hospital partner already had a 49% ownership interest in this
entity, which owns and manages two surgical facilities in the
Phoenix, Arizona area and through the transaction acquired an
additional 1.1% interest. We received proceeds of approximately
$0.1 million and recorded a pretax loss of approximately
$8.2 million, which was primarily related to the
revaluation of our remaining investment in the entity to fair
value. The loss on this transaction is recorded in Other,
net in the accompanying consolidated statements of income.
Fair values for the retained noncontrolling interests are
estimated based on market multiples and discounted cash flow
models which have been derived from our experience in acquiring
surgical facilities and by third party valuations we have
obtained with respect to such transactions. Our continuing
involvement as an equity method investor and manager of the
facilities precludes classification of these transactions as
discontinued operations.
Sources
of Revenue
Revenues primarily include the following:
|
|
|
|
|
net patient service revenues of the facilities that we
consolidate for financial reporting purposes, which are
typically those facilities in which we have ownership interests
of greater than 50% or otherwise maintain effective control.
|
|
|
|
management and contract service revenues, consisting of the fees
that we earn from managing the facilities that we do not
consolidate for financial reporting purposes and the fees we
earn from providing certain consulting and administrative
services to physicians and hospitals. Our consolidated revenues
and expenses do not include the management fees we earn from
operating the facilities that we consolidate for financial
reporting purposes as those fees are charged to subsidiaries and
thus eliminate in consolidation.
|
32
The following table summarizes our revenues by type and as a
percentage of total revenue for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net patient service revenues
|
|
|
85
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
Management and contract service revenues
|
|
|
14
|
|
|
|
13
|
|
|
|
14
|
|
|
|
13
|
|
Other revenues
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenues consist of the revenues earned by
facilities we consolidate for financial reporting purposes. As a
percent of our total revenues, these revenues did not
significantly change compared to prior year periods.
Our management and contract service revenues are earned from the
following types of activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Management of surgical facilities
|
|
$
|
13,236
|
|
|
$
|
11,527
|
|
|
$
|
38,855
|
|
|
$
|
34,194
|
|
Contract services provided to hospitals, physicians and related
entities
|
|
|
7,776
|
|
|
|
7,994
|
|
|
|
22,377
|
|
|
|
23,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management and contract service revenues
|
|
$
|
21,012
|
|
|
$
|
19,521
|
|
|
$
|
61,232
|
|
|
$
|
57,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As described above, our primary business is the operation of
surgical facilities. In addition, we earn contract service
revenues from other parties, primarily from hospitals through an
endoscopy services business we acquired in 2006.
The following table summarizes our revenues by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
|
83
|
%
|
|
|
82
|
%
|
|
|
83
|
%
|
|
|
83
|
%
|
United Kingdom
|
|
|
17
|
|
|
|
18
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The proportion of our total revenues derived from U.K.
operations as stated in U.S. dollars did not change
significantly, as compared to the corresponding prior year
periods.
33
Results
of Operations
The following table summarizes certain statement of income items
expressed as a percentage of revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
USPI
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Equity in earnings of unconsolidated affiliates
|
|
|
11.6
|
|
|
|
9.8
|
|
|
|
11.2
|
|
|
|
9.3
|
|
Operating expenses, excluding depreciation and amortization
|
|
|
(72.4
|
)
|
|
|
(67.7
|
)
|
|
|
(69.5
|
)
|
|
|
(67.2
|
)
|
Depreciation and amortization
|
|
|
(5.6
|
)
|
|
|
(5.8
|
)
|
|
|
(5.7
|
)
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.6
|
|
|
|
36.3
|
|
|
|
36.0
|
|
|
|
36.3
|
|
Interest and other expense, net
|
|
|
(11.2
|
)
|
|
|
(17.0
|
)
|
|
|
(11.7
|
)
|
|
|
(15.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from before income taxes
|
|
|
22.4
|
|
|
|
19.3
|
|
|
|
24.3
|
|
|
|
21.2
|
|
Income tax (expense) benefit
|
|
|
(4.8
|
)
|
|
|
15.8
|
|
|
|
(5.6
|
)
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
17.6
|
|
|
|
35.1
|
|
|
|
18.7
|
|
|
|
23.2
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(9.6
|
)
|
|
|
(9.7
|
)
|
|
|
(9.7
|
)
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to USPIs common stockholder
|
|
|
8.0
|
%
|
|
|
25.4
|
%
|
|
|
9.0
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our business model of partnering with
not-for-profit
hospitals and physicians results in our accounting for 114 of
our surgical facilities under the equity method rather than
consolidating their results. The following table reflects the
summarized results of the unconsolidated facilities that we
account for under the equity method of accounting (amounts are
expressed as a percentage of unconsolidated affiliates
revenues, and reflect 100% of the investees results on an
aggregated basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
USPIs Unconsolidated Affiliates
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Total revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses, excluding depreciation and amortization
|
|
|
(70.8
|
)
|
|
|
(71.0
|
)
|
|
|
(70.8
|
)
|
|
|
(70.4
|
)
|
Depreciation and amortization
|
|
|
(4.2
|
)
|
|
|
(4.3
|
)
|
|
|
(4.2
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
25.0
|
|
|
|
24.7
|
|
|
|
25.0
|
|
|
|
25.2
|
|
Interest and other expense, net
|
|
|
(2.0
|
)
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23.0
|
|
|
|
22.9
|
|
|
|
23.2
|
|
|
|
23.3
|
|
Income tax expense
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
22.4
|
%
|
|
|
22.3
|
%
|
|
|
22.6
|
%
|
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Summary
Our strategy continues to focus on growing the profits of our
existing facilities, developing new facilities with hospital
partners, and adding other facilities selectively through
acquisition. Our progress during the nine months ended
September 30, 2010 included opening two new facilities with
hospital partners in February 2010 and August 2010 and
adding a hospital partner to two facilities we already operated.
We also added, through acquisition, two additional facilities in
the St. Louis, Missouri area, one additional facility in
the Sacramento, California area, and one additional facility in
the Dallas / Fort Worth area. Our operating
results, while still not as strong as in recent years, improved
in the second and third quarters of 2010 as compared to the
first quarter.
Our U.S. facilities surgical case volumes (including
both consolidated and unconsolidated facilities) during the
three months ended September 30, 2010 were essentially flat
compared to the third quarter of 2009. While
34
volumes have typically increased in prior years, this
represented an improvement compared to the first quarter, when
volumes were down 2% compared to the prior year period. Despite
the lack of growth in case volume, our overall
U.S. systemwide revenues (a measure that also includes both
consolidated and unconsolidated facilities) increased on a
year-over-year
basis by 7% in the third quarter. The increase in systemwide
revenues is driven by our facilities performing more complex
cases on average, the effect of which more than offset adverse
changes in our payor mix, as fewer of our revenues were earned
from the more profitable payors.
While our systemwide revenues grew, USPIs reported
revenues (consisting only of consolidated businesses) decreased
compared to prior year by 5% for the nine months ended
September 30, 2010. This decrease was driven by two factors
related to the deployment of our primary business model, which
is jointly owning our facilities with prominent local physicians
and a hospital partner. We generally do not consolidate the
businesses in these structures, but our profits from them
(reflected in equity in earnings of unconsolidated affiliates)
increased 16% and 15% during the three and nine months ended
September 30, 2010, respectively, as compared to the
corresponding prior year periods. The revenues of these
facilities are growing more than our consolidated facilities;
their revenues (not included in ours) increased
$63.0 million during the nine months ended
September 30, 2010 as compared to the prior year period,
and grew an additional $13.0 million as a result of our
partnering five of these facilities with a hospital partner so
far in 2010, thereby moving their revenues out of our
consolidated revenues and into the revenues of our
unconsolidated group of facilities. Our consolidated revenues
decreased both due to declines in operational results
($13.5 million) and due to the deconsolidation
transactions described above (the movement of $13.0 million
of revenues from the consolidated to the unconsolidated group).
On a
year-to-date
basis, operating income was down 6%, driven largely by a
$6.0 million payment recorded in the third quarter of 2010
related to an unconsolidated acquisition and option on a
potential acquisition and by the drop in cases during the first
quarter of 2010. The comparability of
year-over-year
operating income is also impacted by a value-added tax (VAT)
assessment in the United Kingdom, which increased operating
income by $1.0 million in the second quarter of 2009 and
decreased it by an equal amount in the first quarter of 2010,
when the taxing authority reversed its position on amounts it
had awarded in 2009. We are appealing the decision. Absent the
VAT amounts in each period and the payment noted above,
operating income was still down 1% on a
year-to-date
basis, but operating income margin was up 140 basis points,
driven largely by a 15% increase in equity in earnings of
unconsolidated affiliates, which represents our share of the net
income of the 114 facilities we account for under the equity
method.
While the leveraging of overall operating expenses was also a
contributing factor to the improvement in USPIs operating
income margin, we additionally focus on U.S. same store
facility level operating income margins (which reflect all
facilities) as indicators of the trend of our business, because
our earnings and cash flows are heavily driven by the results at
those facilities, whether we consolidate them or not. Those
margins actually decreased
year-over-year
by 30 and 110 basis points for the three months and nine
months ended September 30, 2010, respectively, reflecting
the lack of case growth described above. Because of
relationships like these (differences in the magnitude or
direction of consolidated versus systemwide revenues and
margins), which often are driven by deconsolidations
such as the five described above, we supplementally focus on
systemwide revenues and facility level operating income margins
as important indicators for our business, given that our
earnings ultimately are driven heavily by facility level
revenues and operating margins.
As noted above, despite weaker case growth than we have
historically experienced, we continued to grow the revenues of
our facilities and to leverage operating expenses, resulting in
a 1%
year-over-year
increase to operating income during the third quarter, excluding
the $6.0 million payment recorded in the third quarter of
2010. Both case volume and operating income indicators at our
facilities improved in the second and third quarter compared to
the first quarter, but our
year-to-date
operating income remains 2% behind prior year, excluding the
$6.0 million payment described above. Our development
strategy continues to focus on markets in which we have a
significant presence with prominent local physicians and often a
hospital partner and selectively in new markets. This strategy
resulted in our increasing the number of hospital-partnered
facilities by 18 from January 1, 2009 to September 30,
2010 and decreasing by nine the number of facilities not
involving a hospital partner.
35
Our
Business and Key Measures
We operate surgical facilities in partnership with local
physicians and, in the majority of cases, a
not-for-profit
health system partner. We hold an ownership interest in each
facility, each being operated through a separate legal entity
owned by us, the health systems and physicians. We operate each
facility on a
day-to-day
basis through a management services contract. Our sources of
earnings from each facility consist of:
|
|
|
|
|
our share of each facilitys net income or loss, which is
computed by multiplying the facilitys net income or loss
times the percentage of each facilitys equity interests
owned by us.
|
|
|
|
management services revenues, computed as a percentage of each
facilitys net revenues (often net of bad debt
expense); and
|
Our role as an owner and
day-to-day
manager provides us with significant influence over the
operations of each facility. In a growing majority of our
facilities (currently 114 of our 174 facilities), this influence
does not represent control of the facility, so we account for
our investment in the facility under the equity method, i.e., as
an unconsolidated affiliate. We control the remaining 60 of our
facilities and account for these investments as consolidated
subsidiaries.
Our net earnings from a facility are the same under either
method, but the classification of those earnings differs. For
consolidated subsidiaries, our financial statements reflect 100%
of the revenues and expenses of the subsidiaries, after the
elimination of intercompany amounts. The net profit attributable
to owners other than us is classified within net income
attributable to noncontrolling interests.
For unconsolidated affiliates, our consolidated statements of
income reflect our earnings in only two line items:
|
|
|
|
|
equity in earnings of unconsolidated affiliates: our share of
the net income of each facility, which is based on the
facilities net income or loss and the percentage of the
facilitys 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 facilitys net revenues less bad debt expense.
|
In summary, USPIs operating income is driven by the
performance of all facilities we operate and by our ownership
interest in those facilities, but USPIs individual revenue
and expense line items only contain consolidated businesses,
which represent less than half of our operations. This
translates to trends in operating income that often do not
correspond with changes in revenues and expenses. The divergence
in these relationships is particularly significant when our
strategy is heavily weighted to unconsolidated affiliates, as it
has been in recent years. Accordingly, we review several types
of information in order to monitor and analyze USPIs
results of operations, including:
|
|
|
|
|
The results of operations of USPIs unconsolidated
affiliates
|
|
|
|
USPIs average ownership share in the facilities we
operate; and
|
|
|
|
Facility operating indicators, such as systemwide revenue
growth, same store revenue growth, and same store operating
margins
|
36
Our
Consolidated and Unconsolidated Results
The following table shows USPIs results of operations and
the results of operations of USPIs unconsolidated
affiliates (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance to Prior Year
|
|
|
|
USPI as
|
|
|
|
|
|
USPI as
|
|
|
|
|
|
USPI as
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Reported
|
|
|
|
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenues
|
|
$
|
126,061
|
|
|
$
|
328,153
|
|
|
$
|
129,588
|
|
|
$
|
292,800
|
|
|
$
|
(3,527
|
)
|
|
$
|
35,353
|
|
Management and administrative services revenues
|
|
|
21,012
|
|
|
|
|
|
|
|
19,521
|
|
|
|
|
|
|
|
1,491
|
|
|
|
|
|
Other income
|
|
|
1,717
|
|
|
|
726
|
|
|
|
3,272
|
|
|
|
407
|
|
|
|
(1,555
|
)
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
148,790
|
|
|
|
328,879
|
|
|
|
152,381
|
|
|
|
293,207
|
|
|
|
(3,591
|
)
|
|
|
35,672
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
17,247
|
|
|
|
|
|
|
|
14,913
|
|
|
|
|
|
|
|
2,334
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and other employee costs
|
|
|
42,763
|
|
|
|
77,875
|
|
|
|
44,223
|
|
|
|
71,391
|
|
|
|
(1,460
|
)
|
|
|
6,484
|
|
Medical services and supplies
|
|
|
24,347
|
|
|
|
76,520
|
|
|
|
25,451
|
|
|
|
68,086
|
|
|
|
(1,104
|
)
|
|
|
8,434
|
|
Other operating expenses
|
|
|
28,926
|
|
|
|
69,665
|
|
|
|
21,210
|
|
|
|
60,808
|
|
|
|
7,716
|
|
|
|
8,857
|
|
General and administrative expenses
|
|
|
9,626
|
|
|
|
|
|
|
|
9,609
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
2,032
|
|
|
|
8,927
|
|
|
|
2,674
|
|
|
|
7,910
|
|
|
|
(642
|
)
|
|
|
1,017
|
|
Depreciation and amortization
|
|
|
8,294
|
|
|
|
13,813
|
|
|
|
8,745
|
|
|
|
12,645
|
|
|
|
(451
|
)
|
|
|
1,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
115,988
|
|
|
|
246,800
|
|
|
|
111,912
|
|
|
|
220,840
|
|
|
|
4,076
|
|
|
|
25,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
50,049
|
|
|
|
82,079
|
|
|
|
55,382
|
|
|
|
72,367
|
|
|
|
(5,333
|
)
|
|
|
9,712
|
|
Interest income
|
|
|
212
|
|
|
|
88
|
|
|
|
520
|
|
|
|
89
|
|
|
|
(308
|
)
|
|
|
(1
|
)
|
Interest expense
|
|
|
(17,333
|
)
|
|
|
(6,519
|
)
|
|
|
(17,589
|
)
|
|
|
(6,130
|
)
|
|
|
256
|
|
|
|
(389
|
)
|
Other, net
|
|
|
476
|
|
|
|
(46
|
)
|
|
|
(8,925
|
)
|
|
|
838
|
|
|
|
9,401
|
|
|
|
(884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(16,645
|
)
|
|
|
(6,477
|
)
|
|
|
(25,994
|
)
|
|
|
(5,203
|
)
|
|
|
9,349
|
|
|
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
33,404
|
|
|
|
75,602
|
|
|
|
29,388
|
|
|
|
67,164
|
|
|
|
4,016
|
|
|
|
8,438
|
|
Income tax (expense) benefit
|
|
|
(7,247
|
)
|
|
|
(1,993
|
)
|
|
|
24,123
|
|
|
|
(1,708
|
)
|
|
|
(31,370
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
26,157
|
|
|
$
|
73,609
|
|
|
|
53,511
|
|
|
$
|
65,456
|
|
|
|
(27,354
|
)
|
|
$
|
8,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(14,309
|
)
|
|
|
|
|
|
|
(14,807
|
)
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to USPIs common stockholder
|
|
$
|
11,848
|
|
|
|
|
|
|
$
|
38,704
|
|
|
|
|
|
|
$
|
(26,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USPIs equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
$
|
17,247
|
|
|
|
|
|
|
$
|
14,913
|
|
|
|
|
|
|
$
|
2,334
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance to Prior Year
|
|
|
|
USPI as
|
|
|
|
|
|
USPI as
|
|
|
|
|
|
USPI as
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Reported
|
|
|
|
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
Under
|
|
|
Unconsolidated
|
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
GAAP
|
|
|
Affiliates
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenues
|
|
$
|
377,477
|
|
|
$
|
946,521
|
|
|
$
|
396,979
|
|
|
$
|
849,849
|
|
|
$
|
(19,502
|
)
|
|
$
|
96,672
|
|
Management and administrative services revenues
|
|
|
61,232
|
|
|
|
|
|
|
|
57,573
|
|
|
|
|
|
|
|
3,659
|
|
|
|
|
|
Other income
|
|
|
5,135
|
|
|
|
1,829
|
|
|
|
11,335
|
|
|
|
2,830
|
|
|
|
(6,200
|
)
|
|
|
(1,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
443,844
|
|
|
|
948,350
|
|
|
|
465,887
|
|
|
|
852,679
|
|
|
|
(22,043
|
)
|
|
|
95,671
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
49,754
|
|
|
|
|
|
|
|
43,110
|
|
|
|
|
|
|
|
6,644
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and other employee costs
|
|
|
124,226
|
|
|
|
224,641
|
|
|
|
130,089
|
|
|
|
204,485
|
|
|
|
(5,863
|
)
|
|
|
20,156
|
|
Medical services and supplies
|
|
|
74,203
|
|
|
|
222,362
|
|
|
|
76,019
|
|
|
|
194,973
|
|
|
|
(1,816
|
)
|
|
|
27,389
|
|
Other operating expenses
|
|
|
76,817
|
|
|
|
200,652
|
|
|
|
69,904
|
|
|
|
180,631
|
|
|
|
6,913
|
|
|
|
20,021
|
|
General and administrative expenses
|
|
|
27,295
|
|
|
|
|
|
|
|
29,708
|
|
|
|
|
|
|
|
(2,413
|
)
|
|
|
|
|
Provision for doubtful accounts
|
|
|
6,351
|
|
|
|
23,403
|
|
|
|
7,553
|
|
|
|
19,900
|
|
|
|
(1,202
|
)
|
|
|
3,503
|
|
Depreciation and amortization
|
|
|
25,080
|
|
|
|
40,636
|
|
|
|
26,610
|
|
|
|
37,474
|
|
|
|
(1,530
|
)
|
|
|
3,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
333,972
|
|
|
|
711,694
|
|
|
|
339,883
|
|
|
|
637,463
|
|
|
|
(5,911
|
)
|
|
|
74,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
159,626
|
|
|
|
236,656
|
|
|
|
169,114
|
|
|
|
215,216
|
|
|
|
(9,488
|
)
|
|
|
21,440
|
|
Interest income
|
|
|
638
|
|
|
|
281
|
|
|
|
2,261
|
|
|
|
364
|
|
|
|
(1,623
|
)
|
|
|
(83
|
)
|
Interest expense
|
|
|
(53,069
|
)
|
|
|
(19,371
|
)
|
|
|
(53,384
|
)
|
|
|
(18,676
|
)
|
|
|
315
|
|
|
|
(695
|
)
|
Other, net
|
|
|
304
|
|
|
|
1,805
|
|
|
|
(19,145
|
)
|
|
|
2,177
|
|
|
|
19,449
|
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses, net
|
|
|
(52,127
|
)
|
|
|
(17,285
|
)
|
|
|
(70,268
|
)
|
|
|
(16,135
|
)
|
|
|
18,141
|
|
|
|
(1,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
107,499
|
|
|
|
219,371
|
|
|
|
98,846
|
|
|
|
199,081
|
|
|
|
8,653
|
|
|
|
20,290
|
|
Income tax (expense) benefit
|
|
|
(24,674
|
)
|
|
|
(5,149
|
)
|
|
|
9,504
|
|
|
|
(4,806
|
)
|
|
|
(34,178
|
)
|
|
|
(343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
82,825
|
|
|
$
|
214,222
|
|
|
|
108,350
|
|
|
$
|
194,275
|
|
|
|
(25,525
|
)
|
|
$
|
19,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(43,079
|
)
|
|
|
|
|
|
|
(47,207
|
)
|
|
|
|
|
|
|
4,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to USPIs common stockholder
|
|
$
|
39,746
|
|
|
|
|
|
|
$
|
61,143
|
|
|
|
|
|
|
$
|
(21,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USPIs equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
$
|
49,754
|
|
|
|
|
|
|
$
|
43,110
|
|
|
|
|
|
|
$
|
6,644
|
|
38
The following table provides other information regarding our
unconsolidated affiliates (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Long-term debt
|
|
$
|
290,230
|
|
|
$
|
280,217
|
|
|
$
|
290,230
|
|
|
$
|
280,217
|
|
USPIs imputed weighted average ownership percentage based
on affiliates pre-tax income(1)
|
|
|
22.8
|
%
|
|
|
22.2
|
%
|
|
|
22.7
|
%
|
|
|
21.7
|
%
|
USPIs imputed weighted average ownership percentage based
on affiliates debt(2)
|
|
|
25.3
|
%
|
|
|
25.0
|
%
|
|
|
25.3
|
%
|
|
|
25.0
|
%
|
Unconsolidated facilities operated at period end
|
|
|
114
|
|
|
|
106
|
|
|
|
114
|
|
|
|
106
|
|
|
|
|
(1) |
|
Our weighted average percentage ownership in our unconsolidated
affiliates is calculated as USPIs equity in earnings of
unconsolidated affiliates divided by the total net income of
unconsolidated affiliates for each respective period. This is a
non-GAAP measure but management believes it provides further
useful information about its involvement in equity method
investments. |
|
(2) |
|
Our weighted average percentage ownership in our unconsolidated
affiliates is calculated as the total debt of each
unconsolidated affiliate, multiplied by the percentage ownership
USPI held in the affiliate as of the end of each respective
period, divided by the total debt of all of the unconsolidated
affiliates as of the end of each respective period. This is a
non-GAAP measure but management believes it provides further
useful information about its involvement in equity method
investments. |
As shown above, USPIs net patient service revenues for the
three and nine months ended September 30, 2010 decreased
$3.5 million and $19.5 million, respectively, compared
to the corresponding prior year periods. The net patient service
revenues of USPIs unconsolidated affiliates increased
$35.4 million and $96.7 million for the three and nine
months ended September 30, 2010, respectively, as compared
to the corresponding prior year periods. These variances are
analyzed more extensively below under Revenues, but
in general they reflect the fact that the revenues of our
unconsolidated facilities, which largely represent the
facilities we operate under our primary business model of
partnering with physicians and a hospital partner, are growing
at a faster rate than the revenues of our other facilities (the
consolidated facilities, whose revenues actually decreased
compared to prior year). In addition to the underlying growth
rates at these facilities, we continue to shift more of our
facilities into our primary business model, which usually moves
them from the consolidated to the unconsolidated group. Once
netted with expenses, these increased revenues at our
unconsolidated affiliates, resulted in their earning
$19.9 million more in net income on
year-to-date
basis than in the corresponding prior year period. Our share of
that increase, based on our ownership levels in these
facilities, was approximately $6.6 million. Both of these
figures represented improvements compared to the first quarter,
when the drop in case volumes and operating margin resulted in
almost no net income growth for our unconsolidated affiliates.
Our
Ownership Interests in the Facilities We Operate
Our earnings are predominantly driven by our investments in the
facilities we operate, so we focus on those businesses
growth rates together with the percentage ownership interest we
hold in them to help us understand our results of operations.
Our average ownership interest in the U.S. surgical
facilities we operate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Year Ended
|
|
Nine Months Ended
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Equity method facilities(1)
|
|
|
22.7
|
%
|
|
|
21.5
|
%
|
|
|
21.7
|
%
|
Consolidated facilities(2)
|
|
|
47.5
|
%
|
|
|
48.1
|
%
|
|
|
48.7
|
%
|
Total(3)
|
|
|
29.4
|
%
|
|
|
29.4
|
%
|
|
|
30.2
|
%
|
|
|
|
(1) |
|
Computed for unconsolidated facilities by dividing (a) our
total equity in earnings of unconsolidated affiliates by
(b) the aggregate net income of U.S. surgical facilities we
account for under the equity method. |
39
|
|
|
(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). |
Our average ownership interest for each group of facilities is
determined by many factors, including the ownership levels we
negotiate in our acquisition and development activities, the
relative performance of facilities in which we own percentages
higher or lower than average, and other factors. As described
earlier, our increased focus on partnering our facilities with
not-for-profit
health systems in addition to physicians generally leads to our
accounting for more facilities under the equity method
(unconsolidated) as reflected in our number of unconsolidated
facilities increasing by 13 from January 1, 2009 to
September 30, 2010, while our number of consolidated
facilities decreased by two. We generally have a lower ownership
percentage in an equity method facility as compared to a
consolidated facility.
While our ownership interests remained higher for consolidated
facilities than for unconsolidated facilities, our average
ownership in our consolidated facilities decreased from the
third quarter of 2009 to the third quarter of 2010 due to
relative performance of certain consolidated facilities, namely
that one markets facilities, in which our ownership is
higher than average, experienced steeper than average drops in
profitability compared to our other consolidated facilities.
Revenues
Our consolidated net revenues decreased 2% and 5% and during the
three and nine months ended September 30, 2010,
respectively, as compared to the corresponding prior year
periods. The table below quantifies several significant items
impacting year over year growth.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2010
|
|
|
|
USPI as Reported
|
|
|
Unconsolidated
|
|
|
|
Under GAAP
|
|
|
Affiliates
|
|
|
Total revenues, three months ended September 30, 2009
|
|
$
|
152,381
|
|
|
$
|
293,207
|
|
Add: Revenue from acquired facilities
|
|
|
2,432
|
|
|
|
10,468
|
|
Less: Revenue of disposed facilities
|
|
|
|
|
|
|
(2,449
|
)
|
Less: Revenue of deconsolidated facilities
|
|
|
(1,925
|
)
|
|
|
1,925
|
|
Impact of exchange rate
|
|
|
(1,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted base period
|
|
|
151,448
|
|
|
|
303,151
|
|
(Decrease) increase from operations
|
|
|
(2,907
|
)
|
|
|
23,969
|
|
Non-facility based revenue
|
|
|
249
|
|
|
|
1,759
|
|
|
|
|
|
|
|
|
|
|
Total revenues, three months ended September 30, 2010
|
|
$
|
148,790
|
|
|
$
|
328,879
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
|
USPI as Reported
|
|
|
Unconsolidated
|
|
|
|
Under GAAP
|
|
|
Affiliates
|
|
|
Total revenues, nine months ended September 30, 2009
|
|
$
|
465,887
|
|
|
$
|
852,679
|
|
Add: Revenue from acquired facilities
|
|
|
5,839
|
|
|
|
26,297
|
|
Less: Revenue of disposed facilities
|
|
|
|
|
|
|
(9,848
|
)
|
Less: Revenue of deconsolidated facilities
|
|
|
(13,035
|
)
|
|
|
13,035
|
|
Impact of exchange rate
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted base period
|
|
|
458,387
|
|
|
|
882,163
|
|
(Decrease) increase from operations
|
|
|
(13,546
|
)
|
|
|
62,975
|
|
Non-facility based revenue
|
|
|
(997
|
)
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
Total revenues, nine months ended September 30, 2010
|
|
$
|
443,844
|
|
|
$
|
948,350
|
|
|
|
|
|
|
|
|
|
|
Our systemwide revenues, which include all facilities we
operate, whether consolidated or equity method, increased 7% and
5% for the three and nine months ended September 30, 2010,
respectively, as compared to the prior year corresponding
periods due to several factors, but disproportionate expense
increases resulted in a net decrease to USPIs earnings
from its facilities. As depicted above, a major component of the
decrease in consolidated revenues was the deconsolidation of
facilities, which caused a corresponding increase in the
revenues of unconsolidated affiliates. However, operations also
were a significant factor, although differently for each of the
two groups. Despite only slight growth in case volumes, a shift
to more complex surgical cases in several equity method
facilities, and the resulting increased revenue per case,
actually caused an approximate $63.0 million increase in
the revenues of this group of facilities, whereas the
consolidated facilities experienced decreases in average
reimbursement as well as case volumes.
Facility
Growth
As described above, our systemwide revenues grew 7% and 5% in
the three and nine months ended September 30, 2010,
respectively, compared to the corresponding prior year periods.
This growth corresponds closely to the 5% and 4% increase in the
three and nine months ended September 30, 2010,
respectively, in the net revenues of our same store facilities,
which are those facilities we operated in both periods.
In the U.S., we experienced a 1% reduction in same store case
volumes during the first nine months of 2010, driven by a 2%
drop in the first quarter and essentially flat second and third
quarters. We believe this decrease could have resulted from
several factors, including changes to health insurance plans to
require more patient responsibility for healthcare expenses and
a generally soft economy. In addition, our facilities
revenues were adversely impacted by shift in payor mix, as fewer
revenues were earned from the more profitable payors. As
described above, a shift to more complex cases at several of our
larger facilities, resulted in the revenues of the same store
group increasing
year-over-year
despite the small drop in volume and the unfavorable change to
payor mix.
Our United Kingdom facilities revenues, when measured in
local currency (or constant exchange rates), declined 3% and 2%
for the three and nine months ended September 30, 2010,
respectively. These declines are largely due to a decrease in
self-pay business. Self-pay business is generally considered
more susceptible to changes in general economic conditions, as
the cost of care is borne entirely by the patient rather than
shared with private insurers or borne by the National Health
Service. While the movement of the U.S. dollar against the
British pound also affects our reported revenues, the effect has
not been material on a
year-to-date
basis in 2010.
41
The following table summarizes our same store facility revenue
growth rates, as compared to the three and nine months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
Nine Months
|
|
|
Ended
|
|
Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2010
|
|
United States facilities:
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
5
|
%
|
|
|
4
|
%
|
Surgical cases
|
|
|
|
%
|
|
|
(1
|
)%
|
Net revenue per case(1)
|
|
|
6
|
%
|
|
|
5
|
%
|
United Kingdom facilities:
|
|
|
|
|
|
|
|
|
Adjusted admissions
|
|
|
(8
|
)%
|
|
|
(6
|
)%
|
Net revenue using actual exchange rates
|
|
|
(8
|
)%
|
|
|
(2
|
)%
|
Net revenue using constant exchange rates(2)
|
|
|
(3
|
)%
|
|
|
(2
|
)%
|
All same store facilities:
|
|
|
|
|
|
|
|
|
Net revenue using actual exchange rates
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
|
(1) |
|
Our overall domestic same store growth in net revenue per case
for the three and nine months ended September 30, 2010, was
favorably impacted by the 10% growth at our thirteen same store
hospitals, which on average perform more complex cases and thus
earn a higher average net revenue per case than ambulatory
surgery centers. The net revenue per case growth at our
ambulatory surgery centers was 3% during the third quarter of
2010. |
|
(2) |
|
Calculated using 2010 exchange rates for both periods. Although
this computation represents a non-GAAP measure, we believe that
using a constant currency translation rate more accurately
reflects the trend of the business. |
Joint
Ventures With
Not-For-Profit
Hospitals
The addition of new facilities continues to be more heavily
weighted to U.S. surgical facilities with a hospital
partner, both as we initiate joint venture agreements with new
systems and as we add facilities to our existing arrangements.
Facilities have been added to hospital joint ventures both
through construction of new facilities (de novos) and through
our contribution of our equity interests in existing facilities
into a hospital joint venture structure, effectively creating
three-way joint ventures by sharing our ownership in these
facilities with a hospital partner while leaving the existing
physician ownership intact.
Consistent with this strategy, our net overall number of
facilities increased by seven from September 30, 2009 to
September 30, 2010, while the net increase in facilities
partnered with
not-for-profit
hospitals and local physicians increased by 14. All three of our
facilities under construction at September 30, 2010 involve
a hospital partner. In addition, all of our projects in the
earlier stages of development involve a hospital partner, and we
continue to explore affiliating more facilities with hospital
partners, especially for facilities in markets where we
42
already operate other facilities with a hospital partner. The
following table summarizes the facilities we operated as of
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States facilities(1):
|
|
|
|
|
|
|
|
|
With a hospital partner
|
|
|
117
|
|
|
|
103
|
|
Without a hospital partner
|
|
|
53
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
Total U.S. facilities
|
|
|
170
|
|
|
|
163
|
|
United Kingdom facilities
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total facilities operated
|
|
|
174
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
Change from September 30, 2009:
|
|
|
|
|
|
|
|
|
De novo (newly constructed)
|
|
|
4
|
|
|
|
|
|
Acquisition
|
|
|
8
|
|
|
|
|
|
Disposals(2)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in number of facilities
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At September 30, 2010, physicians own a portion of all of
these facilities. |
|
(2) |
|
We sold our ownership interests in facilities in Baton Rouge,
Louisiana and Oxnard, California. We merged two of our surgery
centers into one location in Dallas, Texas and also merged two
of our surgery centers into one location in Ohio. |
Facility
Operating Margins
Same store U.S. facility operating margins decreased
110 basis points in the nine months ended
September 30, 2010 as compared to 2009. The decrease was
broad-based, and was largely due to lower case volumes that were
not offset by a proportionate decrease in operating expenses,
although the third quarter decrease of 30 basis points and
the second quarter decrease of 40 basis points was far less
than the first quarter 240 basis point drop. Continuing a
trend we experienced in 2008 and 2009, the
year-over-year
change in the operating margins of facilities partnered with a
not-for-profit
healthcare system was more favorable (or, in the case of the
three and nine months ended September 30, 2010, less
unfavorable) than the change experienced by the facilities that
do not have a hospital partner.
With respect to the actual operating income margins our
facilities are generating, the composition of our acquisition
and development activities continues to result in the
hospital-partnered group of facilities having a lower average
operating margin than the group operating without a hospital
partner. This is due in large part to the fact that virtually
all of our newly developed facilities have a hospital partner.
As they
ramp-up
their operations, these facilities earn lower margins in their
first few years than more mature facilities, which unfavorably
impacts the overall margin of the hospital-partnered group of
facilities. This relationship can change depending on which
facilities we succeed in partnering with a
not-for-profit
hospital.
Our U.K. facilities, which comprise four of our 174 facilities
at September 30, 2010, experienced a decrease in overall
facility margins in the nine months ended September 30,
2010 as compared to the prior year period, also due to lower
volumes that were not offset by a proportionate decrease in
operating expenses.
43
The following table summarizes the
year-over-year
changes in our same store facility operating margins (see
footnote 1 below), comparing the three and nine months ended
September 30, 2010 to the three and nine months ended
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2010
|
|
(Decrease)
|
|
September 30, 2010
|
|
(Decrease)
|
|
United States facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With a hospital partner
|
|
|
25.4
|
%
|
|
|
bps
|
|
|
|
25.2
|
%
|
|
|
(80) bps
|
|
Without a hospital partner
|
|
|
30.5
|
%
|
|
|
(140) bps
|
|
|
|
31.2
|
%
|
|
|
(150) bps
|
|
Total U.S. facilities
|
|
|
26.4
|
%
|
|
|
(30) bps
|
|
|
|
26.4
|
%
|
|
|
(110) bps
|
|
United Kingdom facilities(2)
|
|
|
21.7
|
%
|
|
|
(100) bps
|
|
|
|
23.5
|
%
|
|
|
(110) bps
|
|
|
|
|
(1) |
|
Operating margin is calculated as operating income divided by
total revenues. This table aggregates all of the same store
facilities we operate using 100% of their results. This does not
represent the overall margin for USPIs operations in
either the U.S. or the U.K. because we have a variety of
ownership levels in the facilities we operate, and facilities
open for less than a year are excluded from same store
calculations. |
|
(2) |
|
Calculated using 2010 exchange rates for both periods. Although
this computation represents a non-GAAP measure, we believe that
using a constant currency translation rate more accurately
reflects the trend of the business. In addition, the
$1.0 million unfavorable impact of a payment of value-added
tax in the first quarter of 2010 has been excluded from U.K.
same store facility operating margins. The favorable impact of
this value-added tax recorded in the second quarter of 2009 was
also excluded. |
Three
Months Ended September 30, 2010 Compared to Three Months
Ended September 30, 2009
Revenues decreased by $3.6 million, or 2.4%, to
$148.8 million for the three months ended
September 30, 2010 from $152.4 million for the three
months ended September 30, 2009. Approximately
$1.9 million of this decrease was the result of our selling
a partial interest in two of our consolidated facilities, which
resulted in our deconsolidating the facilities; this effect was
partially offset by an increase in revenues of approximately
$2.6 million due to acquisition activity and other changes.
Due to lower case volumes, our consolidated centers experienced
a decrease in revenues of approximately $2.9 million.
Revenues were also negatively affected by an approximate
$1.4 million decrease in our U.K. revenues as the result of
the British pound weakening against the U.S. dollar.
Equity in earnings of unconsolidated affiliates increased by
$2.3 million, or 15.7%, to $17.2 million for the three
months ended September 30, 2010 from $14.9 million for
the three months ended September 30, 2009. This increase in
equity in earnings was primarily driven by same store growth
($0.9 million), acquisitions of additional facilities we
account for under the equity method ($1.3 million) and
deconsolidations of facilities ($0.1 million). The number
of facilities we account for under the equity method increased
by eight from September 30, 2009 to September 30, 2010.
Operating expenses, excluding depreciation and amortization,
increased by $4.5 million, or 4.4% to $107.7 million
for the three months ended September 30, 2010 from
$103.2 million for the three months ended
September 30, 2009, primarily due to reductions in expenses
resulting from our deconsolidating two facilities and cost
saving measures being employed across our facilities due to
lower case volumes being more than offset by a $6.0 million
payment related to a prior acquisition and option on a potential
acquisition. Operating expenses, excluding depreciation and
amortization, as a percentage of revenues, increased to 72.4%
(68.3% excluding the $6.0 million payment) for the three
months ended September 30, 2010 from 67.7% for the three
months ended September 30, 2009.
Depreciation and amortization decreased $0.5 million, or
5.2%, to $8.3 million for the three months ended
September 30, 2010 from $8.7 million for the three
months ended September 30, 2009. Depreciation and
amortization, as a percentage of revenues, was approximately
5.6% and 5.8% for the three months ended September 30, 2010
and September 30, 2009, respectively.
44
Operating income decreased $5.3 million, or 9.6%, to
$50.0 million for the three months ended September 30,
2010 from $55.4 million for the three months ended
September 30, 2009, primarily as a result the
$6.0 million payment noted above. Excluding this payment,
the operating income increase of $0.7 million was largely
driven by cost saving measures and revenue increases associated
with an increase in the complexity of cases performed at both
our consolidated and unconsolidated facilities more than
offsetting the adverse impact of flat case volumes. These
factors, which decreased our revenues and expenses but increased
our equity in earnings of unconsolidated affiliates, drove a net
change in operating income, as a percentage of revenues, to
33.6% (37.7% excluding the $6.0 million payment) for the
three months ended September 30, 2010 from 36.3% for the
three months ended September 30, 2009.
Provision for income taxes was $7.2 million for the three
months ended September 30, 2010 as compared to an income
tax benefit of $24.1 million for the three months ended
September 30, 2009. Our income taxes for the three months
ended September 30, 2009, included a $31.5 million tax
benefit related to our reversing the valuation allowance against
a majority of our U.S. deferred tax assets. During the
third quarter of 2009, we determined it was more likely than not
that we would generate taxable income to recover these assets in
future periods.
The decrease in case volumes described herein was the primary
driver in the $0.5 million
year-over-year
decrease in net income attributable to noncontrolling interests.
Overall, cost saving measures and increases in average revenue
per case mostly offset the adverse effect of lower case volumes
on our pretax income. The absence of the income tax benefit
recorded in 2009 and the $6.0 million payment recorded in
the third quarter of 2010 were the primary drivers in our net
income attributable to USPIs common stockholder decreasing
by $26.9 million during the three months ended
September 30, 2010 compared to the corresponding prior year
period.
Nine
Months Ended September 30, 2010 Compared to Nine Months
Ended September 30, 2009
Revenues decreased by $22.0 million, or 4.7%, to
$443.8 million for the nine months ended September 30,
2010 from $465.9 million for the nine months ended
September 30, 2009. Approximately $13.0 million of
this decrease was the result of our selling a partial interest
in five of our consolidated facilities, which resulted in our
deconsolidating the facilities; this effect was partially offset
by a net $4.8 million increase related to acquisition
activity and other changes. Due to lower case volumes, our
consolidated centers experienced a decrease in revenues of
approximately $13.5 million. Revenues were also negatively
affected by an approximate $0.3 million decrease in our
U.K. revenues as the result of the British pound weakening
against the U.S. dollar.
Equity in earnings of unconsolidated affiliates increased by
$6.6 million, or 15.4% to $49.8 million for the nine
months ended September 30, 2010 from $43.1 million for
the nine months ended September 30, 2009. This increase in
equity in earnings was primarily driven by same store growth
($3.5 million), acquisitions of additional facilities we
account for under the equity method ($2.8 million) and
deconsolidation of facilities ($0.3 million). The number of
facilities we account for under the equity method increased by
eight from September 30, 2009 to September 30, 2010.
Operating expenses, excluding depreciation and amortization,
decreased by $4.4 million, or 1.4%, to $308.9 million
for the nine months ended September 30, 2010 from
$313.3 million for the nine months ended September 30,
2009, primarily due to our deconsolidating five facilities,
mostly offset by an increase in operating expenses related to
the $6.0 million payment noted above. Operating expenses,
excluding depreciation and amortization, as a percentage of
revenues, increased to 69.5% for the nine months ended
September 30, 2010 from 67.2% for the nine months ended
September 30, 2009. This increase as a percentage of
revenues is primarily attributable the $6.0 million payment
and to our not reducing staffing and supply costs at our
facilities in proportion to the lower case volumes we
experienced during the first nine months of 2010, particularly
during the first quarter of 2010. Our results were also affected
by a $1.0 million expense accrued in March 2010 due to the
British tax authority reversing its position on a value-added
tax refund awarded to our U.K. subsidiary in the second quarter
of 2009.
Depreciation and amortization decreased $1.5 million, or
5.7%, to $25.1 million for the nine months ended
September 30, 2010 from $26.6 million for the nine
months ended September 30, 2009, primarily due to the
deconsolidation of five facilities. Depreciation and
amortization, as a percentage of revenues, was constant at
approximately 5.7% for the nine months ended September 30,
2010 and September 30, 2009.
45
Operating income decreased $9.5 million, or 5.6%, to
$159.6 million for the nine months ended September 30,
2010 from $169.1 million for the nine months ended
September 30, 2009, primarily as a result of the
$6.0 million payment noted above and lower case volumes.
Operating income, as a percentage of revenues, was 36.0% (37.3%
excluding the $6.0 million payment) for the nine months
ended September 30, 2010 compared to 36.3% for the nine
months ended September 30, 2009.
Interest expense, net of interest income, was $52.4 million
for the nine months ended September 30, 2010 as compared to
$51.1 million for the nine months ended September 30,
2009. While market interest rates and our debt balance were
lower in the third quarter of 2010 than in the third quarter
2009, the $1.3 million increase can primarily be attributed
to a $0.8 million interest income on a settlement we
received in the second quarter of 2009 from the British tax
authority related to the VAT noted above, whereas in the first
quarter of 2010, we recorded a $0.8 million expense as the
British tax authority reclaimed the amount.
Other expense, net of other income increased by
$19.4 million for the nine months ended September 30,
2010 from the nine months ended September 30, 2009
primarily as the result of activity in 2009 that included an
$13.5 million pretax loss related to the deconsolidation of
two facilities and the sale of two other facilities during the
first nine month of 2009. We also recorded a charge of
$4.4 million related to two management contract intangible
assets that were impaired during the third quarter of 2009.
Provision for income taxes was $24.7 million for the nine
months ended September 30, 2010 compared to an income tax
benefit of $9.5 million for the nine months ended
September 30, 2009. Our income taxes for the nine months
ended September 30, 2009, included a $31.5 million tax
benefit related to our reversing the valuation allowance against
a majority of our U.S. deferred tax assets. During the
third quarter of 2009, we determined it was more likely than not
that we would generate taxable income to recover these assets in
future periods.
The decrease in case volumes described herein was the primary
driver in the $4.1 million
year-over-year
decrease in net income attributable to noncontrolling interests.
This factor, together with the adverse effect of a drop in
volumes in the first quarter of 2010, decreased net income, but
overall $1.8 million of expense related to reversal of the
value-added tax refund, the $6.0 million payment and the
absence in the current year of significant losses from disposals
and deconsolidations, which totaled $13.5 million,
impairment charges of $4.4 million during the first nine
months of 2009, offset by the reversal of the deferred tax asset
valuation allowance of $31.5 million resulted in the
$25.5 million
year-over-year
decrease in net income and the $21.4 million decrease in
net income attributable to USPIs common stockholder.
Liquidity
and Capital Resources
Cash
Flows
During the nine months ended September 30, 2010, the
Company generated $142.1 million of cash flows from
operating activities as compared to $145.2 million during
the nine months ended September 30, 2009. Cash flows from
operating activities decreased $3.0 million, or 2.1%, from
the prior year period.
During the nine months ended September 30, 2010, the
Companys net cash used in investing activities was
$34.7 million, consisting primarily of $29.2 million
used for purchases of property and equipment. Approximately
$14.1 million of property and equipment purchases were
related to ongoing development projects, and the remaining
$15.1 million represented purchases of equipment at
existing facilities. Net cash used in financing activities for
the nine months ended September 30, 2010 totaled
$81.7 million and resulted primarily from net payments on
long-term debt of $29.6 million, distributions to
noncontrolling interests of $45.1 million and a net
decrease in cash held on behalf of noncontrolling interests of
$21.2 million.
Cash and cash equivalents were $60.7 million at
September 30, 2010 as compared to $34.9 million at
December 31, 2009, and the net working capital deficit was
$91.8 million at September 30, 2010 as compared to
$113.0 million at December 31, 2009. The overall
negative working capital position at September 30, 2010 and
December 31, 2009 is primarily the result of
$109.2 million and $129.3 million due to affiliates,
respectively, associated with our practice of holding our
unconsolidated facilities cash. As discussed below, we
have sufficient availability under our credit facility, together
with our operating cash flows, to service our obligations.
46
Debt
We intend to fund our ongoing capital and working capital
requirements through a combination of cash flows from operations
and borrowings under our $85.0 million revolving credit
facility. We believe that funds generated by operations and
funds available under the revolving credit facility will be
sufficient to meet working capital requirements over at least
the next 12 months. However, in the future, we may have to
incur additional debt or issue additional debt or equity
securities from time to time. We may be unable to obtain
sufficient financing on satisfactory terms or at all.
One of our consolidated entities is developing and constructing
a new hospital which is expected to be completed in the first
quarter of 2011. The total project cost is approximately
$26.2 million which is being funded by cash contributions
from its partners and debt financing. The entity has arranged
bank financing totaling $17.4 million. Approximately
$7.6 million of the bank financing was borrowed at
September 30, 2010. We have made our required cash
contribution based on the projects estimated cost.
We and our subsidiaries, affiliates (subject to certain
limitations imposed by existing indebtedness), or significant
stockholders, in their sole discretion, may from time to time,
purchase, redeem, exchange or retire any of our outstanding debt
in privately negotiated or open market purchases, or otherwise.
Such transactions will depend on prevailing market conditions,
our liquidity requirements, contractual restrictions and other
factors.
Senior
secured credit facility
The senior secured credit facility (credit facility) provides
for borrowings of up to $615.0 million (with a
$150.0 million accordion feature described below),
consisting of (1) an $85.0 million revolving credit
facility with a maturity of six years, including a
$20.0 million letter of credit
sub-facility,
and a $20.0 million swing-line loan
sub-facility;
and (2) a $530.0 million term loan facility (including
a $100.0 million delayed draw facility) with a maturity of
seven years. We have utilized the availability under the
$530.0 million term loan facility and are making scheduled
quarterly principal payments. At September 30, 2010, we had
approximately $83.4 million available for borrowing under
the revolving credit facility, representing the facilitys
$85.0 million capacity, net of $1.6 million of
outstanding letters of credit. On November 5, 2010, we
borrowed $25.0 million under our revolving credit agreement
to fund our acquisition of HealthMark.
We may request additional tranches of term loans or additional
commitments to the revolving credit facility in an aggregate
amount not exceeding $150.0 million, subject to certain
conditions. Interest rates on the credit facility are based on
LIBOR plus a margin of 2.00% to 2.25%. Additionally, we
currently pay quarterly commitment fees of 0.50% per annum on
the daily-unused commitment of the revolving credit facility. We
also currently pay a quarterly participation fee of 2.13% per
annum related to outstanding letters of credit. The term loans
under the credit facility require principal payments each year
in an amount of $4.3 million per annum in equal quarterly
installments and $0.2 million per quarter with respect to
the delayed draw facility. No principal payments are required on
the revolving credit facility. At September 30, 2010, we
had $509.8 million of debt outstanding under the credit
facility at a weighted average interest rate of approximately
3.6%.
The credit facility is guaranteed by USPI Holdings, Inc. and its
current and future direct and indirect wholly-owned domestic
subsidiaries, subject to certain exceptions, and borrowings
under the credit facility are secured by a first priority
security interest in all real and personal property of these
subsidiaries, as well as a first priority pledge of our capital
stock, the capital stock of each of our wholly-owned domestic
subsidiaries and 65% of the capital stock of certain of our
wholly-owned foreign subsidiaries. Additionally, the credit
facility contains various restrictive covenants, including
financial covenants that limit our ability and the ability of
our subsidiaries to borrow money or guarantee other
indebtedness, grant liens, make investments, sell assets, pay
dividends, enter into sale-leaseback transactions or issue and
sell capital stock. We believe we were in compliance with these
covenants as of September 30, 2010.
Senior
subordinated notes
Also in connection with the merger, we issued
$240.0 million of
87/8% senior
subordinated notes and $200.0 million of
91/4%/10% senior
subordinated toggle notes (together, the Notes), all due in
2017. Interest on
47
the Notes is payable on May 1 and November 1 of each year, which
commenced on November 1, 2007. All interest payments on the
senior subordinated notes are payable in cash. The initial
interest payment on the toggle notes was payable in cash. For
any interest period after November 1, 2007 through
November 1, 2012, we may pay interest on the toggle notes
(i) in cash, (ii) by increasing the principal amount
of the outstanding toggle notes or by issuing
payment-in-kind
notes (PIK Interest) or (iii) by paying interest on half
the principal amount of the toggle notes in cash and half in PIK
Interest. PIK Interest is paid at 10% and cash interest is paid
at
91/4%
per annum. To date, we have paid all interest payments in cash.
At September 30, 2010, we had $437.5 million of Notes
outstanding. The Notes are unsecured senior subordinated
obligations of our company; however, the Notes are guaranteed by
all of our current and future direct and indirect wholly-owned
domestic subsidiaries. Additionally, the Notes contain various
restrictive covenants, including financial covenants that limit
our ability and the ability of our subsidiaries to borrow money
or guarantee other indebtedness, grant liens, make investments,
sell assets, pay dividends, enter into sale-leaseback
transactions or issue and sell capital stock. We believe we were
in compliance with these covenants as of September 30, 2010.
United
Kingdom borrowings
In April 2007, we entered into an amended and restated credit
agreement, which covered our existing overdraft facility and
term loan facility (Term Loan A). This agreement provides a
total overdraft facility of £2.0 million, and an
additional Term Loan B facility of £10 million, which
was drawn in April 2007. In March 2008, we further amended our
U.K. Agreement to provide for a £2.0 million Term Loan
C facility. We borrowed the entire £2.0 million in
March 2008 to acquire property adjacent to one of our hospitals
in London. In June 2009, we renewed our overdraft facility.
Under the renewal, we must pay a commitment fee of 0.5% per
annum on the unused portion of the overdraft facility each
quarter. Excluding availability on the overdraft facility, no
additional borrowings can be made under the Term Loan A, B or C
facilities. At September 30, 2010, we had approximately
£37.9 million ($59.6 million) outstanding under
the U.K. credit facility at a weighted average interest rate of
approximately 4.5%.
Interest on the borrowings is based on a three-month or
six-month LIBOR, or other rate as the bank may agree, plus a
margin of 1.25% to 1.50%. Quarterly principal payments are
required on the Term Loan A, which began in June 2007, and
approximate $4.7 million in the first and second year,
$6.3 million in the third and fourth year;
$7.9 million in the fifth year, with the remainder due in
the sixth year after the April 2007 closing. The Term Loan B
does not require any principal payments prior to maturity and
matures in 2013. The Term Loan C requires quarterly principal
payments of approximately £0.1 million
($0.2 million), which began in June 2008 and continue
through its maturity date of February 2013 when the final
payment of £0.5 million ($0.8 million) is due.
The borrowings are guaranteed by certain of our subsidiaries in
the United Kingdom with a security interest in various assets,
and a pledge of the capital stock of the U.K. borrowers and the
capital stock of certain guarantor subsidiaries. The Agreement
contains various restrictive covenants, including financial
covenants that limit our ability and the ability of certain U.K.
subsidiaries to borrow money or guarantee other indebtedness,
grant liens on our assets, make investments, use assets as
security in other transactions, pay dividends, enter into leases
or sell assets or capital stock. We believe we were in
compliance with these covenants as of September 30, 2010.
We also have the ability to borrow under a capital asset finance
facility in the U.K. of up to £2.5 million
($3.9 million). The exact terms and payments are negotiated
upon a draw on the facility. We borrowed against the facility in
June 2010 and have £1.2 million ($1.8 million)
outstanding at September 30, 2010. The terms of the
borrowing require monthly principal and interest payments over
48 months. We have pledged capital assets as collateral
against this borrowing.
48
Contractual
Cash Obligations
Our contractual cash obligations as of September 30, 2010
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Within
|
|
|
Years
|
|
|
Years
|
|
|
Beyond
|
|
Contractual Cash Obligations
|
|
Total
|
|
|
1 Year
|
|
|
2 and 3
|
|
|
4 and 5
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured credit facility(1)
|
|
$
|
509,761
|
|
|
$
|
5,265
|
|
|
$
|
10,530
|
|
|
$
|
493,966
|
|
|
$
|
|
|
Senior subordinated notes, due 2017(1)
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
Senior subordinated toggle notes, due 2017(1)
|
|
|
197,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,515
|
|
U.K. credit facility(1)
|
|
|
57,755
|
|
|
|
10,462
|
|
|
|
47,293
|
|
|
|
|
|
|
|
|
|
Other debt at operating subsidiaries(1)
|
|
|
30,314
|
|
|
|
6,227
|
|
|
|
8,177
|
|
|
|
11,754
|
|
|
|
4,156
|
|
Interest on long-term debt obligations(2)
|
|
|
336,709
|
|
|
|
61,254
|
|
|
|
119,559
|
|
|
|
89,489
|
|
|
|
66,407
|
|
Capitalized lease obligations(3)
|
|
|
49,367
|
|
|
|
7,960
|
|
|
|
11,633
|
|
|
|
7,394
|
|
|
|
22,380
|
|
Operating lease obligations
|
|
|
82,739
|
|
|
|
14,474
|
|
|
|
24,406
|
|
|
|
16,013
|
|
|
|
27,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
1,504,160
|
|
|
$
|
105,642
|
|
|
$
|
221,598
|
|
|
$
|
618,616
|
|
|
$
|
558,304
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
(1) |
|
Scheduled principal payments |
|
(2) |
|
Represents interest due on long-term debt obligations. For
variable rate debt, the interest is calculated using the
September 30, 2010 rates applicable to each debt instrument
and also gives effect to the interest rate swaps designated in a
cash flow hedging relationship against portions of the U.K.
credit facility and senior secured credit facility in the U.S. |
|
(3) |
|
Includes related principal and interest. |
Debt
at Operating Subsidiaries
Our operating subsidiaries, many of which have minority owners
who share in the cash flow of these entities, have debt
consisting primarily of capitalized lease obligations. This debt
is generally non-recourse to USPI, the parent company, and is
generally secured by the assets of those operating entities. The
total amount of these obligations, which was approximately
$58.8 million at September 30, 2010, is included in
our consolidated balance sheet because the borrower or obligated
entity meets the requirements for consolidated financial
reporting. Our average percentage ownership, weighted based on
the individual subsidiarys amount of debt and capitalized
lease obligations, of these consolidated subsidiaries was 48% at
September 30, 2010. Similar to our consolidated facilities,
our unconsolidated facilities have debts, including capitalized
lease obligations, that are generally non-recourse to USPI. With
respect to our unconsolidated facilities, these debts are not
included in our consolidated financial statements. At
September 30, 2010, the total debt on the balance sheets of
our unconsolidated affiliates was approximately
$290.2 million. Our average percentage ownership, weighted
based on the individual affiliates amount of debt, of
these unconsolidated affiliates was 25% at September 30,
2010. USPI or one of its wholly-owned subsidiaries had
collectively guaranteed $17.0 million of the
$290.2 million in total debt of our unconsolidated
affiliates as of September 30, 2010. In addition, our
unconsolidated affiliates have obligations under operating
leases, of which USPI or a wholly-owned subsidiary had
guaranteed $13.8 million as of September 30, 2010, of
which $8.5 million represents guarantees of two facilities
we have sold. We have full recourse to the buyers with respect
to such amounts. Some of the facilities we are currently
developing will be accounted for under the equity method. As
these facilities become operational, they will have debt and
lease obligations.
In connection with our acquisition of equity interests in a
surgery center in 2007, we had the option to purchase additional
ownership in the facility during a specified time period in the
purchase agreement. If we did not exercise
49
the purchase option, we were required to pay an option
termination fee, which was equal to the lesser of an EBITDA
calculation, as specified in the purchase agreement, or
$2.5 million. We elected to purchase only a portion of the
ownership as stated in the agreement and therefore paid a
$1.5 million termination fee in 2009. The parties agreed to
another purchase option that can be exercised at any time during
the 60 day period following September 30, 2011 or the
remaining $1.0 million option termination fee would be
required to be paid.
In addition, our U.K. subsidiary has begun expanding our
Parkside hospital, already our largest facility. Located outside
London in the Wimbledon area, this facilitys expansion is
expected to cost approximately £11.5 million
($18.1 million). The expansion of the outpatient clinic was
completed in August 2010 and the refurbishment of a portion of
the hospital is expected to be completed by the first quarter of
2011.
Related
Party Transactions
Included in general and administrative expenses are management
fees payable to an affiliate of Welsh Carson, which holds a
controlling interest in our company, in the amount of
$0.5 million and $1.5 million for the three month and
nine months ended September 30, 2010 and 2009,
respectively. Such amounts accrue at an annual rate of
$2.0 million. We pay $1.0 million in cash per year
with the unpaid balance due and payable upon a change in
control. At September 30, 2010, we had approximately
$4.0 million accrued related to such management fee, of
which $0.5 million is included in other current liabilities
and $3.5 million is included in other long-term liabilities
in the accompanying consolidated balance sheet.
|
|
ITEM 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market risk represents the risk of loss that may impact our
financial position, results of operations or cash flows due to
adverse changes in interest rates and other relevant market
risks. Our primary market risk is a change in interest rates
associated with variable-rate borrowings. Historically, we have
not held or issued derivative financial instruments other than
the use of
variable-to-fixed
interest rate swaps for portions of our borrowings under credit
facilities with commercial lenders as required by credit
agreements. We do not use derivative instruments for speculative
purposes. The interest rate swaps serve to stabilize our cash
flow and expense but ultimately may cost more or less in
interest than if we had carried all of our debt at a variable
rate over the swap term.
As further discussed in Note 5 to the accompanying
consolidated financial statements, in order to manage interest
rate risk related to a portion of our variable-rate U.K. debt,
on February 29, 2008, we entered into an interest rate swap
agreement for a notional amount of £20.0 million
($31.5 million). The interest rate swap requires us to pay
4.99% and to receive interest at a variable rate of three-month
GBP-LIBOR (0.7% at September 30, 2010), which is reset
quarterly. The interest rate swap expires in March 2011. No
collateral is required under the interest rate swap agreement.
As of September 30, 2010, the rate under our swap agreement
was unfavorable compared to the market.
Additionally, effective July 24, 2008, in order to manage
interest rate risk related to a portion of our variable-rate
U.S. senior secured credit facility, we entered into an
interest rate swap agreement for a notional amount of
$200.0 million. The interest rate swap requires us to pay
3.6525% and to receive interest at a variable rate of
three-month USD-LIBOR (0.5% at September 30, 2010), which
is paid and reset on a quarterly basis. The interest rate swap
expires in July 2011. No collateral is required under the
interest rate swap agreement. As of September 30, 2010, the
rate under our swap agreement was unfavorable compared to the
market.
At September 30, 2010, the fair values of the U.K. and
U.S. interest rate swaps were current liabilities of
approximately $0.6 million and $5.1 million,
respectively. The estimated fair value of the interest rate
swaps was determined using present value models of the
contractual payments. Inputs to the models were based on
prevailing LIBOR market data and incorporate credit data that
measure nonperformance risk. The estimated fair value represents
the theoretical exit cost we would have to pay to transfer the
obligations to a market participant with similar credit risk.
Our financing arrangements with many commercial lenders are
based on the spread over Prime or LIBOR. At September 30,
2010, $699.3 million of our outstanding debt was in fixed
rate instruments and the remaining $337.9 million was in
variable rate instruments. Accordingly, a hypothetical
100 basis point increase in market interest rates would
result in additional annual expense of approximately
$3.4 million.
50
Our United Kingdom revenues are a significant portion of our
total revenues. We are exposed to risks associated with
operating internationally, including foreign currency exchange
risk and taxes and regulatory changes. Our United Kingdom
facilities operate in a natural hedge to a large extent because
both expenses and revenues are denominated in the local
currency. Additionally, our borrowings in the United Kingdom are
currently denominated in the local currency. Historically, the
cash generated from our operations in the United Kingdom has
been utilized within that country to finance development and
acquisition activity as well as for repayment of debt
denominated in the local currency. Accordingly, we have not
generally utilized financial instruments to hedge our foreign
currency exchange risk.
|
|
ITEM 4.
|
Controls
and Procedures
|
The Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial
Officer, have evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined by applicable SEC
rules) as of the end of the period covered by this Quarterly
Report on
Form 10-Q.
Based upon that evaluation, the Chief Executive Officer and the
Chief Financial Officer have concluded that, as of the end of
such period, the Companys disclosure controls and
procedures are effective in bringing to their attention on a
timely basis material information relating to the Company
(including its consolidated subsidiaries) required to be
included in the Companys periodic filings with the SEC.
There have been no significant changes in the Companys
internal controls over financial reporting (as defined by
applicable SEC rules) that occurred during the Companys
fiscal quarter ended September 30, 2010 that have
materially affected or are reasonably likely to materially
affect the Companys internal controls over financial
reporting.
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
Legal
Proceedings
|
From time to time the Company may be named as a party to legal
claims and proceedings in the ordinary course of business. The
Companys management is not aware of any claims or
proceedings that might have a material adverse impact on the
Company.
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (previously
filed as an exhibit to the Companys 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 Companys Registration Statement on Form S-4 (No.
333-144337) and incorporated herein by reference).
|
|
4
|
.1
|
|
Indenture governing
87/8% Senior
Subordinated Notes due 2017 and 9
1/4%/10% Senior
Subordinated Toggle Notes due 2017, among the Company, the
Guarantors named therein and U.S. Bank National Association, as
trustee (previously filed as an exhibit to the Companys
Registration Statement on Form S-4
(No. 333-144337)
and incorporated herein by reference).
|
|
4
|
.2
|
|
Form of
87/8% Senior
Subordinated Note due 2017 and 9
1/4%/10% Senior
Subordinate Toggle Note due 2017 (previously filed as an exhibit
to the Companys 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.
|
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Surgical Partners International, Inc.
Mark A. Kopser
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: November 9, 2010
|
|
|
|
By:
|
/s/ J.
Anthony Martin
|
J. Anthony Martin
Vice President, Corporate Controller,
and Chief Accounting Officer
(Principal Accounting Officer)
52
Exhibit Index
|
|
|
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation (previously
filed as an exhibit to the Companys 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 Companys 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 Companys
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 Companys 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
|
53