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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended June 30, 2004
 
or
 
o
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the transition period from           to

Commission file number 000-32837

United Surgical Partners International, Inc.

(Exact name of registrant as specified in its charter)
     
Delaware
   75-2749762
(State or other jurisdiction of incorporation or organization)   (IRS Employer
Identification Number)
 
15305 Dallas Parkway, Suite 1600
Addison, Texas		   75001
(Zip Code)
(Address of principal executive offices)    

(972) 713-3500

(Registrant’s telephone number, including area code)

     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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

      At July 26, 2004 there were 28,327,800 shares of Common Stock outstanding.

UNITED SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

         
 PART I. Financial Information
   Financial Statements (unaudited)   2
     Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003.   2
     Consolidated Statements of Income for the three months and six months ended June 30, 2004 and 2003.   3
     Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2004 and 2003.   4
     Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003   5
     Notes to Consolidated Financial Statements   6
   Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
   Quantitative and Qualitative Disclosures About Market Risk   27
   Controls and Procedures   28
 
       
PART II. Other Information
   Legal Proceedings   28
   Submission of Matters to a Vote of Security Holders   29
   Exhibits and Reports on Form 8-K   29
 
       
Signatures   31
 Certification of Chief Executive Officer Pursuant to Section 302
 Certification of Chief Financial Officer Pursuant to Section 302
 Certification of Chief Executive Officer Pursuant to Section 906
 Certification of Chief Financial Officer Pursuant to Section 906

Note:  Items 2, 3, and 5 of Part II are omitted because they are not applicable.

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PART I. FINANCIAL INFORMATION

 
Item 1. Financial Statements

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited — in thousands, except per share amounts)
                     
June 30, December 31,
2004 2003
ASSETS
Cash and cash equivalents
  $ 43,162     $ 28,519  
Patient receivables, net of allowance for doubtful accounts of $9,830 and $8,838, respectively
    64,783       56,591  
Other receivables
    21,995       20,168  
Inventories of supplies
    9,433       9,024  
Deferred tax asset, net
    8,036       6,747  
Prepaids and other current assets
    14,838       12,548  
     
     
 
   
Total current assets
    162,247       133,597  
Property and equipment, net
    372,412       348,063  
Investments in affiliates
    37,492       32,104  
Intangible assets, net
    338,963       326,645  
Other assets
    19,215       30,100  
     
     
 
   
Total assets
  $ 930,329     $ 870,509  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
  $ 34,662     $ 36,453  
Accrued salaries and benefits
    23,605       19,609  
Due to affiliates
    5,335       5,490  
Accrued interest
    2,011       1,739  
Current portion of long-term debt
    22,519       16,794  
Other accrued expenses
    29,398       23,555  
     
     
 
   
Total current liabilities
    117,530       103,640  
Long-term debt, less current portion
    305,644       287,950  
Other long-term liabilities
    6,697       8,327  
Deferred tax liability, net
    35,106       33,979  
     
     
 
   
Total liabilities
    464,977       433,896  
Minority interests
    49,749       45,958  
Stockholders’ equity:
               
 
Common stock, $0.01 par value; 200,000 shares authorized; 28,331 and 27,705 shares issued at June 30, 2004 and December 31, 2003, respectively
    283       277  
 
Additional paid-in capital
    339,652       330,519  
 
Treasury stock, at cost, 29 and 52 shares at June 30, 2004 and December 31, 2003, respectively
    (611 )     (986 )
 
Deferred compensation
    (6,499 )     (4,548 )
 
Receivables from sales of stock
    —       (1 )
 
Accumulated other comprehensive income, net of tax
    29,720       32,852  
 
Retained earnings
    53,058       32,542  
     
     
 
   
Total stockholders’ equity
    415,603       390,655  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 930,329     $ 870,509  
     
     
 

See accompanying notes to consolidated financial statements.

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited — in thousands, except per share amounts)
                                   
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Net patient service revenue
  $ 120,248     $ 98,094     $ 238,180     $ 188,564  
Management and administrative services revenue
    9,703       9,161       19,207       17,198  
Equity in earnings of unconsolidated affiliates
    5,149       3,265       10,459       5,806  
Other income
    966       1,024       1,942       2,035  
     
     
     
     
 
 
Total revenue
    136,066       111,544       269,788       213,603  
Salaries, benefits, and other employee costs
    35,465       27,407       69,577       52,903  
Medical services and supplies
    26,348       21,129       52,407       41,032  
Other operating expenses
    23,475       19,955       46,450       37,971  
General and administrative expenses
    8,347       7,373       16,340       14,087  
Provision for doubtful accounts
    1,895       1,994       4,190       3,542  
Depreciation and amortization
    9,219       7,870       18,098       15,307  
     
     
     
     
 
 
Total operating expenses
    104,749       85,728       207,062       164,842  
     
     
     
     
 
 
Operating income
    31,317       25,816       62,726       48,761  
Interest income
    219       194       389       511  
Interest expense
    (7,919 )     (6,860 )     (15,443 )     (13,734 )
Other
    23       103       30       109  
     
     
     
     
 
 
Total other expense, net
    (7,677 )     (6,563 )     (15,024 )     (13,114 )
 
Income before minority interests
    23,640       19,253       47,702       35,647  
Minority interests in income of consolidated subsidiaries
    (7,336 )     (6,178 )     (15,486 )     (11,188 )
     
     
     
     
 
 
Income before income taxes
    16,304       13,075       32,216       24,459  
Income tax expense
    (5,793 )     (4,902 )     (11,702 )     (9,164 )
     
     
     
     
 
 
Net income
  $ 10,511     $ 8,173     $ 20,514     $ 15,295  
     
     
     
     
 
Net income per share attributable to common stockholders
                               
 
Basic
  $ 0.38     $ 0.30     $ 0.74     $ 0.57  
 
Diluted
  $ 0.36     $ 0.29     $ 0.70     $ 0.55  
Weighted average number of common shares
                               
 
Basic
    27,865       27,064       27,793       27,055  
 
Diluted
    29,247       27,950       29,214       27,854  

See accompanying notes to consolidated financial statements.

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited — in thousands)
                                   
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Net income
  $ 10,511     $ 8,173     $ 20,514     $ 15,295  
Other comprehensive income (loss), net of taxes:
                               
 
Foreign currency translation adjustments
    (2,419 )     9,149       (3,175 )     11,713  
 
Net unrealized gains on securities
    10       138       43       15  
     
     
     
     
 
 
Other comprehensive income (loss)
    (2,409 )     9,287       (3,132 )     11,728  
     
     
     
     
 
 
Comprehensive income
  $ 8,102     $ 17,460     $ 17,382     $ 27,023  
     
     
     
     
 

See accompanying notes to consolidated financial statements.

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UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — in thousands)
                         
Six Months Ended
June 30,
2004 2003
Cash flows from operating activities:
               
 
Net income
  $ 20,514     $ 15,295  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
   
Provision for doubtful accounts
    4,190       3,542  
   
Depreciation and amortization
    18,098       15,307  
   
Amortization of debt issue costs and discount
    1,079       905  
   
Deferred income tax expense
    624       6,575  
   
Equity in earnings of unconsolidated affiliates
    (10,459 )     (5,806 )
   
Minority interests in income of consolidated subsidiaries
    15,486       11,188  
   
Equity-based compensation
    1,692       279  
   
Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses:
               
     
Patient receivables
    (11,465 )     (11,261 )
     
Other receivables
    (1,862 )     9,919  
     
Inventories of supplies, prepaids and other current assets
    (1,414 )     (2,279 )
     
Accounts payable and other current liabilities
    6,486       2,979  
     
Long-term liabilities
    911       (1,687 )
     
     
 
       
Net cash provided by operating activities
    43,880       44,956  
     
     
 
Cash flows from investing activities:
               
 
Purchases of new businesses and equity interests, net of cash received
    (8,061 )     (35,307 )
 
Purchases of property and equipment
    (20,329 )     (20,720 )
 
Increase in deposits and notes receivable
    (2,273 )     (4,256 )
 
Cash placed in escrow
    —       (3,145 )
     
     
 
       
Net cash used in investing activities
    (30,663 )     (63,428 )
     
     
 
Cash flows from financing activities:
               
 
Proceeds from long-term debt
    9,480       37,341  
 
Payments on long-term debt
    (8,314 )     (29,006 )
 
Proceeds from issuances of common stock
    5,256       965  
 
Distributions on investments in affiliates
    (4,972 )     (3,766 )
     
     
 
       
Net cash provided by financing activities
    1,450       5,534  
     
     
 
Effect of exchange rate changes on cash
    (24 )     (189 )
     
     
 
Net increase (decrease) in cash and cash equivalents
    14,643       (13,127 )
Cash and cash equivalents at beginning of period
    28,519       47,571  
     
     
 
Cash and cash equivalents at end of period
  $ 43,162     $ 34,444  
     
     
 
Supplem