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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 September 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   (IRS Employer
incorporation or organization)   Identification Number)
 
15305 Dallas Parkway, Suite 1600   75001
Addison, Texas   (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 November 2, 2004 there were 28,490,522 shares of Common Stock outstanding.

UNITED SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

             
Page
   Financial Information        
   Financial Statements (unaudited)     2  
     Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003     2  
     Consolidated Statements of Income for the three months and nine months ended September 30, 2004 and 2003     3  
     Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2004 and 2003     4  
     Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003     5  
     Notes to Consolidated Financial Statements     6  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     18  
   Quantitative and Qualitative Disclosures About Market Risk     31  
   Controls and Procedures     32  
   Other Information        
   Legal Proceedings     33  
   Exhibits and Reports on Form 8-K     33  
 Signatures     34  
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906

Note: Items 2, 3, 4 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)
                       
September 30, 2004 December 31, 2003
ASSETS
Cash and cash equivalents
  $ 204,773     $ 28,519  
Patient receivables, net of allowance for doubtful accounts of $5,942 and $8,838, respectively
    32,715       56,591  
Other receivables
    14,229       20,168  
Inventories of supplies
    6,490       9,024  
Deferred tax asset, net
    8,704       6,747  
Prepaids and other current assets
    4,611       12,548  
     
     
 
   
Total current assets
    271,522       133,597  
Property and equipment, net
    240,358       348,063  
Investments in affiliates
    40,112       32,104  
Intangible assets, net
    312,771       326,645  
Other assets
    28,985       30,100  
     
     
 
   
Total assets
  $ 893,748     $ 870,509  
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
  $ 13,128     $ 36,453  
Accrued salaries and benefits
    21,583       19,609  
Income taxes payable
    25,998       2,921  
Due to affiliates
    9,302       5,490  
Accrued interest
    5,608       1,739  
Current portion of long-term debt
    14,253       16,794  
Other accrued expenses
    14,775       20,634  
     
     
 
   
Total current liabilities
    104,647       103,640  
Long-term debt, less current portion
    258,437       287,950  
Other long-term liabilities
    2,191       8,327  
Deferred tax liability, net
    29,902       33,979  
     
     
 
   
Total liabilities
    395,177       433,896  
Minority interests
    43,926       45,958  
Stockholders’ equity:
               
 
Common stock, $0.01 par value; 200,000 shares authorized; 28,454 and 27,705 shares issued at September 30, 2004 and December 31, 2003, respectively
    285       277  
 
Additional paid-in capital
    343,232       330,519  
 
Treasury stock, at cost, 31 and 52 shares at September 30, 2004 and December 31, 2003, respectively
    (647 )     (986 )
 
Deferred compensation
    (7,823 )     (4,548 )
 
Receivables from sales of stock
    —       (1 )
 
Accumulated other comprehensive income, net of tax
    9,556       32,852  
 
Retained earnings
    110,042       32,542  
     
     
 
     
Total stockholders’ equity
    454,645       390,655  
     
     
 
     
Total liabilities and stockholders’ equity
  $ 893,748     $ 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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net patient service revenue
  $ 87,179     $ 67,598     $ 251,934     $ 198,148  
Management and administrative services revenue
    9,089       9,482       28,296       26,681  
Equity in earnings of unconsolidated affiliates
    3,622       4,624       14,081       10,429  
Other income
    289       365       665       1,013  
     
     
     
     
 
 
Total revenue
    100,179       82,069       294,976       236,271  
Salaries, benefits, and other employee costs
    25,304       18,798       71,973       53,601  
Medical services and supplies
    16,144       12,231       45,875       35,361  
Other operating expenses
    18,292       15,472       52,477       43,938  
General and administrative expenses
    6,402       6,339       20,351       18,579  
Provision for doubtful accounts
    2,226       1,941       5,824       5,057  
Depreciation and amortization
    6,924       5,883       19,823       16,662  
     
     
     
     
 
 
Total operating expenses
    75,292       60,664       216,323       173,198  
     
     
     
     
 
 
Operating income
    24,887       21,405       78,653       63,073  
Interest income
    278       274       662       734  
Interest expense
    (6,927 )     (6,373 )     (20,169 )     (18,375 )
Loss on early termination of credit facility (Note 5)
    (1,635 )     —       (1,635 )     —  
Other
    175       589       205       697  
     
     
     
     
 
 
Total other expense, net
    (8,109 )     (5,510 )     (20,937 )     (16,944 )
 
Income before minority interests
    16,778       15,895       57,716       46,129  
Minority interests in income of consolidated subsidiaries
    (6,495 )     (5,700 )     (21,556 )     (16,614 )
     
     
     
     
 
 
Income from continuing operations before income taxes
    10,283       10,195       36,160       29,515  
Income tax expense
    (3,548 )     (3,834 )     (13,003 )     (11,084 )
     
     
     
     
 
 
Income from continuing operations
    6,735       6,361       23,157       18,431  
Discontinued operations, net of tax (Note 2):
                               
 
Income (loss) from discontinued operations
    (14 )     (785 )     4,078       2,440  
 
Net gain on disposal of Spanish operations
    50,263       —       50,263       —  
     
     
     
     
 
 
Total earnings (loss) from discontinued operations
    50,249       (785 )     54,341       2,440  
     
     
     
     
 
 
Net income
  $ 56,984     $ 5,576     $ 77,498     $ 20,871  
     
     
     
     
 
Net income per share attributable to common stockholders
                               
 
Basic:
                               
   
Continuing operations
  $ 0.24     $ 0.23     $ 0.83     $ 0.68  
   
Discontinued operations
    1.79       (0.02 )     1.95       0.09  
     
     
     
     
 
     
Total
  $ 2.03     $ 0.21     $ 2.78     $ 0.77  
     
     
     
     
 
 
Diluted:
                               
   
Continuing operations
  $ 0.23     $ 0.22     $ 0.79     $ 0.66  
   
Discontinued operations
    1.71       (0.02 )     1.86       0.08  
     
     
     
     
 
     
Total
  $ 1.94     $ 0.20     $ 2.65     $ 0.74  
     
     
     
     
 
Weighted average number of common shares
                               
 
Basic
    28,023       27,151       27,870       27,088  
 
Diluted
    29,329       28,398       29,257       28,033  

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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net income
  $ 56,984     $ 5,576     $ 77,498     $ 20,871  
Other comprehensive income (loss), net of taxes:
                               
 
Foreign currency translation adjustments
    591       2,030       (2,584 )     13,743  
 
Net unrealized gains on securities
    27       57       70       72  
Reclassifications due to sale of Spanish operations:
                               
 
Foreign currency translation adjustments
    (20,563 )     —       (20,563 )     —  
 
Net unrealized gains on securities
    (219 )     —       (219 )     —  
     
     
     
     
 
 
Other comprehensive income (loss)
    (20,164 )     2,087       (23,296 )     13,815  
     
     
     
     
 
 
Comprehensive income
  $ 36,820     $ 7,663     $ 54,202     $ 34,686  
     
     
     
     
 

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)
                           
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
               
 
Income from continuing operations
  $ 23,157     $ 18,431  
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
     
Provision for doubtful accounts
    5,824       5,057  
     
Depreciation and amortization
    19,823       16,662  
     
Amortization of debt issue costs and discount
    1,592       1,364  
     
Deferred income tax expense
    2,567       8,352  
     
Loss on early termination of credit facility
    1,635       —  
     
Equity in earnings of unconsolidated affiliates
    (14,081 )     (10,429 )
     
Minority interests in income of consolidated subsidiaries
    21,556       16,614  
     
Equity-based compensation
    2,567       2,119  
 </