United Surgical Partners International (USPI) 10-Q 2014 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨ 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 333-144337

United Surgical Partners International, Inc.

(Exact name of registrant as specified in its charter)

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

(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  ¨    No  x

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 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	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  ¨    No  x

The number of shares of Common Stock of the Registrant outstanding at November 6, 2014 was 100.

UNITED SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX

PART I. Financial Information	1
Item 1.      Financial Statements:	1
Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets (unaudited)	2
Consolidated Statements of Income (unaudited)	3
Consolidated Statements of Comprehensive Income (unaudited)	5
Consolidated Statements of Changes in Equity (unaudited)	6
Consolidated Statements of Cash Flows (unaudited)	8
Notes to Consolidated Financial Statements (unaudited)	9
Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.      Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.      Controls and Procedures	38
PART II. Other Information	39
Item 1.      Legal Proceedings	39
Item 6.      Exhibits	39
Signatures	40

Note:    Items 1A, 2, 3, 4, and 5 of Part II are omitted because they are not applicable.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder

United Surgical Partners International, Inc.:

We have reviewed the consolidated balance sheet of United Surgical Partners International, Inc. and subsidiaries (the Company) as of September 30, 2014, the related consolidated statements of income, comprehensive income and changes in equity for the three-month and nine-month periods ended September 30, 2014 and 2013, and the related consolidated statements of cash flows for the nine-month periods ended September 30, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s 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.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Surgical Partners International, Inc. and subsidiaries as of December 31, 2013, and the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for the year then ended not presented herein; and in our report dated February 26, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Dallas, Texas

November 6, 2014

1

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30, 2014		December 31, 2013
	(Unaudited)
	(In thousands — except share data)
ASSETS
Cash and cash equivalents	$	57,259	$	78,741
Available for sale securities (Note 5)		9,230		10,802
Accounts receivable, net of allowance for doubtful accounts of $10,902 and $10,236, respectively		49,667		51,608
Other receivables		24,146		24,191
Inventories of supplies		8,326		9,049
Deferred tax asset, net		22,382		22,333
Prepaids and other current assets		16,483		16,076
Total current assets		187,493		212,800
Property and equipment, net		128,496		132,474
Investments in unconsolidated affiliates		609,481		521,833
Goodwill		1,231,974		1,229,282
Intangible assets, net		367,151		356,119
Other assets		32,459		28,176
Total assets	$	2,557,054	$	2,480,684
LIABILITIES AND EQUITY
Accounts payable	$	18,588	$	17,407
Accrued salaries and benefits		29,696		28,932
Due to affiliates		166,279		184,961
Accrued interest		19,966		10,034
Current portion of long-term debt		18,940		18,916
Other current liabilities		57,314		54,949
Total current liabilities		310,783		315,199
Long-term debt, less current portion		1,481,701		1,454,692
Other long-term liabilities		36,304		36,030
Deferred tax liability, net		193,999		181,543
Total liabilities		2,022,787		1,987,464
Noncontrolling interests — redeemable (Note 3)		179,439		166,578
Commitments and contingencies (Note 8)
Equity:
United Surgical Partners International, Inc. (USPI) stockholder’s equity:
Common stock, $0.01 par value; 100 shares authorized; issued and outstanding		—		—
Additional paid-in capital		218,507		228,794
Accumulated other comprehensive income		7		10
Retained earnings		87,873		50,818
Total USPI stockholder’s equity		306,387		279,622
Noncontrolling interests — non-redeemable (Note 3)		48,441		47,020
Total equity		354,828		326,642
Total liabilities and equity	$	2,557,054	$	2,480,684

See accompanying notes to consolidated financial statements.

2

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statements of Income

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
	(Unaudited — in thousands)
Revenues:
Net patient service revenues	$	132,040		$	126,683
Management and contract service revenues		24,617			21,864
Other revenues		2,533			2,462
Total revenues		159,190			151,009
Equity in earnings of unconsolidated affiliates		27,527			20,923
Operating expenses:
Salaries, benefits, and other employee costs		44,383			40,991
Medical services and supplies		27,051			24,945
Other operating expenses		28,251			24,722
General and administrative expenses		11,718			10,396
Provision for doubtful accounts		2,918			1,599
Net loss (gain) on deconsolidations, disposals and impairments		1,419			(506	)
Depreciation and amortization		6,608			6,683
Total operating expenses		122,348			108,830
Operating income		64,369			63,102
Interest income		385			322
Interest expense		(24,082	)		(24,032	)
Other, net		(55	)		1
Total other expense, net		(23,752	)		(23,709	)
Income before income taxes		40,617			39,393
Income tax expense		(8,623	)		(7,462	)
Net income		31,994			31,931
Less: Net income attributable to noncontrolling interests		(18,518	)		(20,009	)
Net income attributable to USPI’s common stockholder	$	13,476		$	11,922

See accompanying notes to consolidated financial statements.

3

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statements of Income

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
	(Unaudited — in thousands)
Revenues:
Net patient service revenues	$	388,443		$	378,203
Management and contract service revenues		70,039			64,741
Other revenues		7,625			8,408
Total revenues		466,107			451,352
Equity in earnings of unconsolidated affiliates		73,599			63,759
Operating expenses:
Salaries, benefits, and other employee costs		129,878			120,425
Medical services and supplies		78,248			72,831
Other operating expenses		83,487			75,691
General and administrative expenses		34,958			30,793
Provision for doubtful accounts		7,526			7,781
Net loss on deconsolidations, disposals and impairments		2,336			4,893
Depreciation and amortization		19,616			20,758
Total operating expenses		356,049			333,172
Operating income		183,657			181,939
Interest income		1,235			1,062
Interest expense		(71,325	)		(77,288	)
Loss on early retirement of debt		—			(5,536	)
Other, net		(80	)		(3	)
Total other expense, net		(70,170	)		(81,765	)
Income from continuing operations before income taxes		113,487			100,174
Income tax expense		(21,997	)		(17,903	)
Income from continuing operations		91,490			82,271
Discontinued operations, net of tax:
Loss on disposal of discontinued operations		(332	)		—
Net income		91,158			82,271
Less: Net income attributable to noncontrolling interests		(53,951	)		(55,338	)
Net income attributable to USPI’s common stockholder	$	37,207		$	26,933
Amounts attributable to USPI’s common stockholder:
Income from continuing operations, net of tax	$	37,539		$	26,933
Loss from discontinued operations, net of tax		(332	)		—
Net income attributable to USPI’s common stockholder	$	37,207		$	26,933

See accompanying notes to consolidated financial statements.

4

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

	Three Months Ended September 30, 2014			Three Months Ended September 30, 2013
	(Unaudited — in thousands)
Net income	$	31,994		$	31,931
Other comprehensive income:
Unrealized gain (loss) on available-for-sale securities, net of tax		(14	)		20
Comprehensive income		31,980			31,951
Less: Comprehensive income attributable to noncontrolling interests		(18,518	)		(20,009	)
Comprehensive income attributable to USPI’s common stockholder	$	13,462		$	11,942
	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
	(Unaudited — in thousands)
Net income	$	91,158		$	82,271
Other comprehensive income:
Unrealized loss on available-for-sale securities, net of tax		(3	)		(44	)
Comprehensive income		91,155			82,227
Less: Comprehensive income attributable to noncontrolling interests		(53,951	)		(55,338	)
Comprehensive income attributable to USPI’s common stockholder	$	37,204		$	26,889

See accompanying notes to consolidated financial statements.

5

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

For the Three Months and Nine Months Ended September 30, 2014

	USPI’s Common Stockholder
	Outstanding Shares		Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Noncontrolling Interests Non-Redeemable			Total
	(Unaudited — in thousands, except share amounts)
Balance, December 31, 2013		100	$	—	$	228,794		$	10		$	50,818		$	47,020		$	326,642
Distributions to noncontrolling interests		—		—		—			—			—			(2,815	)		(2,815	)
Purchases of noncontrolling interests		—		—		1,769			—			—			(20	)		1,749
Sales of noncontrolling interests		—		—		(8,755	)		—			—			481			(8,274	)
Contribution related to equity award grants by parent and other		—		—		508			—			—			—			508
Net income		—		—		—			—			5,230			1,956			7,186
Other comprehensive income		—		—		—			3			—			—			3
Balance, March 31, 2014		100		—		222,316			13			56,048			46,622			324,999
Distributions to noncontrolling interests		—		—		—			—			—			(2,720	)		(2,720	)
Purchases of noncontrolling interests		—		—		41			—			—			(46	)		(5	)
Sales of noncontrolling interests		—		—		(870	)		—			—			470			(400	)
Contribution related to equity award grants by parent and other		—		—		577			—			—			—			577
Payment of common stock dividend		—		—		—			—			(152	)		—			(152	)
Net income		—		—		—			—			18,501			2,997			21,498
Other comprehensive income		—		—		—			8			—			—			8
Balance, June 30, 2014		100		—		222,064			21			74,397			47,323			343,805
Distributions to noncontrolling interests		—		—		—			—			—			(2,592	)		(2,592	)
Purchases of noncontrolling interests		—		—		(2	)		—			—			—			(2	)
Sales of noncontrolling interests		—		—		(3,916	)		—			—			652			(3,264	)
Contribution related to equity award grants by parent and other		—		—		361			—			—			—			361
Net income		—		—		—			—			13,476			3,058			16,534
Other comprehensive loss		—		—		—			(14	)		—			—			(14	)
Balance, September 30, 2014		100	$	—	$	218,507		$	7		$	87,873		$	48,441		$	354,828

See accompanying notes to consolidated financial statements.

6

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

For the Three Months and Nine Months Ended September 30, 2013

	USPI’s Common Stockholder
	Outstanding Shares		Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Noncontrolling Interests Non-Redeemable			Total
	(Unaudited — in thousands, except share amounts)
Balance, December 31, 2012		100	$	—	$	231,056		$	64		$	2,595		$	38,272		$	271,987
Distributions to noncontrolling interests		—		—		—			—			—			(2,541	)		(2,541	)
Purchases of noncontrolling interests		—		—		(192	)		—			—			(23	)		(215	)
Sales of noncontrolling interests		—		—		(3,284	)		—			—			4,836			1,552
Contribution related to equity award grants by parent and other		—		—		447			—			—			—			447
Net income		—		—		—			—			7,586			1,774			9,360
Other comprehensive income		—		—		—			2			—			—			2
Balance, March 31, 2013		100		—		228,027			66			10,181			42,318			280,592
Distributions to noncontrolling interests		—		—		—			—			—			(1,925	)		(1,925	)
Purchases of noncontrolling interests		—		—		831			—			—			(219	)		612
Sales of noncontrolling interests		—		—		(2,647	)		—			—			283			(2,364	)
Acquisition of new business		—		—		—			—			—			2,179			2,179
Contribution related to equity award grants by parent and other		—		—		296			—			—			—			296
Payment of common stock dividend		—		—		—			—			(55	)		—			(55	)
Net income		—		—		—			—			7,425			2,157			9,582
Other comprehensive loss		—		—		—			(66	)		—			—			(66	)
Balance, June 30, 2013		100		—		226,507			—			17,551			44,793			288,851
Distributions to noncontrolling interests		—		—		—			—			—			(2,560	)		(2,560	)
Purchases of noncontrolling interests		—		—		752			—			—			(1,157	)		(405	)
Sales of noncontrolling interests		—		—		(1,247	)		—			—			493			(754	)
Contribution related to equity award grants by parent and other		—		—		454			—			—			—			454
Net income		—		—		—			—			11,922			3,519			15,441
Other comprehensive income		—		—		—			20			—			—			20
Balance, September 30, 2013		100	$	—	$	226,466		$	20		$	29,473		$	45,088		$	301,047

See accompanying notes to consolidated financial statements.

7

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Nine Months Ended September 30, 2014			Nine Months Ended September 30, 2013
	(Unaudited — in thousands)
Cash flows from operating activities:
Net income	$	91,158		$	82,271
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		332			—
Loss on early retirement of debt		—			5,536
Provision for doubtful accounts		7,526			7,781
Depreciation and amortization		19,616			20,758
Net loss on deconsolidations, disposals and impairments		2,336			4,893
Amortization of debt issue costs and discount		3,345			3,263
Deferred income tax expense		9,496			1,391
Distributions received from unconsolidated affiliates, net of earnings		16,024			130
Equity-based compensation		1,715			1,353
Increases (decreases) in cash from changes in operating assets and liabilities, net of effects from purchases of new businesses:
Accounts receivable		(6,226	)		(1,289	)
Other receivables		5,756			(6,378	)
Inventories of supplies, prepaids and other current assets		(1,581	)		(2,070	)
Accounts payable and other current liabilities		12,224			9,072
Long-term liabilities		(1,858	)		1,374
Net cash provided by operating activities		159,863			128,085
Cash flows from investing activities:
Purchases of new businesses and equity interests, net of cash received		(142,745	)		(15,279	)
Proceeds from sale of businesses and equity interests		1,225			9,983
Purchases of property and equipment		(7,876	)		(17,357	)
Sales (purchases) of marketable securities, net		1,572			(183	)
Returns of capital from unconsolidated affiliates		22,000			—
Increase in deposits and notes receivable		(2,005	)		(700	)
Net cash used in investing activities		(127,829	)		(23,536	)
Cash flows from financing activities:
Proceeds from long-term debt, net of debt issuance costs		73,596			145,341
Payments on long-term debt		(51,783	)		(159,162	)
Decrease in cash held on behalf of unconsolidated affiliates and other		(19,265	)		4,194
Purchases of noncontrolling interests, net		(316	)		(717	)
Payment of common stock dividend		(152	)		(55	)
Distributions to noncontrolling interests		(55,596	)		(57,421	)
Net cash used in financing activities		(53,516	)		(67,820	)
Net (decrease) increase in cash and cash equivalents		(21,482	)		36,729
Cash and cash equivalents at beginning of period		78,741			51,203
Cash and cash equivalents at end of period	$	57,259		$	87,932
Supplemental information:
Interest paid	$	58,408		$	64,170
Income taxes paid		11,938			17,527
Non-cash transactions:
Assets acquired under capital lease obligations		4,863			854

See accompanying notes to consolidated financial statements

8

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(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 management of ambulatory surgery centers, surgical hospitals and related businesses. At September 30, 2014, the Company, headquartered in Dallas, Texas, operated 219 short-stay surgical facilities in the United States. Of these 219 facilities, the Company consolidates the results of 64 and accounts for 155 under the equity method. The majority of the Company’s facilities are jointly owned with local physicians and a health system partner that has other healthcare businesses in the region. At September 30, 2014, the Company had agreements with health system partners providing for joint ownership of 152 of the Company’s 219 facilities and also providing a framework for the planning, construction and acquisition of additional facilities in the future. All but two of the Company’s facilities include physician owners.

The Company is subject to changes in government legislation that could impact Medicare, Medicaid, and other government reimbursement levels and is also subject to changes in payment systems that may impact the level and timing of payments for services rendered.

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 Company’s December 31, 2013 Form 10-K. It is management’s 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.

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.

The Company operates in one reportable business segment, the ownership and operation of surgery related businesses in the United States.

(2) Investments in Unconsolidated Affiliates and Business Combinations

The Company acquires interests in existing surgery centers and invests in new facilities that it develops in partnership with health system partners and local physicians. Some of these transactions result in the Company controlling the acquired entity and meet the GAAP definition of a business combination. The financial results of the acquired entities are included in the Company’s consolidated financial statements beginning on the acquisitions’ effective closing date. The adjustments to arrive at pro forma operating results for these acquisitions are not material. During the nine months ended September 30, 2014, these transactions resulted in a cash outflow of approximately $3.0 million, which is summarized as follows:

Effective Date	Facility Location			Amount
Investments
February 2014		Georgia	(1)	$	2.0 million
September 2014		Missouri	(1)		1.0 million
Total				$	3.0 million

9

(1) Acquisition of a controlling interest in and the right to manage a surgical facility in which the Company previously had no involvement. The facility is jointly owned with local physicians.

The Company controls 64 of its entities and therefore consolidates their results. However, the Company accounts for a majority (155 of its 219 facilities at September 30, 2014) as investments in unconsolidated affiliates, i.e., under the equity method, as the Company’s level of influence is significant but does not reach the threshold of controlling the entity. The majority of these investments 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 Company’s equity method 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 Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Unconsolidated facilities operated at period-end		155			149			155			149
Income statement information:
Revenues	$	492,673		$	435,665		$	1,379,621		$	1,298,122
Operating expenses:
Salaries, benefits, and other employee costs		116,625			107,056			332,684			319,498
Medical services and supplies		119,420			105,272			336,037			317,661
Other operating expenses		114,009			103,629			325,000			307,342
Net gain on asset disposals, net		(362	)		(1,339	)		(6,166	)		(1,800	)
Depreciation and amortization		18,903			18,315			55,655			54,485
Total operating expenses		368,595			332,933			1,043,210			997,186
Operating income		124,078			102,732			336,411			300,936
Interest expense, net		(7,174	)		(7,776	)		(21,607	)		(23,490	)
Other, net		(140	)		(283	)		365			(262	)
Income before income taxes	$	116,764		$	94,673		$	315,169		$	277,184
Balance sheet information:
Current assets	$	381,853		$	328,996		$	381,853		$	328,996
Noncurrent assets		573,388			563,415			573,388			563,415
Current liabilities		209,010			204,287			209,010			204,287
Noncurrent liabilities		375,548			377,265			375,548			377,265

10

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 unconsolidated affiliates that need capital for acquisitions, new construction or other business growth opportunities. The cash flow impact of these transactions is classified within investing activities. During the nine months ended September 30, 2014, these transactions resulted in a cash outflow of approximately $138.4 million, which is summarized as follows:

Effective Date	Facility Location			Amount
Investments
March 2014		Indiana	(1)	$	32.3 million
April 2014		New Jersey	(1)		16.9 million
June 2014		Dallas-Fort Worth	(2)		4.2 million
July 2014		South Dakota	(3)		51.4 million
July 2014		New Jersey	(1)		26.8 million
Various		Various	(4)		6.8 million
Total				$	138.4 million

(1) Acquisition of a noncontrolling interest in and the right to manage a surgical facility in which the Company previously had no involvement. The facility is jointly owned with local physicians.

(2) Acquisition of a noncontrolling interest in and the right to manage two surgical facilities in which the Company previously had no involvement. These facilities are jointly owned with a health system partner and local physicians.

(3) Acquisition of a noncontrolling interest in and the right to manage a surgical facility in which the Company previously had no involvement. The facility is jointly owned with a health system partner and local physicians.

(4) Represents the net payment related to various other purchases and sales of equity interests and contributions of cash to equity method investees.

During the nine months ended September 30, 2014, the Company received a return of capital in the amount of $22.0 million from one of its unconsolidated affiliates.

(3) Noncontrolling Interests

The Company controls and therefore consolidates the results of 64 of its 219 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. Their cash flow effect is classified within financing activities.

11

During the nine months ended September 30, 2014, the Company purchased and sold redeemable equity interests in various consolidated subsidiaries in amounts totaling $4.4 million and $4.1 million, respectively. The basis difference between the Company’s carrying amount and the proceeds received or paid in each transaction is recorded as an adjustment to additional paid-in capital. The impact of these transactions is summarized as follows (in thousands):

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014			Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Net income attributable to USPI’s common stockholder	$	13,476		$	37,207		$	11,922		$	26,933
Transfers to the noncontrolling interests:
Decrease in USPI’s additional paid-in capital for sales of subsidiaries’ equity interests		(3,916	)		(13,541	)		(1,247	)		(7,178	)
Increase in USPI’s additional paid-in capital for purchases of subsidiaries’ equity interests		(2	)		1,808			752			1,391
Net transfers to noncontrolling interests		(3,918	)		(11,733	)		(495	)		(5,787	)
Change in equity from net income attributable to USPI and transfers to noncontrolling interests	$	9,558		$	25,474		$	11,427		$	21,146

Were certain fundamental regulatory changes to occur, 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 Company’s consolidated subsidiaries. These repurchase requirements are limited to the portions of its facilities that are owned by physicians who perform surgery at the Company’s facilities and would be triggered by regulatory changes making the existing ownership structure illegal. While the Company is not aware of events that 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 Company’s consolidated balance sheets. The activity for the three and nine months ended September 30, 2014 and 2013 is summarized below (in thousands):

	2014 Noncontrolling Interests — Redeemable
Balance, December 31, 2013	$	166,578
Net income attributable to noncontrolling interests		13,457
Distributions to noncontrolling interests		(15,821	)
Purchases of noncontrolling interests		(3,776	)
Sales of noncontrolling interests		9,791
Acquisition of new business		1,542
Balance, March 31, 2014		171,771
Net income attributable to noncontrolling interests		17,023
Distributions to noncontrolling interests		(15,476	)
Purchases of noncontrolling interests		(1,150	)
Sales of noncontrolling interests		1,508
Deconsolidation of subsidiary		(172	)
Balance, June 30, 2014		173,504
Net income attributable to noncontrolling interests		15,460
Distributions to noncontrolling interests		(16,172	)
Purchases of noncontrolling interests		(1,226	)
Sales of noncontrolling interests		6,102
Acquisition of new business		1,771
Balance, September 30, 2014	$	179,439

12

	2013 Noncontrolling Interests — Redeemable
Balance, December 31, 2012	$	153,399
Net income attributable to noncontrolling interests		15,466
Distributions to noncontrolling interests		(16,993	)
Purchases of noncontrolling interests		(270	)
Sales of noncontrolling interests		4,246
Balance, March 31, 2013		155,848
Net income attributable to noncontrolling interests		15,933
Distributions to noncontrolling interests		(16,648	)
Purchases of noncontrolling interests		(3,686	)
Sales of noncontrolling interests		4,777
Acquisition of new business		6,111
Balance, June 30, 2013		162,335
Net income attributable to noncontrolling interests		16,489
Distributions to noncontrolling interests		(16,754	)
Purchases of noncontrolling interests		(1,429	)
Sales of noncontrolling interests		1,631
Balance, September 30, 2013	$	162,272

(4) Other Investments

The consolidated financial statements include the financial statements of USPI and subsidiaries the Company controls, usually indicated by majority ownership. 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.

The Company is the primary beneficiary of an entity that operates and manages ten surgical facilities in the Houston, Texas area. Despite not holding a majority voting interest, the Company is the primary beneficiary because the Company is able to make the decisions that are most significant to the operations of the entity and has provided all of the funding for the entity, which the entity has used to acquire surgical facilities. The Company is entitled to a majority of the entity’s earnings until the Company has received a specified return on the investment. The Company has no exposure for the entity’s 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 nine months ended September 30, 2014 or 2013. At September 30, 2014 and 2013, the total assets of this entity were $125.9 million and $101.5 million, and the total liabilities owed to third parties were $23.7 million and $23.6 million, respectively. Such amounts are included in the accompanying consolidated balance sheet.

(5) Fair Value of Financial Instruments

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, accounts receivable, and accounts payable approximate fair value because of the short maturity of these instruments.

13

The fair value of the Company’s 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 both September 30, 2014 and 2013, both the aggregate carrying amount and the estimated fair value of long-term debt was approximately $1.5 billion. The fair value of debt is classified within Level 2 of the valuation hierarchy.

At September 30, 2014 and 2013, the Company had approximately $9.2 million and $10.7 million, respectively, of marketable securities, which are held by the Company’s wholly-owned insurance subsidiary. These investments are used in connection with its retained professional and general liability risks and are not available for general corporate purposes. The marketable securities consist of U.S. Treasury and corporate debt, are classified as available-for-sale and are recorded at fair value on the consolidated balance sheet. The fair value of these securities are classified within Level 2 of the valuation hierarchy, and are based on closing market prices of the investments when applicable, or alternatively, valuations utilizing market data and other observable inputs. Realized gains and losses on the sale of these securities are reclassified out of other comprehensive income and into “Other, net” on the accompanying consolidated statements of income.

(6) 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 recipient’s requisite service period.

The Company’s equity-based compensation consists primarily of stock options and restricted stock granted by the Company’s parent, USPI Group Holdings, Inc., to certain employees and members of the board of directors. 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.

Total equity-based compensation, included in the accompanying consolidated statements of income, classified by line item, is as follows (in thousands):

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014			Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Salaries, benefits and other employee costs	$	219		$	504		$	148		$	373
General and administrative expenses		413			1,211			306			980
Expense before income tax benefit		632			1,715			454			1,353
Income tax benefit		(210	)		(570	)		(25	)		(109	)
Total equity-based compensation expense, net of tax	$	422		$	1,145		$	429		$	1,244

Total equity-based compensation, included in the accompanying consolidated statements of income, classified by type of award, is as follows (in thousands):

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014			Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Share awards	$	129		$	455		$	98		$	390
Stock options		503			1,260			356			963
Expense before income tax benefit		632			1,715			454			1,353
Income tax benefit		(210	)		(570	)		(25	)		(109	)
Total equity-based compensation expense, net of tax	$	422		$	1,145		$	429		$	1,244

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(7) 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 both the three months and nine months ended September 30, 2014 and 2013, 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, 2014, the Company had approximately $8.0 million accrued related to such management fee, of which $0.5 million is included in other current liabilities and $7.5 million is included in other long-term liabilities in the accompanying consolidated balance sheet.

(8) Commitments and Contingencies

As of September 30, 2014, 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 $65.2 million. Of the total, $10.2 million relates to the obligations of consolidated subsidiaries, whose obligations are included in the Company’s consolidated balance sheet and related disclosures, and $52.1 million of the remaining $55.0 million relates to the obligations of unconsolidated affiliated companies, whose obligations are not included in the Company’s consolidated balance sheet and related disclosures. The remaining $2.9 million represents guarantees of the obligations of two facilities which have been sold. The Company has full recourse to the buyers with respect to these amounts.

The Company has recorded long-term liabilities of approximately $0.6 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 2030, 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.

(9) Subsequent Events

In October 2014, the Company paid $10.3 million for a noncontrolling interest in and the right to manage a surgical facility in which the Company previously had no involvement. The facility is located in California and is jointly owned with a health system partner and local physicians.

The Company also has entered into letters of intent with various entities regarding possible acquisition, joint venture, development or other transactions. These possible acquisitions, joint ventures, developments of new facilities or other transactions are in various stages of negotiation.

(10) Condensed Consolidating Financial Statements

The following information is presented as required by regulations of the U.S. Securities and Exchange Commission (SEC). None of this information is 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 Company’s $440.0 million of 9.0% senior unsecured notes due in April 2020 (Notes) were issued in a private offering on April 3, 2012 and were subsequently registered as publicly traded securities through a Form S-4 declared effective by the SEC on September 5, 2012. The exchange offer was completed in

15

October 2012. The Notes are unsecured obligations of the Company; however, the Notes are guaranteed by most of the Company’s direct and indirect 100%-owned domestic subsidiaries. USPI, which issued the Notes, does not have independent assets or operations. USPI’s investees 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 Company’s ownership percentage in non-participating investees is not high enough to permit the application of pushdown accounting.

Condensed Consolidating Balance Sheets:

As of September 30, 2014	Guarantors		Non-Participating Investees		Consolidation Adjustments			Consolidated Total
ASSETS
Current assets:
Cash and cash equivalents	$	47,191	$	10,068	$	—		$	57,259
Available for sale securities		9,230		—		—			9,230
Accounts receivable, net		—		49,667		—			49,667
Other receivables		126,256		29,036		(131,146	)		24,146
Inventories of supplies		18		8,308		—			8,326
Prepaids and other current assets		36,734		2,131		—			38,865
Total current assets		219,429		99,210		(131,146	)		187,493
Property and equipment, net		37,608		90,688		200			128,496
Investments in unconsolidated affiliates		1,011,425		79,543		(481,487	)		609,481
Goodwill and intangible assets, net		961,899		226,833		410,393			1,599,125
Other assets		33,716		1,628		(2,885	)		32,459
Total assets	$	2,264,077	$	497,902	$	(204,925	)	$	2,557,054
LIABILITIES AND EQUITY
Liabilities and Equity
Current liabilities:
Accounts payable	$	3,867	$	14,721	$	—		$	18,588
Accrued expenses and other		285,051		119,424		(131,220	)		273,255
Current portion of long-term debt		10,135		9,041		(236	)		18,940
Total current liabilities		299,053		143,186		(131,456	)		310,783
Long-term debt, less current portion		1,433,089		51,521		(2,909	)		1,481,701
Other long-term liabilities		225,548		4,991		(236	)		230,303
Parent’s equity		306,387		243,557		(243,557	)		306,387
Noncontrolling interests		—		54,647		173,233			227,880
Total liabilities and equity	$	2,264,077	$	497,902	$	(204,925	)	$	2,557,054

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As of December 31, 2013	Guarantors		Non-Participating Investees		Consolidation Adjustments			Consolidated Total
ASSETS
Current assets:
Cash and cash equivalents	$	73,765	$	4,976	$	—		$	78,741
Available for sale securities		10,802		—		—			10,802
Accounts receivable, net		—		51,608		—			51,608
Other receivables		79,664		29,938		(85,411	)		24,191
Inventories of supplies		1,133		7,916		—			9,049
Prepaids and other current assets		36,200		2,209		—			38,409
Total current assets		201,564		96,647		(85,411	)		212,800
Property and equipment, net		37,935		94,245		294			132,474
Investments in unconsolidated affiliates		978,305		33,804		(490,276	)		521,833
Goodwill and intangible assets, net		952,765		217,448		415,188			1,585,401
Other assets		27,535		1,451		(810	)		28,176
Total assets	$	2,198,104	$	443,595	$	(161,015	)	$	2,480,684
LIABILITIES AND EQUITY
Liabilities and Equity
Current liabilities:
Accounts payable	$	3,249	$	14,158	$	—		$	17,407
Accrued expenses and other		288,914		75,286		(85,324	)		278,876
Current portion of long-term debt		10,182		9,452		(718	)		18,916
Total current liabilities		302,345		98,896		(86,042	)		315,199
Long-term debt, less current portion		1,403,500		51,685		(493	)		1,454,692
Other long-term liabilities		212,637		5,270		(334	)		217,573
Parent’s equity		279,622		235,809		(235,809	)		279,622
Noncontrolling interests		—		51,935		161,663			213,598
Total liabilities and equity	$	2,198,104	$	443,595	$	(161,015	)	$	2,480,684

Condensed Consolidating Statements of Income:

For the Nine Months Ended September 30, 2014	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Revenues	$	90,523		$	396,436		$	(20,852	)	$	466,107
Equity in earnings of unconsolidated affiliates		112,303			6,317			(45,021	)		73,599
Operating expenses, excluding depreciation and amortization		73,122			284,065			(20,754	)		336,433
Depreciation and amortization		6,051			13,471			94			19,616
Operating income		123,653			105,217			(45,213	)		183,657
Interest expense, net		(67,437	)		(2,653	)		—			(70,090	)
Other income (expense), net		(29	)		(51	)		—			(80	)
Income from continuing operations before income taxes		56,187			102,513			(45,213	)		113,487
Income tax expense		(18,648	)		(3,349	)		—			(21,997	)
Income from continuing operations		37,539			99,164			(45,213	)		91,490
Loss from discontinued operations, net of tax		(332	)		—			—			(332	)
Net income		37,207			99,164			(45,213	)		91,158
Less: Net income attributable to noncontrolling interests		—			(17,983	)		(35,968	)		(53,951	)
Net income attributable to Parent	$	37,207		$	81,181		$	(81,181	)	$	37,207

17

For the Nine Months Ended September 30, 2013	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Revenues	$	87,455		$	384,075		$	(20,178	)	$	451,352
Equity in earnings of unconsolidated affiliates		108,138			4,881			(49,260	)		63,759
Operating expenses, excluding depreciation and amortization		68,759			263,702			(20,047	)		312,414
Depreciation and amortization		6,941			13,720			97			20,758
Operating income		119,893			111,534			(49,488	)		181,939
Interest expense, net		(72,926	)		(3,300	)		—			(76,226	)
Loss on early retirement of debt		(5,536	)		—			—			(5,536	)
Other income (expense), net		(904	)		901			—			(3	)
Income before income taxes		40,527			109,135			(49,488	)		100,174
Income tax expense		(13,594	)		(4,309	)		—			(17,903	)
Net income		26,933			104,826			(49,488	)		82,271
Less: Net income attributable to noncontrolling interests		—			(14,763	)		(40,575	)		(55,338	)
Net income attributable to Parent	$	26,933		$	90,063		$	(90,063	)	$	26,933

Condensed Consolidating Statements of Comprehensive Income:

For the Nine Months Ended September 30, 2014	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Net income	$	37,207		$	99,164		$	(45,213	)	$	91,158
Other comprehensive income:
Unrealized gain on available for sale securities, net of tax		(3	)		—			—			(3	)
Comprehensive income		37,204			99,164			(45,213	)		91,155
Comprehensive income attributable to noncontrolling interests		—			(17,983	)		(35,968	)		(53,951	)
Comprehensive income attributable to Parent	$	37,204		$	81,181		$	(81,181	)	$	37,204

For the Nine Months Ended September 30, 2013	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Net income	$	26,933		$	104,826		$	(49,488	)	$	82,271
Other comprehensive income (loss):
Unrealized loss on available for sale securities, net of tax		(44	)		—			—			(44	)
Comprehensive income		26,889			104,826			(49,488	)		82,227
Comprehensive income attributable to noncontrolling interests		—			(14,763	)		(40,575	)		(55,338	)
Comprehensive income attributable to Parent	$	26,889		$	90,063		$	(90,063	)	$	26,889

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Condensed Consolidating Statements of Cash Flows:

For the Nine Months Ended September 30, 2014	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Cash flows from operating activities:
Net income	$	37,207		$	99,164		$	(45,213	)	$	91,158
Loss on discontinued operations		332			—			—			332
Changes in operating and intercompany assets and liabilities and noncash items included in net income		52,260			12,910			3,203			68,373
Net cash provided by operating activities		89,799			112,074			(42,010	)		159,863
Cash flows from investing activities:
Purchases of property and equipment, net		(2,602	)		(5,274	)		—			(7,876	)
Purchases and sales of new businesses and equity interests, net		(89,836	)		(51,684	)		—			(141,520	)
Other items, net		(31,941	)		1,530			51,978			21,567
Net cash used in investing activities		(124,379	)		(55,428	)		51,978			(127,829	)
Cash flows from financing activities:
Long-term borrowings, net		29,271			(6,235	)		(1,223	)		21,813
Purchases and sales of noncontrolling interests, net		(316	)		—			—			(316	)
Distributions to noncontrolling interests		—			(97,606	)		42,010			(55,596	)
Increase in cash held on behalf of noncontrolling interest holders and other		(20,949	)		52,287			(50,755	)		(19,417	)
Net cash provided by (used in) financing activities		8,006			(51,554	)		(9,968	)		(53,516	)
Net increase (decrease) in cash		(26,574	)		5,092			—			(21,482	)
Cash at the beginning of the period		73,765			4,976			—			78,741
Cash at the end of the period	$	47,191		$	10,068		$	—		$	57,259

19

For the Nine Months Ended September 30, 2013	Guarantors			Non-Participating Investees			Consolidation Adjustments			Consolidated Total
Cash flows from operating activities:
Net income	$	26,933		$	104,826		$	(49,488	)	$	82,271
Loss on early retirement of debt		5,536			—			—			5,536
Changes in operating and intercompany assets and liabilities and noncash items included in net income		24,391			14,448			1,439			40,278
Net cash provided by operating activities		56,860			119,274			(48,049	)		128,085
Cash flows from investing activities:
Purchases of property and equipment, net		(11,928	)		(5,429	)		—			(17,357	)
Purchases and sales of new businesses and equity interests, net		1,099			(6,395	)		—			(5,296	)
Other items, net		(6,670	)		1,167			4,620			(883	)
Net cash used in investing activities		(17,499	)		(10,657	)		4,620			(23,536	)
Cash flows from financing activities:
Long-term borrowings, net		(6,256	)		(7,985	)		420			(13,821	)
Purchases and sales of noncontrolling interests, net		(717	)		—			—			(717	)
Distributions to noncontrolling interests		—			(105,470	)		48,049			(57,421	)
Increase in cash held on behalf of noncontrolling interest holders and other		2,973			6,206			(5,040	)		4,139
Net cash used in financing activities		(4,000	)		(107,249	)		43,429			(67,820	)
Net increase in cash		35,361			1,368			—			36,729
Cash at the beginning of the period		42,291			8,912			—			51,203
Cash at the end of the period	$	77,652		$	10,280		$	—		$	87,932

(11) New Accounting Pronouncement

On May 28, 2014, the Financial Accounting Standards Board issued ASU No. 2014-09,Revenue from Contracts with Customers(ASU), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The ASU permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that the ASU will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our 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 Company’s 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 management’s 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 Company’s 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 the financial markets; demographic changes; changes in, or the failure to comply with, laws and governmental regulations and guidance; the ability to enter into or renew reimbursement arrangements on acceptable terms; changes in Medicare, Medicaid and other government funded payments or reimbursement; changes in our payor mix or case mix; the efforts of insurers, employers and others to contain healthcare costs; healthcare reform; liability and other claims asserted against us; shortages of or quality control issues with medical supplies and equipment; the highly competitive nature of healthcare; 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, other healthcare professionals and other personnel; the availability of suitable acquisition and development opportunities and the length of time it takes to complete acquisitions and developments; our ability to integrate new and acquired businesses with our existing operations; the availability and terms of capital to fund the expansion of our business and certain additional factors, risks and uncertainties discussed in this Quarterly Report on Form 10-Q. 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. Given these uncertainties, investors and prospective investors are cautioned not to rely on such forward-looking statements.

Overview

We are an experienced and trusted partner in some of the nation’s most successful surgical networks. We provide strategic solutions for physicians, physician networks, leading health systems and those paying for the cost of health care services, such as employers, insurance companies and government programs.

Our portfolio includes 219 short-stay surgical facilities in 26 states. In these facilities, which are licensed as either ambulatory surgery centers, specialty hospitals or hospitals, we serve almost 10,000 physicians and almost one million patients each year. We maintain strategic joint venture relationships with approximately 4,000 physicians and over 50 prominent health systems. All but two of our facilities are co-owned with local physicians, and 152 are in strategic ventures with a health system. During the first nine months of 2014, we acquired eight facilities, consisting of two each in Texas and New Jersey, one each in Georgia, Indiana, Missouri and South Dakota. In addition, in October 2014 we acquired a noncontrolling interest in a facility in California and in Texas.

Our facilities generally specialize in non-emergency surgical cases. Due in part to advancements in medical technology, and additionally due to the lower cost structure and greater efficiency that are attainable in a specialized outpatient site, the volume and complexity of surgical cases performed in an outpatient setting has steadily increased over the past three decades. We believe continuing national focus on controlling the cost of

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health care will lead to further opportunities for high quality, low cost providers, such as USPI. Our strategy is to further enhance our value to our partners, employers, payors and patient populations in ways that build upon our historic experience and success, both in our existing facilities as well as additional acquired or developed facilities or other complementary businesses.

Our facilities’ primary income source is 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. After providing for the related expenses of the case, including the nursing staff, supplies and property costs, each facility distributes its profit to us and the other owners. In addition, we earn a monthly fee from each facility we operate in exchange for managing its operations. How these income streams affect our financial statements depends on whether we consolidate each respective facility entity. Because our ownership levels and rights vary from facility to facility, we do not consolidate 155 of the 219 facilities that we operate, instead accounting for our investments in them under the equity method. 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 (i.e., equity method) facilities. While revenues of our unconsolidated facilities are not recorded as revenues by USPI, we believe the information is important in understanding our financial performance because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates. In addition, we disclose growth rates and operating income margins (both consolidated and unconsolidated) 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 management’s most subjective judgments. Our critical accounting policies and estimates include our policies and estimates regarding consolidation, revenue recognition, income taxes and intangible assets.

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, where the majority of the facilities we operate are partially owned by health system 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 our 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.

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Acquisitions, Equity Investments and Development Projects

We acquire interests in existing surgery centers and invest in new facilities that we develop in partnership with health system partners and local physicians. Some of these transactions result in our controlling the acquired entity and meet the GAAP definition of a business combination. The financial results of the acquired entities are included in our consolidated financial statements beginning on the acquisitions’ effective closing date. During the nine months ended September 30, 2014, these transactions resulted in a cash outflow of approximately $3.0 million, which is summarized as follows:

Effective Date	Facility Location			Amount
Investments
February 2014		Georgia	(1)	$	2.0 million
September 2014		Missouri	(1)		1.0 million
Total				$	3.0 million

(1) Acquisition of a controlling interest in and the right to manage a surgical facility in which we previously had no involvement. The facility is jointly owned with local physicians.

We control and therefore consolidate the results of 64 of our 219 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, 2014, we purchased and sold equity interests in various consolidated subsidiaries in amounts totaling $4.4 million and $4.1 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 an $11.7 million decrease to our additional paid-in capital during the nine months ended September 30, 2014.

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 unconsolidated affiliates that need capital for acquisitions, new construction or other business growth opportunities. The cash flow impact of these transactions is classified within investing activities. During the nine months ended September 30, 2014, these transactions resulted in a cash outflow of approximately $138.4 million, which is summarized as follows:

Effective Date	Facility Location			Amount
Investments
March 2014		Indiana	(1)	$	32.3 million
April 2014		New Jersey	(1)		16.9 million
June 2014		Dallas-Fort Worth	(2)		4.2 million
July 2014		South Dakota	(3)		51.4 million
July 2014		New Jersey	(1)		26.8 million
Various		Various	(4)		6.8 million
Total				$	138.4 million

(1) Acquisition of a noncontrolling interest in and the right to manage a surgical facility in which we previously had no involvement. The facility is jointly owned with local physicians.

(2) Acquisition of a noncontrolling interest in and the right to manage two surgical facilities in which we previously had no involvement. These facilities are jointly owned with a health system partner and local physicians.

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(3) Acquisition of a noncontrolling interest in and the right to manage a surgical facility in which we previously had no involvement. The facility is jointly owned with a health system partner and local physicians.

(4) Represents the net payment related to various other purchases and sales of equity interests and contributions of cash to equity method investees.

During the nine months ended September 30, 2014, we received a return of capital in the amount of $22.0 million from one of our unconsolidated affiliates.

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 or are the primary beneficiary;

• 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 contracted services to other healthcare providers. 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 therefore eliminate in consolidation.

The following table summarizes our revenues by type and as a percentage of total revenue for the periods presented:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net patient service revenues		83	%		84	%		83	%		84	%
Management and contract service revenues		15			14			15			14
Other revenues		2			2			2			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 Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Management of surgical facilities	$	21,622	$	18,993	$	61,578	$	57,047
Contract services provided to other healthcare providers		2,995		2,871		8,461		7,694
Total management and contract service revenues	$	24,617	$	21,864	$	70,039	$	64,741

As described above, our primary business is the operation of surgical facilities.

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Results of Operations

The following table summarizes certain consolidated statements of income items expressed as a percentage of revenues for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
USPI	2014			2013			2014			2013
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Equity in earnings of unconsolidated affiliates		17.3			13.9			15.8			14.1
Operating expenses, excluding depreciation and amortization		(72.7	)		(67.7	)		(72.2	)		(69.2	)
Depreciation and amortization		(4.2	)		(4.4	)		(4.2	)		(4.6	)
Operating income		40.4			41.8			39.4			40.3
Interest and other expense, net		(14.9	)		(15.7	)		(15.1	)		(18.1	)
Income from continuing operations before income taxes		25.5			26.1			24.3			22.2
Income tax expense		(5.4	)		(4.9	)		(4.7	)		(4.0	)
Income from continuing operations		20.1			21.2			19.6			18.2
Discontinued operations, net of tax		—			—			—			—
Net income		20.1			21.2			19.6			18.2
Less: Net income attributable to noncontrolling interests		(11.6	)		(13.3	)		(11.6	)		(12.2	)
Net income attributable to USPI’s common stockholder		8.5	%		7.9	%		8.0	%		6.0	%

Our business model of partnering with health systems and physicians results in our accounting for 155 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 Ended September 30,						Nine Months Ended September 30,
USPI’s Unconsolidated Affiliates	2014			2013			2014			2013
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses, excluding depreciation and amortization		(71.0	)		(72.2	)		(71.6	)		(72.6	)
Depreciation and amortization		(3.8	)		(4.2	)		(4.0	)		(4.2	)
Operating income		25.2			23.6			24.4			23.2
Interest and other expense, net		(1.5	)		(1.9	)		(1.6	)		(1.8	)
Income before income taxes		23.7			21.7			22.8			21.4
Income tax expense		(0.4	)		(0.5	)		(0.4	)		(0.5	)
Net income		23.3	%		21.2	%		22.4	%		20.9	%

Executive Summary

We are an experienced and trusted partner in some of the nation’s most successful surgical networks. We provide strategic solutions for physicians, physician networks, leading health systems and those paying for the cost of health care services, such as employers, insurance companies and government programs.

Our portfolio includes 219 short-stay surgical facilities in 26 states. In these facilities, which are licensed as either ambulatory surgery centers, specialty hospitals or hospitals, we serve approximately 10,000 physicians and one million patients each year. We maintain strategic joint venture relationships with approximately 4,000

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physicians and over 50 prominent health systems. All but two of our facilities are co-owned with local physicians, and 152 of our facilities are in strategic joint ventures with a health system. Our strategy continues to include acquiring facilities, developing new facilities with health system partners, and improving the operating results of our existing facilities. During the nine months ended September 30, 2014, we added eight facilities, consisting of two each in Texas and New Jersey and one each in Georgia, Indiana, Missouri and South Dakota. In October 2014, we added one facility in California and an another facility in Texas.

Our facilities generally specialize in non-emergency surgical cases. Due in part to advancements in medical technology, and additionally due to the lower cost structure and greater efficiency that are attainable in a specialized outpatient site, the volume and complexity of surgical cases performed in an outpatient setting has steadily increased over the past three decades. We believe the continuing national focus on controlling the cost of health care will lead to further opportunities for high quality, low cost providers, such as us. Our strategy is to further enhance our value to our partners, employers, payors and patient populations in ways that build upon our historic experience and success, both in our existing facilities as well as additional acquired or developed facilities or other complementary businesses.

Our earnings are driven by the facilities we consolidate, whose revenues are included in ours, and by the facilities we account for under the equity method, whose revenues are not included in ours. Our net earnings are the same under either accounting method, so in addition to analyzing our consolidated revenues and expenses, we also assess our operating results by utilizing systemwide revenues, which include all facilities we operate, and measures of same store facilities, which include all facilities that were operational in both the current and prior year periods.

Our consolidated revenues increased 5% and 3% versus prior year periods for the three and nine months ended September 30, 2014, respectively, driven by increases in same store revenues and by acquisitions. Our systemwide revenues, which include our consolidated facilities and our equity method facilities, increased 11% during the three month period and 5% during the nine month period, also due primarily to increases in same store revenues and by acquisitions.

Our same store revenue growth in the third quarter was 5%, consisting of a 3% increase in case volume and a 2% increase in net revenue per case. Same store facility operating income margins were up 50 basis points for the third quarter, as compared to the same quarter of the prior year. These measures have improved each quarter of the 2014. After being down 3% during the first quarter and flat during the second quarter, our 3% case volume growth in the third quarter brought case growth to flat compared to prior year for the nine month period ended September 30, 2014. Similarly, facility operating income margins, which were down 50 basis points versus prior year during the six months ended June 30, 2014, were down 10 basis points for the nine months ended September 30, 2014. We believe our volumes continue to be adversely affected early in the year by changes in benefit plan design that result in patients bearing more of the cost of care through the increasing use of high deductible benefit plans. We continue to focus on controlling operating costs, particularly during the first half of the year, when case volumes are lower. From a strategic standpoint, we continue to invest more in general and administrative resources than in 2013, in order to deploy strategic initiatives that we believe will benefit our company long-term.

Our Business and Key Measures

We operate surgical facilities in partnership with local physicians and, in the majority of facilities, a 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 facility’s net income or loss, which is computed by multiplying the facility’s net income or loss times the percentage of each facility’s equity interests owned by us; and

• management services revenues, computed as a percentage of each facility’s net revenues (often net of bad debt expense).

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Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. In a majority of our facilities (currently 155 of our 219 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 64 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 or loss of each facility, which is based on the facilities’ net income or loss and the percentage of the facility’s outstanding equity interests owned by us; and

• management and administrative services revenues: income we earn in exchange for managing the day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less bad debt expense.

In summary, our operating income is driven by the performance of all facilities we operate and by our ownership interest in those facilities, but our individual revenue and expense line items only contain consolidated businesses, which represent less than one-third of our facilities. 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 our results of operations, including:

• The results of operations of our unconsolidated affiliates

• Our 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 income margins.

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Our Consolidated and Unconsolidated Results

The following table shows our results of operations and the results of operations of our unconsolidated affiliates (in thousands).

	Three Months Ended September 30												Variance to Prior Year
	2014						2013
	USPI as Reported Under GAAP			Unconsolidated Affiliates			USPI as Reported Under GAAP			Unconsolidated Affiliates			USPI as Reported Under GAAP			Unconsolidated Affiliates
Revenues:
Net patient service revenues	$	132,040		$	490,039		$	126,683		$	432,100		$	5,357		$	57,939
Management and contract service revenues		24,617			—			21,864			—			2,753			—
Other income		2,533			2,634			2,462			3,565			71			(931	)
Total revenues		159,190			492,673			151,009			435,665			8,181			57,008
Equity in earnings of unconsolidated affiliates		27,527			—			20,923			—			6,604			—
Operating expenses:
Salaries, benefits, and other employee costs		44,383			116,625			40,991			107,056			3,392			9,569
Medical services and supplies		27,051			119,420			24,945			105,272			2,106			14,148
Other operating expenses		28,251			101,955			24,722			92,418			3,529			9,537
General and administrative expenses		11,718			—			10,396			—			1,322			—
Provision for doubtful accounts		2,918			12,054			1,599			11,211			1,319			843
Net (gain) loss on deconsolidations, disposals and impairments		1,419			(362	)		(506	)		(1,339	)		1,925			977
Depreciation and amortization		6,608			18,903			6,683			18,315			(75	)		588
Total operating expenses		122,348			368,595			108,830			332,933			13,518			35,662
Operating income		64,369			124,078			63,102			102,732			1,267			21,346
Interest income		385			95			322			90			63			5
Interest expense		(24,082	)		(7,269	)		(24,032	)		(7,866	)		(50	)		597
Other		(55	)		(140	)		1			(283	)		(56	)		143
Total other expense, net		(23,752	)		(7,314	)		(23,709	)		(8,059	)		(43	)		745
Income before income taxes		40,617			116,764			39,393			94,673			1,224			22,091
Income tax expense		(8,623	)		(1,946	)		(7,462	)		(2,312	)		(1,161	)		366
Net income		31,994		$	114,818			31,931		$	92,361			63		$	22,457
Less: Net income attributable to noncontrolling interests		(18,518	)					(20,009	)					1,491
Net income attributable to USPI’s common stockholder	$	13,476					$	11,922					$	1,554
USPI’s equity in earnings of unconsolidated affiliates				$	27,527					$	20,923					$	6,604

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	Nine Months Ended September 30												Variance to Prior Year
	2014						2013
	USPI as Reported Under GAAP			Unconsolidated Affiliates			USPI as Reported Under GAAP			Unconsolidated Affiliates			USPI as Reported Under GAAP			Unconsolidated Affiliates
Revenues:
Net patient service revenues	$	388,443		$	1,371,520		$	378,203		$	1,289,159		$	10,240		$	82,361
Management and contract service revenues		70,039			—			64,741			—			5,298			—
Other income		7,625			8,101			8,408			8,963			(783	)		(862	)
Total revenues		466,107			1,379,621			451,352			1,298,122			14,755			81,499
Equity in earnings of unconsolidated affiliates		73,599			—			63,759			—			9,840			—
Operating expenses:
Salaries, benefits, and other employee costs		129,878			332,684			120,425			319,498			9,453			13,186
Medical services and supplies		78,248			336,037			72,831			317,661			5,417			18,376
Other operating expenses		83,487			291,342			75,691			275,301			7,796			16,041
General and administrative expenses		34,958			—			30,793			—			4,165			—
Provision for doubtful accounts		7,526			33,658			7,781			32,041			(255	)		1,617
Net (gain) loss on deconsolidations, disposals and impairments		2,336			(6,166	)		4,893			(1,800	)		(2,557	)		(4,366	)
Depreciation and amortization		19,616			55,655			20,758			54,485			(1,142	)		1,170
Total operating expenses		356,049			1,043,210			333,172			997,186			22,877			46,024
Operating income		183,657			336,411			181,939			300,936			1,718			35,475
Interest income		1,235			278			1,062			275			173			3
Interest expense		(71,325	)		(21,885	)		(77,288	)		(23,765	)		5,963			1,880
Loss on early retirement of debt		—			(202	)		(5,536	)		—			5,536			(202	)
Other		(80	)		567			(3	)		(262	)		(77	)		829
Total other expense, net		(70,170	)		(21,242	)		(81,765	)		(23,752	)		11,595			2,510
Income before income taxes		113,487			315,169			100,174			277,184			13,313			37,985
Income tax expense		(21,997	)		(5,693	)		(17,903	)		(6,170	)		(4,094	)		477
Income from continuing operations		91,490			309,476			82,271			271,014			9,219			38,462
Discontinued operations, net of tax		(332	)		—			(	)		—			(332	)		—
Net income		91,158		$	309,476			82,271		$	271,014			8,887		$	38,462
Less: Net income attributable to noncontrolling interests		(53,951	)					(55,338	)					1,387
Net income attributable to USPI’s common stockholder	$	37,207					$	26,933					$	10,274
USPI’s equity in earnings of unconsolidated affiliates				$	73,599					$	63,759					$	9,840

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The following table provides other information regarding our unconsolidated affiliates (dollars in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Long-term debt	$	377,777		$	385,538		$	377,777		$	385,538
USPI’s imputed weighted average ownership percentage based on affiliates’ pre-tax income(1)		23.6	%		22.1	%		23.4	%		23.0	%
USPI’s imputed weighted average ownership percentage based on affiliates’ debt(2)		25.7	%		26.5	%		25.7	%		26.5	%
Unconsolidated facilities operated at period end		155			149			155			149

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

(2) Our imputed weighted average ownership percentage in our unconsolidated affiliates is calculated as the total debt of each unconsolidated affiliate, multiplied by the percentage ownership we 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 our involvement in equity method investments.

As shown above, USPI’s net patient service revenues for the three and nine months ended September 30, 2014 increased $5.4 million and $10.2 million, respectively, compared to the corresponding prior year periods. The net patient service revenues of our unconsolidated affiliates increased $57.9 million and $82.4 million for the three and nine months ended September 30, 2014, respectively, as compared to the corresponding prior year periods. These variances are analyzed more extensively below under “Revenues.”

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 the underlying 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 surgical facilities we operate is as follows:

	Nine Months Ended September 30, 2014			Year Ended December 31, 2013			Nine Months Ended September 30, 2013
Unconsolidated facilities(1)		23.8	%		23.2	%		23.0	%
Consolidated facilities(2)		42.8	%		45.5	%		46.1	%
Total(3)		28.2	%		29.0	%		29.3	%

(1) Computed for unconsolidated facilities by dividing (a) our total equity in earnings of unconsolidated affiliates by (b) the aggregate net income or loss of surgical facilities we account for under the equity method.

(2) Computed for consolidated facilities by dividing (a) the aggregate net income or loss of surgical facilities we operate less our total noncontrolling interests in income or loss of consolidated subsidiaries by (b) the aggregate net income or loss of our consolidated surgical facilities.

(3) Computed in total by dividing our share of the facilities’ net income or loss, defined as the sum of (a) in footnotes (1) and (2), by the aggregate net income or loss of our surgical facilities, defined as the sum of (b) in footnotes (1) and (2).

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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 long-standing strategy on partnering our facilities with health system partners in addition to physicians generally leads to our accounting for more facilities under the equity method (unconsolidated). We generally have a lower ownership percentage in an equity method facility as compared to a consolidated facility.

Revenues

Our consolidated net revenues increased 5% and 3% during the three and nine months ended September 30, 2014, 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, 2014
	USPI as Reported Under GAAP			Unconsolidated Affiliates
Total revenues, three months ended September 30, 2013	$	151,009		$	435,665
Revenue from acquired facilities		2,504			26,945
Changes in consolidation status		(2,255	)		2,255
Revenue of disposed facilities		(346	)		—
Adjusted base period		150,912			464,865
Increase from operations		8,207			28,739
Non-facility based revenue		71			(931	)
Total revenues, three months ended September 30, 2014	$	159,190		$	492,673

	Nine Months Ended September 30, 2014
	USPI as Reported Under GAAP			Unconsolidated Affiliates
Total revenues, nine months ended September 30, 2013	$	451,352		$	1,298,122
Revenue from acquired facilities		10,323			34,170
Changes in consolidation status		2,537			(2,537	)
Revenue of disposed facilities		(1,074	)		—
Adjusted base period		463,138			1,329,755
Increase from operations		3,752			50,728
Non-facility based revenue		(783	)		(862	)
Total revenues, nine months ended September 30, 2014	$	466,107		$	1,379,621

Facility Growth

For the three and nine months ended September 30, 2014, our systemwide revenue increased 11% and 5%, respectively, as compared to the corresponding prior year periods. The increase in systemwide revenues is due to same-store growth and acquisitions that were made in 2013 and 2014. On a year-to-date basis, our same store case volumes were flat to prior year, but a shift to more complex cases has resulted in higher net revenue per case, driving 3% same store revenue growth for the first nine months of 2014.

Our same store case volumes grew 3% in the third quarter, flat during the second quarter and were down 3% in the first quarter. We believe a continuing shift to greater patient responsibility for health care costs, together with increased competition in some markets, adversely affected our case volume in both the first and second quarters, and less so in the third quarter.

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The following table summarizes our same store facility revenue growth rates, as compared to the three and nine months ended September 30, 2013:

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
Net revenue		5	%		3	%
Surgical cases		3	%		—	%
Net revenue per case		2	%		3	%

Joint Ventures With Health System Partners

The addition of new facilities continues to be more heavily weighted to surgical facilities with a health system 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 through construction of new facilities (de novos), acquisitions of facilities 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 health system partner while leaving the existing physician ownership intact. We continue to explore affiliating more of our facilities with health system partners. Often these affiliations are initiated in markets where we already operate other facilities with a health system partner, but we also affiliate our facilities with new health system partners.

The following table summarizes the facilities we operated as of September 30, 2014 and 2013:

	September 30,
	2014			2013
Facilities(1):
With a health system partner		152			148
Without a health system partner		67			66
Total facilities operated		219			214
Change from September 30, 2013:
De novo (newly constructed)		—
Acquisition		9
Disposals/Mergers(2)		(4	)
Total increase in number of facilities		5

(1) At September 30, 2014, physicians own a portion of all but two of these facilities.

(2) We sold our ownership interests in two facilities in Pennsylvania. We also merged two Texas facilities into one location and two Missouri facilities into one location.

Facility Operating Income Margins

Same store facility operating income margins increased 50 basis points for the three months ended September 30, 2014 and decreased 10 basis points for the nine months ended September 30, 2014. As described above, our same store revenues improved during the second and third quarters, and this together with cost control efforts led to higher overall margins. This relationship can change depending on the nature of cases performed and how it affects staffing, supplies and other direct costs of performing a case.

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The following table summarizes the year-over-year changes in our same store facility operating income margins (see footnote 1 below), comparing the three and nine months ended September 30, 2014 to the corresponding prior year periods:

	Three Months Ended September 30, 2014			Increase (Decrease)			Nine Months Ended September 30, 2014			Increase (Decrease)
Facilities:
With a health system partner		24.6	%		12	0 bps		23.6	%		4	0 bps
Without a health system partner		26.7	%		(250	) bps		26.9	%		(290	) bps
Total facilities		24.9	%		5	0 bps		24.2	%		(10	) bps

(1) Operating income 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 our operations 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.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

As more fully discussed in “Revenues,” our consolidated revenues increased by $8.2 million, or 5.4%, to $159.2 million for the three months ended September 30, 2014 from $151.0 million for the three months ended September 30, 2013. The increase in consolidated revenues was driven by the increase in same store net revenues.

Equity in earnings of unconsolidated affiliates increased by $6.6 million, or 31.6%, to $27.5 million for the three months ended September 30, 2014 from $20.9 million for the three months ended September 30, 2013. The increase in equity in earnings was almost equally driven by acquisitions ($3.4 million) and increases from same store facilities ($3.2 million). The number of facilities we account for under the equity method increased by six from September 30, 2013 to September 30, 2014.

Operating expenses, excluding depreciation and amortization, increased by $13.6 million, or 13.3%, to $115.7 million for the three months ended September 30, 2014 from $102.1 million for the three months ended September 30, 2013. The increase primarily resulted from our facilities performing more cases than in the prior year period and additionally from expenses of acquired entities and increased investment in general and administrative expenses related to deploying our strategic initiatives.

Depreciation and amortization decreased $0.1 million or 1.5%, to $6.6 million for the three months ended September 30, 2014 from $6.7 million for the three months ended September 30, 2013. Depreciation and amortization, as a percentage of revenues was 4.2% and 4.4% during the three months ended September 30, 2014 and 2013, respectively.

Operating income increased $1.3 million, or 2.1%, to $64.4 million for the three months ended September 30, 2014 from $63.1 million for the three months ended September 30, 2013, and decreased as a percentage of revenues to 40.4% from 41.8%. This increase was driven by the increase in net revenues and equity in earnings of unconsolidated affiliates described above.

Provision for income taxes was $8.6 million for the three months ended September 30, 2014 as compared to $7.5 million for the three months ended September 30, 2013. Our effective tax rates (based on pretax earnings attributable to USPI’s stockholder) were 39% and 38% for the three months ended September 30, 2014 and 2013, respectively.

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Net income increased to $32.0 million for the three months ended September 30, 2014 as compared to $31.9 million for the three months ended September 30, 2013. Net income attributable to USPI’s common stockholder increased $1.6 million to $13.5 million for the three months ended September 30, 2014 as compared to $11.9 million for the three months ended September 30, 2013. The increase is attributable to the increases in net revenue and equity in earnings in unconsolidated affiliates as discussed above.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

As more fully discussed in “Revenues,” our consolidated revenues increased by $14.7 million, or 3.3%, to $466.1 million for the nine months ended September 30, 2014 from $451.4 million for the nine months ended September 30, 2013. The increase in consolidated revenues was due to acquisitions, consolidation of a facility and an increase from operations of $20.6 million, which was offset by deconsolidations of two facilities and the sale of one facility of approximately $5.9 million.

Equity in earnings of unconsolidated affiliates increased by $9.8 million, or 15.4%, to $73.6 million for the nine months ended September 30, 2014 from $63.8 million for the nine months ended September 30, 2013. The increase in equity in earnings was driven by acquisitions ($5.3 million), same store growth ($3.2 million) and our share of the net gain on the sale of real estate ($1.3 million). The number of facilities we account for under the equity method increased by six from September 30, 2013 to September 30, 2014

Operating expenses, excluding depreciation and amortization, increased by $24.0 million, or 7.7%, to $336.4 million for the nine months ended September 30, 2014 from $312.4 million for the nine months ended September 30, 2013. The increase primarily represents the expenses of facilities we acquired during late 2013 and 2014 and additionally resulted from increased investment in general and administrative expenses related to deploying our strategic initiatives. We also recorded an impairment charge of $0.7 million related to one of our management contracts in 2014. During the nine months ended September 30, 2013, our operating expenses were negatively affected by a $1.7 million loss on the consolidation of a hospital and a $3.2 million impairment of a management contract.

Depreciation and amortization decreased $1.2 million, or 5.8%, to $19.6 million for the nine months ended September 30, 2014 from $20.8 million for the nine months ended September 30, 2013. Depreciation and amortization, as a percentage of revenues, decreased slightly to 4.2% for the nine months ended September 30, 2014 from 4.6% for the nine months ended September 30, 2013.

Operating income increased $1.8 million to $183.7 million for the nine months ended September 30, 2014 from $181.9 million for the nine months ended September 30, 2013, and decreased as a percentage of revenues to 39.4% from 40.3%, respectively. This increase was driven by the increase in net revenues and equity in earnings of unconsolidated affiliates described above, which was mostly offset by the increases in operating expense also discussed earlier.

Interest expense, net of interest income, decreased $6.1 million, or 8.0% to $70.1 million for the nine months ended September 30, 2014 from $76.2 million for the nine months ended September 30, 2013. The decrease is primarily due to fees we paid in February and March 2013 related to the refinancing we completed in April 2013.

During the nine months ended September 30, 2013, we incurred a loss on the early retirement of debt of $5.5 million as a result of the repricing we completed on April 4, 2013. The amount is comprised of finance and legal fees and the write-off of previously incurred debt issuance costs.

Provision for income taxes was $22.0 million for the nine months ended September 30, 2014 compared to $17.9 million for the nine months ended September 30, 2013. Our effective tax rates (based on pretax earnings attributable to USPI’s stockholder) were 37% and 40% for the nine months ended September 30, 2014 and 2013, respectively.

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Total loss from discontinued operations was $0.3 million in the nine months ended September 30, 2014 and relates to the final disposal of fixed assets related to a previously sold entity.

Net income increased $8.9 million, or 10.8%, to $91.2 million for the nine months ended September 30, 2014 as compared to $82.3 million for the nine months ended September 30, 2013. Net income attributable to USPI’s common stockholder increased $10.3 million, or 38.3%, to $37.2 million for the nine months ended September 30, 2014 as compared to $26.9 million for the nine months ended September 30, 2013.

Liquidity and Capital Resources

Cash Flows

During the nine months ended September 30, 2014, we generated $159.9 million of cash flows from operating activities as compared to $128.1 million during the nine months ended September 30, 2013. Cash flows from operating activities increased $31.8 million, or 24.8%, from the prior year period, primarily due our increased earnings and the timing of distributions from our unconsolidated affiliates.

During the nine months ended September 30, 2014, our net cash used in investing activities was $127.8 million, consisting of $141.5 million for net purchases of new businesses and equity interests, which was partially offset by a $22.0 million return of capital from an unconsolidated affiliate. We purchased $7.9 million of property and equipment, which excludes $4.9 million of property and equipment acquired under capital lease arrangements. Approximately $2.2 million of property and equipment purchases were related to investing in infrastructure of existing facilities and the remaining $10.6 million represented maintenance capital expenditures. Net cash used in financing activities for the nine months ended September 30, 2014 totaled $53.5 million, which was driven primarily by distributions to noncontrolling interests of $55.6 million, a decrease in cash held on behalf of our noncontrolling interests of $19.0 million and net borrowings on long-term debt of $21.8 million.

Cash and cash equivalents were $57.3 million at September 30, 2014 as compared to $78.7 million at December 31, 2013, and the net working capital deficit was $123.3 million at September 30, 2014 as compared to $102.4 million at December 31, 2013. The overall negative working capital position at September 30, 2014 and December 31, 2013 is primarily the result of $166.3 million and $185.0 million due to affiliates, respectively, associated with our practice of holding our unconsolidated facilities’ cash until these amounts are distributed to our partners, typically on a monthly or quarterly basis. As discussed below, we believe we have sufficient availability under our credit facility, together with our operating cash flows, to service our obligations.

Debt

We intend to fund our ongoing capital and working capital requirements through a combination of cash flows from operations and borrowings under our $125.0 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.

In April 2012, we amended our credit facility. The amended credit facility provided borrowings consisting of $144.4 million in non-extended term loans which were to mature in April 2014; $312.4 million in extended term loans maturing in April 2017; $375.0 million in a new term loan maturing in April 2019; and $125.0 million under a new revolving facility maturing in April 2017. The term loans require quarterly principal payments of 0.25% of the outstanding balance as of April 3, 2012 with the remaining balances due in 2017 for the extended term loan and in 2019 for the new term loan. No principal payments are required on the revolving credit facility until its maturity in 2017. In December 2012, we borrowed an additional $150.0 million in new term loans under the amended credit facility. This borrowing requires quarterly principal payments of 0.25% of the outstanding balance and also matures in April 2019. We pay 0.50% per annum on the daily-unused commitment of the new revolving credit facility. We also pay a quarterly participation fee of 2.13% per annum related to outstanding letters of credit.

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In February 2013, we further amended our credit facility and committed to borrow $150.0 million, which was used to repay the non-extended term loan of $144.4 million and related fees and expenses. The transaction was completed on April 4, 2013. The new term loan matures in April 2019. The amendment also changed the interest rate charged on the term loans to LIBOR plus a margin of 3.50% to 3.75%.

At September 30, 2014, we had $1.0 billion outstanding under the amended credit facility at a weighted average interest rate of approximately 4.6%. At September 30, 2014, we had $86.4 million available for borrowing under the revolving credit facility, representing the revolving facility’s $125.0 million capacity, net of the outstanding balance of $37.0 million and $1.6 million of outstanding letters of credit.

The amended credit facility is guaranteed by USPI Holdings, Inc. and its current and future directly and indirectly 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 and the capital stock of each of our wholly owned domestic 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 at September 30, 2014.

In April 2012, we issued $440.0 million of 9.0% senior unsecured notes due in April 2020. Interest on the outstanding notes is payable on April 1 and October 1 of each year, and commenced on October 1, 2012. At September 30, 2014, we had $440.0 million of the senior unsecured notes outstanding. The notes are unsecured senior obligations of our company; however, the notes are guaranteed by most of our current and future direct and indirect 100%-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, sells assets, pay dividends, enter into sale-leaseback transactions or issue and sell capital stock. We believe we were in compliance with these covenants at September 30, 2014.

Contractual Cash Obligations

Our contractual cash obligations as of September 30, 2014 are summarized as follows:

	Payments Due by Period
Contractual Cash Obligations	Total		Within 1 Year		Years 2 and 3		Years 4 and 5		Beyond 5 Years
	(In thousands)
Long-term debt obligations:
Amended senior secured credit facility — new term loan(1)	$	697,452	$	6,705	$	50,410	$	640,337	$	—
Amended senior secured credit facility — extended term loan(1)		304,625		3,124		301,501		—		—
Senior unsecured notes(1)		440,000		—		—		—		440,000
Other debt at operating subsidiaries(1)		33,343		6,013		10,300		6,742		10,288
Interest on long-term debt obligations(2)		394,424		84,905		161,772		125,938		21,809
Capitalized lease obligations(3)		39,182		5,551		9,478		7,575		16,578
Operating lease obligations		91,033		17,368		30,495		22,725		20,445
Total contractual cash obligations	$	2,000,059	$	123,666	$	563,956	$	803,317	$	509,120

(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, 2014 rates applicable to each debt instrument.

(3) Includes principal and interest.

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Debt at Operating Subsidiaries

Our operating subsidiaries, many of which have noncontrolling investors 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 $58.6 million at September 30, 2014, 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 subsidiary’s amount of debt and capitalized lease obligations, of these consolidated subsidiaries was approximately 44% at September 30, 2014. 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, 2014, the total debt on the balance sheets of our unconsolidated affiliates was approximately $377.8 million. Our average percentage ownership, weighted based on the individual affiliate’s amount of debt, of these unconsolidated affiliates was approximately 26% at September 30, 2014. USPI or one of its wholly owned subsidiaries had collectively guaranteed $47.4 million of the $377.8 million in total debt of our unconsolidated affiliates as of September 30, 2014. In addition, our unconsolidated affiliates have obligations under operating leases, of which USPI or a wholly owned subsidiary had guaranteed $7.5 million as of September 30, 2014. Of the total $55.0 million of guarantees related to unconsolidated affiliates, approximately $2.9 million represents guarantees of obligations of two facilities which have been sold. We have full recourse to the buyers with respect to the $2.9 million related to the sold facilities.

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 both the three month and nine months ended September 30, 2014 and 2013, 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, 2014, we had approximately $8.0 million accrued related to such management fee, of which $0.5 million is included in other current liabilities and $7.5 million is included in other long-term liabilities in the accompanying consolidated balance sheet.

New Accounting Pronouncement

On May 28, 2014, the Financial Accounting Standards Board issued ASU No. 2014-09,Revenue from Contracts with Customers(ASU), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for our company on January 1, 2017. Early application is not permitted. The ASU permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the ASU will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

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. Currently, we have no interest rate swaps in effect. We do not use derivative instruments for speculative purposes.

Our financing arrangements with many commercial lenders are based on the spread over Prime or LIBOR. At September 30, 2014, approximately $473.3 million of our outstanding debt was in fixed rate instruments and

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the remaining $1.0 billion was in variable rate instruments. Accordingly, a hypothetical 100 basis point increase in market interest rates would result in additional annual expense of approximately $10.0 million.

ITEM 4. Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s 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 Company’s 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 Company’s periodic filings with the SEC. There have been no significant changes in the Company’s internal controls over financial reporting (as defined by applicable SEC rules) that occurred during the Company’s fiscal quarter ended September 30, 2014 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

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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 Company’s management is not aware of any claims or proceedings that might have a material adverse impact on the Company.

ITEM 6. Exhibits

3.1	Amended and Restated Certificate of Incorporation (previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (No. 333-144337) and incorporated herein by reference).
3.2	Amended and Restated Bylaws (previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (No. 333-144337) and incorporated herein by reference).
10.1	Amendment No. 5, dated June 27, 2014, to the Credit Agreement, dated as of April 19, 2007, as amended August 19, 2009, April 3, 2012, December 19, 2012 and February 19, 2013 among USPI, USPI Holdings, Inc., each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the other Agents named therein (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 10, 2014 and incorporated herein by reference).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1	Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002(1)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
101	The following material from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2014 and December 31, 2013; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013; (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2014; (iv) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013; (v) Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.(1)

(1) Filed herewith.

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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.
By:	/s/    Jason B. Cagle
	Jason B. Cagle
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: November 6, 2014

By:	/s/    J. Anthony Martin
	J. Anthony Martin
	Senior Vice President, Corporate Controller, and Chief Accounting Officer (Principal Accounting Officer)

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Exhibit Index

3.1	Amended and Restated Certificate of Incorporation (previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (No. 333-144337) and incorporated herein by reference).
3.2	Amended and Restated Bylaws (previously filed as an exhibit to the Company’s Registration Statement on Form S-4 (No. 333-144337) and incorporated herein by reference).
10.1	Amendment No. 5, dated June 27, 2014, to the Credit Agreement, dated as of April 19, 2007, as amended August 19, 2009, April 3, 2012, December 19, 2012 and February 19, 2013 among USPI, USPI Holdings, Inc., each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and the other Agents named therein (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 10, 2014 and incorporated herein by reference).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)
32.1	Certification of Chief Executive Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002(1)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)
101	The following material from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2014 and December 31, 2013; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013; (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2014; (iv) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013; (v) Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2014 and 2013 and (vi) Notes to Consolidated Financial Statements.(1)

(1) Filed herewith.

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