##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
   Form 10-Q
   (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    June 30, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission file number
    000-32837
   United Surgical Partners
    International, Inc.
 (Exact name of registrant as
    specified in its charter)
   Delaware

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

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

75001(Zip Code)   (972) 713-3500
   þ o
  Rule 12b-2
  þ o o
  Rule 12b-2 o þ




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##### 



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
  INDEX
  PART I.
    Financial InformationItem 1.

Financial
    Statements


2Consolidated
    Balance Sheets as of June 30, 2006 (unaudited) and
    December 31, 2005


2Consolidated
    Statements of Income for the three months and six months ended
    June 30, 2006 and 2005 (unaudited)


3Consolidated
    Statements of Comprehensive Income for the three months and six
    months ended June 30, 2006 and 2005 (unaudited)


4Consolidated
    Statements of Cash Flows for the six months ended June 30,
    2006 and 2005 (unaudited)


5Notes to
    Consolidated Financial Statements (unaudited)


6Item 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


36Item 4.

Controls and
    Procedures


37PART II.
    Other InformationItem 1.

Legal
    Proceedings


38Item 4.

Submission of
    Matters to a Vote of Security Holders


38Item 6.

Exhibits and
    Reports on
    Form 8-K


38Signatures


40******Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906     1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION ITEM 1.Financial
    Statements  UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  June 30,


December 31,2006


2005(Unaudited)(In thousands,except per share amounts)ASSETSCash and cash equivalents

$
27,271


$
130,440Patient receivables, net of
    allowance for doubtful accounts of $8,781 and $6,656,
    respectively


55,935



44,501Other receivables


13,806



10,253Inventories of supplies


9,402



7,819Deferred tax asset, net


12,982



11,654Prepaids and other current assets


31,692



8,443Total current assets


151,088



213,110Property and equipment, net


289,325



259,016Investments in affiliates


132,922



100,500Intangible assets, net


607,925



422,556Assets held for sale


2,000



Other assets


12,021



33,659Total assets

$
1,195,281


$
1,028,841LIABILITIES AND
    STOCKHOLDERS EQUITYAccounts payable

$
22,963


$
19,095Accrued salaries and benefits


24,933



19,572Due to affiliates


42,969



34,997Accrued interest


2,522



1,506Current portion of long-term debt


21,658



15,922Other accrued expenses


29,645



31,072Total current liabilities


144,690



122,164Long-term debt, less current
    portion


363,013



270,564Other long-term liabilities


7,750



4,474Deferred tax liability, net


40,367



36,591Total liabilities


555,820



433,793Minority interests


71,981



63,998Stockholders equity:Common stock, $0.01 par
    value; 200,000 shares authorized; 44,567 and
    44,320 shares issued at June 30, 2006 and
    December 31, 2005, respectively


446



443Additional paid-in capital


373,038



375,656Treasury stock, at cost, 42 and
    37 shares at June 30, 2006 and December 31, 2005,
    respectively


(1,193
)


(831
)Deferred compensation






(14,128
)Accumulated other comprehensive
    income, net of tax


10,848



3,896Retained earnings


184,341



166,014Total stockholders equity


567,480



531,050Total liabilities and
    stockholders equity

$
1,195,281


$
1,028,841    2




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF INCOME
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)(In thousands, except per share amounts)Revenues:Net patient service revenue

$
133,447


$
113,355


$
251,760


$
218,154Management and contract service
    revenue


13,077



9,544



22,240



18,869Other revenue


3,928



287



4,295



455Total revenues


150,452



123,186



278,295



237,478Equity in earnings of
    unconsolidated affiliates


7,148



6,371



14,034



11,474Operating expenses:Salaries, benefits, and other
    employee costs


42,027



30,764



75,140



60,333Medical services and supplies


27,143



22,007



50,610



41,336Other operating expenses


26,185



21,892



48,753



42,927General and administrative expenses


9,873



8,160



19,747



15,762Provision for doubtful accounts


2,726



2,154



4,565



4,983Depreciation and amortization


8,674



7,572



16,667



15,181Total operating expenses


116,628



92,549



215,482



180,522Operating income


40,972



37,008



76,847



68,430Interest income


1,140



905



2,560



1,791Interest expense


(8,923
)


(6,854
)


(16,145
)


(13,681
)Other


59



11



1,644



253Total other expense, net


(7,724
)


(5,938
)


(11,941
)


(11,637
)Income before minority interests


33,248



31,070



64,906



56,793Minority interests in income of
    consolidated subsidiaries


(13,795
)


(11,079
)


(26,718
)


(19,883
)Income from continuing operations
    before income taxes


19,453



19,991



38,188



36,910Income tax expense


(6,307
)


(7,325
)


(13,403
)


(13,431
)Income from continuing operations


13,146



12,666



24,785



23,479Earnings (loss) from discontinued
    operations, net of tax


6



(285
)


(6,458
)


(340
)Net income

$
13,152


$
12,381


$
18,327


$
23,139Net income per share attributable
    to common stockholders Basic:Continuing operations

$
0.30


$
0.30


$
0.57


$
0.55Discontinued operations






(0.01
)


(0.15
)


(0.01
)Total

$
0.30


$
0.29


$
0.42


$
0.54Diluted:Continuing operations

$
0.29


$
0.28


$
0.55


$
0.53Discontinued operations










(0.15
)


(0.01
)Total

$
0.29


$
0.28


$
0.40


$
0.52Weighted average number of common
    sharesBasic


43,646



42,839



43,566



42,691Diluted


45,386



44,847



45,398



44,681    3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005(Unaudited)(In thousands)Net income

$
13,152


$
12,381


$
18,327


$
23,139Other comprehensive income (loss),
    net of taxes:Foreign currency translation
    adjustments


5,889



(4,821
)


6,952



(6,130
)Other comprehensive income (loss)


5,889



(4,821
)


6,952



(6,130
)Comprehensive income

$
19,041


$
7,560


$
25,279


$
17,009    4




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF CASH FLOWS  Six Months EndedJune 30,2006


2005(Unaudited)(In thousands)Cash flows from operating
    activities:Net income

$
18,327


$
23,139Adjustments to reconcile net income
    to net cash provided by operating activities:Loss on discontinued operations


6,458



340Provision for doubtful accounts


4,565



4,983Depreciation and amortization


16,667



15,181Amortization of debt issue costs
    and discount


507



377Deferred income tax expense


4,341



1,057Equity in earnings of
    unconsolidated affiliates, net of distributions received


3,193



263Minority interests in income of
    consolidated subsidiaries, net of distributions paid


(1,084
)


1,093Equity-based compensation


5,997



2,228Increases (decreases) in cash from
    changes in operating assets and liabilities, net of effects from
    purchases of new businesses:Patient receivables


(5,393
)


(8,248
)Other receivables


(918
)


10,899Inventories of supplies, prepaids
    and other current assets


(4,839
)


(398
)Accounts payable and other current
    liabilities


1,622



7,642Long-term liabilities


4,077



2,777Net cash provided by operating
    activities


53,520



61,333Cash flows from investing
    activities:Purchases of new businesses and
    equity interests, net of cash received


(235,654
)


(58,906
)Purchases of property and equipment


(13,420
)


(12,962
)Returns of capital from
    unconsolidated affiliates


355



16Increase in deposits and notes
    receivable


(3,107
)


(1,678
)Net cash used in investing
    activities


(251,826
)


(73,530
)Cash flows from financing
    activities:Proceeds from long-term debt


100,000



4,923Payments on long-term debt


(18,111
)


(8,081
)Proceeds from issuances of common
    stock


5,985



6,896Increase in cash held on behalf of
    unconsolidated affiliates


7,978



2,442Returns of capital to minority
    interest holders


(719
)


(871
)Net cash provided by financing
    activities


95,133



5,309Cash flows of discontinued
    operations:Operating cash flows


187



297Investing cash flows


5



(126
)Financing cash flows


(173
)


(244
)Net cash provided by (used in)
    discontinued operations


19



(73
)Effect of exchange rate changes on
    cash


(15
)


(78
)Net decrease in cash and cash
    equivalents


(103,169
)


(7,039
)Cash and cash equivalents at
    beginning of period


130,440



93,467Cash and cash equivalents at end of
    period

$
27,271


$
86,428Supplemental information:Interest paid

$
14,938


$
13,748Income taxes paid


10,995



9,369Non-cash transactions:Assets acquired under capital lease
    obligations

$
2,110


$
1,253Issuance of common stock to
    employees


30,159



10,609    5




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited)
  (1)
    Basis of
    Presentation  (a)
    Description
    of Business  not-for-profit not-for-profit
      10-K.
  (b)
    Equity-Based
    Compensation  Share-Based
    Payment Accounting for Stock Issued to Employees
   6




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    Three Months Ended


Six Months EndedJune 30,


June 30,2005


2005Net income:As reported

$
12,381


$
23,139Add: Total stock-based employee
    compensation expense included in reported net income, net of
    taxes


849



1,448Less: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of taxes


(1,750
)


(3,190
)Pro forma

$
11,480


$
21,397Basic earnings per shareAs reported

$
0.29


$
0.54Pro forma


0.27



0.50Diluted earnings per shareAs reported

$
0.28


$
0.52Pro forma


0.26



0.48      7




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
     Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Equity in earnings of
    unconsolidated affiliates

$
18


$



$
32


$
Salaries, benefits and other
    employee costs


786







1,484



General and administrative expenses


2,089



1,307



4,528



2,228Minority interests in income of
    consolidated subsidiaries


(27
)






(47
)


Expense before income tax benefit


2,866



1,307



5,997



2,228Income tax benefit


(860
)


(458
)


(1,798
)


(780
)Total equity-based compensation
    expense, net of tax

$
2,006


$
849


$
4,199


$
1,448       Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Share awards(1)

$
2,076


$
1,307


$
4,471


$
2,228Stock options(2)


714







1,368



ESPP(2)


76







158



Expense before income tax benefit


2,866



1,307



5,997



2,228Income tax benefit


(860
)


(458
)


(1,798
)


(780
)Total equity-based compensation
    expense, net of tax

$
2,006


$
849


$
4,199


$
1,448     (1)
    
    Included in the Companys Consolidated Statements of Income
    for both periods.(2)
    
    Included in the Companys Consolidated Statement of Income
    beginning January 1, 2006, reflecting the Companys
    adoption of SFAS 123R. ESPP amounts are net of
    reimbursements by other owners of the Companys investees.  Stock
    Options
   8




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Assumptions:Expected life in years


3.75



3.00



3.75



3.00Risk-free interest rates


4.9%-5.1
%


3.5%-3.9
%


4.3%-5.1
%


3.4%-3.9
%Dividend yield


0.0
%


0.0
%


0.0
%


0.0
%Volatility


30.0
%


30.0
%


30.0
%


30.0
%Weighted average grant-date fair
    value

$
10.10


$
8.06


$
10.07


$
7.36     WeightedWeighted


Average


AggregateAverage


Remaining


IntrinsicNumber of


Exercise


Contractual


ValueStock Options

Shares (000)


Price


Life (Years)


($000)Outstanding at December 31,
    2005


3,470


$
14.09Granted


8



35.40Exercised


(121
)


10.90Forfeited or expired


(10
)


18.10Outstanding at March 31, 2006


3,347


$
14.24



4.5


$
69,718Granted


220



33.44Exercised


(127
)


14.02Forfeited or expired


(2
)


29.70Outstanding at June 30, 2006


3,438


$
15.45



4.3


$
51,441Exercisable at June 30, 2006


2,586


$
12.50



4.3


$
45,457     Share
    Awards
   9




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    WeightedAverageNumber of


Grant-DateNonvested Shares

Shares (000)


Fair ValueNonvested at December 31, 2005


853


$
23.44Granted


630



33.89Converted / vested(1)


(6
)


24.37Forfeited






Nonvested at March 31, 2006


1,477


$
27.90Granted


270



32.62Converted / vested(1)


(89
)


30.52Forfeited






Nonvested at June 30, 2006


1,658


$
28.52     (1)
    
    The Company has granted share awards both in the form of
    nonvested shares and restricted stock units, which convert to
    unrestricted shares upon vesting.        Employee
    Stock Purchase Plan
     10




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    3-month 3-month
  Three Months EndedJune 30,

Six Months Ended June 30,2006

2005

2006

2005Assumptions:Expected life in years


0.25



(1
)


0.25



0.50Risk-free interest rate


4.7
%


(1
)


4.2%-4.7
%


2.6
%Dividend yield


0.0
%


(1
)


0.0
%


0.0
%Volatility


30.0
%


(1
)


30.0
%


30.0
%Grant-date fair value per share

$
7.56



(1
)

$
7.07-$7.56


$
9.97     (1)
    
    As noted above, ESPP purchases were made every six months prior
    to January 1, 2006; accordingly, no ESPP awards were
    initiated during the three months ended June 30, 2005.  (c)
    Revisions
    to Cash Flow Statement  Form 10-K
  Six Months Ended June 30, 2005Net cash provided by (used in)Operating


Investing


FinancingActivities


Activities


ActivitiesPreviously reported

$
68,340


$
(73,672
)

$
(1,629
)Distributions received from equity
    method investees


11,737







(11,737
)Distributions paid to minority
    interest holders


(18,447
)






18,447Returns of investees capital






16



(16
)Discontinued operations


(297
)


126



244As revised

$
61,333


$
(73,530
)

$
5,309   (2)
    Discontinued
    Operations   11




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
     Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Revenues

$
39


$
1,161


$
1,157


$
2,555Earnings (loss) from discontinued
    operations beforeincome taxes


9



(439
)


(49
)


(523
)Income tax benefit (expense)


(3
)


154



17



183Earnings (loss) from discontinued
    operations

$
6


$
(285
)

$
(32
)

$
(340
)Earnings (loss) on sale of
    discontinued operations before income taxes

$



$



$
(7,395
)

$
Income tax benefit










969



Net loss on sale of discontinued
    operations

$



$



$
(6,426
)

$
Earnings (loss) per diluted share:Earnings (loss) from discontinued
    operations

$



$



$



$
(0.01
)Loss on sale of discontinued
    operations










(0.15
)


Total

$



$



$
(0.15
)

$
(0.01
)   (3)
    Acquisitions
    and Equity Method Investments     12




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
     Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net revenues

$
154,571


$
151,549


$
303,344


$
292,161Income from continuing operations


13,187



13,462



24,906



24,616Diluted earnings per share from
    continuing operations

$
0.29


$
0.30


$
0.55


$
0.55        13




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Unconsolidated facilities operated
    at period-end


72



50



72



50Income statement information:Revenues

$
143,903


$
111,686


$
270,618


$
209,275Equity in earnings of
    unconsolidated affiliates


2







47



27Operating expenses:Salaries, benefits, and other
    employee costs


36,530



26,433



67,635



51,175Medical services and supplies


29,106



21,449



54,658



40,081Other operating expenses


35,760



28,006



67,154



52,930Depreciation and amortization


7,276



4,757



13,219



9,194Total operating expenses


108,672



80,645



202,666



153,380Operating income


35,233



31,041



67,999



55,922Interest expense, net


(3,459
)


(2,566
)


(6,208
)


(5,094
)Other


349



(24
)


681



75Income before income taxes

$
32,123


$
28,451


$
62,472


$
50,903Balance sheet information:Current assets


143,316



116,936



143,316



116,936Noncurrent assets


253,150



177,678



253,150



177,678Current liabilities


70,151



55,546



70,151



55,546Noncurrent liabilities


157,560



102,236



157,560



102,236   (4)
    Long-Term
    Debt     14




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   (5)
    Earnings
    Per Share    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net income attributable to common
    shareholders:Continuing operations

$
13,146


$
12,666


$
24,785


$
23,479Discontinued operations


6



(285
)


(6,458
)


(340
)Total

$
13,152


$
12,381


$
18,327


$
23,139Weighted average common shares
    outstanding


43,646



42,839



43,566



42,691Effect of dilutive securities:Stock options


1,361



1,754



1,456



1,749Warrants and restricted stock


379



254



376



241Shares used for diluted earnings
    per share


45,386



44,847



45,398



44,681Basic earnings per share:Continuing operations

$
0.30


$
0.30


$
0.57


$
0.55Discontinued operations






(0.01
)


(0.15
)


(0.01
)Total

$
0.30


$
0.29


$
0.42


$
0.54Diluted earnings per share:Continuing operations

$
0.29


$
0.28


$
0.55


$
0.53Discontinued operations










(0.15
)


(0.01
)Total

$
0.29


$
0.28


$
0.40


$
0.52  15




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   (6)
    Segment
    Disclosures  Disclosures About Segments of an Enterprise and Related
    Information
  Three Months Ended June 30, 2006UnitedUnited States


Kingdom


TotalNet patient service revenue

$
109,354


$
24,093


$
133,447Other revenue


17,005







17,005Total revenues

$
126,359


$
24,093


$
150,452Depreciation and amortization

$
6,730


$
1,944


$
8,674Operating income


37,369



3,603



40,972Net interest expense


(6,929
)


(854
)


(7,783
)Income tax expense


(5,989
)


(318
)


(6,307
)Total assets


979,113



214,168



1,193,281Capital expenditures


6,120



3,481



9,601   Three Months Ended June 30, 2005UnitedUnited States


Kingdom


TotalNet patient service revenue

$
89,675


$
23,680


$
113,355Other revenue


9,831







9,831Total revenues

$
99,506


$
23,680


$
123,186Depreciation and amortization

$
5,716


$
1,856


$
7,572Operating income


32,676



4,332



37,008Net interest expense


(5,193
)


(756
)


(5,949
)Income tax expense


(6,434
)


(891
)


(7,325
)Total assets


773,532



196,000



969,532Capital expenditures


3,094



5,280



8,374   16




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  Six Months Ended June 30, 2006UnitedUnited States


Kingdom


TotalNet patient service revenue

$
205,340


$
46,420


$
251,760Other revenue


26,535







26,535Total revenues

$
231,875


$
46,420


$
278,295Depreciation and amortization

$
12,916


$
3,751


$
16,667Operating income


69,865



6,982



76,847Net interest expense


(12,003
)


(1,582
)


(13,585
)Income tax expense


(12,428
)


(975
)


(13,403
)Total assets


979,113



214,168



1,193,281Capital expenditures


8,950



6,580



15,530   Six Months Ended June 30, 2005UnitedUnited States


Kingdom


TotalNet patient service revenue

$
171,789


$
46,365


$
218,154Other revenue


19,324







19,324Total revenues

$
191,113


$
46,365


$
237,478Depreciation and amortization

$
11,508


$
3,673


$
15,181Operating income


60,105



8,325



68,430Net interest expense


(10,356
)


(1,534
)


(11,890
)Income tax expense


(11,832
)


(1,599
)


(13,431
)Total assets


773,532



196,000



969,532Capital expenditures


6,140



8,075



14,215   (7)
    Condensed
    Consolidating Financial Statements  Form S-4
 17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Condensed
    Consolidating Balance Sheets:
  As of June 30, 2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
15,800


$
11,471


$



$
27,271Patient receivables, net


220



55,715







55,935Other receivables


918



19,729



(6,841
)


13,806Inventories of supplies


310



9,092







9,402Other


23,101



21,573







44,674Total current assets


40,349



117,580



(6,841
)


151,088Property and equipment, net


28,645



260,591



89



289,325Investments in affiliates


108,813



13,347



10,762



132,922Intangible assets, net


514,378



109,681



(16,134
)


607,925Other


99,654



1,359



(86,992
)


14,021Total assets

$
791,839


$
502,558


$
(99,116
)

$
1,195,281LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,622


$
19,386


$
(45
)

$
22,963Accrued expenses and other


68,994



30,112



963



100,069Current portion of long-term debt


481



22,958



(1,781
)


21,658Total current liabilities


73,097



72,456



(863
)


144,690Long-term debt, less current
    portion


232,096



154,302



(23,385
)


363,013Other long-term liabilities


37,582



10,535







48,117Minority interests


2,522



15,035



54,424



71,981Stockholders equity


446,542



250,230



(129,292
)


567,480Total liabilities and
    stockholders equity

$
791,839


$
502,558


$
(99,116
)

$
1,195,281   18




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  As of December 31, 2005Non-participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
123,071


$
7,369


$



$
130,440Patient receivables, net


170



44,331







44,501Other receivables


1,584



15,431



(6,762
)


10,253Inventories


167



7,652







7,819Other


18,569



1,528







20,097Total current assets


143,561



76,311



(6,762
)


213,110Property and equipment, net


25,358



233,658







259,016Investments in affiliates


104,153



15,747



(19,400
)


100,500Intangible assets, net


332,795



105,797



(16,036
)


422,556Other


103,434



20,086



(89,861
)


33,659Total assets

$
709,301


$
451,599


$
(132,059
)

$
1,028,841LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,833


$
17,406


$
(144
)

$
19,095Accrued expenses


83,860



2,416



871



87,147Current portion of long-term debt


354



17,408



(1,840
)


15,922Total current liabilities


86,047



37,230



(1,113
)


122,164Long-term debt


153,717



142,770



(25,923
)


270,564Other liabilities


32,668



8,397







41,065Minority interests






15,229



48,769



63,998Stockholders equity


436,869



247,973



(153,792
)


531,050Total liabilities and
    stockholders equity

$
709,301


$
451,599


$
(132,059
)

$
1,028,841  19




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Condensed
    Consolidating Statements of Income:
  Six Months Ended June 30, 2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalRevenues

$
46,724


$
244,298


$
(12,727
)

$
278,295Equity in earnings of
    unconsolidated affiliates


13,677



876



(519
)


14,034Operating expenses, excluding
    depreciation and amortization


42,404



169,297



(12,886
)


198,815Depreciation and amortization


4,958



11,700



9



16,667Operating income


13,039



64,177



(369
)


76,847Interest expense, net


(7,445
)


(6,140
)






(13,585
)Other income (expense)


1,707



95



(158
)


1,644Income (loss) before minority
    interests


7,301



58,132



(527
)


64,906Minority interests in income of
    consolidated subsidiaries






(7,383
)


(19,335
)


(26,718
)Income (loss) from continuing
    operations before income taxes


7,301



50,749



(19,862
)


38,188Income tax expense


(12,154
)


(1,249
)






(13,403
)Income (loss) from continuing
    operations


(4,853
)


49,500



(19,862
)


24,785Loss from discontinued operations,
    net of tax


(6,458
)










(6,458
)Net income (loss)

$
(11,311
)

$
49,500


$
(19,862
)

$
18,327  20




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Six Months Ended June 30, 2005Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalRevenues

$
38,043


$
211,220


$
(11,785
)

$
237,478Equity in earnings of
    unconsolidated affiliates


11,532



172



(230
)


11,474Operating expenses, excluding
    depreciation and amortization


31,573



145,708



(11,940
)


165,341Depreciation and amortization


4,893



10,288







15,181Operating income


13,109



55,396



(75
)


68,430Interest expense, net


(6,370
)


(5,520
)






(11,890
)Other income (expense)


566



(157
)


(156
)


253Income (loss) before minority
    interests


7,305



49,719



(231
)


56,793Minority interests in income of
    consolidated subsidiaries






(7,953
)


(11,930
)


(19,883
)Income (loss) from continuing
    operations before income taxes


7,305



41,766



(12,161
)


36,910Income tax expense


(11,269
)


(2,162
)






(13,431
)Income (loss) from continuing
    operations


(3,964
)


39,604



(12,161
)


23,479Loss from discontinued operations,
    net of tax


(340
)










(340
)Net income (loss)

$
(4,304
)

$
39,604


$
(12,161
)

$
23,139  21




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Condensed
    Consolidating Statements of Cash Flows:
  Six Months Ended June 30, 2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalCash flows from operating
    activities:Net income (loss)

$
(11,311
)

$
49,500


$
(19,862
)

$
18,327Loss from discontinued operations


6,458











6,458Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


36,303



(28,769
)


21,201



28,735Net cash provided by operating
    activities


31,450



20,731



1,339



53,520Cash flows from investing
    activities:Purchases of property and
    equipment, net


(1,082
)


(12,338
)






(13,420
)Purchases of new businesses and
    equity interests, net


(235,536
)


(118
)






(235,654
)Other items


(2,752
)










(2,752
)Net cash used in investing
    activities


(239,370
)


(12,456
)






(251,826
)Cash flows from financing
    activities:Long-term borrowings, net


86,686



(4,797
)






81,889Proceeds from issuance of common
    stock


5,985











5,985Other items


7,978



620



(1,339
)


7,259Net cash provided by (used in)
    financing activities


100,649



(4,177
)


(1,339
)


95,133Net cash provided by discontinued
    operations






19







19Effect of exchange rate changes on
    cash






(15
)






(15
)Net increase (decrease) in cash


(107,271
)


4,102







(103,169
)Cash at the beginning of the period


123,071



7,369







130,440Cash at the end of the period

$
15,800


$
11,471


$




27,271  22




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Six Months Ended June 30, 2005Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalCash flows from operating
    activities:Net income (loss)

$
(4,304
)

$
39,604


$
(12,161
)

$
23,139Loss from discontinued operations


340











340Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


50,742



(25,603
)


12,715



37,854Net cash provided by operating
    activities


46,778



14,001



554



61,333Cash flows from investing
    activities:Purchases of property and
    equipment, net


(1,369
)


(11,593
)






(12,962
)Purchases of new businesses and
    equity interests, net


(58,906
)










(58,906
)Other items


(3,162
)


1,500







(1,662
)Net cash used in investing
    activities


(63,437
)


(10,093
)






(73,530
)Cash flows from financing
    activities:Long-term borrowings, net


(1,021
)


(2,137
)






(3,158
)Proceeds from issuance of common
    stock


6,896











6,896Other items


2,443



(318
)


(554
)


1,571Net cash provided by (used in)
    financing activities


8,318



(2,455
)


(554
)


5,309Net cash used in discontinued
    operations


(73
)










(73
)Effect of exchange rate changes on
    cash






(78
)






(78
)Net increase (decrease) in cash


(8,414
)


1,375







(7,039
)Cash at the beginning of the period


83,905



9,562







93,467Cash at the end of the period

$
75,491


$
10,937


$



$
86,428   (8)
    Commitments
    and Contingencies  Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others
  Form 10-K, Form 10-K,
 23




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  Form 10-K.
    (9)
    New
    Accounting Pronouncements  Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement No. 109 Accounting for
    Income Taxes.
  (10)
    Subsequent
    Events       24




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##### Table of Contents



ITEM 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-Q.
  Forward-Looking
    Statements
  Form 10-Q, Form 10-Q.
  Overview
  not-for-profit
  not-for-profit
   25




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##### Table of Contents



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




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Net patient service revenue


89
%


92
%


90
%


92
%Management and contract service
    revenue


9



8



8



8Other income


2







2



Total revenues


100
%


100
%


100
%


100
%   gross-up
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Management of surgical facilities

$
6,394


$
5,151


$
11,876


$
10,141Contract services provided to
    physicians, hospitals and related entities


6,683



4,393



10,364



8,728Total management and
    administrative service revenues

$
13,077


$
9,544


$
22,240


$
18,869     Three Months Ended June 30,


Six Months Ended June 30,2006


2005


2006


2005United States


84
%


81
%


83
%


81
%United Kingdom


16



19



17



19Total


100
%


100
%


100
%


100
%    27




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##### Table of Contents



Equity in
    Earnings of Unconsolidated Affiliates
  not-for-profit
  Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Revenues

$
143,903


$
111,686


$
270,618


$
209,275Equity in earnings of
    unconsolidated affiliates


2







47



27Operating expenses:Salaries, benefits, and other
    employee costs


36,530



26,433



67,635



51,175Medical services and supplies


29,106



21,449



54,658



40,081Other operating expenses


35,760



28,006



67,154



52,930Depreciation and amortization


7,276



4,757



13,219



9,194Total operating expenses


108,672



80,645



202,666



153,380Operating income


35,233



31,041



67,999



55,922Interest expense, net


(3,459
)


(2,566
)


(6,208
)


(5,094
)Other


349



(24
)


681



75Income before income taxes

$
32,123


$
28,451


$
62,472


$
50,903Long-term debt


156,616



113,888



156,616



113,388USPIs equity in earnings of
    unconsolidated affiliates


7,148



6,371



14,034



11,474USPIs imputed weighted
    average ownership percentage based on affiliates pre-tax
    income(1)


22.3
%


22.6
%


22.6
%


22.9
%USPIs imputed weighted
    average ownership percentage based on affiliates debt(2)


28.8
%


26.7
%


28.8
%


26.7
%Unconsolidated facilities operated
    at period end


72



50



72



50     (1)
    
    Calculated as USPIs equity in earnings of unconsolidated
    affiliates divided by the total net income of unconsolidated
    affiliates for each respective period.(2)
    
    Calculated as the total debt of each unconsolidated affiliate,
    multiplied by the percentage ownership USPI held in the
    affiliate as of the end of each respective period, divided by
    the total debt of all of the unconsolidated affiliates as of the
    end of each respective period. This percentage is higher in 2006
    due primarily to our acquisition, in the second quarter of 2006,
    of four facilities in which we own a majority economic interest
    but account for under the equity method due to a lack of
    effective control over the facilities operations. 28




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##### Table of Contents



Results
    of Operations
    Three Months Ended


Six Months EndedJune 30,


June 30,2006


2005


2006


2005Total revenues


100
%


100
%


100
%


100
%Equity in earnings of
    unconsolidated affiliates


4.8



5.2



5.0



4.8Operating expenses, excluding
    depreciation and amortization


(71.8
)


(69.0
)


(71.4
)


(69.6
)Depreciation and amortization


(5.8
)


(6.1
)


(6.0
)


(6.4
)Operating income


27.2



30.1



27.6



28.8Minority interests in income of
    consolidated entities


(9.2
)


(9.0
)


(9.6
)


(8.4
)Interest and other expense, net


(5.1
)


(4.8
)


(4.3
)


(4.9
)Income from continuing operations
    before income taxes


12.9



16.3



13.7



15.5Income tax expense


(4.2
)


(5.9
)


(4.8
)


(5.7
)Income from continuing operations


8.7



10.4



8.9



9.8Earnings (loss) from discontinued
    operations






(0.2
)


(2.3
)


(0.1
)Net income


8.7



10.2



6.6



9.7   Executive
    Summary
  year-to-date year-over-year
      lower-than-usual
   29




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##### Table of Contents



Revenues
        year-over-year
    Three Months Ended

Six Months EndedJune 30, 2006

June 30, 2006United States facilities:Net revenue


3.5
%


6.4
%Surgical cases


3.4
%


4.6
%Net revenue per case(1)


0.1
%


1.8
%United Kingdom facilities:Net revenue using actual exchange
    rates


1.9
%


0.2
%Net revenue using constant
    exchange rates(2)


3.5
%


4.8
%All same store facilities:Net revenue using actual exchange
    rates


3.4
%


5.8
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    was negatively impacted by a change in case mix at two large
    surgical hospitals during the second quarter of 2006. Net
    revenue per case of our same store ambulatory surgery centers
    has remained relatively flat for both the three and six months
    ended June 30, 2006 as compared to the corresponding prior
    year period.(2)
    
    Calculated using 2006 exchange rates for both periods. We
    believe that using a constant currency translation rate more
    accurately reflects the trend of the business. 30




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##### Table of Contents



Joint
    Ventures With
    Not-For-Profit
    Hospitals
    June 30,2006


2005United States facilities(1):With a hospital partner


69



59Without a hospital partner


56



31Total U.S. facilities


125



90United Kingdom facilities


3



3Total facilities operated


128



93Change from June 30, 2005:De novo (newly constructed)


8Acquisition


30Disposals(2)


(3
)Total increase in number of
    facilities


35     (1)
    
    At June 30, 2005, physicians own a portion of all of these
    facilities.(2)
    
    We sold our ownership interests in facilities in Lyndhurst, Ohio
    and Chicago, Illinois during the first quarter of 2006. We
    designated a newly acquired Surgis facility as held for
    sale during the second quarter of 2006.  Facility
    Operating Margins
  year-over-year
      Three Months



Six MonthsEnded

Increase

Ended

IncreaseJune 30, 2006

(decrease)

June 30, 2006

(decrease)United States facilities:With a hospital partner


27.1
%


(330) bps



27.4
%


(170) bpsWithout a hospital partner


31.2
%


(220) bps



32.4
%


(70) bpsTotal U.S. facilities


28.4
%


(290) bps



28.9
%


(140) bpsUnited Kingdom facilities


22.5
%


(320) bps



22.8
%


(280) bps  31




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##### Table of Contents



(1)
    
    Operating margin is calculated as operating income divided by
    total revenues. This table aggregates all of the same store
    facilities we operate using 100% of their results. This does not
    represent the overall margin for USPIs operations in
    either the U.S. or the U.K. because we have a variety of
    ownership levels in the facilities we operate, and facilities
    open for less than a year are excluded from same store
    calculations.  Three
    Months Ended June 30, 2006 Compared to Three Months Ended
    June 30, 2005
             32




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##### Table of Contents



Six
    Months Ended June 30, 2006 Compared to Six Months Ended
    June 30, 2005
           33




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##### Table of Contents



Liquidity
    and Capital Resources
          34




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##### Table of Contents



Payments Due by Period (In Thousands)Within


1 to 3


4 to 5


BeyondContractual Cash Obligations

Total


1 year


years


years


5 yearsLong term debt obligations
    (principal plus interest)(1):Senior Subordinated Notes(2)

$
232,500


$
15,000


$
30,000


$
30,000


$
157,500U.K. credit facility


82,264



10,402



26,528



45,334



U.S. credit facility


80,000











80,000



Other debt at operating
    subsidiaries


36,922



10,149



16,931



8,551



1,291Capitalized lease obligations


105,839



9,856



17,688



12,946



65,349Operating lease obligations


65,644



12,941



22,478



14,623



15,602Total contractual cash obligations

$
603,169


$
58,348


$
113,625


$
191,454


$
239,742     (1)
    
    Amounts shown for long-term debt obligations and capital lease
    obligations include the associated interest. For variable rate
    debt, the interest is calculated using the June 30, 2006
    rates applicable to each debt instrument.(2)
    
    We announced a tender offer for these obligations on
    July 14, 2006.   35




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New
    Accounting Pronouncements




Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement No. 109. Accounting for
    Income Taxes.




|            |                                                               
|----------- | --------------------------------------------------------------
|ITEM
    3. | Quantitative
    and Qualitative Disclosures About Market Risk



variable-to-fixed










36



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ITEM 4.  Controls
    and Procedures




Form 10-Q.


37



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##### Table of Contents



PART II 
    OTHER INFORMATION  ITEM
    1.  Legal Proceedings    ITEM
    4.
    Submission
    of Matters to a Vote of Security Holders      Number of SharesFor

WithheldJoel T. Allison


40,028,064



923,999Boone Powell, Jr.


38,802,131



2,149,932Jerry P. Widman


38,810,304



2,141,759     Number of SharesFor


40,854,626Against


95,733Abstain


1,704   ITEM
    6.
    Exhibits
    and Reports on
    Form 8-K  Exhibits:
  3
.1

Second Amended and Restated
    Certificate of Incorporation (previously filed as an exhibit to
    the Companys Registration Statement on
    Form S-1
    (No.
    333-55442)
    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-1
    (No.
    333-55442)
    and incorporated herein by reference).4
.1

Form of Common Stock Certificate
    (previously filed as an exhibit to the Companys
    Registration Statement on
    Form S-1
    (No.
    333-55442)
    and incorporated herein by reference).4
.2

Indenture, dated as of
    December 19, 2001, among United Surgical Partners Holdings,
    Inc., the guarantor parties thereto and U.S. Trust Company
    of Texas, N.A. (previously filed as Exhibit 4.2 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001 and incorporated
    herein by reference).10
.1*

First Supplemental Indenture,
    dated as of July 14, 2006, among The Bank of New York Trust
    Company, N.A. (BNY) and the new guarantors party
    thereto.10
.2*

Second Supplemental Indenture,
    dated as of July 27, 2006 among United Surgical Partners
    Holdings, Inc., the guarantors party thereto and BNY.31
.1*

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2*

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.1*

Certification of Chief Executive
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.32
.2*

Certification of Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.  38




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##### Table of Contents



Form 8-K:
  Form 8-K Form 8-K
  Form 8-K Form 8-K
  Form 8-K Form 8-K,
  Form 8-K Form 8-K
  Form 8-K
  Form 8-K Form 8-K
  Form 8-K Form 8-K
 39




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##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser   Senior Vice President and Chief Financial Officer
 (Principal Financial Officer)
  By:
    /s/  John
    J. Wellik   Senior Vice President, Accounting and
 Administration, and Secretary
 (Principal Accounting Officer)
  40




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##### Table of Contents



EXHIBIT
    INDEX
  3
.1

Second Amended and Restated
    Certificate of Incorporation (previously filed as an exhibit to
    the Companys Registration Statement on
    Form S-1
    (No.
    333-55442)
    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-1
    (No.
    333-55442)
    and incorporated herein by reference).4
.1

Form of Common Stock Certificate
    (previously filed as an exhibit to the Companys
    Registration Statement on
    Form S-1
    (No.
    333-55442)
    and incorporated herein by reference).4
.2

Indenture, dated as of
    December 19, 2001, among United Surgical Partners Holdings,
    Inc., the guarantor parties thereto and U.S. Trust Company
    of Texas, N.A. (previously filed as Exhibit 4.2 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001 and incorporated
    herein by reference).10
.1*

First Supplemental Indenture,
    dated as of July 14, 2006, among The Bank of New York Trust
    Company, N.A. (BNY) and the new guarantors party
    thereto.10
.2*

Second Supplemental Indenture,
    dated as of July 27, 2006 among United Surgical Partners
    Holdings, Inc., the guarantors party thereto and BNY.31
.1*

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2*

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.1*

Certification of Chief Executive
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.32
.2*

Certification of Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.      41