##### 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, 2007oro

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

75001Addison, Texas

(Zip Code)(Address of principal executive
    offices)    (Registrants telephone number, including area code)(972) 713-3500
   o þ
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ




---



##### 



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


Financial
    Statements

3Consolidated
    Balance Sheets (unaudited)

3Consolidated
    Statements of Operations (unaudited)

4Consolidated
    Statements of Comprehensive Income (Loss) (unaudited)

6Consolidated
    Statements of Stockholders Equity (unaudited)

7Consolidated
    Statements of Cash Flows (unaudited)

8Notes to
    Consolidated Financial Statements (unaudited)

10Item 2.


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

30Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk

49Item 4.


Controls and
    Procedures

49PART II. Other
    InformationItem 1.


Legal
    Proceedings

49Item 6.


Exhibits

50Signatures

512007 Equity Incentive PlanCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906     2




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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
  Successor



PredecessorJune 30,



December 31,2007



2006(Unaudited)(In thousands, except share and per share amounts)ASSETSCash and cash equivalents

$
56,138



$
31,740Patient receivables, net of
    allowance for doubtful accounts of $12,919 and $9,955,
    respectively


64,694




58,525Other receivables


17,928




16,973Inventories of supplies


9,323




9,108Deferred tax asset, net


9,905




14,238Prepaids and other current assets


27,646




13,264Total current assets


185,634




143,848Property and equipment, net


372,956




299,829Investments in affiliates


159,957




158,499Goodwill and intangible assets, net


1,487,042




621,264Other assets


12,467




8,416Total assets

$
2,218,056



$
1,231,856LIABILITIES AND
    STOCKHOLDERS EQUITYAccounts payable

$
22,032



$
24,436Accrued salaries and benefits


25,170




26,145Due to affiliates


71,687




76,398Accrued interest


14,819




1,742Current portion of long-term debt


30,476




26,373Other current liabilities


38,412




30,588Total current liabilities


202,596




185,682Long-term debt, less current
    portion


1,044,755




320,957Other long-term liabilities


17,464




10,857Deferred tax liability, net


73,034




42,256Total liabilities


1,337,849




559,752Minority interests


90,974




72,830Commitments and contingenciesStockholders equity:Common stock, $0.01 par
    value; 100 shares authorized; 100 shares issued and
    outstanding at June 30, 2007 (Successor);
    200,000,000 shares authorized and 44,714,176 shares
    issued at December 31, 2006 (Predecessor)







447Additional paid-in capital


784,468




382,327Treasury stock, at cost,
    4,076 shares at December 31, 2006







(109
)Accumulated other comprehensive
    income


617




16,349Retained earnings


4,148




200,260Total stockholders equity


789,233




599,274Total liabilities and
    stockholders equity

$
2,218,056



$
1,231,856    3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Operations
  Successor



PredecessorPeriod from



Period fromApril 19



April 1through



through


Three MonthsJune 30,



April 18,


Ended June 30,2007



2007


2006(Unaudited  in thousands)Revenues:Net patient service revenue

$
119,791



$
28,519


$
133,447Management and contract service
    revenue


13,065




3,262



13,077Other revenue


1,030




258



3,928Total revenues


133,886




32,039



150,452Equity in earnings of
    unconsolidated affiliates


7,244




1,402



7,148Operating expenses:Salaries, benefits, and other
    employee costs


36,438




9,402



42,498Medical services and supplies


23,095




5,776



27,046Other operating expenses


21,538




5,500



26,240General and administrative expenses


8,558




24,301



9,385Provision for doubtful accounts


2,986




635



2,726Depreciation and amortization


8,925




2,348



8,674Total operating expenses


101,540




47,962



116,569Operating income (loss)


39,590




(14,521
)


41,031Interest income


751




190



1,140Interest expense


(19,364
)



(1,603
)


(8,923
)Loss on early retirement of debt







(2,435
)


Other


128




744



59Total other expense, net


(18,485
)



(3,104
)


(7,724
)Income (loss) before minority
    interests


21,105




(17,625
)


33,307Minority interests in income of
    consolidated subsidiaries


(14,262
)



(3,051
)


(13,817
)Income (loss) from continuing
    operations before income taxes


6,843




(20,676
)


19,490Income tax (expense) benefit


(2,614
)



4,894



(6,320
)Income (loss) from continuing
    operations


4,229




(15,782
)


13,170Loss from discontinued operations,
    net of tax


(81
)



(27
)


(18
)Net income (loss)

$
4,148



$
(15,809
)

$
13,152    4




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Operations
  SuccessorPeriod from



PredecessorApril 19 through



Period from January 1


Six Months EndedJune 30,



through April 18,


June 30,2007



2007


2006(Unaudited  in thousands)Revenues:Net patient service revenue

$
119,791



$
174,180


$
251,760Management and contract service
    revenue


13,065




19,142



22,240Other revenue


1,030




1,615



4,295Total revenues


133,886




194,937



278,295Equity in earnings of
    unconsolidated affiliates


7,244




9,906



14,034Operating expenses:Salaries, benefits, and other
    employee costs


36,438




55,334



76,201Medical services and supplies


23,095




35,032



50,462Other operating expenses


21,538




33,072



48,837General and administrative expenses


8,558




39,277



18,691Provision for doubtful accounts


2,986




3,385



4,565Depreciation and amortization


8,925




12,719



16,667Total operating expenses


101,540




178,819



215,423Operating income


39,590




26,024



76,906Interest income


751




933



2,560Interest expense


(19,364
)



(9,546
)


(16,145
)Loss on early retirement of debt







(2,435
)


Other


128




798



1,644Total other expense, net


(18,485
)



(10,250
)


(11,941
)Income before minority interests


21,105




15,774



64,965Minority interests in income of
    consolidated subsidiaries


(14,262
)



(18,546
)


(26,740
)Income (loss) from continuing
    operations before income taxes


6,843




(2,772
)


38,225Income tax expense


(2,614
)



(4,139
)


(13,416
)Income (loss) from continuing
    operations


4,229




(6,911
)


24,809Loss from discontinued operations,
    net of tax


(81
)



(238
)


(6,482
)Net income (loss)

$
4,148



$
(7,149
)

$
18,327    5




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Comprehensive Income (Loss)
  Successor



PredecessorPeriod from



Period from


ThreeApril 19 through



April 1 through


Months EndedJune 30,



April 18,


June 30,2007



2007


2006(Unaudited  in thousands)Net income (loss)

$
4,148



$
(15,809
)

$
13,152Other comprehensive income:Foreign currency translation
    adjustments


617




1,591



5,889Comprehensive income (loss)

$
4,765



$
(14,218
)

$
19,041   Successor



PredecessorPeriod from



Period from


Six MonthsApril 19 through



January 1 through


EndedJune 30,



April 18,


June 30,2007



2007


2006Net income (loss)

$
4,148



$
(7,149
)

$
18,327Other comprehensive income:Foreign currency translation
    adjustments


617




2,169



6,952Comprehensive income (loss)

$
4,765



$
(4,980
)

$
25,279    6




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Stockholders Equity
  AccumulatedCommon Stock


Additional





OtherOutstanding





Paid-in


Treasury


Comprehensive


RetainedShares


Par Value


Capital


Stock


Income


Earnings


Total(Unaudited  in thousands)PredecessorBalance, December 31, 2006


44,710


$
447


$
382,327


$
(109
)

$
16,349


$
200,260


$
599,274Issuance of common stock and
    exercise of stock options


474



5



6,211















6,216Repurchases of common stock


(71
)










(2,197
)










(2,197
)Equity-based compensation expense










17,100















17,100Tax benefit related to increase in
    value of equity awards










15,822















15,822Net loss






















(7,149
)


(7,149
)Foreign currency translation
    adjustments


















2,169







2,169Balance, April 18, 2007


45,113


$
452


$
421,460


$
(2,306
)

$
18,518


$
193,111


$
631,235SuccessorCapitalization of Successor
    company at April 19, 2007





$



$
786,827


$



$



$



$
786,827Expenses paid on behalf of USPI
    Group Holdings, Inc.










(2,833
)














(2,833
)Contribution related to equity
    award grants by USPI Group Holdings, Inc.










474















474Net income






















4,148



4,148Foreign currency translation
    adjustments


















617







617Balance, June 30, 2007





$



$
784,468


$



$
617


$
4,148


$
789,233  7




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Cash Flows
  Successor



PredecessorPeriod from



Period fromApril 19



January 1


Six Monthsthrough



through


EndedJune 30,



April 18,


June 30,2007



2007


2006(Unaudited  in thousands)Cash flows from operating
    activities:Net income (loss)

$
4,148



$
(7,149
)

$
18,327Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Loss on discontinued operations


81




238



6,482Provision for doubtful accounts


2,986




3,385



4,565Depreciation and amortization


8,925




12,719



16,667Loss on early retirement of debt







2,435



Gain on sale of equity interests







(897
)


Amortization of debt issue costs
    and discount


533




202



507Deferred income tax expense


775




425



4,341Equity in earnings of
    unconsolidated affiliates, net of distributions received


1,996




4,335



3,193Minority interests in income of
    consolidated subsidiaries, net of distributions paid


3,248




148



(1,084
)Equity-based compensation


474




17,100



5,997Increases (decreases) in cash from
    changes in operating assets and liabilities, net of effects from
    purchases of new businesses:Patient receivables


(5,912
)



(1,040
)


(5,393
)Other receivables


(1,169
)



(100
)


(918
)Inventories of supplies, prepaids
    and other current assets


1,216




987



(4,839
)Accounts payable and other current
    liabilities


2,289




12,213



1,622Long-term liabilities


24




(528
)


6,425Tax benefit related to increase in
    value of equity awards







(15,822
)


(2,348
)Net cash provided by operating
    activities


19,614




28,651



53,544Cash flows from investing
    activities:Purchases of new businesses and
    equity interests, net of cash received


(38,362
)



(26,685
)


(236,683
)Proceeds from sale of businesses
    and equity interests







15,916



1,029Purchases of property and equipment


(2,170
)



(7,020
)


(13,420
)Returns of capital from
    unconsolidated affiliates


302




556



355(Increase) decrease in deposits
    and notes receivable


12,706




(9,084
)


(3,107
)Net cash used in investing
    activities


(27,524
)



(26,317
)


(251,826
) 8




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  Consolidated Statements of Cash
    Flows  (Continued)
  Successor



PredecessorPeriod from



Period fromApril 19



January 1


Six Monthsthrough



through


EndedJune 30,



April 18,


June 30,2007



2007


2006(Unaudited  in thousands)Cash flows from financing
    activities:Proceeds from long-term debt, net
    of debt issuance costs


874,347




22,134



100,000Payments on long-term debt


(206,399
)



(7,480
)


(18,111
)Proceeds from issuances of common
    stock







6,135



3,637Net equity contribution from USPI
    Group Holdings, Inc.


765,802








Tax benefit related to increase in
    value of equity awards







15,822



2,348Payments to repurchase common stock


(1,430,879
)







(Decrease) increase in cash held
    on behalf of unconsolidated affiliates


(18,760
)



13,895



7,978Expenses paid on behalf of USPI
    Group Holdings, Inc.


(2,833
)







Returns of capital to minority
    interest holders


(318
)



(957
)


(719
)Net cash (used in) provided by
    financing activities


(19,040
)



49,549



95,133Cash flows of discontinued
    operations:Operating cash flows


(115
)



(313
)


163Investing cash flows











5Financing cash flows











(173
)Net cash used in discontinued
    operations


(115
)



(313
)


(5
)Effect of exchange rate changes on
    cash


6




(113
)


(15
)Net (decrease) increase in cash
    and cash equivalents


(27,059
)



51,457



(103,169
)Cash and cash equivalents at
    beginning of period


83,197




31,740



130,440Cash and cash equivalents at end
    of period

$
56,138



$
83,197


$
27,271Supplemental information:Interest paid

$
6,420



$
9,861


$
14,938Income taxes paid


1,666




1,909



10,995Non-cash transactions:Assets acquired under capital
    lease obligations

$
2,669



$
1,677


$
2,110Issuance of common stock to
    employees











30,159Predecessor rollover equity


18,192








    9




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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          Form 10-K.
 10




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
      (b)
    Merger
    Transaction        
    an investment of cash and rollover equity of USPI in the equity
    of Parent by Welsh Carson, management and other equity investors
    of approximately $785.0 million;
    borrowings by the Company of $430.0 million in new senior
    secured credit facilities;
    the issuance by the Company of $240.0 million in aggregate
    principal amount of
    87/8% senior
    subordinated notes, due 2017, and $200.0 million in
    aggregate principal amount of
    91/4%/10% senior
    subordinated toggle notes, due 2017;
    additional borrowings of £10.0 million (approximately
    $19.7 million) by Global, which was repatriated to the
    U.S.; and
    approximately $16.4 million of cash on hand.  Business Combinations,
 11




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    Net cash and equity contribution
    from Holdings

$
786,827Proceeds from borrowings


889,700Cash on hand


16,415Expenses paid on behalf of Parent


(2,833
)Purchase price allocated

$
1,690,109Estimated fair value of net
    tangible assets acquired:Cash

$
63,497Patient receivables


58,435Current deferred tax asset


17,123Other current assets


46,369Investments in affiliates


161,611Property and equipment


370,092Other assets


20,668Current liabilities


(108,147
)Due to affiliates


(90,260
)Long-term debt, excluding current
    portion


(131,158
)Deferred tax liability


(70,770
)Other long-term liabilities


(13,619
)Minority interests in consolidated
    subsidiaries


(84,635
)Net tangible assets acquired


239,206Capitalized debt issuance costs


28,659Intangible assets acquired


116,408Goodwill


1,305,836$
1,690,109     Three Months Ended


Six Months EndedJune 30,


June 30,2007


2006


2007


2006Net revenues

$
165,925


$
150,452


$
328,823


$
278,295Income from continuing operations


3,294



5,834



7,846



9,564     (2)
    Discontinued
    Operations and Other Dispositions   12




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
      Successor



PredecessorPeriod from



Period from





Period fromApril 19



April 1


Three Months


January 1


Six Monthsthrough



through


Ended


through


EndedJune 30,



April 18,


June 30,


April 18,


June 30,2007



2007


2006


2007


2006Revenues

$
19



$



$
39


$
111


$
1,157Loss from discontinued operations
    before income taxes

$
(124
)


$
(42
)

$
(28
)

$
(366
)

$
(85
)Income tax benefit


43




15



10



128



30Loss from discontinued operations

$
(81
)


$
(27
)

$
(18
)

$
(238
)

$
(55
)Loss on sale of discontinued
    operations before income taxes

$




$



$



$



$
(7,396
)Income tax benefit



















969Loss on sale of discontinued
    operations

$




$



$



$



$
(6,427
)     (3)
    Acquisitions
    and Equity Method Investments   13




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    Successor



PredecessorPeriod from



Period from





Period fromApril 19 through



April 1 through


Three Months


January 1 through


Six MonthsJune 30,



April 18,


Ended June 30,


April 18,


Ended June 30,2007



2007


2006


2007


2006Net revenues

$
134,759



$
33,457


$
156,467


$
206,191


$
287,818Income (loss) from continuing
    operations


4,351




(15,584
)


13,529



(5,393
)


25,350     
    Receipt of $9.8 million from a not-for-profit hospital
    partner that obtained additional ownership in certain of the
    Companys surgical facilities in the Chicago, Illinois area;
    Investment of $1.5 million in a joint venture with one of
    the Companys not-for-profit hospital partners, which the
    joint venture used to acquire ownership in a surgery center in
    the Utica, Michigan area; and
    Net payment of approximately $2.0 million related to other
    purchases and sales of equity interests and contributions of
    cash to equity method investees.   14




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006Unconsolidated facilities operated
    at period-end


90



72



90



72Income statement information:Revenues

$
191,298


$
143,903


$
368,354


$
270,618Equity in earnings of
    unconsolidated affiliates


59



2



112



47Operating expenses:Salaries, benefits, and other
    employee costs


50,229



36,530



95,047



67,635Medical services and supplies


40,120



29,106



76,054



54,658Other operating expenses


49,648



35,760



95,688



67,154Depreciation and amortization


9,484



7,276



18,261



13,219Total operating expenses


149,481



108,672



285,050



202,666Operating income


41,876



35,233



83,416



67,999Interest expense, net


(5,124
)


(3,459
)


(8,846
)


(6,208
)Other


819



349



(898
)


681Income before income taxes

$
37,571


$
32,123


$
73,672


$
62,472Balance sheet information:Current assets

$
176,843


$
143,316


$
176,843


$
143,316Noncurrent assets


368,196



253,150



368,196



253,150Current liabilities


102,812



70,151



102,812



70,151Noncurrent liabilities


261,504



157,560



261,504



157,560   (4)
    Long-Term
    Debt    New
    senior secured credit facility
   15




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
      New
    senior subordinated notes
  7 8 1 4 payment-in-kind 1 4
  Form S-4
 16




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  United
    Kingdom borrowings
        (5)
    Equity-Based
    Compensation  Share-Based
    Payment
       17




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    Successor



PredecessorPeriod from



Period from





Period fromApril 19



April 1





January 1through



through


Three Months


through


Six MonthsJune 30,



April 18,


Ended June 30,


April 18,


Ended June 30,2007



2007


2006


2007


2006Equity in earnings of
    unconsolidated affiliates

$




$



$
18


$
20


$
32Salaries, benefits and other
    employee costs







150



786



959



1,484General and administrative expenses


474




14,132



2,089



16,144



4,528Minority interests in income of
    consolidated subsidiaries











(27
)


(23
)


(47
)Expense before income tax benefit


474




14,282



2,866



17,100



5,997Income tax benefit


(56
)



(4,481
)


(860
)


(5,366
)


(1,798
)Total equity-based compensation
    expense, net of tax

$
418



$
9,801


$
2,006


$
11,734


$
4,199     Successor



PredecessorPeriod from



Period from





Period fromApril 19



April 1





January 1through



through


Three Months


through


Six MonthsJune 30,



April 18,


Ended June 30,


April 18,


Ended June 30,2007



2007


2006


2007


2006Share awards

$
348



$
10,875


$
2,076


$
13,202


$
4,471Stock options


126




3,407



714



3,797



1,368ESPP











76



101



158Expense before income tax benefit


474




14,282



2,866



17,100



5,997Income tax benefit


(56
)



(4,481
)


(860
)


(5,366
)


(1,798
)Total equity-based compensation
    expense, net of tax

$
418



$
9,801


$
2,006


$
11,734


$
4,199   (6)
    Segment
    Disclosures  Disclosures About Segments of an Enterprise and Related
    Information,
 18




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    United


UnitedStates


Kingdom


TotalSuccessorPeriod From April 19 through
    June 30, 2007Net patient service revenue

$
96,165


$
23,626


$
119,791Other revenue


14,095







14,095Total revenues

$
110,260


$
23,626


$
133,886Depreciation and amortization

$
6,493


$
2,432


$
8,925Operating income


35,931



3,659



39,590Net interest expense


(17,360
)


(1,253
)


(18,613
)Income tax expense


(2,336
)


(278
)


(2,614
)Total assets


1,941,473



276,583



2,218,056Capital expenditures


3,303



1,536



4,839PredecessorPeriod from April 1 through
    April 18, 2007Net patient service revenue

$
23,033


$
5,486


$
28,519Other revenue


3,520







3,520Total revenues

$
26,553


$
5,486


$
32,039Depreciation and amortization

$
1,846


$
502


$
2,348Operating income (loss)


(15,245
)


724



(14,521
)Net interest expense


(1,170
)


(243
)


(1,413
)Income tax (expense) benefit


5,070



(176
)


4,894Total assets


1,114,429



209,279



1,323,708Capital expenditures


996



939



1,935PredecessorThree Months Ended
    June 30, 2006Net 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


37,428



3,603



41,031Net interest expense


(6,929
)


(854
)


(7,783
)Income tax expense


(6,002
)


(318
)


(6,320
)Total assets


979,113



214,168



1,193,281Capital expenditures


6,120



3,481



9,601 19




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  United


UnitedStates


Kingdom


TotalPredecessorPeriod from January 1
    through April 18, 2007Net patient service revenue

$
140,447


$
33,733


$
174,180Other revenue


20,757







20,757Total revenues

$
161,204


$
33,733


$
194,937Depreciation and amortization

$
9,780


$
2,939


$
12,719Operating income


20,615



5,409



26,024Net interest expense


(7,175
)


(1,438
)


(8,613
)Income tax expense


(2,789
)


(1,350
)


(4,139
)Total assets


1,114,429



209,279



1,323,708Capital expenditures


6,071



2,625



8,696PredecessorSix Months Ended
    June 30, 2006Net 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


69,924



6,982



76,906Net interest expense


(12,003
)


(1,582
)


(13,585
)Income tax expense


(12,441
)


(975
)


(13,416
)Total assets


979,113



214,168



1,193,281Capital expenditures


8,950



6,580



15,530   (7)
    Commitments
    and Contingencies  (a)
    Financial
    Guarantees    Guarantors Accounting and
    Disclosure Requirements for Guarantees, Including Indirect
    Guarantees of Indebtedness of Others
 20




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    (b)
    Spanish
    Tax Indemnification  Form 10-K, Form 10-K, Form 10-K.
  (c)
    Litigation
    and Professional Liability Claims       21




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
    (8)
    New
    Accounting Pronouncements  Accounting for Uncertainty in Income Taxes, an Interpretation
    of FASB Statement No. 109 Accounting for Income
    Taxes
  Fair Value Measurement
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an amendment of FASB Statement
    No. 115
  (9)
    Subsequent
    Events    (10)
    Condensed
    Consolidating Financial Statements   22




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  7 8 1 4 Form S-4
  Condensed
    Consolidating Balance Sheets:
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalSuccessor as of
    June 30, 2007AssetsCurrent assets:Cash and cash equivalents

$
44,728


$
11,410


$



$
56,138Patient receivables, net


109



64,608



(23
)


64,694Other receivables


31,907



23,893



(37,872
)


17,928Inventories of supplies






9,356



(33
)


9,323Prepaids and other current assets


32,706



3,812



1,033



37,551Total current assets


109,450



113,079



(36,895
)


185,634Property and equipment, net


18,381



353,840



735



372,956Investments in affiliates


327,969



(3,064
)


(164,948
)


159,957Goodwill and intangible assets, net


1,360,518



160,431



(33,907
)


1,487,042Other assets


236,433



11,638



(235,604
)


12,467Total assets

$
2,052,751


$
635,924


$
(470,619
)

$
2,218,056Liabilities and
    Stockholders EquityCurrent liabilities:Accounts payable

$
1,160


$
20,965


$
(93
)

$
22,032Accrued expenses and other


156,281



25,726



(31,919
)


150,088Current portion of long-term debt


3,800



32,426



(5,750
)


30,476Total current liabilities


161,241



79,117



(37,762
)


202,596Long-term debt, less current
    portion


1,039,985



171,391



(166,621
)


1,044,755Other long-term liabilities


62,272



29,897



(1,671
)


90,498Minority interests


20



16,451



74,503



90,974Stockholders equity


789,233



339,068



(339,068
)


789,233Total liabilities and
    stockholders equity

$
2,052,751


$
635,924


$
(470,619
)

$
2,218,056   23




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalPredecessor as of
    December 31, 2006AssetsCurrent assets:Cash and cash equivalents

$
23,934


$
7,806


$



$
31,740Patient receivables, net


117



58,408







58,525Other receivables


33,434



19,212



(35,673
)


16,973Inventories of supplies






9,108







9,108Prepaids and other current assets


24,411



3,151



(60
)


27,502Total current assets


81,896



97,685



(35,733
)


143,848Property and equipment, net


19,357



280,367



105



299,829Investments in affiliates


279,485



14,592



(135,578
)


158,499Goodwill and intangible assets, net


515,589



126,253



(20,578
)


621,264Other assets


86,708



12,209



(90,501
)


8,416Total assets

$
983,035


$
531,106


$
(282,285
)

$
1,231,856Liabilities and
    Stockholders EquityCurrent liabilities:Accounts payable

$
2,886


$
21,686


$
(136
)

$
24,436Accrued expenses and other


139,856



21,376



(26,359
)


134,873Current portion of long-term debt


1,533



30,445



(5,605
)


26,373Total current liabilities


144,275



73,507



(32,100
)


185,682Long-term debt, less current
    portion


197,820



148,143



(25,006
)


320,957Other long-term liabilities


41,646



12,336



(869
)


53,113Minority interests


20



15,085



57,725



72,830Stockholders equity


599,274



282,035



(282,035
)


599,274Total liabilities and
    stockholders equity

$
983,035


$
531,106


$
(282,285
)

$
1,231,856  24




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Condensed
    Consolidating Statements of Operations:
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalPeriod from January 1
    through April 18, 2007PredecessorRevenues

$
26,714


$
177,157


$
(8,934
)

$
194,937Equity in earnings of
    unconsolidated affiliates


28,125



158



(18,377
)


9,906Operating expenses, excluding
    depreciation and amortization


51,243



123,975



(9,118
)


166,100Depreciation and amortization


2,219



9,701



799



12,719Operating income


1,377



43,639



(18,992
)


26,024Interest expense, net


(4,997
)


(3,616
)






(8,613
)Loss on early retirement of debt


(2,435
)










(2,435
)Other income (expense)


917



(718
)


599



798Income (loss) before minority
    interests


(5,138
)


39,305



(18,393
)


15,774Minority interests in income of
    consolidated subsidiaries






(4,535
)


(14,011
)


(18,546
)Income (loss) from continuing
    operations before income taxes


(5,138
)


34,770



(32,404
)


(2,772
)Income tax expense


(1,773
)


(2,368
)


2



(4,139
)Income (loss) from continuing
    operations


(6,911
)


32,402



(32,402
)


(6,911
)Loss from discontinued operations,
    net of tax


(238
)










(238
)Net income (loss)

$
(7,149
)

$
32,402


$
(32,402
)

$
(7,149
)Period from April 19
    through June 30, 2007SuccessorRevenues

$
17,850


$
122,013


$
(5,977
)

$
133,886Equity in earnings of
    unconsolidated affiliates


21,122



180



(14,058
)


7,244Operating expenses, excluding
    depreciation and amortization


15,551



83,101



(6,037
)


92,615Depreciation and amortization


1,797



6,982



146



8,925Operating income


21,624



32,110



(14,144
)


39,590Interest expense, net


(15,730
)


(2,883
)






(18,613
)Other income (expense)


151



39



(62
)


128Income before minority interests


6,045



29,266



(14,206
)


21,105Minority interests in income of
    consolidated subsidiaries






(2,637
)


(11,625
)


(14,262
)Income from continuing operations
    before income taxes


6,045



26,629



(25,831
)


6,843Income tax expense


(1,816
)


(857
)


59



(2,614
)Income from continuing operations


4,229



25,772



(25,772
)


4,229Loss from discontinued operations,
    net of tax


(81
)










(81
)Net income

$
4,148


$
25,772


$
(25,772
)

$
4,148 25




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalSix Months Ended June 30,
    2006PredecessorRevenues

$
40,843


$
249,777


$
(12,325
)

$
278,295Equity in earnings of
    unconsolidated affiliates


44,583



876



(31,425
)


14,034Operating expenses, excluding
    depreciation and amortization


38,340



172,901



(12,485
)


198,756Depreciation and amortization


4,176



12,482



9



16,667Operating income


42,910



65,270



(31,274
)


76,906Interest expense, net


(7,797
)


(5,788
)






(13,585
)Other income (expense)


1,707



95



(158
)


1,644Income (loss) before minority
    interests


36,820



59,577



(31,432
)


64,965Minority interests in income of
    consolidated subsidiaries






(8,056
)


(18,684
)


(26,740
)Income (loss) from continuing
    operations before income taxes


36,820



51,521



(50,116
)


38,225Income tax expense


(12,011
)


(1,448
)


43



(13,416
)Income (loss) from continuing
    operations


24,809



50,073



(50,073
)


24,809Loss from discontinued operations,
    net of tax


(6,482
)










(6,482
)Net income (loss)

$
18,327


$
50,073


$
(50,073
)

$
18,327  26




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Condensed
    Consolidating Statements of Cash Flows:
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalPeriod from January 1
    through April 18, 2007PredecessorCash flows from operating
    activities:Net income (loss)

$
(7,149
)

$
32,402


$
(32,402
)

$
(7,149
)Loss from discontinued operations


238











238Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


35,830



21,469



(21,737
)


35,562Net cash provided by operating
    activities


28,919



53,871



(54,139
)


28,651Cash flows from investing
    activities:Purchases of property and
    equipment, net


(576
)


(6,444
)






(7,020
)Purchases and sales of new
    businesses and equity interests, net


(10,769
)










(10,769
)Other items


(4,490
)


(8,411
)


4,373



(8,528
)Net cash used in investing
    activities


(15,835
)


(14,855
)


4,373



(26,317
)Cash flows from financing
    activities:Long-term borrowings, net


(511
)


11,082



4,083



14,654Proceeds from issuance of common
    stock


6,135











6,135Change in cash held on behalf of
    unconsolidated affiliates


22,306



45



(8,456
)


13,895Other items


15,821



(55,095
)


54,139



14,865Net cash provided by (used in)
    financing activities


43,751



(43,968
)


49,766



49,549Net cash used in discontinued
    operations


(313
)










(313
)Effect of exchange rate changes on
    cash






(113
)






(113
)Net increase (decrease) in cash


56,522



(5,065
)






51,457Cash at the beginning of the period


23,934



7,806







31,740Cash at the end of the period

$
80,456


$
2,741


$



$
83,197 27




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalPeriod from April 19
    through June 30, 2007SuccessorCash flows from operating
    activities:Net income (loss)

$
4,148


$
25,772


$
(25,772
)

$
4,148Loss from discontinued operations


81











81Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


4,104



6,351



4,930



15,385Net cash provided by operating
    activities


8,333



32,123



(20,842
)


19,614Cash flows from investing
    activities:Purchases of property and
    equipment, net


(1,159
)


(1,011
)






(2,170
)Purchases and sales of new
    businesses and equity interests, net


(38,362
)










(38,362
)Other items


13,355



3,383



(3,730
)


13,008Net cash used in investing
    activities


(26,166
)


2,372



(3,730
)


(27,524
)Cash flows from financing
    activities:Long-term borrowings, net


671,231



(3,572
)


289



667,948Net equity contribution from USPI
    Group Holdings, Inc.


765,802











765,802Payments to repurchase common stock


(1,430,879
)










(1,430,879
)Other items


(23,934
)


(22,260
)


24,283



(21,911
)Net cash provided by (used in)
    financing activities


(17,780
)


(25,832
)


24,572



(19,040
)Net cash used in discontinued
    operations


(115
)










(115
)Effect of exchange rate changes on
    cash






6







6Net increase (decrease) in cash


(35,728
)


8,669







(27,059
)Cash at the beginning of the period


80,456



2,741







83,197Cash at the end of the period

$
44,728


$
11,410


$



$
56,138 28




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    Notes to Consolidated Financial
    Statements  (Continued)
  Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalSix Months Ended June 30,
    2006PredecessorCash flows from operating
    activities:Net income (loss)

$
18,327


$
50,073


$
(50,073
)

$
18,327Loss from discontinued operations


6,482











6,482Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


7,118



28,430



(6,813
)


28,735Net cash provided by operating
    activities


31,927



78,503



(56,886
)


53,544Cash 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


(341
)


(3,485
)


1,074



(2,752
)Net cash used in investing
    activities


(236,959
)


(15,941
)


1,074



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


79,680



(294
)


2,503



81,889Proceeds from issuance of common
    stock


3,637











3,637Other items


13,810



(57,512
)


53,309



9,607Net cash provided by (used in)
    financing activities


97,127



(57,806
)


55,812



95,133Net cash used in discontinued
    operations


(5
)










(5
)Effect of exchange rate changes on
    cash






(15
)






(15
)Net increase (decrease) in cash


(107,910
)


4,741







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


122,624



7,816







130,440Cash at the end of the period

$
14,714


$
12,557


$



$
27,271  29




---



##### 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
       30




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
           31




---



##### Table of Contents



Merger
    Transaction
      
    an investment of cash and rollover equity in the equity of
    Parent by Welsh Carson, management and other equity investors of
    approximately $785.0 million;
    borrowings by the Company of $430.0 million in new senior
    secured credit facilities;
    the issuance by the Company of $240.0 million in aggregate
    principal amount of
    87/8% senior
    subordinated notes, due 2017, and $200.0 million in
    aggregate principal amount of
    91/4%/10% senior
    subordinated toggle notes, due 2017;
    additional borrowings of £10.0 million (approximately
    $19.7 million) by Global Healthcare Partners Limited, which
    was repatriated to the U.S.; and
    approximately $16.4 million of cash on hand.  Acquisitions,
    Equity Investments and Development Projects
     32




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##### Table of Contents




    Receipt of $9.8 million from a not-for-profit hospital
    partner that obtained additional ownership in certain of the
    Companys surgical facilities in the Chicago, Illinois area;
    Investment of $1.5 million in a joint venture with one of
    the Companys not-for-profit hospital partners, which the
    joint venture used to acquire ownership in a surgery center in
    the Utica, Michigan area; and
    Net payment of approximately $2.7 million related to other
    purchases and sales of equity interests and contributions of
    cash to equity method investees.  Discontinued
    Operations
      Combination
    of Operating Results
    33




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##### Table of Contents



Predecessor


Successor


CombinedPeriod from April 1


Period from April 19


Three Monthsthrough April 18,


through June 30,


Ended June 30,2007


2007


2007Revenues:Net patient service revenue

$
28,519


$
119,791


$
148,310Management and contract service
    revenue


3,262



13,065



16,327Other revenue


258



1,030



1,288Total revenues


32,039



133,886



165,925Equity in earnings of
    unconsolidated affiliates


1,402



7,244



8,646Operating expenses:Salaries, benefits, and other
    employee costs


9,402



36,438



45,840Medical services and supplies


5,776



23,095



28,871Other operating expenses


5,500



21,538



27,038General and administrative expenses


24,301



8,558



32,859Provision for doubtful accounts


635



2,986



3,621Depreciation and amortization


2,348



8,925



11,273Total operating expenses


47,962



101,540



149,502Operating income (loss)


(14,521
)


39,590



25,069Interest income


190



751



941Interest expense


(1,603
)


(19,364
)


(20,967
)Loss on early retirement of debt


(2,435
)






(2,435
)Other


744



128



872Total other expense, net


(3,104
)


(18,485
)


(21,589
)Income (loss) before minority
    interests


(17,625
)


21,105



3,480Minority interests in income of
    consolidated subsidiaries


(3,051
)


(14,262
)


(17,313
)Income (loss) from continuing
    operations before income taxes


(20,676
)


6,843



(13,833
)Income tax (expense) benefit


4,894



(2,614
)


2,280Income (loss) from continuing
    operations


(15,782
)


4,229



(11,553
)Loss from discontinued operations,
    net of tax


(27
)


(81
)


(108
)Net income (loss)

$
(15,809
)

$
4,148


$
(11,661
)   34




---



##### Table of Contents



Predecessor


SuccessorPeriod from


Period from


CombinedJanuary 1 through


April 19 through


Six Months EndedApril 18, 2007


June 30, 2007


June 30, 2007Revenues:Net patient service revenue

$
174,180


$
119,791


$
293,971Management and contract service
    revenue


19,142



13,065



32,207Other revenue


1,615



1,030



2,645Total revenues


194,937



133,886



328,823Equity in earnings of
    unconsolidated affiliates


9,906



7,244



17,150Operating expenses:Salaries, benefits, and other
    employee costs


55,334



36,438



91,772Medical services and supplies


35,032



23,095



58,127Other operating expenses


33,072



21,538



54,610General and administrative expenses


39,277



8,558



47,835Provision for doubtful accounts


3,385



2,986



6,371Depreciation and amortization


12,719



8,925



21,644Total operating expenses


178,819



101,540



280,359Operating income


26,024



39,590



65,614Interest income


933



751



1,684Interest expense


(9,546
)


(19,364
)


(28,910
)Loss on early retirement of debt


(2,435
)






(2,435
)Other


798



128



926Total other expense, net


(10,250
)


(18,485
)


(28,735
)Income before minority interests


15,774



21,105



36,879Minority interests in income of
    consolidated subsidiaries


(18,546
)


(14,262
)


(32,808
)Income (loss) from continuing
    operations before income taxes


(2,772
)


6,843



4,071Income tax expense


(4,139
)


(2,614
)


(6,753
)Income (loss) from continuing
    operations


(6,911
)


4,229



(2,682
)Loss from discontinued operations,
    net of tax


(238
)


(81
)


(319
)Net income (loss)

$
(7,149
)

$
4,148


$
(3,001
)  35




---



##### Table of Contents



Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006Total revenues


100
%


100
%


100
%


100
%Equity in earnings of
    unconsolidated affiliates


5.2



4.8



5.2



5.0Operating expenses, excluding
    depreciation and amortization


(83.3
)


(71.8
)


(78.6
)


(71.4
)Depreciation and amortization


(6.8
)


(5.8
)


(6.6
)


(6.0
)Operating income


15.1



27.2



20.0



27.6Minority interests in income of
    consolidated entities


(10.4
)


(9.2
)


(10.0
)


(9.6
)Interest and other expense, net


(13.0
)


(5.1
)


(8.8
)


(4.3
)Income (loss) from continuing
    operations before income taxes


(8.3
)


12.9



1.2



13.7Income tax (expense) benefit


1.3



(4.2
)


(2.1
)


(4.8
)Income (loss) from continuing
    operations


(7.0
)


8.7



(0.9
)


8.9Loss from discontinued operations














(2.3
)Net income (loss)


(7.0
)%


8.7
%


(0.9
)%


6.6
%   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.
    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 and hospitals. Our consolidated revenues
    and expenses do not include the management fees we earn from
    operating the facilities that we consolidate for financial
    reporting purposes as those fees are charged to subsidiaries and
    thus eliminate in consolidation.    Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006Net patient service revenue


89
%


89
%


89
%


90
%Management and contract service
    revenue


10



9



10



8Other revenue


1



2



1



2Total revenues


100
%


100
%


100
%


100
%    36




---



##### Table of Contents



gross-ups
    Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006Management of surgical facilities

$
8,313


$
6,394


$
16,555


$
11,876Contract services provided to
    physicians, hospitals and related entities


8,014



6,683



15,652



10,364Total management and contract
    service revenues

$
16,327


$
13,077


$
32,207


$
22,240     Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006United States


82
%


84
%


83
%


83
%United Kingdom


18



16



17



17Total


100
%


100
%


100
%


100
%     Equity in
    Earnings of Unconsolidated Affiliates
   37




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##### Table of Contents



Three Months Ended


Six Months EndedJune 30,


June 30,Combined





Combined2007


2006


2007


2006Revenues

$
191,298


$
143,903


$
368,354


$
270,618Equity in earnings of
    unconsolidated affiliates


59



2



112



47Operating expenses:Salaries, benefits, and other
    employee costs


50,229



36,530



95,047



67,635Medical services and supplies


40,120



29,106



76,054



54,658Other operating expenses


49,648



35,760



95,688



67,154Depreciation and amortization


9,484



7,276



18,261



13,219Total operating expenses


149,481



108,672



285,050



202,666Operating income


41,876



35,233



83,416



67,999Interest expense, net


(5,124
)


(3,459
)


(8,846
)


(6,208
)Other


819



349



(898
)


681Income before income taxes

$
37,571


$
32,123


$
73,672


$
62,472Long-term debt

$
246,217


$
156,616


$
246,217


$
156,616USPIs equity in earnings of
    unconsolidated affiliates


8,646



7,148



17,150



14,034USPIs imputed weighted
    average ownership percentage based on affiliates pre-tax
    income(1)


23.0
%


22.3
%


23.3
%


22.6
%USPIs imputed weighted
    average ownership percentage based on affiliates debt(2)


27.4
%


28.8
%


27.4
%


28.8
%Unconsolidated facilities operated
    at period end


90



72



90



72     (1)
    
    Our weighted average percentage ownership in our unconsolidated
    affiliates is calculated as USPIs equity in earnings of
    unconsolidated affiliates divided by the total net income of
    unconsolidated affiliates for each respective period.(2)
    
    Our weighted average percentage ownership in our unconsolidated
    affiliates is calculated as the total debt of each
    unconsolidated affiliate, multiplied by the percentage ownership
    USPI held in the affiliate as of the end of each respective
    period, divided by the total debt of all of the unconsolidated
    affiliates as of the end of each respective period.  Results
    of Operations
  Executive
    Summary
     38




---



##### Table of Contents



Revenues
         39




---



##### Table of Contents



Combined


CombinedThree Months Ended


Six Months EndedJune 30, 2007


June 30, 2007United States facilities:Net revenue


12
%


12
%Surgical cases


8
%


9
%Net revenue per case(1)


3
%


3
%United Kingdom facilities:Net revenue using actual exchange
    rates


21
%


24
%Net revenue using constant
    exchange rates(2)


11
%


12
%All same store facilities:Net revenue using actual exchange
    rates


13
%


13
%     (1)
    
    Our overall same store growth in net revenue per case was
    favorably impacted by the growth at our ten same store surgical
    hospitals, which on average, perform more complex cases and thus
    earn a higher average net revenue per case than ambulatory
    surgery centers. Net revenue per case of our same store
    ambulatory surgery centers also increased approximately 1% for
    the combined three and six months ended June 30, 2007.(2)
    
    Calculated using 2007 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business.  Joint
    Ventures With Not-For-Profit Hospitals
   40




---



##### Table of Contents



June 30,2007


2006United States facilities(1):With a hospital partner


90



69Without a hospital partner


62



56Total U.S. facilities


152



125United Kingdom facilities


3



3Total facilities operated


155



128Change from June 30, 2006:De novo (newly constructed)


14Acquisition


15Disposals(2)


(2
)Total increase in number of
    facilities


27     (1)
    
    At June 30, 2007, physicians own a portion of all of these
    facilities.(2)
    
    We disposed of Surgis interest in a facility in Phoenix,
    Arizona in August 2006. Additionally, we have classified a
    surgery center as held for sale in March 2007.  Facility
    Operating Margins
     41




---



##### Table of Contents



Combined





CombinedThree Months





Six MonthsEnded





EndedJune 30,


Increase


June 30,


Increase2007


(Decrease)


2007


(Decrease)United States facilities:With a hospital partner


24.7
%


(80
) bps


25.2
%


(70
) bpsWithout a hospital partner


31.9
%


250
bps


31.6
%


150
bpsTotal U.S. facilities


27.0
%


20
bps


27.2
%


(10
) bpsUnited Kingdom facilities(2)


24.6
%


210
bps


24.7
%


190
bps     (1)
    
    Operating margin is calculated as operating income divided by
    total revenues. This table aggregates all of the same store
    facilities we operate using 100% of their results. This does not
    represent the overall margin for 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. This calculation excludes the effect of changes in
    depreciation and amortization arising from our adjusting our
    assets to fair value as a result of the Company being acquired
    by Welsh Carson in April 2007. Managements
    preliminary estimates of these amounts did not have a material
    impact on U.S. facility operating margins. With respect to U.K.
    facilities, managements preliminary estimate of this
    additional depreciation expense was $0.4 million for the
    period from April 19, 2007 through June 30, 2007.
    Including this amount, U.K. facility operating margins would
    have been 23.2% and 24.0% for the combined three months and six
    months ended June 30, 2007.(2)
    
    Calculated using 2007 exchange rates for both periods. Although
    this computation represents a non-GAAP measure, we believe that
    using a constant currency translation rate more accurately
    reflects the trend of the business.  Combined
    Three Months Ended June 30, 2007 Compared to Three Months
    Ended June 30, 2006
       42




---



##### Table of Contents



Combined
    Six Months Ended June 30, 2007 Compared to Six Months Ended
    June 30, 2006
   43




---



##### Table of Contents



start-up
               44




---



##### Table of Contents



Liquidity
    and Capital Resources
  Cash
    Flows
    ,
    Debt
      New
    senior secured credit facility
   45




---



##### Table of Contents



New
    senior subordinated notes
  7 8 1 4 payment-in-kind 1 4
  Form S-4
 46




---



##### Table of Contents



United
    Kingdom borrowings
        Contractual
    Cash Obligations
    Payments Due by PeriodWithin 1


Years


Years


Beyond 5Contractual Cash Obligations

Total


Year


2 and 3


4 and 5


Years(In thousands)Long-term debt obligations
    (principal plus interest)(1):U.S. Term loan facility (Term B)

$
458,425


$
4,300


$
8,600


$
8,600


$
436,925Senior subordinated notes, due 2017


240,000















240,000Senior subordinated toggle notes,
    due 2017


200,000















200,000Amended and restated U.K. credit
    facility


118,771



11,055



24,898



26,660



56,158Other debt at operating
    subsidiaries


45,685



13,453



20,992



8,728



2,512Capitalized lease obligations


78,202



9,601



15,826



12,596



40,179Operating lease obligations


74,556



14,863



23,332



16,531



19,830Total contractual cash obligations

$
1,215,639


$
53,272


$
93,648


$
73,115


$
995,604     (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, 2007
    rates applicable to each debt instrument.  Debt
    at Operating Subsidiaries
   47




---



##### Table of Contents



New
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes, an Interpretation
    of FASB Statement No. 109 Accounting for
    Income Taxes
  Fair Value Measurement
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an amendment of FASB Statement
    No. 115
 48




---



##### Table of Contents



ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      ITEM 4.
    Controls
    and Procedures  Form 10-Q.
 PART II 
    OTHER INFORMATION  ITEM 1.
    Legal
    Proceedings     49




---



##### Table of Contents



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).4
.1

Indenture governing
    87/8% Senior
    Subordinated Note due 2017 and 9
    1/4%/10% Senior
    Subordinate Toggle Note due 2017, among United Surgical Partners
    International, Inc., the Guarantors named therein and U.S. Bank
    National Association, as trustee. (previously filed as an
    Exhibit to the Companys Registration Statement on
    Form S-4
    (No. 333-144337)
    and incorporated herein by reference).4
.2

Form of
    87/8% Senior
    Subordinated Note due 2017 and 9
    1/4%/10% Senior
    Subordinate Toggle Note due 2017 (previously filed as an exhibit
    to the Companys Registration Statement on
    Form S-4
    (No. 333-144337)
    and incorporated herein by reference).10
.1*

USPI Group Holdings, Inc. 2007
    Equity Incentive Plan.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.     *
    
    Filed herewith. 50




---



##### Table of Contents



SIGNATURES      By:
    /s/  Mark
    A. Kopser   Executive Vice President and Chief
    Financial Officer
 (Principal Financial Officer)
  By:
    /s/  John
    J. Wellik  John J. Wellik
 Senior Vice President, Accounting and
    Administration,and Secretary
 (Principal Accounting Officer)
   51




---



##### Table of Contents



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).4
.1

Indenture governing
    87/8% Senior
    Subordinated Note due 2017 and 9
    1/4%/10% Senior
    Subordinate Toggle Note due 2017, among United Surgical Partners
    International, Inc., the Guarantors named therein and U.S. Bank
    National Association, as trustee. (previously filed as an
    Exhibit to the Companys Registration Statement on
    Form S-4
    (No. 333-144337)
    and incorporated herein by reference).4
.2

Form of
    87/8% Senior
    Subordinated Note due 2017 and 9
    1/4%/10% Senior
    Subordinate Toggle Note due 2017 (previously filed as an exhibit
    to the Companys Registration Statement on
    Form S-4
    (No. 333-144337)
    and incorporated herein by reference).10
.1*

USPI Group Holdings, Inc. 2007
    Equity Incentive Plan.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.     *
    
    Filed herewith.