##### 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
    March 31, 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 Information Item 1.

Financial
    Statements (unaudited)


2 Consolidated
    Balance Sheets as of March 31, 2006 and December 31,
    2005


2 Consolidated
    Statements of Income for the three months ended March 31,
    2006 and 2005


3 Consolidated
    Statements of Comprehensive Income for the three months ended
    March 31, 2006 and 2005


4 Consolidated
    Statements of Cash Flows for the three months ended
    March 31, 2006 and 2005


5 Notes to
    Consolidated Financial Statements


6 Item 2.

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


23 Item 3.

Quantitative and
    Qualitative Disclosures About Market Risk


33 Item 4.

Controls and
    Procedures


33PART II.
    Other Information Item 1.

Legal
    Proceedings


34 Item 6.

Exhibits and
    Reports on
    Form 8-K


34 Signatures


35Certification 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
  March 31,


December 31,2006


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

$
127,638


$
130,440Patient receivables, net of
    allowance for doubtful accounts of $8,235 and $6,656,
    respectively


47,995



44,501Other receivables


10,873



10,253Inventories of supplies


8,148



7,819Deferred tax asset, net


13,026



11,654Prepaids and other current assets


28,319



8,443Total current assets


235,999



213,110Property and equipment, net


264,281



259,016Investments in affiliates


100,275



100,500Goodwill and intangible assets, net


459,184



422,556Other assets


6,751



33,659Total assets

$
1,066,490


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

$
19,607


$
19,095Accrued salaries and benefits


21,308



19,572Due to affiliates


44,641



34,997Accrued interest


5,574



1,506Current portion of long-term debt


16,870



15,922Other accrued expenses


29,926



31,072Total current liabilities


137,926



122,164Long-term debt, less current
    portion


272,862



270,564Other long-term liabilities


6,902



4,474Deferred tax liability, net


38,693



36,591Total liabilities


456,383



433,793Minority interests


67,033



63,998Stockholders equity:Common stock, $0.01 par
    value; 200,000 shares authorized; 44,440 and
    44,320 shares issued at March 31, 2006 and
    December 31, 2005, respectively.


444



443Additional paid-in capital


367,670



375,656Treasury stock, at cost, 44 and
    37 shares at March 31, 2006 and December 31,
    2005, respectively


(1,188
)


(831
)Deferred compensation






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


4,959



3,896Retained earnings


171,189



166,014Total stockholders equity


543,074



531,050Total liabilities and
    stockholders equity

$
1,066,490


$
1,028,841    2




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF INCOME
  Three Months EndedMarch 31,2006


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

$
118,313


$
104,800Management and administrative
    services revenue


9,163



9,325Other revenue


367



167Total revenues


127,843



114,292Equity in earnings of
    unconsolidated affiliates


6,885



5,103Operating expenses:Salaries, benefits, and other
    employee costs


33,112



29,570Medical services and supplies


23,467



19,328Other operating expenses


22,568



21,035General and administrative expenses


9,874



7,602Provision for doubtful accounts


1,839



2,829Depreciation and amortization


7,993



7,610Total operating expenses


98,853



87,974Operating income


35,875



31,421Interest income


1,419



887Interest expense


(7,222
)


(6,828
)Other


1,586



242Total other expense, net


(4,217
)


(5,699
)Income before minority interests


31,658



25,722Minority interests in income of
    consolidated subsidiaries


(12,924
)


(8,804
)Income from continuing operations
    before income taxes


18,734



16,918Income tax expense


(7,096
)


(6,105
)Income from continuing operations


11,638



10,813Loss from discontinued operations,
    net of tax


(6,463
)


(55
)Net income

$
5,175


$
10,758Net income (loss) per share
    attributable to common stockholdersBasic:Continuing operations

$
0.27


$
0.25Discontinued operations


(0.15
)


Total

$
0.12


$
0.25Diluted:Continuing operations

$
0.26


$
0.24Discontinued operations


(0.15
)


Total

$
0.11


$
0.24Weighted average number of common
    sharesBasic


43,485



42,542Diluted


45,408



44,485    3




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE
    INCOME
  Three Months EndedMarch 31,2006


2005(Unaudited)(In thousands)Net income

$
5,175


$
10,758Other comprehensive income (loss),
    net of taxes:Foreign currency translation
    adjustments


1,063



(1,309
)Other comprehensive income (loss)


1,063



(1,309
)Comprehensive income

$
6,238


$
9,449    4




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three Months EndedMarch 31,2006


2005(Revised-Note 1)(Unaudited)(In thousands)Cash flows from operating
    activities:Net income

$
5,175


$
10,758Adjustments to reconcile net income
    to net cash provided by operating activities:Loss on discontinued operations


6,463



55Provision for doubtful accounts


1,839



2,829Depreciation and amortization


7,993



7,610Amortization of debt issue costs
    and discount


231



190Deferred income tax expense


660



1,122Equity in earnings of
    unconsolidated affiliates, net of distributions received


1,169



(1,843
)Minority interests in income of
    consolidated subsidiaries, net of distributions paid


(525
)


1,935Equity-based compensation


3,131



921Increases (decreases) in cash from
    changes in operating assets and liabilities, net of effects from
    purchases of new businesses:Patient receivables


(986
)


(2,543
)Other receivables


(666
)


6,334Inventories of supplies, prepaids
    and other current assets


(3,039
)


263Accounts payable and other current
    liabilities


5,512



9,970Long-term liabilities


3,777



631Net cash provided by operating
    activities


30,734



38,232Cash flows from investing
    activities:Purchases of new businesses and
    equity interests, net of cash received


(42,947
)


(20,967
)Purchases of property and equipment


(5,393
)


(5,454
)Returns of capital from
    unconsolidated affiliates


216



Decrease (increase) in deposits and
    notes receivable


484



(973
)Net cash used in investing
    activities


(47,640
)


(27,394
)Cash flows from financing
    activities:Proceeds from long-term debt


7,502



102Payments on long-term debt


(5,726
)


(4,064
)Proceeds from issuances of common
    stock


3,019



2,341Increase in cash held on behalf of
    unconsolidated affiliates


9,374



Returns of capital to minority
    interest holders


(54
)


(370
)Net cash provided by (used in)
    financing activities


14,115



(1,991
)Cash flows of discontinued
    operations:Operating cash flows


157



346Investing cash flows


5



(87
)Financing cash flows


(173
)


(121
)Net cash provided by (used in)
    discontinued operations


(11
)


138Effect of exchange rate changes on
    cash






(13
)Net increase in cash and cash
    equivalents


(2,802
)


8,972Cash and cash equivalents at
    beginning of period


130,440



93,467Cash and cash equivalents at end of
    period

$
127,638


$
102,439Supplemental information:Interest paid

$
3,110


$
3,345Income taxes paid


3,861



1,101Non-cash transactions:Assets acquired under capital lease
    obligations

$
535


$
386Issuance of common stock to
    employees


21,351



    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)  Stock
    Split
  three-for-two
  (c)  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 EndedMarch 31, 2005Net income:As reported

$
10,758Add: Total stock-based employee
    compensation expense included in reported net income, net of
    taxes


599Less: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of taxes


(1,440
)Pro forma

$
9,917Basic earnings per shareAs reported

$
0.25Pro forma


0.23Diluted earnings per shareAs reported

$
0.24Pro forma


0.22      7




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
     Three Months EndedMarch 31,2006


2005Equity in earnings of
    unconsolidated affiliates

$
14


$
Salaries, benefits and other
    employee costs


698



General and administrative expenses


2,439



921Minority interests in income of
    consolidated subsidiaries


(20
)


Expense before income tax benefit


3,131



921Income tax benefit


(938
)


(322
)Total equity-based compensation
    expense, net of tax

$
2,193


$
599       Three Months EndedMarch 31,2006


2005Share awards(1)

$
2,395


$
921Stock options(2)


654



ESPP(2)


82



Expense before income tax benefit


3,131



921Income tax benefit


(938
)


(322
)Total equity-based compensation
    expense, net of tax

$
2,193


$
599     (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. 8




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
   Stock
    Options
  3-year
  Three Months Ended
    March 31,2006


2005Assumptions:Expected life in years


3.0



3.0Risk-free interest rates


4.3%



3.4%Dividend yield


0.0%



0.0%Volatility


30.0%



30.0%Weighted average grant-date fair
    value

$
9.11


$
6.37     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


$
69,718Exercisable at March 31, 2006


2,626


$
12.32



4.6


$
59,671    9




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##### Table of Contents



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


$
27.90     (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 EndedMarch 31,2006


2005Assumptions:Expected life in years


0.25



0.50Risk-free interest rate


4.2
%


2.6
%Dividend yield


0.0
%


0.0
%Volatility


30.0
%


30.0
%Grant-date fair value per share

$
7.07


$
9.97   (d) Revisions
    to Cash Flow Statement
  Form 10-K
  Three Months Ended, 2005Net Cash Provided By (Used
    In)Operating


Investing


FinancingActivities


Activities


ActivitiesPreviously reported

$
41,921


$
(27,481
)

$
(5,455
)Distributions received from equity
    method investees


3,261







(3,261
)Distributions paid to minority
    interest holders


(6,604
)






6,604Returns of investees capital










Discontinued operations


(346
)


87



121As revised

$
38,232


$
(27,394
)

$
(1,991
)   (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 EndedMarch 31,2006


2005Revenues

$
1,117


$
1,394Loss from discontinued operations
    before income taxes

$
(57
)

$
(84
)Income tax benefit


20



29Loss from discontinued operations

$
(37
)

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

$
(7,395
)

$
Income tax benefit


969



Net loss on sale of discontinued
    operations

$
(6,426
)

$
Loss per diluted share:Loss from discontinued operations

$



$
Loss on sale of discontinued
    operations


(0.15
)


Total

$
(0.15
)

$
   (3)  Acquisitions
    and Equity Method Investments
      Three Months EndedMarch 31, 2005Net revenues

$
121,952Income from continuing operations


11,758Diluted earnings per share from
    continuing operations

$
0.26    12




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
     2006


2005Unconsolidated facilities operated
    at period-end


58



43Income statement information:Revenues

$
126,714


$
97,589Equity in earnings of
    unconsolidated affiliates


44



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


31,105



24,742Medical services and supplies


25,552



18,632Other operating expenses


31,394



24,924Depreciation and amortization


5,943



4,437Total operating expenses


93,994



72,735Operating income


32,764



24,881Interest expense, net


(2,749
)


(2,528
)Other


332



99Income before income taxes

$
30,347


$
22,452Balance sheet information:Current assets

$
128,933


$
101,510Noncurrent assets


211,710



168,093Current liabilities


58,381



49,653Noncurrent liabilities


129,003



96,793   (4)  Long-Term
    Debt
   13




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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 EndedMarch 31,2006


2005Net income (loss) attributable to
    common shareholders:Continuing operations

$
11,638


$
10,813Discontinued operations


(6,463
)


(55
)Total

$
5,175


$
10,758Weighted average common shares
    outstanding


43,485



42,542Effect of dilutive securities:Stock options


1,548



1,714Warrants and restricted stock


375



229Shares used for diluted earnings
    per share


45,408



44,485Basic earnings (loss) per share:Continuing operations

$
0.27


$
0.25Discontinued operations


(0.15
)


Total

$
0.12


$
0.25Diluted earnings (loss) per share:Continuing operations

$
0.26


$
0.24Discontinued operations


(0.15
)


Total

$
0.11


$
0.24  14




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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
    March 31, 2006United


KingdomStates


United


TotalNet patient service revenue

$
95,986


$
22,327


$
118,313Other revenue


9,530







9,530Total revenues

$
105,516


$
22,327


$
127,843Depreciation and amortization

$
6,186


$
1,807


$
7,993Operating income


32,497



3,378



35,875Net interest expense


(5,075
)


(728
)


(5,803
)Income tax expense


(6,440
)


(656
)


(7,096
)Total assets


867,442



199,048



1,066,490Capital expenditures


2,830



3,098



5,928   Three Months Ended
    March 31, 2005United


UnitedStates


Kingdom


TotalNet patient service revenue

$
82,115


$
22,685


$
104,800Other revenue


9,492







9,492Total revenues

$
91,607


$
22,685


$
114,292Depreciation and amortization

$
5,793


$
1,817


$
7,610Operating income


27,429



3,992



31,421Net interest expense


(5,163
)


(778
)


(5,941
)Income tax expense


(5,397
)


(708
)


(6,105
)Total assets


746,382



199,515



945,897Capital expenditures


3,132



2,795



5,927   (7)  Condensed
    Consolidating Financial Statements
   15




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  Form S-4
  Condensed
    Consolidating Balance Sheets:
  As of March 31,
    2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalASSETSCurrent assets:Cash and cash equivalents

$
117,090


$
10,548


$



$
127,638Patient receivables, net


185



47,810







47,995Other receivables


1,284



16,269



(6,680
)


10,873Inventories of supplies


164



7,984







8,148Other


20,713



20,632







41,345Total current assets


139,436



103,243



(6,680
)


235,999Property and equipment, net


24,196



240,085







264,281Investments in affiliates


87,234



15,437



(2,396
)


100,275Intangible assets, net


369,103



106,116



(16,035
)


459,184Other


94,407



1,208



(88,864
)


6,751Total assets

$
714,376


$
466,089


$
(113,975
)

$
1,066,490LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,543


$
17,109


$
(45
)

$
19,607Accrued expenses and other


90,276



10,253



920



101,449Current portion of long-term debt


195



18,433



(1,758
)


16,870Total current liabilities


93,014



45,795



(883
)


137,926Long-term debt


153,559



144,379



(25,076
)


272,862Other liabilities


35,736



9,859







45,595Minority interests






15,121



51,912



67,033Stockholders equity


432,067



250,935



(139,928
)


543,074Total liabilities and
    stockholders equity

$
714,376


$
466,089


$
(113,975
)

$
1,066,490  16




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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 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  17




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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:
  Three Months Ended
    March 31, 2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalRevenues

$
19,525


$
114,624


$
(6,306
)

$
127,843Equity in earnings of
    unconsolidated affiliates


6,749



321



(185
)


6,885Operating expenses, excluding
    depreciation and amortization


18,468



78,780



(6,388
)


90,860Depreciation and amortization


2,306



5,687







7,993Operating income


5,500



30,478



(103
)


35,875Interest expense, net


(2,877
)


(2,926
)






(5,803
)Other income (expense)


1,620



45



(79
)


1,586Income before minority interests


4,243



27,597



(182
)


31,658Minority interests in income of
    consolidated subsidiaries






(3,570
)


(9,354
)


(12,924
)Income (loss) from continuing
    operations before income taxes


4,243



24,027



(9,536
)


18,734Income tax expense


(6,338
)


(758
)






(7,096
)Income (loss) from continuing
    operations


(2,095
)


23,269



(9,536
)


11,638Income from discontinued
    operations, net of tax


(6,463
)










(6,463
)Net income (loss)

$
(8,558
)

$
23,269


$
(9,536
)

$
5,175   18




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  Three Months Ended
    March 31, 2005Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalRevenues

$
18,614


$
101,495


$
(5,817
)

$
114,292Equity in earnings of
    unconsolidated affiliates


5,253



(150
)






5,103Operating expenses, excluding
    depreciation and amortization


15,280



70,979



(5,895
)


80,364Depreciation and amortization


2,467



5,143







7,610Operating income


6,120



25,223



78



31,421Interest expense, net


(3,200
)


(2,741
)






(5,941
)Other income (expense)


455



(135
)


(78
)


242Income before minority interests


3,375



22,347







25,722Minority interests in income of
    consolidated subsidiaries






(3,414
)


(5,390
)


(8,804
)Income (loss) from continuing
    operations before income taxes


3,375



18,933



(5,390
)


16,918Income tax expense


(5,099
)


(1,006
)






(6,105
)Income (loss) from continuing
    operations


(1,724
)


17,927



(5,390
)


10,813Income from discontinued
    operations, net of tax


(55
)










(55
)Net income (loss)

$
(1,779
)

$
17,927


$
(5,390
)

$
10,758  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 Cash Flows:
  Three Months Ended
    March 31, 2006Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalCash flows from operating
    activities:Net income

$
(8,558
)

$
23,269


$
(9,536
)

$
5,175Loss on discontinued operations


6,463











6,463Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


27,624



(18,310
)


9,782



19,096Net cash provided by operating
    activities


25,529



4,959



246



30,734Cash flows from investing
    activities:Purchases of property and
    equipment, net


(638
)


(4,755
)






(5,393
)Purchases of new businesses and
    equity interests, net of cash received


(42,906
)


(41
)






(42,947
)Other items


700











700Net cash used in investing
    activities


(42,844
)


(4,796
)






(47,640
)Cash flows from financing
    activities:Long-term borrowings, net


(1,060
)


2,836







1,776Proceeds from issuance of common
    stock


3,019











3,019Other items


9,375



191



(246
)


9,320Net cash provided by (used in)
    financing activities


11,334



3,027



(246
)


14,115Net cash used in discontinued
    operations






(11
)






(11
)Net increase (decrease) in cash


(5,981
)


3,179







(2,802
)Cash at the beginning of the period


123,071



7,369







130,440Cash at the end of the period

$
117,090


$
10,548


$



$
127,638   20




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##### Table of Contents



UNITED
    SURGICAL PARTNERS INTERNATIONAL, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Unaudited)
  Three Months Ended
    March 31, 2005Non-Participating


Consolidation


ConsolidatedGuarantors


Investees


Adjustments


TotalCash flows from operating
    activities:Net income

$
(1,779
)

$
17,927


$
(5,390
)

$
10,758Loss on discontinued operations


55











55Changes in operating and
    intercompany assets and liabilities and noncash items included
    in net income (loss)


30,691



(9,441
)


6,169



27,419Net cash provided by operating
    activities


28,967



8,486



779



38,232Cash flows from investing
    activities:Purchases of property and
    equipment, net


(836
)


(4,618
)






(5,454
)Purchases of new businesses and
    equity interests, net of cash received


(20,967
)










(20,967
)Other items


(973
)










(973
)Net cash used in investing
    activities


(22,776
)


(4,618
)






(27,394
)Cash flows from financing
    activities:Long-term borrowings, net


(466
)


(3,496
)






(3,962
)Proceeds from issuance of common
    stock


2,341











2,341Other items






409



(779
)


(370
)Net cash provided by (used in)
    financing activities


1,875



(3,087
)


(779
)


(1,991
)Net cash provided by discontinued
    operations






138







138Effect of exchange rate changes on
    cash






(13
)






(13
)Net increase in cash


8,066



906







8,972Cash at the beginning of the period


83,905



9,562







93,467Cash at the end of the period

$
91,971


$
10,468


$



$
102,439   (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,
 21




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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)
    Subsequent
    Events     22




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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
   23




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##### Table of Contents



Critical
    Accounting Policies and Estimates
    not-for-profit
      Acquisitions,
    Equity Investments and Development Projects
       24




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##### Table of Contents



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 administrative services 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 EndedMarch 31,2006


2005Net patient service revenue


93
%


92
%Management and administrative
    services revenue


7



8Total revenues


100
%


100
%       Three Months EndedMarch 31,2006


2005Management of surgical facilities

$
5,482


$
4,989Consulting and other services
    provided to physicians and related entities


3,681



4,336Total management and
    administrative service revenues

$
9,163


$
9,325     Three Months Ended
    March 31,2006


2005United States


83
%


80
%United Kingdom


17



20Total


100
%


100
%    25




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##### Table of Contents



Equity in
    Earnings of Unconsolidated Affiliates
  not-for-profit
  Three Months Ended
    March 31,2006


2005Revenues

$
126,714


$
97,589Equity in earnings of
    unconsolidated affiliates


44



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


31,105



24,742Medical services and supplies


25,552



18,632Other operating expenses


31,394



24,924Depreciation and amortization


5,943



4,437Total operating expenses


93,994



72,735Operating income


32,764



24,881Interest expense, net


(2,749
)


(2,528
)Other


332



99Income before income taxes

$
30,347


$
22,452Long-term debt


119,495



100,387USPIs equity in earnings of
    unconsolidated affiliates


6,885



5,103USPIs imputed weighted
    average ownership percentage based on affiliates pre-tax
    income(1)


22.7
%


22.7
%USPIs imputed weighted
    average ownership percentage based on affiliates debt(2)


28.7
%


27.0
%Unconsolidated facilities operated
    at period end


58



43     (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, after March 31, 2005, of
    additional ownership in facilities we account for under the
    equity method. 26




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##### Table of Contents



Results
    of Operations
    Three Months EndedMarch 31,2006


2005Total revenues


100.0
%


100.0
%Equity in earnings of
    unconsolidated affiliates


5.4



4.5Operating expenses, excluding
    depreciation and amortization


(71.0
)


(70.3
)Depreciation and amortization


(6.3
)


(6.7
)Operating income


28.1



27.5Minority interests in income of
    consolidated entities


(10.1
)


(7.7
)Interest and other expense, net


(3.3
)


(5.1
)Income from continuing operations
    before income taxes


14.7



14.7Income tax expense


(5.6
)


(5.3
)Income from continuing operations


9.1



9.4Loss from discontinued operations


(5.1
)


Net income


4.0
%


9.4
%   Executive
    Summary
        Revenues
   27




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##### Table of Contents



Three Months EndedMarch 31, 2006United States facilities:Net revenue


10
%Surgical cases


6
%Net revenue per case(1)


4
%United Kingdom facilities:Net revenue using actual exchange
    rates


(2
%)Net revenue using constant
    exchange rates(2)


6
%All same store facilities:Net revenue using actual exchange
    rates


9
%     (1)
    
    Our overall domestic same store growth in net revenue per case
    was favorably impacted by the growth at our nine same store
    surgical hospitals, which on average perform more complex cases
    than ambulatory surgery centers. Net revenue per case of our
    same store ambulatory surgery centers was essentially flat
    during the three months ended March 31, 2006, as compared
    to the corresponding prior year period, while our hospitals grew
    at a rate of 11%, which is attributed to both a favorable case
    mix and the
    ramp-up of
    our de novo hospitals.(2)
    
    Calculated using first quarter 2006 exchange rates for both
    years. The Company believes that using a constant currency
    translation rate more accurately reflects the trend of the
    business. 28




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##### Table of Contents



Joint
    Ventures With
    Not-For-Profit
    Hospitals
    March 31,2006


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


68



48Without a hospital partner


33



35Total U.S. facilities


101



83United Kingdom facilities


3



3Total facilities operated


104



86Change from March 31, 2005:De novo (newly constructed)


11Acquisition


9Disposals(2)


(2
)Total increase in number of
    facilities


18     (1)
    
    At March 31, 2006, 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.  Facility
    Operating Margins
  not-for-profit
  not-for-profit
   29




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##### Table of Contents



:
  Three Months Ended


IncreaseMarch 31, 2006


(Decrease)United States facilities:With a hospital partner


27.7
%


  bpsWithout a hospital partner


34.0



50  bpsTotal U.S. facilities


29.4



20  bpsUnited Kingdom facilities


23.1
%


(230) 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.  Three
    Months Ended March 31, 2006 Compared to Three Months Ended
    March 31, 2005
         30




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##### Table of Contents



Liquidity
    and Capital Resources
    ,
   31




---



##### Table of Contents



Payments Due by PeriodWithin


Years


Years


BeyondContractual Cash
    Obligations

Total


1 Year


2 and 3


4 and 5


5 Years(In thousands)Long term debt obligations
    (principal plus interest)(1):Senior Subordinated Notes

$
240,000


$
15,000


$
30,000


$
30,000


$
165,000U.K. credit facility


77,645



10,219



24,635



42,791



Other debt at operating
    subsidiaries


29,355



7,481



14,241



5,874



1,759Capitalized lease obligations


102,118



9,308



16,096



12,350



64,364Operating lease obligations


60,549



11,416



19,729



14,016



15,388Total contractual cash obligations

$
509,667


$
53,424


$
104,701


$
105,031


$
246,511     (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 March 31, 2006
    rates applicable to each debt instrument. As noted elsewhere in
    this section, we borrowed $87.0 million in April 2006 to
    fund a portion of the Surgis acquisition under a revolving
    credit facility that matures in February 2011, which is not
    reflected in this table as it occurred after March 31, 2006.   32




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##### Table of Contents



ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  variable-to-fixed
        ITEM 4.  Controls
    and Procedures



The Companys management, with the participation of the
    Companys Chief Executive Officer and Chief Financial
    Officer, have evaluated the effectiveness of the Companys
    disclosure controls and procedures (as defined by applicable SEC
    rules) as of the end of the period covered by this Quarterly
    Report on
    Form 10-Q.
    Based upon that evaluation, the Chief Executive Officer and the
    Chief Financial Officer have concluded that, as of the end of
    such period, the Companys disclosure controls and
    procedures are effective in bringing to their attention on a
    timely basis material information relating to the Company
    (including its consolidated subsidiaries) required to be
    included in the Companys periodic filings with the SEC.
    There have been no significant changes in the Companys
    internal controls over financial reporting (as defined by
    applicable SEC rules) that occurred during the Companys
    fiscal quarter ended March 31, 2006 that have materially
    affected or are reasonably likely to materially affect the
    Companys internal controls over financial reporting.

33




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##### Table of Contents



PART II  OTHER
    INFORMATION   ITEM 1.
    Legal
    Proceedings     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

Second Amendment to Employment
    Agreement, dated April 28, 2006, between the Company and
    Donald E. Steen (previously filed as exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    dated May 4, 2006 and incorporated herein by reference).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.       Reports on
    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 Form 8-K
  Form 8-K Form 8-K
 34




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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)
   35




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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 be reference)10
.1

Second Amendment to Employment
    Agreement, dated April 28, 2006, between the Company and
    Donald E. Steen (previously filed as exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    dated May 4, 2006 and incorporated herein by reference)31
.1*

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200231
.2*

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 200232
.1*

Certification of Chief Executive
    Officer pursuant Section 906 of the Sarbanes-Oxley Act of
    200232
.2*

Certification of Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002     36